2023-04-02 12:00:54 ET
Some of the largest managed care companies enter a significant milestone in their post-COVID growth spurt with their share prices under pressure as millions of Americans risk losing Medicaid coverage with the expiry of a key pandemic-era legislation.
At the first COVID wave hit, Congress passed the Families First Coronavirus Response Act, requiring Medicaid programs, jointly funded by the states and the federal government, to pause eligibility reviews and continue membership enrollment.
According to the Centers for Medicare & Medicaid Services (CMS), while the continuous enrolment requirement was in effect, Medicaid membership expanded by 21.5M enrollees from Feb. 2020 to Dec. 2022, indicating a ~34% growth.
Meanwhile, the companies contracted by states to provide Medicaid benefits also thrived: Enrollments for the biggest five market players rose ~38% from 30.1M at the end of March 2020 to 41.6M in June 2022, data compiled by the Georgetown University Health Policy Institute indicate.
At Centene ( NYSE: CNC ), Molina Healthcare ( MOH ), and UnitedHealth ( UNH ), for which public data are available on the effect, Medicaid revenue jumped by 40% to $44.4B from $31.8B during the period.
"By April 1, we expect to have grown by 3.4 million Medicaid members since the onset of the pandemic, excluding new markets," Andrew Asher, Chief Executive of the biggest Medicaid insurer Centene ( CNC ), said during the company's recent earnings call.
However, following a three-year break, Medicaid disenrollments resumed Saturday after Congress added a provision to federal spending legislation in December permitting states to begin pre-pandemic eligibility reviews from Apr. 01.
As many as 15M people are expected to drop out of the program as redeterminations continue during the 12-month unwinding period, according to the Health and Human Services Department (HHS).
With Medicaid firms, therefore, at risk of losing millions of members, leading players in the market, Centene ( CNC ), Elevance ( ELV ), and Molina ( MOH ), have become notable underperformers in the managed care space this year .
Centene ( CNC ) expects a loss of ~2.2M of its newly-added Medicaid members during the redetermination period, "in other words, about 65% of that growth," CEO Asher said, yet reaffirming the company's 2023 adj. earnings guidance in line with expectations.
The second largest Medicaid insurer Elevance ( ELV ), which reported 11.6M Medicaid members at the end of 2022, projected its Medicaid membership to reach 10.8M – 11.3M in 2023.
Despite missing Wall Street forecasts with its earnings outlook, the Indiana-based company expects its medical memberships to grow as commercial, and Medicare businesses offset the Medicaid decline.
"We look forward to working alongside state partners to help minimize loss of coverage due to administrative challenges and to ensure beneficiaries no longer eligible for Medicaid understand their coverage options," CEO Gail Boudreaux said during the earnings call.
However, Molina ( MOH ) shrugged off growth concerns and set its 2023 EPS outlook ahead of forecasts, expecting the company's new businesses and organic growth to offset the Medicaid impact.
As a result, Molina ( MOH ) projects its Medicaid membership to stand at ~4.7M at 2023 year-end, unchanged from a year ago.
Seeking Alpha analysts have different viewpoints on how Medicaid redeterminations will impact the industry. Citing a negative effect, author Bret Jensen issued a Hold rating on Centene ( CNC ), while InvestOhTrader, who has a Buy on Molina ( MOH ), thinks the company "is still appealing" despite Medicaid headwinds.
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Medicaid insurers underperform as COVID protections lapse for millions