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Shares of healthcare provider Centene plunged nearly 40 per cent to their lowest level since 2017 after the company said ballooning costs skewed its forecasts and forced it to withdraw its guidance.
In a regulatory filing late Tuesday, Centene said its healthcare patient spending related to the Obamacare insurance marketplaces and Medicaid were higher than estimated so far this year. Analysts expected the higher spending would cut into the company’s near-term profits.
The company said it was hit by higher Medicaid costs related to behavioural health, home health and high-cost drugs, especially in New York and Florida. Its Obamacare insurance costs “[are] significantly higher than” the company’s assumptions.
Centene’s announcement rippled across the healthcare sector on Wednesday. Shares of rivals Oscar Health and Elevance Health, which also focus on low-cost Obamacare health plans, were down 15 per cent and 8 per cent respectively.
Analysts cautioned that the sinking stocks were not related to the ongoing budget negotiations in Congress, which have included cuts to Medicaid, which provides healthcare to low-income and disabled Americans.
Shares of bigger healthcare providers UnitedHealth, Humana and Cigna were down between 2 and 3 per cent on Wednesday as concerns about Centene’s disclosure spread.
Centene’s announcement marks the second time this year that higher costs have hurt a big insurance company. In May, UnitedHealth withdrew its guidance and replaced its CEO after it said it misjudged patient costs.
The 2010 Affordable Care Act created insurance exchanges to offer coverage to people who might not get it from their employer or other government programs.
But big healthcare companies Aetna, Humana and UnitedHealth Group abandoned some exchanges altogether in 2016, claiming they contained too many sick members and not enough young and healthy ones to be profitable.
The ACA’s enhanced premium subsidies, implemented in 2021 under president Joe Biden, have been instrumental in Centene’s strong ACA growth in recent years, S&P said in a report in March.
Centene’s ACA marketplace and Medicaid membership represent 23 per cent and 69 per cent of total patient coverage, S&P said.
