The rising costs of care for Medicaid beneficiaries are impacting major health insurers once again, in this case, the Indianapolis-based Anthem, which insures more than 40 million Americans. As the Associated Press reported on July 24, “Anthem beat second quarter expectations and raised its 2019 forecast again, but shares of the health insurer slid Wednesday after it outlined challenges in its growing Medicaid business.
According to AP’s article, written by Tom Murphy, “The Blue Cross-Blue Shield insurer said it has added nearly 700,000 Medicaid customers over the past year, but expenses were coming in higher than expected in a handful of states. Chief Financial Officer John Gallina told analysts the issue was ‘very manageable,’ and he expected the business's profitability to improve in the second half of the year. He said the populations covered in these states, which he declined to name, had changed slightly since rates were set, and they were seeking rate adjustments. Anthem shares slid 4 percent after markets opened Wednesday, while broader indexes climbed slightly.”
In fact, as Josh Nathan-Kazis reported on Wednesday in Barron’s online, “Health-insurance company Anthem modestly beat Wall Street expectations in the second quarter, reporting adjusted earnings per share of $4.64 early Wednesday, just better than the FactSet estimate of $4.61. Investors, however, weren’t impressed, sending the stock (ticker: ANTM) down 2.5 percent in premarket trading. That displeasure may be attributable to the company’s reported medical cost ratio of 86.7 percent for the quarter, a key metric also referred to as a medical loss ratio or a benefit expense ratio, which reflects how much of the company’s revenue was paid out to cover benefits. The Wall Street consensus estimate had been a medical cost ratio of 85.8 percent, according to FactSet.”
In the company’s defense, Gail K. Boudreaux, Anthem’s president and CEO said today that “Our second quarter results reflect solid top line growth across our businesses,” in a statement about the company’s financial results. Indeed, Anthem shares are up 15 percent this year, outperforming the S&P 500 Managed Health Care subsector, which is up 4 percent over the same period,” Nathan-Kazis wrote in Barron’s. The stock stuttered in April, amid sector-wide worries around Medicare-for-all legislation, but has since recovered.”
Still, the AP’s story quoted Jefferies analyst David Windley, who had said in a research note that higher Medicaid costs were a "pressure point" in a company performance that narrowly beat expectations.
Meanwhile, the Barron’s article noted that “In Anthem’s release on Wednesday, the company reported that its medical plans had 40.9 million members as of the end of June, up 3.3% from June 2018, and operating revenue of $25.2 billion. It also raised its estimate for its adjusted net income for the year, saying it would be “greater than $19.30 per share.” It had previously said it would be more than $19.20.” And it quoted The company attributed the miss on its medical cost ratio to “medical cost experience in the Medicaid business,” among other things. And it quoted Cantor Fitzgerald analyst Kyle Mikson as stating that the medical cost ratio miss was “likely due to strong growth in government membership.” Meanwhile, the article noted, “Evercore ISI analyst Michael Newshel wrote that he expected investor focus to be on the medical cost ratio underperformance, and on the company’s Medicaid business.” Further, Jefferies’ Windley wrote in his note that “A [medical cost ratio] miss this wide is going to raise eyebrows.”
