Rising health care costs have hit health insurer stock prices lately, but these diversified companies should be fine.
Heading into earnings season, when companies like UnitedHealth Group, Elevance Health, Cigna, Centene, Humana, and Aetna’s parent company CVS Health will report second-quarter earnings, some companies are optimizing health care spending. It faces less familiar headwinds of upswings and losing customers. .
Many health insurers reported record profits during the COVID-19 pandemic, partly because Americans didn’t use the system as much as they did before the 2020 lockdowns. When people don’t go to the doctor, insurance companies get more profit because their health insurance doesn’t get billed.
Moreover, the U.S. public health emergency maintained record numbers of eligible people because no one was excluded from Medicaid, while Congress and the Biden administration increased and expanded subsidies to make them more affordable. Many Americans are now eligible for individual Obamacare coverage under the Affordable Care Act.
These trends have allowed most health insurers to achieve record profits. For example, UnitedHealth Group’s net income is $20.6 billion by 2022 After earning $17.3 billion in 2021, $15.4 billion in 2020.Before the Pandemic, UnitedHealth $13.8 billion in 2019. The company, which operates medical insurer UnitedHealthcare and provider-services business Optum, is on pace to surpass last year’s earnings this year. united health, We had $5.6 billion in revenue in the first quarter of this year. will announce second quarter results on July 14.
But now things are starting to change, with the end of the U.S. public health emergency in May and the temporary end of Medicaid redetermination at three, increasing the number of insured Americans. Given that, some see it as a threat to health insurer earnings that insurers have grown accustomed to. years ago. Medicaid recertification, also known as Medicaid renewal or Medicaid recertification, is essentially asking people to demonstrate that they are eligible for such coverage.
As part of the end of the US public health emergency, some states have begun the Medicaid redetermination process, which could take months to a year or longer. The process is expected to affect health insurers like Centene, which has a significant business managing Medicaid coverage for states.
But analysts believe health insurers have the power they need to weather a rising cost storm from increased use of the health system and the introduction of more expensive medicines.
“U.S. health insurers have ample rating headroom to withstand increasing cost pressures from growing drug shortages, rising drug and other input costs, and rising utilization rates.” Fitch Ratings said in a report last month: “The structural advantage given to health insurers within the broader health system, diversification of business models, and stable key financial metrics are key drivers underpinning their credit profile.”
Indeed, CVS and UnitedHealth in particular are eating away at healthcare providers, spending billions on expanding medical services, doctor networks and ambulatory services. This should increase revenues for these large medical conglomerates on the provider side, even as costs on the insurance side increase.
Health insurers also benefit from higher premium rate increases already requested by customers such as employers and governments. And some analysts believe the federal government’s rate hikes in the Medicare Advantage plan will be enough to weather rising costs for these insurers’ growing businesses.
Mizuho Americas analyst Ann Hines said last month of Humana’s health loss rate, which measures health care costs for health insurers, “due to increased utilization, Humana will raise its 2023 MLR guidance to the upper end.” . “(Humana) has reiterated adjusted EPS guidance for 2023E, but MLR headwinds are likely to limit future upside. The Medicare Advantage bid is looking at increased utilization, which should ease some investors’ concerns, he said.
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