Why several insurance companies are cutting/withdrawing their revenue guidance

Insurance companies are experiencing difficulties lately.

Many companies announced this month that they are withdrawing or reducing their earnings guidelines for the year. For example:

• On Tuesday, Oscar Health announced that it expects operating losses for the year to range from $200 million to $300 million, after previously expected revenue of $225 million to $275 million.
• Last week, Elevance Health announced that it would reduce its adjusted earnings per share outlook to around $30 for the year, compared with $34.15.
• On Thursday, Molina Healthcare announced that it now expects its adjusted earnings of $19 per share for 2025, compared with an estimated $21.50 to $22.50 in early July. This is their second cut this month.
• Earlier this month, Centene announced it would withdraw its 2025 GAAP and adjust its diluted guidance for EPS.

So, why are the fate of so many insurance companies being launched?

Many of these are compared to expected utilization, especially in individual markets, experts say. Patients use expensive weight loss pills, gain more behavioral health expertise and other services than in the past – these are the reasons for higher claims faced by insurers.

There may be more uncertainty among insurers and their members as well as the upcoming ACA-enhanced premium tax credits that are expected to increase costs and cause many to lose coverage.

challenge

Ari Gottlieb, head of consulting group A2 strategy, said the individual market appears to be one of the biggest pain points for many insurers at the moment, with higher utilization than expected.

“One thing happens everywhere, [individual market] It's just terrible, the business is cheap,” he said in an interview. “We're seeing a higher utilization rate. People with personal plans just use them more: more weight loss pills, high cost professional, behavioral health, you can name them. Overall, insurance companies have no plans for this. ”

He added that in the re-determination of Medicaid, more and more people are being subject to individual programs where people are no longer considered Medicaid qualifying. This also leads to a higher level of acuity and utilization.

Elevance CEO and President Gail K. Boudreaux pointed to these particular challenges on the company's earnings call, noting that its adjusted revenue reflects “the trend of health care costs for the ACA is increasing and has slower consistency in Medicaid rates than expected.”

In other words, during the pandemic, Medicaid suspended eligibility re-determination and many are still registering even if they do not use any care. Now that the reconfirmation has been restored, many low-level members have been removed, but states are still using data from a few years ago, including those members, to set the planned reimbursement rate. As a result, according to Gottlieb, Medicaid’s salary has decreased.

Oscar Health, which offers personal and family programs, is also facing higher utilization and acumen. It noted in the announcement that the medical loss rate is now expected to be between 86% and 87%, with the ACA market risk score higher.

Like Oscar, Molina has a significant influence in various markets and says its updated guidance is attributed to the market.

“Our second quarter results and revised full-year outlook reflect a challenging healthcare cost trend environment,” President and CEO Joseph Zubretsky said in a statement. “The current income pressure we are experiencing is the result we believe this is a temporary dislocation between the recently accelerated premium rate and healthcare cost trends.”

Another challenge facing insurance companies is the crackdown on fraud, said Hal Andrews, president and CEO of Trilliant Health. He noted that the U.S. Senate recently targeted a vulnerability that allowed people to double-acquire Medicare Advantage and get coverage from the Veterans Health Administration. The vulnerability allows health insurance companies to charge veterans for health insurance even if they get treatment through VHA. Legislators have introduced a bill that would allow Virginia to charge private insurers for health care systems to provide its insurance company members.

In addition, CMS recently estimated that 2.8 million Americans have recruited two or more Medicaid/ACA exchange programs, forcing the government to pay for health coverage for people multiple times. CMS added that it is working with states to reduce duplicate enrollment rates, including providing states with a list of individuals enrolling Medicaid in two or more states and asking them to recheck their eligibility.

“So, even though they cover health care primarily in one plan, the government is subsidizing premiums for multiple plans,” Andrews said in an email. “It's kind of like planetary fitness, where members pay monthly fees, but never show up.

“For insurance companies, this dynamic is changing, so they will lose millions of members of these members, which is why many people withdraw and adjust their revenue guidance,” he added.

A similar announcement from United Health Group in May after cutting revenue/withdrawals. The healthcare giant suspended its 2025 outlook and replaced Andrew Witty with Stephen J. Hemsley, who served as company CEO from 2006 to 2017.

It is worth noting, however, that while several insurers blame the recent challenges on the individual market, the UnitedHealth Group story is somewhat different. Gottlieb noted that the company suspended earnings due to increased utilization of Medicare Advantage, while several other insurers said their MA business was going as expected.

What's going on in the future?

A health care expert said the revised revenue guide is actually a “symptom of a bigger disease:” health care in the United States is becoming increasingly intolerable.

“My translation for this is, ‘We’re in a strait when it comes to pricing. We can have trouble with revenue, and we’re not quite sure what we can do. We want to do what we’re going to do, so let’s pull the guidance back while figuring it out. “I can’t see them having a lot of solutions because I don’t think they can raise as much as possible to pay for the cost.” I don't think they can reduce their costs as much as possible, but their expenses. ”

Pearl added that insurance companies will have many upcoming headwinds, including Medicaid cuts and the ACA's enhanced maturity of premium tax credits at the end of the year, which will significantly increase premiums. Elevance's chief financial officer Mark Bradley Kaye noted in the revenue call that the expiration of the settlement bill and enhanced subsidies could “show further changes in the recent enrollment pressure and risk pool.”

Gottlieb agrees that the challenge will only continue, suggesting that it will be a “cruel” quarter and year for the individual market and that next year may be worse.

For another industry expert, the cutback guide is the industry’s “wake-up call” and shows the need to adapt faster.

“I think there are things that help them solve problems include making the data faster and more useful, so get the latest information about costs, claims, patient trends, so they don’t wait weeks to find the problem or make adjustments to connect the systems together, which usually don’t talk to each other,” said Esteban Lopez, a partner at consulting firm West Monroe.

Photo: MBVE7642, Getty Images