Centene unexpectedly withdrew its full-year guidance, citing lower-than-expected market growth and higher patient illness rates, sending its shares plummeting over 40%.
Why it matters: The news from Centene triggered losses across the health insurance sector, raising concerns about the financial health of these companies as they face rising healthcare costs.
The details:
- Centene slashed its adjusted diluted earnings per share estimate to $2.75 from the previous $7.25 given in April.
- The company reported slower growth in 22 of the 29 states it serves.
- Other health insurance stocks also fell sharply, with Molina Healthcare down 22%, Elevance Health dropping 12%, and UnitedHealth losing 5.7%.
Jim Cramer, host of CNBC’s “Mad Money,” believes the managed care industry is currently “borderline un-investable” and expects the situation to worsen before improving.
What they’re saying:
- “Given this news from Centene, I think the whole managed care industry is borderline un-investable right now,” Cramer said.
- “And, unfortunately, things will get worse for this sector before they get better, so I just can’t justify telling you to own these stocks right now, even after they’ve already come down so dramatically.”
Cramer suggests that insurers are paying out more than expected to cover policyholders’ healthcare costs, and Centene’s results indicate attrition in healthcare exchange enrollment, with less healthy individuals remaining in these programs.
The challenges: Centene may face further difficulties as it raises premiums to account for the new economic environment, potentially leading to lower enrollment and higher costs for treating serious illnesses.
The bigger picture: The surge in patient care costs is attributed to higher prices for medical services, increased healthcare service utilization, and the impact of inflation on medical supplies and pharmaceuticals, putting pressure on insurers’ profit margins.
What’s next: As insurers adapt to the changing economic landscape, consumers may face higher premiums, and companies might re-evaluate their coverage offerings or provider networks to manage financial risks.