Elevance Health stock falls as medical costs show signs of rising

Shares in Indianapolis-based Elevance Health Inc. had their biggest drop in more than a year Wednesday after management warned medical costs will likely be at the higher end of what they’d previously forecast for the year.

The health insurance giant posted solid second-quarter results, but emerging pressure in Medicaid appeared to spook investors. Elevance’s Chief Financial Officer Mark Kaye said on a call with analysts that he expects Medicaid expenses to rise this year.

Elevance’s shares were down as much as 8% after the market opened in New York, the most since June 2023. Prior to Wednesday’s news, the company’s stock had gained 17% since the start of the year.

The company’s shares were down 6.5% in the early afternoon, to $516.99 each.

Investors have been concerned that health insurers haven’t properly anticipated rising medical costs, particularly in government programs like Medicaid and Medicare. Rival UnitedHealth Group Inc. reported higher medical spending in their second-quarter results Tuesday.

Elevance reported adjusted earnings of $10.12 a share, above the average analyst estimate for the second quarter. A key measure of medical costs was 86.3%, more favorable than expectations, as higher premiums covered medical expenses.

Shares of other insurers focused on Medicaid, including Centene Corp and Molina Healthcare Inc., also fell on the comments, while stocks of companies less exposed to the program like Cigna Group rose.

Elevance affirmed its earnings target for 2024. But on a longer-term basis, the company revised its outlook and now targets annual earnings growth of at least 12%. The company had previously targeted a range of 12% to 15%.

Changing long-term targets midyear is unusual, Jefferies analyst David Windley wrote. The move reflects slower growth in health benefits revenue, he said, with no single item clearly driving the revision.

Medicaid membership has declined after states pared enrollment following the Covid pandemic. Elevance CEO Gail Boudreaux said Wednesday that members who lose coverage will re-enroll over the course of the year, though that’s happening more slowly than Elevance expected, weighing on the company’s results.

Changes in Medicaid enrollment raised alarms for investors earlier this year when rival insurers said payments from states may not adequately match medical needs. Elevance executives said they’re in constant contact with states about adjusting Medicaid payment rates to cover members’ expenses.