Elevance Health (ELV) shares lost 11% on Thursday after the health insurance group posted weaker-than-expected third-quarter earnings.
The company reported adjusted earnings of $8.37 a share, missing analysts’ consensus forecast of $9.66. Revenue increased 5.3% to $45.1 billion from $42.8 billion a year earlier, beating the consensus estimate of $43.5 billion.
Chief Executive Gail Boudreaux said in the conference call with analysts that the earnings miss was “primarily due to elevated medical costs in our Medicaid business.”
“We remain confident in the long-term earnings potential of our diverse businesses as we navigate a dynamic operating environment and unprecedented challenges in the Medicaid business,” Boudreaux said.
Health-care stocks Molina Healthcare (MOH) and Centene (CNC) also fell, 12.5% and 9% respectively. Both companies generate a substantial revenue by providing Medicaid and Medicare insurance.
Health insurers are contending with increasing costs and reduced payouts from the U.S. government.
Rising costs weigh on health-care stocks
Health insurers are contending with two significant challenges: a surge in medical claims driving up costs and reduced payouts from Medicare and Medicaid under new policies from the Biden administration.
The 2025 rates for Medicare Advantage payments by the government indicated a 0.2% fall in average payments, which means a profit-margin squeeze for health insurers, which have been struggling with high medical costs.
Related: Humana hit by troubling Medicare Advantage change
Medicare Advantage payments are the fixed monthly amounts that the federal government pays to private insurance plans. Insurers depend on these payments to fund enrollees, so even a small cut can translate to significant revenue losses.
Several factors are driving up the medical costs. A shortage of health-care workers is pushing providers to raise prices, while spending on behavioral-health services and the growing demand for costly GLP-1 weight-loss drugs are further pushing up overall health-care costs, according to a September survey by consulting firm Mercer, Reuters reported.
Mercer said U.S. employers expect a 5.8% rise in health-insurance costs for 2025.
Insurance plan members decline
Earlier this month the Centers for Medicare & Medicaid Services released its star ratings for health plans. CMS generally awards a quality bonus to plans with a rating of 4 stars or higher.
Humana (HUM) saw the sharpest star-rating decline, with its H5216 PPO plan’s rating reduced to 3.5 stars from 4.5.
More Wall Street Analysts:
Analysts update Meta stock price target with Q3 earnings in focusAnalysts update outlook for Nvidia’s Blackwell chips amid AI boomAnalyst reboots Reddit stock price target ahead of earnings
Morgan Stanley reports that Humana saw the most significant drop in members in 4-star or higher plans, down 66%. CVS Health (CVS) maintains the most members in these plans. UnitedHealth (UNH) and Elevance Health experienced smaller declines, of 16% and 21%, respectively, thefly.com reported.
Morgan Stanley projects a significant impact on Humana’s 2026 earnings, potentially driving the stock down mid- to high-single digits percent. The impact on CVS remains minor.
UnitedHealth and Elevance could see low-single-digit stock declines due to expected earnings headwinds, the investment firm estimated.
Related: Veteran fund manager sees world of pain coming for stocks
