Elevance Health Thursday became the latest health insurance company to report higher-than-expected medical care costs as third quarter profits tumbled more than 20%.
Elevance, which operates Anthem brand Blue Cross and Blue Shield plans in 14 states, Medicare Advantage and helps states administer Medicaid benefits for poor Americans, said net income fell 21% to $1.02 billion in the quarter ended Sept. 30 compared to $1.29 billion in the year-ago quarter.
Health insurers are seeing an uptick in claims submitted by patients executives say is driven in part by a pent up demand for medical care put off during the Covid-19 pandemic. In Elevance’s case, the company is experiencing an influx of sick patients insured by Medicaid.
“The benefit expense ratio was 89.5 percent, an increase of 270 basis points, driven primarily by the timing mismatch between Medicaid rates and the higher acuity of our members,” Elevance said in its earnings report released Thursday. “Days in claims payable was 42.8 days as of September 30, 2024, a decrease of 2.5 days from June 30, 2024, and a decrease of 5.8 days compared to September 30, 2023 due to increases in average benefit expense per day.”
The Elevance Health report follows the third quarter earnings report of UnitedHealth Group, which said earlier this week its medical loss ratio, which is the percentage of premiums spent on medical care, was 85.2%. That was higher than the 82.3% ratio reported a year ago, UnitedHealth said.
The ongoing higher costs triggered a decision by Elevance management to lower its financial forecast for the rest of this year. The health insurer now expects 2024 adjusted net income per diluted share to be “approximately $33,” the company said compared to an earlier forecast projecting “adjusted diluted net income per share to be at least $37.20.”
“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,” Elevance president and chief executive Gail K. Boudreaux said in a statement accompanying the company’s earnings report. “We expect Medicaid rates will align with the needs of our members in time, and are taking proactive actions to enhance operational efficiencies that will ensure we emerge from this period even stronger.”
The end of the U.S. Public Health Emergency in May of last year after three years of the COVID-19 pandemic is impacting health insurers that have a significant business administering Medicaid coverage for states, which have been conducting so-called “Medicaid redeterminations.” Medicaid redetermination, also described as Medicaid renewal or Medicaid recertification, is essentially when people are asked to show they are qualified for such coverage.
Elevance’s medical membership decreased 3%, or 1.5 million, to 45.8 million as of Sept. 30, 2024, “driven by attrition in our Medicaid business associated with eligibility redeterminations and footprint adjustments in certain Medicaid states,” the company said. “These losses were partially offset by growth in employer group fee-based and Affordable Care Act health plan membership.”
Like other health insurers that manage Medicaid coverage in partnership with states, Elevance has, however, seen a boom in buyers of individual coverage, also known as Obamacare, under the Affordable Care Act. Elevance’s revenue was up 5% to $45 billion thanks to “higher premium yields” that helped offset attrition in the Medicaid business.
Meanwhile, Elevance’s health services are growing under the Carelon umbrella the company created two years ago and has bolstering recently through acquisitions.
“Operating revenue for Carelon was $13.8 billion in the third quarter of 2024, an increase of $1.8 billion, or 15 percent compared to the prior year quarter,” Elevance said. “This was driven by the launch and growth of risk-based capabilities in Carelon Services and growth in CarelonRx product revenue, related to the acquisition of Paragon Healthcare in the first quarter and increases in external members served.”
