Elevance Health Inc. stock dipped this week following its third-quarter earnings call where executives sought to explain the health insurer's lower-than-anticipated Medicare Advantage ratings.
During an Oct. 18 earnings call, CEO Gail Boudreaux addressed the insurer's new, lower Medicare Star ratings, which are issued annually by the Centers for Medicare & Medicaid Services to measure the quality of health and drug services offered to people 65 and older eligible for Medicare Advantage. Medicare Advantage is a supplemental private version of the US government's subsidized Medicare program available to people 65 and older.
Elevance's stock price closed at $453.78 a share on Oct. 20, a 3.3% decline in value from Oct. 18, the day of its third-quarter earnings call. However, Elevance stock declined slightly less from the week prior, trading at 0.12% lower than at close of trading on Oct. 13. The S&P 500 lost 2.31% during the same period, while the S&P 500 US Insurance index fell 1.88%.
Improving these ratings is a top priority for Elevance, Boudreaux said during the earnings call, and pointed in part to declines in the insurer's Consumer Assessment of Healthcare Providers & Systems scores, which were the most heavily weighted metric.
"As you think about our performance, we improved in about half of the [Medicare] Star measures, but those were not enough to offset the impact of the heavily weighted measures and the higher cut points," Boudreaux said.
The road ahead
In an Oct. 13 Securities and Exchange Commission filing, Elevance projected that the percentage of its members in Medicare Advantage plans with four or more stars will drop from approximately 64% in 2023 to 34% in 2024.
In a research note, J.P. Morgan analyst Lisa Gill pointed to efforts that Elevance is undertaking to combat the Star ratings decline, including investing in areas that drove the drops, such as service, product, network access and operations.
"The company has a number of levers to mitigate the financial impact of stars in 2025, including contract diversification (roughly one third of members affected were in group contracts), operating expense efficiencies, and capital deployment alternatives," Gill wrote.
Formerly known as Anthem Inc., Elevance was the second major managed care insurer to release its third-quarter earnings figures, revealing revenue growth but lowering its GAAP net income estimate for 2023.
The insurer's third-quarter earnings call was also marked by the recent news that it and Blue Cross and Blue Shield of Louisiana paused a $2.5 billion merger plans following state regulator concerns about the potential impact it could have on local competition.
Elevance remains confident in the ability to close the acquisition, Boudreaux said during the call, and is working with local regulators and stakeholders to address any remaining questions.
"The deal offers tremendous value and opportunity for the people of Louisiana, including through the creation of a multibillion dollar foundation focused on improving their health and lives, and we look forward to the privilege of serving as their lifetime trusted health partner," Boudreaux said.
Fellow managed care insurer UnitedHealth Group Inc. — which released its third-quarter earnings Oct. 13 — fared slightly worse during the same period, with its stock value declining by 2.29% to $527.04 a share by the end of Oct. 20. The Cigna Group and Centene Corp. fared better, with a 0.55% and 1.15% rise in stock value, respectively, during the same period.
Travelers just misses the mark
The Travelers Cos. Inc.'s stock value declined modestly following third-quarter EPS estimates that missed the consensus figure.
The property and casualty insurer reported third-quarter operating EPS of $1.95 on Oct. 18, lower than the EPS estimate of $2.99.
This was primarily driven by elevated catastrophes and unfavorable reserve development, according to a research note from William Blair analyst Adam Klauber.
Due to renewal rates remaining high and further rate increases on the horizon, Klauber wrote that he believes Travelers' results will remain in line with recent years in 2024.
"While margins will likely continue to see some elevation, we expect that sequential improvement is likely going forward," Klauber wrote. "We believe consistent or improving results in core segments combined with investment income benefits should drive earnings to the $17.00 range in 2024."
An optimistic view on commercial lines discussed during Travelers' earnings call likely pulled the stock up from what was a "slightly disappointing quarter," Piper Sandler analyst Paul Newsome wrote in a research note.
Travelers was trading at $161.59 a share by close of trading on Oct. 20, down 1.59% from the week prior.
