US health insurers expected to see YOY revenue, EPS growth in Q3

Most major US health insurers are expected to see year-over-year revenue and EPS growth in the third quarter even as most will see sequential drops amid ongoing Medicaid redeterminations and potentially high Medicare usage.

During the second quarter, health insurance companies shared high Medicare Advantage utilization figures that nonetheless largely stayed in line with estimates. These in-line expectations should continue, according to J.P. Morgan analysts.

Earnings set to slide sequentially, rise year over year

Of the nine largest publicly traded US health insurers, all are expected to report higher EPS on a year-over-year basis during the third quarter, according to an S&P Global Market Intelligence examination of sell-side analyst forecasts.

Only UnitedHealth Group Inc. and The Cigna Group are expected to post both sequential and year-over-year EPS growth in the third quarter.

Cigna should continue to exceed historically strong medical customer growth by adding more than 1 million members in 2023, according to an Oct. 4 research note from J.P. Morgan. Cigna is also benefiting from a strong performance by its Evernorth pharmacy business, according to the J.P. Morgan analysts.

UnitedHealth is expected to post double-digit earnings growth, benefiting from a shift in the US healthcare reimbursement model away from a fee-for-service model that will disproportionately benefit payors over providers, according to the J.P. Morgan analysts.

UnitedHealth will be the first major publicly traded managed care company to report its earnings Oct. 13.

Medicare, Medicaid woes loom

During the second quarter, multiple large health insurers indicated higher-than-anticipated usage of Medicare Advantage, an expanded version of the federally subsidized health plans for seniors. The utilization was primarily related to surgeries that had been delayed amid the COVID-19 pandemic.

While most managed care insurers noted pressure from Medicare utilization during the second quarter, third-quarter updates seem to suggest utilization is "trending in the right direction," according to J.P. Morgan analysts.

Meanwhile, various managed care insurers are contending with ongoing and varied Medicaid redeterminations, the annual process by which states determine which individuals qualify for state and federally subsidized health insurance.

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At a recent conference, Centene indicated that membership and acuity impact from redeterminations continue to track in line with expectations. This, paired with various states front-loading populations considered most likely to be redetermined, lowers the likelihood of adverse acuity changes over time, according to J.P. Morgan analysts.

"We think [Centene's] comments helped alleviate some of the uncertainty for stocks with meaningful Medicaid exposure and we will be looking for other management teams to highlight similar trends," the analysts wrote in a research note.

Revenue picture mixed

Although a majority of the nine largest publicly traded US managed care insurers are expected to see year-over-year revenue growth, none are anticipated to post growth on a sequential basis.

However, revenues are not expected to be down significantly sequentially, with the biggest percentage change predicted for Oscar Health Inc., down 5.1% from $1.48 billion during the second quarter to $1.41 billion during the third quarter.

Humana Inc. is predicted to see the second-largest percentage decline in revenue, down 4.4% from $26.75 billion during the second quarter of 2023 to $25.58 billion this quarter.

Among the nine largest publicly traded US managed care insurers, only Clover Health Investments Corp. is expected to also report a year-over-year revenue drop.

Clover Health has been one of several insurtechs facing difficulties in 2023 amid a changing market. After announcing a reverse stock split and an authorized share reduction, the insurer walked back the changes Aug. 30. The decision came after the Nasdaq notified Clover Health that it regained compliance with the exchange's minimum bid price requirement on July 31.