Medicare Advantage usage looms over health insurers ahead of Q2 earnings

Most major US managed care insurers are expected to record sequential decreases in second-quarter revenues and earnings as industry leaders indicate potentially high Medicare utilization during the period.

In recent months, multiple large health insurers have hinted at higher-than-estimated usage of Medicare Advantage services, an expanded version of the federally subsidized health plans for seniors. The potential impact of those expenses is on the minds of investors, according to J.P. Morgan analysts.

Earnings set to slide sequentially, rise year over year

Of the 11 largest publicly traded US managed care insurers, eight are expected to report lower EPS on a sequential basis, according to an S&P Global Market Intelligence examination of sell-side analyst forecasts. Nine companies are expected to post year-over-year EPS growth.

The Cigna Group and Alignment Healthcare Inc. are the only companies expected to record year-over-year declines in EPS for the second quarter, although Cigna is expected to log sequential EPS growth.

Cigna is the most defensively positioned company heading into earnings season, given its greater exposure to the commercial market compared to its peers, J.P. Morgan analysts said in a July 6 note.

Bright Health Group Inc. and Clover Health Investments Corp. are the only major managed care insurers expected to report both sequential and year-over-year EPS growth.

Medicare Advantage takes center stage

UnitedHealth Group Inc. will be the first managed care insurer to report results, potentially giving insight into Medicare Advantage utilization trends following leadership commentary in June that rippled through the stock market.

Shares in several leading health insurers dropped dramatically in June after comments from UnitedHealth and Humana Inc. indicated they may see higher-than-anticipated medical cost losses for the second quarter.

UnitedHealth CFO John Rex said at a Goldman Sachs conference that outpatient levels rose during the second quarter, possibly due to pent-up demand related to COVID-19-related delays. Much of the increase has been focused among seniors and Medicare business, the executive said.

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Second-quarter earnings will provide some clarity on whether higher Medicare Advantage utilization is a company-specific or industrywide issue, the J.P. Morgan analysts said in their note.

While most managed care insurer stocks have recovered from their mid-June tumbles, UnitedHealth and Humana shares remain lower. No other company has called out any significant deviation from previous utilization expectations, the J.P. Morgan analysts noted.

Revenue picture mixed

Although a majority of the 11 major publicly traded US managed care insurers are expected to see year-over-year revenue growth, only Cigna and Molina Healthcare Inc. are anticipated to post growth on a sequential basis.

Oscar Health Inc., HealthEquity Inc. and Alignment Healthcare are not expected to report any change in revenue between quarters, but all three are expected to have year-over-year growth.

Six insurers are expected to report sequential declines, but of those half-dozen, only Bright Health Group and Clover Health are expected to also report year-over-year revenue drops.

Bright Health has been among the worst performing insurance stocks this year, plunging 76.5% in the first half of 2023. The Minneapolis-based insurer's struggles have been publicized heavily in recent months, and a reverse-stock split in May did little to reverse the trend.