US managed care insurers' fourth-quarter 2024 earnings season was characterized by generally higher medical costs amid ongoing changes to federally subsidized healthcare plans that, in some cases, resulted in lower earnings-per-share estimates.
Many of the largest publicly traded US health insurers saw their medical costs grow in the fourth quarter and full year 2024, resulting in decreased revenues and lower-than-anticipated EPS, largely in line with analyst projections.
Managed care insurers had a choppy set of earnings, according to a research note from J.P. Morgan, as several companies seek to reframe their approaches to the year ahead.
"Despite generally higher medical loss ratios, [managed care insurers] appear to be prioritizing margins versus growth with fewer companies pushing for significant share gains in 2025," the note said. "This strategy exhibits prudence and an acknowledgment that with the dynamic backdrop, 'growth at all costs' adds complexity and unpredictability."
Costs mount
Nearly across the board, the largest publicly traded US managed care insurers saw their medical care ratios rise from 2023 as changes to Medicare Advantage and Medicaid continued to impact profits.
As with most managed care insurers, Centene Corp. has felt the mounting pressures of Medicaid costs in recent quarters as state-led redeterminations have procedurally disenrolled millions from the low-income health plans held during the COVID-19 pandemic.
However, now nearly two years into the lengthy, varied redetermination process, CEO Sarah London said during a fourth-quarter earnings call that Centene is reaching some stability.
"As we move through 2025, we are looking forward to turning the page on the redeterminations era, returning to overall Medicaid program stability," London said.
The Cigna Group also reported fourth-quarter results that "were below expectations due to higher-than-expected medical costs in our Stop Loss product within Cigna Healthcare," according to CEO David Cordani's comments during an earnings call.
"We are taking corrective actions on this near-term pressure and expect to recapture margin over the next two years," Cordani said. "This is a specific issue we identified and are mitigating."
Cigna's medical cost ratio was 87.9% for the fourth quarter of 2024 and 83.2% for full year 2024, compared with 82.2% and 81.3% for the 2023 fourth quarter and full year, respectively.
Among the high medical cost ratios during the fourth quarter was Elevance Health Inc.'s 92.4%, up from 89.2% in the prior-year period.
Elevance CEO Gail Boudreaux laid part of the blame for this high ratio on Medicaid rates, which she said are "insufficient to cover the elevated level of cost trend we are experiencing."
Stars ratings cause strife
Stars ratings, which the Centers for Medicare and Medicaid Services (CMS) uses to rate the quality of Medicare Advantage plans, have been a contentious issue in recent quarters.
Humana Inc. took a hit to its Stars ratings in 2024 and is working to recover its position, according to comments made by CEO James Rechtin during a fourth-quarter earnings call.
"Clinical excellence starts with delivering on Stars' performance," Rechtin said.
Humana filed a lawsuit in October 2024 against the CMS and other regulators, alleging that they acted in an arbitrary and capricious manner when calculating Humana's quality scores for 2025.
According to the CMS, Humana has about 1.6 million, or 25%, of its members enrolled in plans rated four stars or higher for 2025 — a sharp drop from 94% in 2024. Humana noted that the change was largely driven by one of its larger contracts decreasing to a 3.5-star rating from a 4.5-star rating in 2024.
In October, a spokesperson for Humana told S&P Global Market Intelligence that "although our quality measures are still very high, performance improvements across the industry and CMS methodology changes have raised the bar for achieving 4- and 5- Star performance for many measures."
Other managed care companies have since filed similar lawsuits.
Pharmacy benefit managers on the defense
Sector powerhouse UnitedHealth Group Inc. faced a difficult fourth quarter as it came under public scrutiny for its pricing practices following the killing of UnitedHealthcare Inc. CEO Brian Thompson in December.
UnitedHealth and other managed care companies have faced public and legislative pushback against pharmacy benefit managers. Drug middlemen like UnitedHealth's Optum Inc. have been accused of raising prices by politicians and the Federal Trade Commission in recent months, which UnitedHealth CEO Andrew Witty pushed back against during an earnings call.
"America faces the same fundamental health care dynamic as the rest of the world: the resources available to pay for health care are limited, while demand for health care is unlimited," Witty said.
