Centene takes a hit after CEO weighs in on Medicaid woes

Centene Corp.'s stock dipped notably this month after company leadership acknowledged ongoing issues surrounding Medicaid redetermination.

Centene's stock fell 6.8% from the start of the month to the close of trading on Sept. 11, with the biggest drop on Sept. 4, the same day the company's leadership spoke at the Wells Fargo Healthcare Conference.

At its lowest point this month, Centene was selling at $70.83 per share on Sept. 6, down from $80.23 per share on Sept. 3. Its stock value has since recovered some ground and was trading at $75.19 per share as of noon Sept. 13.

Centene's decline significantly outpaced both the S&P 500 and the Insurance index, which fell 1.97% and 1.56%, respectively, over the same period.

Redetermination woes continue

The managed care giant is among various insurers to feel the impacts of Medicaid redeterminations, an ongoing and annual process during which states decide who qualifies for subsidized medical care.

The process was delayed for several years amid the worst of the COVID-19 pandemic but resumed in spring 2023 with each state taking different steps based on its supplementary Medicaid qualifications.

In previous quarters, Centene CEO Sarah London has been open about the difficulties posed by redetermination, comments she echoed at the recent Wells Fargo Healthcare Conference.

The insurer is on pace for a third quarter similar to the second, London said at the conference, despite Medicaid unwinding being offset by a strong performance in Centene's marketplace business and investment income.

"We are still seeing pressure in Medicaid, largely driven by the unprecedented redeterminations process that we're now almost 18 months into," London said.

Membership attrition continued during the summer, according to comments made by CFO Drew Asher during the conference, but is expected to level off at about 13 million or 12.9 million members.

"Recall back at Investor Day, we thought we'd level off around 13.2 million members and then grow back to 13.6 million by year-end. We think we're going to settle out around 13.0 million members," Asher said. "And you guys understand the dynamic between stayers versus leavers, that does put pressure on the Medicaid [health benefits ratio]."

Centene did not respond to a request for comment regarding the impact of redeterminations on its stock value.

Q3 downgrade

Stephens analysts Scott Fidel and Raj Kumar ranked Centene as "equal-weight" in a research note, lowering their 2024 estimate following London's comments about higher medical loss ratio (MLR).

"Specifically, Medicaid MLR is now anticipated to progress higher in [the third quarter] relative to [the second quarter] vs. prior commentary of sequentially improving MLR progression in the second half of 2024," the analysts wrote.

The Stephens analysts now model Medicaid MLR for the third quarter at approximately 93.2%, up from approximately 91.6%, and increased the full-year Medicaid MLR estimate from approximately 91.6% to 92%.

While Centene saw the largest drop in stock value among US managed care insurers from the start of the month to Sept. 11, other companies with different levels of exposure to Medicaid redeterminations also saw their stock values decline.

Humana Inc. also had a difficult start to the month, falling 7.4% to $328.19 from $354.47 per share. Elevance Health Inc. fell 2.4% to $543.39 from $556.89 per share, followed by The Cigna Group, which fell 1.1% to $357.78 from $361.81 per share.

UnitedHealth Group Inc. stayed largely stable, declining just 0.1% during the period.