Move Over, Medicare Advantage — UnitedHealth, Centene Flag Higher Medicaid Utilization Concerns

Insurers are already struggling to manage elevated spending in Medicare Advantage. But now, another government program — Medicaid — is sparking concerns, after executive comments at an investor conference and a securities filing flagged higher costs in the public health insurance scheme.

Stocks in major payers slid yesterday after UnitedHealth and Centene disclosed a potential mismatch in patient utilization with the rates their Medicaid businesses are paid by states.

That’s been an ongoing source of pressure for insurers as states recheck Medicaid beneficiaries’ eligibility for the safety-net program, removing millions of low-income individuals from the program — and reshaping insurers’ risk pools, potentially without a commensurate update in payment rates.

Speaking at a Bernstein conference on Wednesday, UnitedHealth CEO Andrew Witty hinted at “some disturbance” in synchronizing Medicaid utilization with reimbursement.

It could be multiple quarters before states revise their rates to match the higher patient costs, Witty said.

Similarly, Centene — the largest Medicaid payer in the U.S. — reported “higher than expected claims receipts” lodged between January and April in an 8-K filed with the Securities and Exchange Commission.

Those unexpected costs appear to be continuing into May as well, the St. Louis-based insurer said.

Shares of major payers slid yesterday amid the updates, with a large dip following Witty’s remarks early in the morning. Shares in CVS, Cigna and Humana recovered mostly by market close, while others — especially Centene and Molina, insurers with revenue highly dependent on government products — couldn’t recoup the intraday loss in their value.

During the COVID-19 pandemic, states made an agreement with the federal government to keep all Medicaid members on their rolls in exchange for more generous funding. However, that continuous enrollment agreement ended in April 2023, allowing states to once again check Medicaid members’ eligibility for the safety-net program.

Since then, an estimated 22.4 million people have been removed from Medicaid, according to a tracker maintained by KFF.

States were originally expected to complete redeterminations by this summer. However, following a number of operational challenges spurring improper disenrollments, the Biden administration recently extended policy flexibilities states can use during unwinding to June 2025.

Along with concerns about redeterminations’ impact on continuity of care for patients, the disenrollments are also pressuring managed care organizations that contract with states to manage the care of their Medicaid members.

Over the past year, Medicaid payers have reported struggles to align payment with the acuity of their member pools as people are removed from (and potentially subsequently rejoin) their plans.

In the first quarter, Centene and Molina posted higher medical loss ratios in their Medicaid businesses than analysts had expected. That’s a marker of higher patient utilization than the payers had planned. And, Centene and CVS told investors that — though their payment rates remained actuarially sound — a mismatch between rates and acuity drove up medical spend.

However, the insurers said that spending should decline due to rate updates from their Medicaid states, and the potential for further revisions if needed for 2025.

Centene on Wednesday said it planned to reaffirm its guidance for earnings and medical spending in 2024. However, the insurer might have to wait a while longer for improved rates: Just under half of the company’s Medicaid rate changes are expected to occur between July 1 and October 1, 2024, according to the 8-K.

As for UnitedHealth, Witty’s comments are notable as the insurer doesn’t normally call out Medicaid in conversations with investors, given the program is a relatively small slice of the healthcare behemoth’s revenue.

Medicaid accounts for roughly 13% of its insurance segment revenues, and an estimated 7% of UnitedHealth’s earnings, according to analysts.