By Sriparna Roy and Sneha S K
(Reuters) -Elevance Health on Thursday posted a better-than-feared fourth-quarter profit, which came as a relief to investors who await a turnaround in the Medicaid business which has been battling with high costs for over the past few quarters.
Insurers who offer Medicaid plans for low-income people have seen elevated costs over the past few quarters after the end of a pandemic-era policy. As states redetermined eligibility for the plans, healthier members fell off the rolls, leaving behind those who require more medical services.
For 2025, Elevance said it expects medical loss ratio — the percentage of premiums spent on medical care – to be at a midpoint of 89.1%, compared with estimates of 88.73%. Companies aim for a ratio close to around 80%.
“Medicaid is really a tale of two halves – stabilization in the early part of the year, followed by improvement in the second half year as rate adjustments begin to more fully reflect the heightened cost pressures,” said Chief Financial Officer Mark Kaye.
Elevance banks more on commercial and Medicaid health plans, and is less exposed to Medicare Advantage plans for people aged 65 and older.
The company expects the higher-than-typical Medicaid cost trends, particularly in behavioral health and inpatient care, to persist into the first half of 2025.
“The results are definitely better than feared … hopefully this means that we are starting to see a turnaround in the Medicaid business following the recent re-eligibility checks,” said Daniel Barasa, portfolio manager at Gabelli Funds.
The results lifted Elevance’s shares nearly 2% in early trading and also boosted peers such as Cigna and CVS Health.
Elevance’s shares slumped in October after the company slashed its forecast for 2024 due to the hit from high demand for healthcare services.
Elevance sees 2025 profit per share to be between $34.15 and $34.85, compared with estimates of $34.58, according to LSEG data.
On an adjusted basis, Elevance reported a quarterly profit per share of $3.84, beating estimates of $3.80, partly helped by lower-than-expected spending on medical care for its members.
(Reporting by Sriparna Roy and Sneha S K in Bengaluru; Editing by Maju Samuel)
