In a seismic jolt to the healthcare industry, Centene (CNC), a titan in government-supported health plans, saw its stock plummet over 40% yesterday, marking its worst single-day performance ever.
Centene announced it was scrapping its full-year financial forecast after discovering fewer people were signing up for Obamacare health plans, and those that did were less healthy than expected. As a result, CNC was bracing for a $1.8 billion shortfall in risk adjustment revenue.
The stunning announcement sent healthcare stocks cratering. While CNC was the worst hit, falling from $56.65 per share to $33.78, other prominent names also plunged. Molina Healthcare (MOH) dropped 20%, Oscar Health (OSCR) dropped 19%, and Elevance Health (ELV) was down 12%. Surprisingly, one of the companies least affected by the news was UnitedHealth Group (UNH), though it still fell 5.7%.
It is an inherent failure of the Affordable Care Act (ACA) that was warned about before President Obama rammed the bill through Congress to become law in 2010. Known as adverse selection, it is the tendency of only the sickest people to get covered. They also end up using health services more often than others, driving up costs. It was only a matter of time before it got exposed.
Centene analyzed fresh data by an independent actuarial firm, covering 22 of the 29 states where it operates. The findings showed enrollment in state health insurance exchanges grew far slower than anticipated, signaling fewer customers than projected.
Worse, the insured population proved significantly less healthy than expected, driving up costs for CNC. Sicker patients mean higher medical claims, squeezing the company’s margins in an already competitive market.
This double blow – lower enrollment and costlier claims – forced CNC to brace for a $1.8 billion shortfall in risk adjustment revenue from the federal government, a critical lifeline for balancing high-cost patients under Obamacare.
The financial fallout is staggering. Centene now projects a $2.75 per share hit to its 2025 earnings, slashing its earlier projection of over $7.25 per share by nearly 40%.
This drastic revision underscores the unpredictability of the ACA exchanges, where misjudging patient health or market growth can cripple even the most established players.
Investors, caught off guard, fled in droves, obliterating CNC stock value and rattling confidence in the broader healthcare sector.
As Centene scrambles to recalibrate, investors fear the entire health insurance sector could face similar blows of rising costs and challenging market conditions. They're likely not wrong.
