Centene action reaches a low decade after the insurer reports a rare loss on higher medical costs

Diving brief:

• The Centene stock fell on Friday morning to reach its lowest level since 2015 After the insurer declared profits from the second quarter much lower than analysts’ expectations.
• Although Centene’s turnover has jumped from $ 22% to $ 48.7 billion in the second quarter, the company declared a rare loss of $ 253 million – against a profit of $ 1.1 billion at the same time – because it fought against the rise in medical costs in its affordable care law and its medicaid plans.
• The last time Centers Slid Into the Red was the fourth quarter of 2022. CEO Sarah London said that she was “disappointed” from the company’s performance during a Friday call with investors.

Diving insight:

Centene’s shares have been in free fall since the beginning of the month, when the payer based in St. Louis withdrew his advice on the profits for 2025 citing unexpected expenses to its members of the ACA and Medicaid. The pressure seems to affect payers at all levels, with Unitedhealthcare, Molina and Eleveance suspended or also reducing their profit prospects for the year.

But the current situation is the most delicate for companies like Centene, which are concentrated almost exclusively on government health programs – where the highest costs boil.

Centene is the largest market insurer, with 5.8 million members in 29 states, and the largest organization of care managed by Medicaid, with 12.8 million members in 30 states.

As such, the collapse of the second quarter of the insurer was “disappointing but not particularly surprising,” JP Morgan analyst wrote on Friday.

The Centene medical loss ratio, a marker for patient care spending, reached a huge 93% during the quarter, against 87.6% in the same period last year. Government programs are trying to maintain their MLS as almost 80% or 85% as possible to comply with regulatory requirements, but an MLR lower is always better.

Centene said that the MLR tip was due to a disturbing change in the ACA Marketplace risk pool, driven by a few factors.

On the one hand, a high percentage of healthy members abandoned its ACA plans during the registration opened for 2025, probably due to the integrity of the stricter program preventing self-surgery, said Centene managers on the call.

In addition, the registered for the first time in the ACA plans of Centene through its subsidiary Ambetter tended to be more sick, which could be due to the fact that the former beneficiaries of Medicaid lose coverage following the pandemic and opting in the discussions of the ACA. Centene has also experienced a wider increase in the use of the combined market with a more aggressive supplier coding, according to London.

“Together, these dynamics have changed the morbidity of the market in some states up to 16% to 17% from one year to the next. In the end, Ambetter was undervalued for this change in morbidity,” said the CEO. “It is obviously a disappointing result.”

All in all, pressures have increased the quantity of centenne expects to lose in risk adjustment payments, which reimburse insurers if they cover registered that the other plans of the ACA exchanges this year.

On July 1, when Centene withdrew his profits, the insurer revealed that he expected that the risk adjustment reimbursement was $ 1.8 billion less this year than he had thought previously. But Centene made this expectation at 2.4 billion dollars on Friday after examining more complete data.

Use is also a tendency to Medicaid, especially in behavioral health and home health services and high -cost drugs such as cancer drugs and gene therapies, executives said.

Hopefully states will increase their Medicaid prices to cover the trend in the future and potentially provide retroactive increases in services with advanced expenses, said Asher, the financial director said Asher.

With regard to ACA, Centene plans to refresh its plan offers with states to provide market coverage next year to take into account higher acuity. According to Asher, the company has already won in 17 states and plans to submit new offers in its 12 remaining states in next week, according to Asher.

“While we sit down here today, we expect to make upward rates adjustments in 2026 reflecting this data on our market footprint,” said Asher.

Centene offers in 2026 also assume That more generous subsidies for the coverage of the ACA which helped to record the registrations cease at the end of this year. The future of subsidies is an open issue in Washington, although the insurance sector is preparing for their expiration – and additional disorders from the “big bill” of the Republicans signed earlier this month.

The law revised Medicaid and the ACA to align itself with the priorities of the GOP, including financing reductions and the implementation of work requirements in Medicaid and a stricter eligibility verification in both programs. It is a major front wind for insurers, given that the law should cause 10 million Americans to lose health insurance – to shake more volatile risk pools more.

During the call for investors, London stressed that the largest provisions of the law will be gradually progressive, giving Centena a chance to work with states to implement policies aimed at alleviating drastic operational changes or losses of coverage. But the law is still another source of uncertainty for the insurer because it works to relying the profits.

“Yes, we must navigate in an unforeseen major change in the market risk pool in 2025 as well as dislocation between Medicaid levels and underlying medical costs and regulatory changes in 2026 and beyond,” said Asher.

But “it’s repairable,” added the CFO.

Centers provided new orientations on the results during the call. The insurer now expects the diluted profit adjusted in the year all year round per share of $ 1.75, down compared to its previous objective of at least $ 7.25.