Health insurance companies are ending the year on a bad note, facing several headwinds, from Congress' efforts to rein in costs to declining profits from expanded access to benefits.
The recent tragic shooting death of an insurance company executive has raised even bigger questions. Enraged Americans are demanding change in the industry.
A combination of factors is expected to make 2024 a tougher year than in recent years, and 2025 is expected to get off to an uncertain start.
“Managed care stocks have significantly underperformed in 2024 (-20% vs. S&P +27%), facing unprecedented policy, reimbursement, and utilization headwinds in addition to recent industry scrutiny. However, many of the aforementioned overhangs will continue into 2025, and utilization remains a key variable,'' Morgan Stanley analysts wrote in a note to clients this month.
Earlier this year, health insurers began noticing a drop in profits from Medicare Advantage, a popular Medicare plan run by private insurers, as more seniors delayed seeking medical care during the pandemic. This particularly affects Humana (HUM), which, like other large companies including Aetna (CVS), derives about 30% of its insurance revenue from this market.
Medicare Advantage plans offer benefits not available under traditional Medicare, such as gym memberships, and insurers are using the system to provide eligible seniors with more benefits than traditional Medicare. was able to obtain redemption. Recent studies show that Medicare pays about $300 more per enrollee in Advantage plans compared to traditional Medicare.
Despite this, large insurance companies were under pressure throughout the year as increased utilization led to more premiums coming out of their pockets and lower profits. In fact, some insurance companies are cutting broker commissions, which will hinder enrollment growth.
How much an insurance company spends on treatment can be tracked by the Medical Loss Ratio (MLR), or the percentage of premiums paid compared to the amount collected. This year's numbers were also not ideal for the sector.
Larger companies saw this increase throughout the year. For example, Humana saw its MLR increase from 86.6% in 2022 to 88% in fiscal 2023. Year-to-date in 2024, that number has increased to 89.2%.
The Affordable Care Act requires insurance companies to pay out 80% to 85% of all claims, and insurers and investors want numbers at the lower end of that range. However, almost all insurance companies have seen an increase in MLR since the end of 2023.
For example, CVS reported an MLR of 95.2% for the nine months ended September in Q3 2024. This compares to 85.7% in the same period last year.
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Hong Kong, China – 06/23/2024: In this photo illustration, the logo of UnitedHealth Group (NYSE: UNH), an American multinational managed health insurance company, is displayed on a smartphone against the background of an economic stock index graph. (Photo illustration by Budrul Chukrut/SOPA Images/LightRocket, Getty Images) ·SOPA image (via Getty Images)
Over the past decade, since the Affordable Care Act took full effect in 2014, health insurance revenues have skyrocketed as more individuals pay premiums for insurance along with federal subsidies. But profits have not grown as dramatically, especially in recent years, despite cost-cutting efforts such as denying claims.
Yahoo Finance examined financial reports dating back to 2013 and found that UnitedHealth Group reported revenue of $123 billion in 2013, compared to $372 billion last year. The profit margin reported last year was 6% compared to 4.6% in 2013. Similarly, Elevance ( ELV) had $170 billion in revenue last year, compared to $70 billion in 2013, and a 5% profit margin. The margin is 5.7%.
The data shows that even though revenues have increased significantly, the cost of managing each new member's medical costs has kept profit margins roughly flat, with minimal increase or decrease over the years.
“The commercial insurance business is simply not growing. It's been stagnant for a while,” Wendell Potter, former Cigna (CI) vice president of communications, told Yahoo Finance.
UnitedHealth has had more problems than any other insurance company this year, starting with a cyberattack that ended with the tragic death of an insurance executive. Additionally, the Federal Trade Commission and Congress have been looking for ways to break up the industry giant and its various verticals, including the largest owners of physician practices and pharmacy benefits.
These incidents had a broader impact on the industry, setting it up for an uncertain 2025.
“We think UNH is attractive long-term, but the recovery will take time,” said Jared Holtz, a health care expert at Mizuho. “But the guidance is conservative, so at least management We are setting the bar low for next year,” Mizuho healthcare expert Jared Holtz wrote in a memo. This month's customer.
However, UnitedHealth Group's stock activities have had a full impact on the sector.
“Perceptions around the UNH situation are making the situation even worse, impacting how healthcare-focused investors and more generalist fund managers view the stock/peer group,” Holtz said.
That's why the new Trump administration, with its support for Medicare Advantage while threatening major changes to the ACA, along with continued industry-specific pressures, will impact industry performance in 2025. Dew.
Anjalee Khemlani is a senior health reporter at Yahoo Finance, covering all areas of pharmaceuticals, insurance, care services, digital health, PBMs, and health policy and politics. Of course, this also includes GLP-1. Follow Anjalee on social media platform X (Twitter) and LinkedIn Bluesky @AnjKhem.
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