As spring and Medicaid changes loom, managed care insurers like Molina Healthcare Inc. and Centene Corp. have seen their stock prices decline over the first two months of 2023.
Losers
Several managed care insurers were among the 10 largest stock losers, registering a decline in prices of between 8.4% and 16.6% from Dec. 30, 2022, to Feb. 28, according to an S&P Global Market Intelligence analysis.
Stocks of Molina and Centene experienced the most significant decline in prices at about 16% each over January and February. The two health insurers are among those that could be affected by forthcoming Medicaid redeterminations.
Following years of COVID-19-related delays, U.S. states are expected to restart the annual Medicaid redetermination process in April, potentially causing millions of low-income individuals to lose access to government-funded healthcare. As a result, the managed care insurers that administer these Medicaid plans stand to lose millions of customers, who may opt not to purchase commercial coverage.
Molina and Centene shrugged off these concerns during their respective earnings calls in February. However, investors remain uncertain about the outcome, according to Kaenan Hertz, managing partner at Insurtech Advisors.
"The uncertainty of what's going to happen, and the betting associated with that uncertainty, is clearly impacting investor sentiment," Hertz said.
Aside from Molina and Centene, Alignment Healthcare Inc. has seen a notable decrease in stock price at 15.5% since the start of 2023.
J.P. Morgan analyst Lisa Gill lowered Alignment's rating to "neutral" from "overweight," pointing to expected Medicare Advantage growth of less than 20% for the second consecutive year, according to a research note.
"We believe [Alignment's] substantial [Star] ratings advantage in 2024 is positive for growth although it is unclear at this point how it dovetails with negative rates, which we believe disproportionately impact smaller health plans," Gill wrote.
Winners
While managed care companies made up more than half of insurers with the largest declines in price, Oscar Health Inc. bucked the trend. The health insurer, which released solid earnings results, saw the largest increase in stock price at 125.2% from the start of the year.
Credit Suisse analysts Jonathan Yong and A.J. Rice rated Oscar Health as "outperform," noting the insurer's claim that its InsureCo business would be posting positive earnings before interest, taxes, depreciation and amortization.
"That said, the company still needs to execute and there have been deviations from its original outlook before, but with the company's cost reduction efforts, we believe there is likely to be less deviation," the analysts wrote in a research note.
After a dour year for insurtechs, Lemonade Inc. has seen a small upswing so far in 2023. The insurer saw a 19.2% increase in stock price by February-end to $16.30.
While Lemonade and other similarly situated property and casualty insurers likely benefited from a lull in catastrophes, Hertz said they may soon feel the impact of investor scorn.
"They all suffer from the same problem, which is that none of them have mastered the art of unit economics," Hertz said. "There is only so long before investors cool to the idea that a company spends more to run its business than it makes. Only the government can spend more than they take in."