Shares of US managed care carriers generally underperformed other types of insurers and the wider market in 2023, according to an S&P Global Market Intelligence analysis.
The poor performance on Wall Street of companies such as Alignment Healthcare Inc., Humana Inc. and The Cigna Group was in contrast to the gains posted by life and property and casualty insurers as well as the S&P 500. The S&P 500 was up 24.33% for the year, while the S&P 500 Insurance index was up 7.33%.
Alignment posted the largest decline over the course of 2023 with its shares falling 26.8%. The startup provider of Medicare Advantage had a difficult year but rallied in the third quarter, as its membership grew for the expanded healthcare plans for those aged 65 and above.
The past year proved to be a complicated year for managed care insurers, as Medicaid redeterminations — the annual process by which states determine who qualifies for subsidized insurance — resumed and medical cost trends surged as long-delayed surgeries were booked.
"To say 2023 was eventful for managed care and facilities would be an understatement," wrote J.P. Morgan analyst Lisa Gill in a research note. "Between [weight loss drugs, Medicare Advantage risk adjustment audits], new risk models, higher utilization, and Medicaid redeterminations, this past year presented a series of changes to the fundamental landscape for our coverage universe."
Merger rumors fail to impress
Humana declined by 10.62% by the end of 2023, followed by Cigna, which declined by 9.62%. The two healthcare giants stoked rumors in November that they sought to merge, a complicated prospect that did little to assuage investor concerns.
While a deal between the two health insurers would have been massive, it was not without potential challenges, including regulatory hurdles, said Francesca Massarotti, an associate at S&P Global Ratings for Healthcare and Consumer Products, during a December 2023 interview.
However, Cigna called off attempts to merge with Humana in mid-December 2023, deciding instead to focus on bolt-on acquisitions and an additional $10 billion of stock buybacks, The Wall Street Journal reported.
However, Cigna is still seeking to sell its Medicare Advantage business, now looking to Health Care Service Corp. to strike a deal that could value the unit between $3 billion and $4 billion, Reuters reported. The companies, which are in exclusive talks, are expected to announce the deal in the coming days provided the discussions do not fall apart, according to a person familiar with the matter. Health Care Service said in a statement to Reuters that it does not comment on "rumor or speculation," while Cigna did not immediately respond to a request for comment.
Few positives
While no publicly traded US managed care insurers outperformed the S&P 500, only two outperformed the S&P 500 Insurance index. The values of Molina Healthcare Inc. and HealthEquity Inc. rose by 9.41% and 8.18% by the end of 2023, respectively.
Molina's value surged in late 2023 following news that it would purchase Bright Health Group Inc.'s California Medicare Advantage business. On Dec. 13, 2023, the insurer changed its purchase agreement for the acquisition, reducing the purchase price, net of certain tax benefits, to approximately $425 million from $510 million.
UnitedHealth Group Inc. was relatively flat for the year, growing by 0.71%.
The healthcare insurer was the first to flag rising medical cost losses during the second quarter of 2023, with its leadership pointing to a rise in outpatient care as the result of pent-up demand due to COVID-19-related delays.
Subsequent earnings calls revealed that, while somewhat elevated, medical cost trends remained within UnitedHealth's expectations and were partially offset by a growth in Medicare Advantage membership.
UnitedHealth will be the first major managed care insurer to report fourth-quarter 2023 figures during an earnings call Jan. 12.