Most major US managed care insurers are on track to record sequential and year-over-year increases in first-quarter revenues and earnings.

Of the 11 largest publicly traded US managed care insurers, all are expected to see higher earnings per share on a sequential basis, while eight are expected to post year-over-year growth, according to an S&P Global Market Intelligence examination of sell-side analyst forecasts. The Cigna Group, Clover Health Investments Corp. and Alignment Healthcare Inc. are the only companies expected to record year-over-year declines in EPS for the first quarter.

Industry fundamentals favorable

Managed care fundamentals remain strong with the overhang of a contentious Medicare Advantage ruling now in the rearview mirror, J.P. Morgan analysts said in an April 6 research note.

The new rule for Risk Adjustment Data Validation audits, announced by the Centers for Medicare and Medicaid Services (CMS) in January, will be used to determine whether Medicare Advantage plans were overpaid by Medicare. The rule was prompted in part by audits and studies showing that Medicare Advantage enrollees' medical records do not always support the reported diagnoses, leading to "billions of dollars in overpayments to plans and increased costs," CMS said in a news release.

"Some uncertainty remains, however, as companies await further guidance on audit processes and the methodology from CMS," J.P. Morgan analysts said. "Overall, we believe the headwind will be manageable for the group, including for companies with the largest exposure to [Medicare Advantage]."

As usual, UnitedHealth Group Inc. will kick off earnings season when it reports results April 14. According to the consensus analyst estimate, the company is expected to post EPS of $6.08 for the period.

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Revenues largely mirror EPS

Analyst forecasts for revenue growth are largely similar to their earnings outlooks. Nine of the 11 largest US managed care insurers are projected to record sequential revenue gains, while eight are seen as on course for year-over-year increases.

Clover Health is expected to see revenues drop from both the fourth quarter of 2022 and the first quarter of that year.

CEO Andrew Toy during a February earnings call expressed optimism about the company's revenue outlook, although he stressed that it focused on profitability over growth in 2022. Clover is scheduled to hold its first-quarter call on May 9.

Sell-side analysts also expect Centene Corp. and Bright Health Group Inc. to see year-over-year revenue declines.

Centene, a market leader in Medicaid, is expected to be impacted by Medicaid redetermination, a process by which states annually determine who qualifies for coverage under the government-backed healthcare plan. Medicaid redeterminations began April 1 after being paused for several years due to the COVID-19 pandemic.

Although each state's redetermination process is different, Centene CFO Andrew Asher on a February earnings call said that, by April 1, the company should have added 3.4 million Medicaid members since the pandemic began. However, the insurer expects to lose 2.2 million of those members in the next year and a half, Asher said.

Centene is scheduled to hold its first-quarter call on April 25.