Health insurance companies are bracing for a near-term hit to their Medicaid finances as fallout from the eligibility redeterminations process takes shape.
Insurers say they are pleading with state policymakers to boost the payments they receive for covering Medicaid beneficiaries, stressing that millions of people exiting the program over the past year has created unfavorable risk pools consisting of higher-acuity members.
Related: Health insurers flash warnings over unexpected medical costs
Investors balked last week when UnitedHealth Group, Elevance Health and Centene disclosed that states resuming Medicaid eligibility checks had squeezed their finances.
These insurers cautioned that those who remain on Medicaid are overall sicker and costlier to cover, and that smaller memberships mean less money from states for administering the program. Providers also have reported financial strain resulting from Medicaid redeterminations.
The Medicaid rolls swelled during the COVID-19 pandemic, in part because states accepted extra federal money in exchange for pausing eligibility redeterminations and allowing people to remain enrolled throughout the public health emergency. When the enhanced Medicaid funding expired last year, states became responsible for unwinding that continuous coverage requirement and clearing ineligible beneficiaries from the program.
Between April 1, 2023, and June 4, 2024, states cut off benefits for at least 22.8 million Medicaid and Children's Health Insurance Program enrollees, according to Centers for Medicare and Medicaid Services data compiled by KFF. That far surpassed the 15 million the Health and Human Services Department projected before the unwinding began.
Here’s what to know about how the Medicaid redeterminations process has affected health insurance finances.
A 'disturbance' in Medicaid
The health insurance industry has had some success securing increases to their Medicaid rates to account for worsening risk pools. But some big players now believe this won't be as simple a fix as they previously expected.
UnitedHealth Group acknowledged challenges with rates and costs during its presentation at the Bernstein 40th Annual Strategic Decisions Conference in New York.
“We've come through this very sort of prolonged redetermination cycle in Medicaid, making sure that all of those — the utilization and the rates and everything else — stay in perfect synchrony through a multi-quarter cycle,” UnitedHealth Group CEO Andrew Witty said at the event May 29. “There's probably going to be some disturbance around that.”
Rate increases won’t necessarily cover the additional costs insurers expect to face. About half of Centene’s Medicaid rate changes occur between July and October, according to the company. At the same conference on May 31, Centene Chief Financial Officer Drew Asher said the insurer has averaged a "3%-plus” rate increase across its footprint. That won’t be enough to offset current financial pressures, he said.
“We still need to go get more than that. And [with] this most recent data, we’ll be making the case to the state, ‘Thanks for the rate change, but look at the data, and we need to get topped off as we get into 2025,’” Asher said.
Elevance Health President and CEO Gail Boudreaux offered a more optimistic assessment the same day at the Bernstein conference. The insurer is monitoring acuity in its Medicaid business and is pleased with states' response. Boudreaux "feels good" about Elevance's prospects of meeting its financial targets for Medicaid this year, she said.
Worse than expected
Medicaid managed care carriers have been attentive to how Medicaid redeterminations affect them since before the process started and have relied on states to offer additional financial support. Even so, as the numbers rolled in, it became apparent that the effects went deeper than they expected, Scott Fidel, managing director at investment bank Stephens, wrote in a note to investors May 31.
“While the industry was anticipating a deterioration in the overall health status of the population skew, it seems like the per capita utilization profile may be somewhat worse than originally expected,” Fidel wrote.
Witty said it could take multiple quarters before states pay rates that cover the cost of care for its Medicaid members.
Centene projected a similar timeline on its first-quarter earnings call in April. The company's Medicaid medical loss ratio, which measures the share of funding spent on care, exceeded projections and hit 91% for the quarter. Executives said it will be several years until the money coming in is sufficient to cover the money going out.
“We're going to need to have rates match acuity, and we expect that to shake out,” Asher said at the conference. “It may not be perfect in this rate cycle, which means sort of the 2025, 2026 time period is when we would expect to get back into the high 89s based upon today's mix of business.”
Medicaid membership dips
Medicaid enrollment has dropped 14.7% since redeterminations began and insurers expect shrinking memberships throughout the first half of the year, according to data from the investment bank Stephens.
Centene said last week that about two-thirds of the states where they administer Medicaid have concluded redeterminations and that about 95% of its members have been reviewed.
In April, Molina Healthcare said it anticipates losing 600,000 of the 1 million Medicaid members it gained during the pandemic, 100,000 more than they projected in February.
Elevance Health pared back its Medicaid retention expectations to about 30% of its pandemic-related growth, compared to its original assumption of 45%.
