Welcome to the newest edition of our health insurer financial update, Pulse. Our goal is to keep you updated on important market trends and dynamics that affect the financial performance and profitability of health insurers. Earlier this year, we published our analysis of the Q2 2024 financials. This update includes trends in net income for Q3 2024 related to insured business, components of earnings, commercial and Medicaid membership (including redeterminations), as well as highlights on market capitalization.
Five key trends in health insurance in Q3 2024
Average profit margins decreased to their lowest point since before 2021
There was a 1.6% decrease in average profit margin from Q2 2024, mainly due to CVS Health’s (Aetna) reported loss.
Average loss ratios increase Especially for CVS Health (Aetna)
Average loss ratios increased compared to Q2 2024 driven by higher acuity in the Medicaid business and are also 4.4% higher than Q3 2023. CVS Health (Aetna) reported a 5.7% deterioration in their loss ratio compared to Q2 2024.
Operating expense ratios were relatively stable in the quarter
Reported operating expense ratios were 0.1% higher than Q2 2024 which saw the lowest ratios since before 2021.
Medicaid membership declined due to slow eligibility redeterminations
Medicaid membership only declined by about 100,000 members in the quarter reflecting a deceleration in the significant losses experienced in previous quarters driven the restart of the redetermination process.
Market capitalization growth for Molina, UnitedHealthcare, and Centene
As of September 30, 2024, Molina, UnitedHealthcare, and Centene experienced over a 10% increase in its market capitalization since the end of Q2 2024.
Net income for public health insurers improved from Q2 2024
Overall, the unweighted average profit margin (net income/premium) for the four insurers of 3% is 1.6% higher than the Q2 2024 unweighted average, but 2.0% lower than the Q3 2023 unweighted average of 5%.
UnitedHealthcare recorded a net profit margin of 6.1% in Q3 2024, a 1.8% increase over Q2 2024, which is in line with levels seen in 2022 and 2023.
Cigna saw their margin decrease in Q3 2024, from 7.5% in Q2 2024 to 6.2% in Q3 2024, the lowest point it has been since Q4 2022.
Elevance’s profit margin decreased from 5.3% in Q2 2024 to 2.3% in Q3 2024.
CVS Health (Aetna) saw their profit margin decrease significantly in the quarter, from a 1.3% gain in Q2 2024 to a loss of 2.5% in Q3 2024, which includes the impact of premium deficiency reserves recorded for Medicare and Individual Exchange business.
Average loss ratios increased in Q3 2024 versus Q2 2024
On average, the medical loss ratios (medical costs/premium) for all four of the public large companies that we reviewed were 2.4% higher in Q3 2024 than Q2 2024. In Q3 2024, reported loss ratios were 95.2% for CVS Health (Aetna), 89.5% for Elevance, 85.2% for UnitedHealthcare, and 82.8% for Cigna.
Overall, the unweighted Q3 2024 average loss ratio of 88.2% was 4.4% higher than the 83.8% average loss ratio experienced in Q3 2023. Carriers also reported year-over-year increases, with CVS Health’s (Aetna) being the most significant experiencing an increase of 9.6% from 85.7% to 95.2%.
Average Q3 2024 operating expense ratios were stable relative to Q2 2024
Operating expense ratios (operating expense/premium) increased by 0.1% from Q2 2024 to Q3 2024. Cigna (-0.5%) and UnitedHealthcare (-0.3%) reported decreases, while CVS Health (Aetna) (0.6%) and Elevance (0.8%) had increases.
Most health companies’ Q3 2024 utilization is high with Medicaid redeterminations increasing member acuity
Centene
Health benefits ratio for the quarter was 89.2% and 87.9% year-to-date. This has led Centene to revise the full year guidance upwards to 88.3% to 88.5%, driven by Medicaid, as the acuity of retained and rejoining Medicaid members is higher than the acuity of members lost during the redetermination process.
Cigna
Medical care ratio (MCR) in the quarter was slightly above CIGNA’s expectations at 82.8%, mainly due to an increase in specialty medication utilization. Full-year MCR is still expected to be in the range of 81.7% to 82.5%, the same range as reported in Q2 2024, though it is likely to be closer to the upper end of the range due to the aforementioned specialty medication utilization.
CVS Health (Aetna)
Reported medical benefit ratio of 95.2% in the quarter, which was 950 basis points higher than the prior year quarter. CVS Health (Aetna) noted that this increase was primarily driven by higher acuity in Medicaid, the premium impact of lower Star Ratings for payment year 2024 on its Medicare Advantage business, and an update to their 2024 Individual Exchange risk adjustment accrual.
Elevance
Reported a benefit expense ratio of 89.5% within the quarter, a 270 basis point increase year-over-year, driven by higher than expected Medicaid trends. Elevance expects their full-year benefit expense ratio to be in the upper half of their initial guidance range, in part due to higher Medicaid acuity driven by redeterminations.
Humana
Reported a benefit ratio of 89.9% for the quarter, an increase of 330 basis points year-over-year, driven by elevated medical cost trends in Medicare Advantage and Medicaid. Humana noted that medical costs are still in line with their expectations.
Molina
Reported a business-wide medical cost ratio of 89.2% for the quarter which was above expectations due to higher-than-expected medical costs in their Medicaid and Medicare segments. Molina also noted that the year-to-date MCR of 88.8% is slightly above their long-term target range. Medicaid business had a 90.5% MCR for the quarter, 0.5% of which is attributable to the premium reduction in their California business. Medicare Advantage saw a quarterly medical cost ratio of 89.6%, which was above their long-term target range and driven by elevated LTSS and pharmacy costs. The medical cost ratio for Molina’s Marketplace business was 73.0% in the quarter, favorable to expectations.
UnitedHealthcare
Reported a medical care ratio was 85.2% for the quarter and 84.9% year-to-date. The reported medical care ratio in the quarter reflects an increase of 2.8% year-over-year for UnitedHealthcare, who noted that the increase was driven by the revenue effects of Medicare funding reductions, higher acuity Medicare members.
Q3 2024 Medicaid membership declines, while Commercial enrollment increases
In Q3 2024, total Medicaid membership for public carriers decreased by 0.3% from Q2 2024, driven by the continued redetermination of Medicaid eligibility. However, total Medicaid enrollment is still about 22% higher than at the beginning of the pandemic. Total Commercial membership increased roughly 0.4% over Q2 2024, as some individuals who lost Medicaid coverage were able to shift to Commercial coverage.
During their earnings calls, most carriers provided insight into their year-to-date membership changes. In addition, some carriers also commented on the ongoing process of states redetermining Medicaid eligibility. The Public Health Emergency officially ended on May 11, 2023, with several states beginning the redetermination process on April 1, 2023.
Centene
The quarter ended the quarter with just over 13.0 million Medicaid members. Commercial business ended the quarter with 4.5 million members, an increase of about 22% year-over-year.
CVS Health (Aetna)
Medical membership increased by about 178,000 in the quarter and ended at about 27.1 million members, primarily reflecting growth in Medicare and individual exchange business.
Elevance
Ended the quarter with medical membership of approximately 45.8 million members, which was flat relative to Q2 2024. They noted growth in Commercial was largely offset by loss in Medicaid. Elevance added 600,000 Commercial members year-over-year.
Humana
The quarter ended with approximately 16.4 million members, a decrease of roughly 600,000 year-over-year driven by loss within their Medicare stand-alone prescription drug plan (PDP) business.
Molina
Molina ended the quarter with Medicaid enrollment at 4.9 million members, which was in line Q2 2024 and reflected the end of redeterminations. They also noted that new enrollees in the Marketplace business gained through special enrollment periods has averaged about 50,000 members each quarter which is more than double the historical averages of 20,000 to 25,000 members.
UnitedHealthcare
UnitedHealthcare added 2.5 million new domestic commercial members year-over-year. Medicaid business ended the quarter with 7.4 million members, a decrease of about 600,000 year-over-year reflecting attrition due to Medicaid redeterminations.
Exhibit 4 displays the changes in reported enrollment for the 16 most recent quarters for Commercial and Medicaid for a set of public companies where counts were available on a consistent basis. In the quarter, total Commercial membership increased by about 0.4 million, while Medicaid membership decreased by approximately 0.1 million members due largely to the eligibility redetermination process.
Health plan capitalization rose over the past year, but lagged the S&P 500 Index in Q3 2024
From Q3 2021 to Q3 2024, the collective market capitalization of the seven public healthcare companies we monitor experienced modest growth. Between September 30, 2021, and September 30, 2024, the combined market capitalization of these seven public health plans rose by 26.0%. During the same period, the S&P 500 Index grew by 33.8%, outpacing the healthcare companies by 7.8%. However, the market capitalization of healthcare firms grew slightly more than the S&P 500 Index in the last quarter. From Q2 2024 to Q3 2024, the market capitalization of the seven public companies increased by 8.6%, while the S&P 500 Index increased by 5.5% over the same period.
Healthcare companies’ stocks saw variation in their Q3 2024 performance
Molina (+15.9%), UnitedHealthcare (+15.2%), and Centene (+11.9%) all greatly outpaced the S&P 500 Index (+5.5%). Humana (-15.3%) shed over a 10% of its market capitalization in Q3 2024. Elevance (-4.3%) also dropped in Q3 2024. CVS Health (Aetna) (+6.7%) and CIGNA (+3.1%) saw increases to their market cap relatively in line with that experienced by the S&P 500 Index.
Based on historical seasonality, Q4 2024 profit margins may continue to be low relative to 2021 through 2023. Look out for our analysis of Q4 2024 financials in the next Pulse, published in the new year.