Shares of several major health insurers experienced significant declines today. Centene Corporation (NYSE: CNC) saw its stock drop by 6.86% as of 04:00 p.m. ET, while CVS Health Corporation (NYSE: CVS) and Humana Inc. (NYSE: HUM) witnessed falls of 6.1% and 13.9%, respectively.
These declines were triggered by remarks made by Tim Noel, CEO of UnitedHealthcare Medicare and Retirement, during the Goldman Sachs Global Healthcare Conference. Noel revealed that UnitedHealth Group Incorporated (NYSE: UNH) has observed a rise in elective surgical procedures among older Americans.
The COVID-19 pandemic caused many seniors to delay their planned elective procedures, but Noel stated, “We’re seeing that more seniors are just more comfortable accessing services for things that they might have pushed off a bit like knees and hips.”
So what
However, the surge in elective procedures raises concerns as it may lead to increased medical costs for health insurers, ultimately impacting their earnings.
Humana was hit the hardest by Noel’s comments, likely due to the fact that its stock had been performing exceptionally well compared to its peers this year.
In April 2023, Humana reported better-than-expected first-quarter results, attributing them to significant growth in membership and favorable utilization trends in its Medicare Advantage business. However, these positive trends could be at risk if Humana encounters a similar increase in elective procedures among seniors like UnitedHealth Group.
Centene primarily focuses on the Medicaid and Medicare markets. Following solid Q1 results in April, the company raised its full-year earnings outlook. However, this guidance might be challenging to achieve if medical costs experience a substantial rise.
CVS Health’s Aetna unit is also likely to be negatively impacted by the surge in elective procedures, along with UnitedHealth Group, Humana, and Centene. However, CVS Health stock experienced a relatively smaller drop compared to the others.
The reason behind CVS Health’s relatively better performance lies in its diversified revenue streams. Only around 30% of its total revenue comes from its healthcare benefits segment, which includes Aetna. The company’s primary revenue sources are its health services segment, featuring its pharmacy benefits management business and medical clinics, and its pharmacy and consumer wellness segment, which includes its retail pharmacies.
Now what
It is possible that investors are overreacting to UnitedHealthcare’s Noel’s comments. The increase in elective procedures among older Americans might not be as severe as initially feared.
The upcoming quarterly results announcements from major health insurers will provide a clearer picture of the potential impact on medical costs. UnitedHealth Group is expected to be the first to report its Q2 update in July, followed closely by Centene, CVS Health, and Humana.
It is essential to note that any spike in elective procedures should be temporary. The recent decline in these stocks could present favorable buying opportunities for long-term investors.
