UnitedHealth Group (UNH) CEO Andrew Witty said on Wednesday that Medicaid managed-care players are getting squeezed by low state reimbursements, and it may continue for a while. UNH stock tumbled, dragging down the managed care group as well as the Dow Jones Industrial Average.
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The Medical-Managed Care industry group had already been among the stock market’s biggest laggards, ranked No. 183 of 197 based on price performance and momentum. The biggest issue has been a jump in medical care utilization. That’s driven up spending on benefits and hurt the profitability of Medicare Advantage plans.
UnitedHealth Medicaid Warning
Witty’s comments now suggest the managed-care group may get squeezed on a second front. The issue with Medicaid reimbursements comes as states have drastically cut Medicaid beneficiary rolls over the past year. That followed the official end to the pandemic emergency, during which states followed federal guidelines in halting Medicaid eligibility determinations.
As a result, millions who suddenly qualified for Medicaid when they were laid off early in the pandemic were able to keep their coverage. The restart of Medicaid redeterminations hasn’t just cut the number of beneficiaries, it has tended to remove relatively young and healthy members who regained employment and raised their incomes.
Witty’s comments indicated that state reimbursements will need to rise to adequately reflect Medicaid per-patient costs, but that it could take time to iron out.
“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. There’s probably going to be some disturbance around that,” Witty said at the Bernstein 40th Annual Strategic Decisions Conference, according to a Bloomberg transcript.
UNH Stock Hits Dow Jones
UNH stock tumbled 4.25% to 480.93, costing the Dow Jones about 147 points. Overall, the Dow Jones was off 338 points, or 0.9% in Wednesday afternoon stock market action. Thanks to UNH, the Dow trailed the S&P 500’s 0.5% pullback.
UnitedHealth had staged a rally after first quarter earnings soothed investor fears over Medicare Advantage and the hack of its Change Healthcare bill-processing unit. But Wednesday’s sell-off saw UNH stock fall decisively below through its 50-day moving average, while hitting a six-week low.
Other Medicaid managed-care players also retreated. Molina Healthcare (MOH) dived 5.5%. Centene (CNC) fell 3.1%, both hitting 2024 lows intraday. Elevance Health (ELV) lost 2.9%.
While spending trends have hurt managed care stocks, medical service providers and equipment stocks are faring well. Hospital operator HCA Healthcare (HCA) and surgical robot pioneer Intuitive Surgical (ISRG) are both near buy points.
Be sure to read IBD’s The Big Picture column after each trading day to get the latest on the prevailing stock market trend and what it means for your trading decisions.
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