Fitch flags Medicare utilization trends ahead of managed care earnings

As managed care firms are gearing up to report their Q1 2024 results over the next few weeks, ratings agency Fitch underscored uncertainty from the recent spike in healthcare utilization in the Medicare Advantage market.

Shares of Humana (NYSE:HUM) came under pressure early this year after the health insurer, one of the leading players in the MA market, lowered its outlook twice in January, citing higher-than-expected medical costs in its Medicare Advantage business.

Adding further uncertainty, the Centers for Medicare & Medicaid Services (CMS) set its 2025 reimbursement rates for Medicare Advantage and Part D plans below expectations, leading to a selloff among health insurers early this month.

"The significant increase in 4Q23 senior market utilization reported by some companies creates significant uncertainty around profitability for the sector in 2024," industry publication Fierce Healthcare reported, citing Fitch's insurance dashboard report.

Citing the financials of the seven largest publicly traded insurers, Fitch noted that their operating earnings before interest, taxes, depreciation, and amortization indicated a slight drop in 2023 from a year ago.

"The stable operating results reflect continued focus on premium rate adequacy among insurers in light of increased operating costs incurred within the provider community in recent years," the analysts added.

Fitch also referred to the recent cybersecurity incident at UnitedHealth's (NYSE:UNH) Change Healthcare unit as a potential headwind for its parent and other companies.

"Companies may experience modest uncertainties in reserving in 1H24 given the disruption in claims information," the analysts wrote. While UnitedHealth (UNH) will undoubtedly encounter financial effects, a significant impact on others is less likely, Fitch argued.

Industry bellwether UnitedHealth (UNH) will join Johnson & Johnson (JNJ) to kick off healthcare earnings season on Tuesday before the opening bell.

Other managed care players include, CVS Health (NYSE:CVS), Cigna (CI), Clover Health (CLOV) and Alignment Healthcare (NASDAQ:ALHC), Centene (CNC), Elevance Health (ELV) and Molina Healthcare (MOH).