Some of the nation's largest health insurers have signaled significant headwinds in recent months within their Medicaid businesses as costs rise and the effect of redeterminations takes hold, but Fitch analysts expect those headwinds to be short-lived.
"Regardless of the core drivers of the higher utilization rates, we expect the resulting Medicaid margin pressure to be relatively short-lived, as rate setting discussions with states should incorporate the higher levels of acuity," Fitch analysts wrote in a June brief shared with Becker's. "For most companies, diversification, particularly in commercial group and individual exchange market, will also continue to be beneficial in helping to offset the temporary margin pressure in Medicaid. Additionally, higher interest rates continue to more heavily benefit the investment income generated by the large, high quality bond portfolios of publicly held health insurers."
In April 2023, states began the process of disenrolling Medicaid beneficiaries for the first time since the COVID-19 public health emergency was declared, which prevented agencies from removing individuals from their Medicaid rolls.
As of June 14, more than 23 million people have lost Medicaid coverage — a direct hit to private insurers' enrollments. If Medicaid managed care organizations continue to lose members, but the enrollees they retain use healthcare at a high rate, profits could suffer.
"The morbidity of the risk pool has deteriorated, but the precise causes of higher acuity within remaining Medicaid beneficiaries is currently unclear," Fitch analysts wrote. "However, we believe that one potential factor is adverse selection driven, in part, by the high level of disenrollment for procedural reasons."
On May 29, UnitedHealth Group CEO Andrew Witty told analysts the company is "watching" its Medicaid business.
"We've come through this prolonged redetermination cycle in Medicaid," he said. "Making sure the utilization, and the rate and everything else stay in perfect synchronicity during a multiquarter cycle — there's probably going to be some disturbance around that."
"We are seeing pressure in our Medicaid book of business in April results," Centene CEO Sarah London said May 31. "And that is largely due to the impact of this redetermination process that we've been going through for more than a year now and the shift in acuity of the underlying population that remains after the redetermination process."