By Sriparna Roy and Amina Niasse
(Reuters) -Centene Corp said on Friday it expects medical costs to improve next year as states catch up with reassessment of enrollments for its Medicaid plans that cover lower-income people, lifting its shares about 9%.
The health insurer did not provide a forecast for 2025, but said it expects its Medicaid business to return to the pre-pandemic range.
Costs have surged for insurers after states began reassessing Medicaid enrollment eligibility following the termination of a policy last year that required insurers to keep low-income Americans enrolled through the COVID-19 pandemic.
The reassessment had led to an increase in the number of sicker patients in insurers' Medicaid membership profile and a fall in memberships.
Though Centene (NYSE:CNC) still expects medical care use to remain higher than initially expected in the second half of 2024, an improvement in membership could help alleviate some cost pressures on the company.
The company is confident that the mismatch between its expenses on Medicaid members and what states are paying the insurer to treat those members, is a "temporary fixable dynamic," said CEO Sarah London.
Centene also expects robust growth in its commercial health plans. It increased its 2024 premium and service revenue forecast by $5 billion to be between $141 billion and $143 billion.
However, it forecast annual medical loss ratio - a metric that tracks medical costs - to be at the higher end of its previous range of 87.3% and 87.9%. Analysts' were expecting a lower number, at 87.8%.
"We prefer to take a wait-and-see approach" through the second half of the year to see how the trends continue to develop, said Mizuho analyst Ann Hynes.
Centene expects to provide a detailed 2025 outlook in December.
Its second-quarter medical loss ratio rose to 87.6% from 87% a year earlier. Analysts had expected 86.84%.
Adjusted profit of $2.42 per share beat estimates of $2.07.