By David Wainer
Health insurance has never been a flashy, high-growth business. But for many years it offered something nearly as good: steady, dependable returns, fueled by the expansion of government programs such as Medicare, Medicaid and the Obamacare exchanges.
Lately, though, Wall Street has a problem with America's health insurers: They keep missing their numbers. What began as trouble in Medicare Advantage has now spread across nearly all government-backed plans, signaling deeper issues in the model itself.
After a rough 2024, insurers are warning that 2025 won't be better. The trouble started when industry giant UnitedHealth Group ousted its chief executive and withdrew its outlook in May, blaming higher costs in Medicare Advantage. Then, earlier this month, Centene pulled its guidance, citing a sicker-than-expected population on plans under the Affordable Care Act, or Obamacare. And this week, Molina Healthcare cut its profit forecast, citing cost pressure across all its government plans, including Medicaid.
The trouble has sent shares of insurance companies plunging. This also comes as the recently passed tax-and-spending package is set to cut more than $1 trillion in healthcare spending over a decade.
Some might see an opportunity to buy the dip. But value can only be measured if you can trust company numbers -- and increasingly, investors can't. "Against a backdrop in which executives are being increasingly challenged by sharp changes in the industry, it becomes harder for investors to make educated decisions," said Jared Holz, healthcare strategist at Mizuho Securities.
The core problem is that the assumptions insurers rely on to price plans -- how many people will enroll, how sick they will be and how much care they will use -- are no longer holding up. Medical usage has surged and become more volatile in the postpandemic landscape. Changes to how insurers and providers are allowed to bill and code care have eroded margins for payers. And the mix of healthy and sick enrollees in government-sponsored plans is shifting, as millions fall off insurance rolls.
Take Medicaid, a program that costs nearly $1 trillion annually. Enrollment ballooned during the pandemic, when federal rules barred states from removing people from coverage. Many insurers were suddenly managing millions of low-cost enrollees, some of whom didn't even know they had insurance. But with the unwinding of those protections, millions have been dropped, leaving behind a sicker and more expensive population, said John Selby, president of Rebellis Group, which provides consulting on health plans.
It might only get worse. The recently passed "One Big, Beautiful Bill" will further cut Medicaid enrollment with work requirements and more-frequent eligibility checks. Meanwhile, enhanced subsidies for ACA plans are set to shrink next year. As more people lose coverage, insurers could be left managing smaller, sicker and costlier risk pools -- just as they are already struggling to price accurately.
The reasons each government program is struggling might differ, but the bigger picture is the same: Surging medical costs are outpacing what the government is willing to pay. J. Mario Molina, who was formerly chief executive of Molina Healthcare, founded by his father, put it simply in an interview: On one hand, insurers are facing skyrocketing expenses -- from costlier procedures and rising nurse wages to expensive drugs such as GLP-1s. On the other hand, they can't pass those rising costs along to the government as easily as they once could, with healthcare already accounting for an exorbitant 17% of gross domestic product.
The challenges are leading some to retrench, giving up market share to recover profit margins. Others are walking away from some programs altogether, as CVS did when it said earlier this year that its insurance unit Aetna would leave the ACA exchanges. "It's difficult to control and predict costs, especially when revenues are flattening," says Mario Molina, who left the company in 2017 after running it for about two decades. "And the one thing Wall Street hates more than anything is uncertainty."
Over the past four years, most large managed-care companies have lost investors money. UnitedHealth, Centene, CVS, Elevance and Humana are all down over that stretch. Of the major competitors, only Cigna has delivered a positive return. The reason? It steered clear of the government-heavy business lines now under pressure. Cigna left Medicare Advantage and has focused instead on commercial plans sold to employers.
Cigna's success reflects a broader shift: Investors are no longer rewarding growth at all costs. Instead they are favoring restraint and profitability. CVS, which stumbled in 2024 after a poorly timed Medicare Advantage expansion, has seen its stock rebound this year by pulling back.
Molina Healthcare is a clear example of how pain is spreading across the government insurance system -- it operates in all the major programs. On Monday, it warned of rising costs across the board, citing higher care utilization and tighter government payments.
"The short-term earnings pressure we are experiencing results from what we believe to be a temporary dislocation between premium rates and medical cost trend which has recently accelerated," Molina's current CEO, Joe Zubretsky, said in a written statement.
But how temporary is it really? With 2024 and 2025 already looking bad, 2026 is unlikely to be much better as many insurers look to retrench. UnitedHealth might not grow earnings over its 2024 levels until 2027, according to analyst estimates on FactSet. Humana might not return to its 2023 profit peak until 2028.
That has Wall Street asking whether this industry still deserves the benefit of the doubt.
Write to David Wainer at david.wainer@wsj.com
(END) Dow Jones Newswires
July 10, 2025 05:30 ET (09:30 GMT)
Copyright (c) 2025 Dow Jones & Company, Inc.
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