By David Wainer

Health-insurer profits in government programs like Medicare and Medicaid are under pressure these days. Last week, insurance stocks plunged after companies such as CVS Health and Elevance warned of lower profitability in those programs.

Yet profits in the Marketplace, the insurance exchange created by Obamacare, are doing just fine. That helped Molina Healthcare, a smaller insurer, weather higher costs in its Medicaid business in its third quarter. While the company saw its overall medical costs rise more than analysts expected in the quarter, it also reported better-than-expected quarterly earnings on Thursday and reaffirmed its 2024 outlook--something investors worried it might fail to do.

Molina's stock surged by 20% as of midday, as investors were bracing for a much worse quarter. Centene, another Medicaid-focused insurer that reports tomorrow, saw a 3.6% rise, while Oscar, which concentrates on the exchanges, was up 7%.

Though Molina has a significantly larger Medicaid business, its Marketplace profitability was much higher. Specifically, its medical cost ratio was 73% in the Marketplace segment for the quarter, compared with about 90% for Medicaid and Medicare. The lower the cost ratio, the higher the profits.

Molina acknowledged that some of the higher cost in the Medicaid program stemmed from higher medical utilization and a shift to sicker patients. Medicaid programs have been experiencing a higher risk pool after millions were booted from the program due to the end of the pandemic, which barred states from disenrolling people from Medicaid plans.

But unlike Elevance, which says it has struggled to receive adequate payment increases from states to keep up with soaring Medicaid costs, Molina executives were more sanguine during a call with analysts. Overall, quarterly premium revenue rose 17.6% from the same period last year to $9.69 billion. In Medicaid, the company "received several positive off-cycle rate adjustments, which is an important indication that many of our states have recognized that certain aspects of their program are underfunded," said Chief Executive Officer Joe Zubretsky.

While insurance costs remain high for investors, the bar was low, and Molina successfully exceeded expectations.

This analysis comes from the Journal's Heard on the Street team. Subscribe to their free daily afternoon newsletter here.

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(END) Dow Jones Newswires

October 24, 2024 14:24 ET (18:24 GMT)

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