UPDATED: July 25 at 11:30 a.m. ET
Centene CEO Sarah London offered a deeper look at the factors driving increased utilization and costs on the Affordable Care Act's marketplaces.
London told investors on Friday morning that program integrity changes made ahead of the 2025 open enrollment period discouraged healthier enrollees from signing up for coverage, and as a result member mix shifted toward higher morbidity.
The Medicaid redeterminations also lead to higher-acuity individuals signing up for coverage on the exchanges, further shifting the risk pools.
In addition, London said that the insurer is seeing more aggressive provider coding and higher utilization compared to last year, which are also major contributors to the cost pressures.
She said that in some states, this shift drove morbidity increases of 16% to 17% year-over-year.
"Ultimately, Ambetter was underpriced for this morbidity shift," she said.
London said that the insurer is taking action to right the ship, and has submitted updated pricing in 17 states for 2026 to account for these trends as well as the likely end of the ACA's enhanced premium tax credits. She said they plan to update prices across the entire book.
She said that Centene is also seeing a spike in costs in Medicaid around behavioral health that it's making adjustments to address.
Centene now projects full-year earnings of $1.75 per share, though London warned that if conditions worsen that could drop to $1.25. The company previously projected $7.25 per share.
Shares in Centene cratered pre-market but were climbing mid-day, with stocks up by about 4% at 12:15 p.m. ET.
Centene posted a $253 million loss in the second quarter as it navigates significant cost pressures on the Affordable Care Act's marketplaces.
The earnings results fell short of Wall Street analysts' expectations, per Zacks Investment Research, though the company did beat expectations on revenue with $48.7 billion. By comparison, Centene reported $39.8 billion in revenue and $1.1 billion in profit for Q2 2024.
Through the first six months of the year, the company brought in $95.4 billion in revenue and $1.05 billion in profit.
Shares in the company were down by 9% pre-market following the earnings release. Centene had already warned investors earlier this month that it was facing choppy financial waters, withdrawing its guidance for the year after an actuarial report suggested ACA growth would fall short of estimates.
"We are disappointed by our second quarter results, but we have a clear understanding of the trends that have impacted our performance, and are working with urgency and focus to restore our earnings trajectory," Centene CEO Sarah London said in the earnings release.
"Despite the shifting landscape, we believe that the staying power of Medicaid, Medicare and the Individual Marketplace is as strong as it has ever been," London continued. "Centene has significantly fortified our platform in service of these programs over the last three years, and as we move forward, we are focused on continuing to adapt with the market to deliver meaningful value to our members, our stakeholders and our shareholders over the long term."
The company reported a 93% medical loss ratio in the quarter, encompassing elevated costs on the marketplaces and Medicaid as well as risk adjustment revenue transfers in the ACA market that were lower than expected. The earnings announcement said these transfers were the leading factor in its Q2 loss.
The insurer's membership as of June 30 was 28 million, down by nearly 500,000 from the prior-year quarter, with most of the losses in Medicaid.