Major health insurers saw their shares dip coming into the second quarter, as investors prepared themselves for skyrocketing medical costs due to seniors returning for outpatient care.

But health insurers generally outperformed market expectations in the quarter, helped by cost control measures.

Payers also disclosed how they’re navigating other major stressors, including the kickoff of Medicaid eligibility checks after years of postponement during the COVID-19 pandemic, the looming publication of Medicare Advantage star ratings and the rising popularity of GLP-1 drugs for weight control.

Here are the five biggest takeaways from health insurers’ second-quarter results.

1. Medical cost fears didn’t pan out

   Fears of rising outpatient utilization among seniors that spooked some investors coming into the quarter mostly failed to materialize in earnings results, though payers did cite pressure from the trend.

   The majority of health insurers reported medical loss ratios, or the share of premiums spent on patient costs, that were higher than in the second quarter last year, but below analyst expectations.

   Most major payers’ medical costs came in below analyst forecasts

   Q2 medical loss ratio versus analyst consensus, by insurer

   UnitedHealth, Cigna and CVS said increased use of outpatient services, especially orthopedic and cardiac procedures, were a major driver of rising utilization. Molina and Centene chalked the trend up to more preventive care and primary care visits in the quarter. 

   Humana noted higher-than-expected inpatient utilization during the quarter, which could be a cause for concern given inpatient services are generally more expensive than outpatient.

   The recent elevation in care activity was mostly isolated to payers’ Medicare books, while trends in commercial and Medicaid were in line with expectations.

   Though medical cost growth wasn’t as severe as some feared, payers including CVS and Humana still told investors to expect 2023 MLR to come in at the high end of their guidance.

2. Insurers raise rates for 2024

   Major health insurers said they factored heightened care activity into their Medicare Advantage plan bids for 2024, which were filed earlier this summer.

   Higher rates should allow them to buck the worst of utilization and cost increases in MA, but aren’t a silver bullet, payers said.

   For example, CVS — which lowered its 2024 earnings guidance following the quarter — assumed a higher level of utilization in its MA bids, but said if current medical cost trends continue, the payer could face pressure on those assumptions.

   Payers also said they factored some unit cost inflation in their commercial books into 2024 pricing.

   Cigna CEO David Cordani said on a call with investors that the payer filed “sizable” rate increases for 2024 for its Affordable Care Act marketplace plans in a handful of states, to deal with higher estimated risk-adjustment payments.

   ACA marketplace insurers are requesting a median premium increase of 6% for next year, according to a recent KFF analysis.

   Payers pointed to healthcare utilization growth, along with price increases for medical care and prescription drugs, as key reasons behind the premium increase.

3. Insurers project optimism on Medicaid redeterminations

   Payers — especially those with large government businesses like Centene, Elevance and Molina — are facing volatility due to the Medicaid redeterminations process. 

   Insurers said it’s too early to get a sense of how redeterminations will affect their rolls, but executives signaled optimism that they’ll be able to recapture members who lose Medicaid coverage in other plan offerings or help re-enroll them if they were improperly terminated.

   Centene, Elevance and Molina lost 262,700, 135,000 and 93,000 members respectively from their Medicaid rolls in the second quarter.

   Insurers said they’re seeing a significant number of members lose coverage for administrative reasons, especially in states that are pursuing a more aggressive redeterminations timeline. Molina, for example, said two-thirds of its Medicaid beneficiaries were disenrolled for procedural reasons.

   Overall, Elevance expects about 40% to 45% of beneficiaries who were added to Medicaid during the public health emergency will stay on the safety-net coverage by the end of the redeterminations cycle, while 20% will end up on its ACA products.

   Of the 800,000 Medicaid members Molina gained since the start of the pandemic, the payer expects to retain about half at the end of the redeterminations process.

   Payers said their Medicaid states are working to make sure rates reflect patient acuity, including proactive rate concessions or mid-cycle adjustments.

   However, payers are still staring down the barrel of potentially large premium impacts from disenrollments, which could hit earnings next year.

   Centene, for example, expects to bring in $77 billion in Medicaid premium revenue in 2024, compared to $84 billion this year, executives said on its second-quarter call.

4. MA star ratings uncertainty

   Health insurers that saw MA star ratings fall in 2023 gave investors an update on initiatives to improve ratings, which are a measure of plan quality and member satisfaction that result in bonuses.

   Centene said it’s been focusing on its core member base in Medicare, which is more medically complex, and investing in priorities like provider enablement tools for value-based care. Those strategies, and recent CMS changes to how it calculates star ratings, should help Centene boost its stars and bring in more revenue, management said in comments on the quarter.

   CVS CEO Karen Lynch told investors the payer has been focused on its remediation efforts and contract diversification to improve stars, and that “internal indicators are positive and show progress. But having said that, having this by such a narrow margin last year, I think we all recognize it all comes down to the CMS.”

   Centene’s percentage of lives in plans with four stars or above fell from 48% in 2023 to 3% in 2024. CVS’ fell from 78% to 30%.

   Humana, meanwhile, expects star ratings pressures on rivals like Centene and CVS should help it bring in new MA members as seniors shop between plans, CEO Bruce Broussard said on its earnings call.

   The CMS is expected to release 2024 star ratings in October.

5. GLP-1s boost pharmacy revenues

   Payers have been pulling back on coverage of GLP-1 drugs to rein in healthcare costs as demand surges for the weight loss medications.

   However, health insurers that also own pharmacy businesses are seeing those segments benefit from rising utilization of the drugs, which include Novo Nordisk’s Wegovy and Ozempic.

   In a note on managed care results in the quarter, J.P. Morgan analyst Lisa Gill said she was “bullish on the setup for PBMs ... with momentum from GLP-1s and biosimilars expected to accelerate in [the second half of 2023] and into 2024.”

   GLP-1s are generating notable revenue for payer’s pharmacy arms, health insurers said in second-quarter comments.

   Cigna health services division Evernorth has seen a “meaningful uptick” in utilization of GLP-1 agonists, leading the company to form a new chronic condition management program around them, Evernorth CEO Eric Palmer said on a call with analysts.

   Cordani said growing GLP-1 utilization has been a “positive contributor” to Evernorth earnings.

   Elevance members’ GLP-1 utilization has been consistent with expectations, and the drugs are benefiting pharmacy benefit manager CarelonRx, CFO John Gallina said.

   Meanwhile, CVS is also seeing stronger GLP-1 usage that’s creating a yin-and-yang dynamic between its insurance and pharmacy businesses.

   In healthcare benefits, “we feel like we have priced appropriately for it, so we feel like the risk is manageable,” Lynch said, but in pharmacy services, “it is generating very strong revenue.”