(Bloomberg) — The largest U.S. health insurers shocked investors twice in three days with cuts to their forecasts that sent stock prices plunging — and Wall Street wondered if more surprises were in store.

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Elevance Health Inc. said Thursday that adjusted earnings per share will be flat this year and rise more slowly than planned for 2025. That followed rival UnitedHealth Group Inc.'s disappointing forecast through the end of next year on Tuesday.

Between Monday's close and Thursday morning, the news shaved $55 billion from the companies' combined market value. Elevance shares lost as much as 20% on Thursday, while United Health lost 8.1% on the day it released its outlook. For both, it was the sharpest intraday decline since March 2020, when fears of the emerging pandemic's health damage temporarily caused the industry to reel.

Insurers have experienced years of growth fueled by Medicare and Medicaid, government health programs that cover more than one in three Americans. Now companies in taxpayer-funded lines of business face growing challenges as costs for Medicaid patients rise and Washington clamps down on Medicare payments that authorities say are too high.

Elevance blamed excessive Medicaid costs for low-income Americans. States have removed 14 million people from the safety net health program since the start of 2023, reversing an expansion in coverage that was driven by Covid-19 emergency measures.

Executives cited “unprecedented challenges” in Medicaid but offered little comment on why they were caught off guard by such a highly anticipated event. Elevance management has shown “an almost shocking lack of transparency” about what's behind the rapidly rising costs, said Spencer Perlman, an analyst at policy research group Veda Partners.

Medicaid Difference

In most lines of business, insurers can increase prices once a year. So if they underestimate future costs, they can correct their course. Medicaid is different. Insurers are applying for multi-year contracts to run government health programs.

If they find the rates aren't enough during the contract period, they can bargain with states for more money, but it may take a while to get it, Elevance executives acknowledged. States often base their decisions on data that is a year old, Elevance Chief Executive Officer Gail Boudreaux told analysts Thursday.

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“It hasn’t kept up yet and we think it will take some time,” she said. She described the problem as “time-bound” and industry-wide.

The Medicaid purge was always expected to impact insurers because healthy people have given up coverage while those who need more care are more likely to keep it. It's unclear whether the changes will extend to Medicaid-focused competitors like Centene Corp. and Molina Healthcare Inc. will hit with the same intensity. It depends on whether Elevance's problems are due to policy or poor implementation, Perlman said.

Centene and Molina will report their results next week. “We don’t know if they’re experiencing the same thing,” Perlman said.

Government growth

Medicaid payments have hurt UnitedHealth, but the company's bigger challenge lies with Medicare, the federal insurance program for older and disabled Americans.

Government regulators and whistleblowers have accused insurers for years of inflating payments in private Medicare Advantage plans by exaggerating how sick their members were. This year, Medicare officials began phasing in new payment rules to limit this.

The change, combined with smaller payment updates than the industry was used to, put pressure on Medicare Advantage insurers. Andrew Witty, CEO of UnitedHealth, compared this to a government “price cut” in a call with analysts.

Elevance, meanwhile, expressed confidence in its Medicare business, which is much smaller than UnitedHealth's.

The upcoming US presidential election brings with it another element of uncertainty for healthcare investors. A victory for Republican candidate Donald Trump is likely to lead to cheaper rates for private Medicare plans, boosting shares of UnitedHealth, Humana and CVS Health Corp. could strengthen. A victory for Vice President Kamala Harris would likely be more favorable for insurers that focus on Medicaid Affordable Care Act plans, including Elevance, Centene and Molina.

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