Elevance Health (ELV) shares took a dip on Tuesday, falling by 3.8% to $489.66, in the wake of competitor UnitedHealth Group’s strong third-quarter earnings report. While UnitedHealth exceeded analysts’ expectations with a 9.1% year-over-year revenue surge and a robust adjusted EPS of $7.15, its stock also declined. This downturn was likely triggered by the company’s decision to lower the upper end of its full-year EPS guidance, creating uncertainty for investors. However, the report also served as a stark reminder of the competitive landscape facing Elevance Health, a major player in the U.S. health insurance market.
UnitedHealth Group’s UnitedHealthcare division continues to dominate, boasting significant market share gains in both employer-sponsored and individual insurance markets. The division generated a hefty $74.9 billion in revenue during the quarter, a substantial increase from the previous year. This aggressive growth presents a direct challenge to Elevance Health’s membership growth strategy, potentially making it difficult for the company to retain and expand its customer base.
Adding to the competitive pressure is UnitedHealth’s Optum division, a major player in healthcare services and pharmacy benefit management (PBM). Optum reported a remarkable $63.9 billion in revenue, demonstrating a significant increase from the same period last year. Optum’s expanding reach into healthcare services, including direct care delivery and managed services, directly threatens Elevance’s Carelon business. Carelon aims to integrate healthcare services with insurance operations, putting it in direct competition with Optum’s expanding services. As Optum continues its aggressive expansion, Elevance may face increasing pressure to accelerate its own service expansion, potentially straining its resources and profitability in the short term.
Further compounding the challenges for Elevance Health are the rising medical costs and regulatory scrutiny facing the healthcare and insurance industry. UnitedHealth’s medical cost ratio (MCR) increased from 82.3% to 85.2% year-over-year, reflecting the industry-wide challenge of managing costs. Both Elevance and UnitedHealth are navigating these pressures, but UnitedHealth’s ability to manage costs and grow its membership base may give it an edge over Elevance in the near future.
Adding to the uncertainty surrounding the industry is ongoing litigation concerning PBM practices, under investigation by the Federal Trade Commission (FTC). Elevance, along with UnitedHealth and CVS Health, has requested the recusal of FTC Chair Lina Khan from the case, highlighting the intense scrutiny facing major PBM operators. While UnitedHealth’s stock decline may have been partly driven by these legal uncertainties, the investigations could also raise investor anxiety regarding how they might impact Elevance’s own operations and financial outlook.
The market’s reaction to UnitedHealth’s earnings report serves as a reminder of the complexities and challenges facing the healthcare insurance sector. As both Elevance and UnitedHealth navigate these challenges, investors will closely monitor their ability to manage costs, grow their membership base, and adapt to evolving regulatory landscapes.