Centene posts loss but promises profitability gains in 2026, shares rise

By Sriparna Roy and Sneha S K

July 25 (Reuters) - Centene CNC.N expects to deliver improved profitability in its three government-backed healthcare insurance businesses in 2026, it said on Friday, sending its shares up 5% and reversing previous premarket losses.

The comments followed the health insurer's surprise quarterly loss and a forecast for annual profit below Wall Street estimates.

Shares of the company initially plummeted 16% before the bell. They have fallen 55% so far this year.

The insurance sector has been under strain for the past two years due to rising medical costs.

Centene said the loss was due to revising down expected revenue from risk adjustment payments in 2025 related to individual healthcare plans created under the Affordable Care Act, which are subsidized by the government based on income. The program includes a risk adjustment pool that reimburses insurers who cover a disproportionate share of sicker members.

The company said it was working on repricing the ACA plans with an improved command of the trends and dynamics regarding the demand for medical care.

Centene is "making excellent progress against our goal to reprice 100% of the marketplace book," CEO Sarah London said on a conference call.

The insurance sector has been under strain for the past two years due to rising medical costs.

Insurers are not only grappling with increased utilization of behavioral health services, home care and high-cost drugs, but also the expiration of pandemic-era subsidies and Medicaid protections which has shifted enrollment toward sicker members, squeezing their margins.

Centene, which also manages Medicaid plans for low-income earners and Medicare Advantage plans for people aged 65 and older or with disabilities, posted a medical cost ratio of 93% for the quarter, well above Wall Street's expectation of 89.3% and a clear sign of pressure across all business lines.

The ratio measures the percentage of insurance premium revenue that it spends on medical services. Insurers typically target about 80%.

"We know where to focus, in terms of where to significantly move the needle," said London, referring to the Medicaid business.

Challenges ahead for Centene include an unanticipated shift in customer mix in 2025 related to tighter controls on enrollment outside of the annual sign-up period, the gap between contracted Medicaid payment rates with states and the actual cost of medical care and regulatory changes that will occur in 2026 and after, said CFO Drew Asher.

Centene said the lower payments, which reflect the relative health of the insurers' members compared to the overall patient population, combined with rising Medicaid expenditure drove Centene to a second-quarter adjusted loss of $0.16 per share, versus an expected profit of $0.86, according to data compiled by LSEG.

It expects 2025 adjusted profit per share to be about $1.75, compared to analysts' average estimate of $4.65. It is also far less than the more than $7.25 per share it expected previously.