By Raghav Mahobe and Nandhini Srinivasan
(Reuters) -Centene Corp on Tuesday said profit at its fast-growing Medicare Advantage (MA) business will take a beating in 2024 due to a sharp cut in its rating by a U.S. federal agency and likely lower-than-expected government payouts to health insurers.
The gloomy outlook for MA, one of the fastest growing businesses for health insurers, clouded Centene (NYSE:CNC)'s fourth-quarter profit beat and sent the company's shares down nearly 2% in early trade.
Health insurers who operate MA plans have come under pressure after the U.S. Centers for Medicare and Medicaid Services (CMS) recently proposed new rules for an audit program to avoid overpaying the companies.
The agency proposed a 2.3% drop in reimbursement rates last week, compared with a 5% growth in 2023. The final rates are expected by April 3.
Bigger rival Cigna Corp (NYSE:CI) has also said if the rate change goes through, it "will create some revenue dislocation".
Centene does not expect its MA business to grow next year and it will likely "shrink a little", Chief Financial Officer Andrew Asher said in a post-earnings conference call.
Asher said the company expects negative profit margins in the business in 2024 temporarily, after CMS cut star rating for Centene's MA plans in October.
MA plans are government-supported insurance plans that private companies offer people over 65 years of age.
In the fourth quarter, Centene reported an adjusted profit of 86 cents per share, beating Wall Street estimates by a cent.
The company said its quarterly health benefits ratio, which measures medical costs in relation to premiums collected, stood at 88.7%, better than estimates of 88.8%, according to six analysts polled by Refinitiv.
Revenue from Centene's Medicare health insurance business rose about 24% to $5.45 billion from a year earlier.