Health insurance companies have a problem — people are using their plans more

When medical insurance provider Centene (CNC) opened its books to investors on Friday, the company reported a surprising loss and an uptick in usage.

The latter is a broader problem for the industry.

In the second quarter, Centene reported an adjusted loss of $79 million and a “health benefits ratio” of 93%. Its benefits ratio, or the amount of its revenue derived from premiums that it pays out for medical care, jumped from 87.6% in the same quarter last year.

Moves in that figure can have outsized effects on health insurers’ financial performance.

“Because of the narrow margins of our health plan business, relatively small changes in our HBR can create significant changes in our financial results,” Centene wrote in its Q2 earnings report.

And the problem is not isolated to Centene.

Elevance Health (ELV), which offers plans including Blue Cross and Blue Shield, reported a similar jump in its “benefit expense ratio” to 88.9% in the second quarter, up from 86.3% in the same quarter last year.

Both Centene and Elevance attributed the jump to their government-subsidized offerings under the Medicaid and Medicare programs.

Molina Healthcare (MOH), which reported Q2 earnings earlier this month, reported a similar outlook, attributing its lowered earnings guidance to the same trend facing other medical insurers.

“The short-term earnings pressure we are experiencing results from what we believe to be a temporary dislocation between premium rates and medical cost trend which has recently accelerated,” Molina CEO Joseph Zubretsky said in a statement.

Elevance stock dropped by roughly 12% after its report earlier this month, while Molina stock dropped by roughly 8%. Both stocks have remained depressed since.

Health Care (XLV) is the worst-performing sector in the S&P 500 this year.

Centene stock dropped by roughly 15% in premarket trading after its earnings release before recovering to a positive gain of roughly 6% by the closing bell on Friday.

The buoy was led by CEO Sarah London’s announcement that Centene was reinstating earnings guidance after pulling this forecast earlier in the month. The company also reported revenue of $48.7 billion, which topped estimates for $44.2 billion, and said it expects to be able to raise the payments it gets from states for Medicaid plans, which would improve its margins.

The premium-to-cost ratio will be closely watched at UnitedHealth Group (UNH), which refers to this measure as its “medical care ratio” (MCR) and is slated to release Q2 earnings next week.