By Sneha S K and Padmanabhan Ananthan
Oct 27 (Reuters) - Centene raised its annual profit forecast and said it expects 2027 earnings to be higher than this year, sending the health insurer's shares up 3%.
Higher medical costs in recent years due to elevated healthcare demand have squeezed margins for health insurers and prompted them to improve pricing and tighten cost controls.
Centene has made great progress managing cost trends and improving its cost structure, CEO Sarah London said on a post-earnings call.
The company expects 2027 earnings to grow from both its updated baseline of $4.70 per share and its raised 2026 adjusted profit forecast of more than $5.20 per share.
Analysts expect a profit of $5.34 per share for 2027, as per data compiled by LSEG.
"Investors may appreciate the positive expected growth trajectory, despite the uncertainty around the important Medicaid market next year," said Morningstar analyst Julie Utterback.
The company has been facing Medicaid enrollment losses due to stricter eligibility rules, which have pushed some beneficiaries off coverage rolls, leaving insurers with a relatively sicker population that requires more medical care.
States are opting for a more methodical approach to eligibility verifications, which should smooth membership impacts across 2027 and into early 2028, Centene said.
Centene said costs in its Medicaid plans for low-income individuals were in line with its expectations, in part due to higher reimbursement rates from states.
The company also said it was on track to breakeven in its Medicare Advantage business in 2026, a year ahead of expectations.
COSTS IN CHECK
Centene lowered its forecast for full-year medical cost ratio, a measure of premiums spent on medical care, to 90.4% to 91.1%, from 90.5% to 91.3% previously.
Its third-quarter medical cost ratio of 92.7%, which remained the same as last quarter, was also better than its expectations. Analysts had expected a ratio of 92.84%.
The company benefited from improved pricing in its Obamacare plans, established under former President Barack Obama's Affordable Care Act, as well as better performance in its Medicare Advantage plans for older Americans.
Centene earned third-quarter adjusted profit of 58 cents per share, higher than analysts' estimate of 10 cents.
(Reporting by Padmanabhan Ananthan and Sneha S K in Bengaluru; Editing by Shinjini Ganguli)