Shares in Molina Healthcare Inc (MOH.N) fell more than 27 percent after the health insurer withdrew its 2012 earnings forecast, citing margin pressure in a Texas Medicaid plan where the company's costs were outstripping premium revenue.
The stock, which fell to $18.69 in early trading, was the biggest percentage loser on the Nasdaq.
Analysts said other health insurers including Amerigroup Corp AGP.N, Centene Corp (CNC.N) and Cigna Corp (CI.N) could also be hurt by plans that service El Paso and Hidalgo counties. Centene was down about 10 percent, while Amerigroup fell about 5 percent.
"We estimate that the company's commentary implies a 94 cent impact to earnings per share," Barclays analyst Joshua Raskin said in a note to clients.
The company, which recently lost Medicaid contracts in Ohio and Missouri, forecast 2012 earnings of $1.75 per share in April.
Molina covers about 30,000 aged, blind and disabled people in Hidalgo and 13,000 in El Paso.
"Amerigroup enrolls 10,000 aged, blind, and disabled lives in El Paso, while Centene enrolls 22,000 lives in Hidalgo. Cigna also has a presence in Hidalgo with 15,000 lives," Citigroup analyst Carl McDonald said in a note.
Barclays' Raskin said he did not expect Molina to be able to rectify the issues quickly and that the insurer may need relief from the State of Texas to improve the profitability of its plan.