Health insurer Centene Corp (CNC.N) said it would stop offering Medicaid cover in Kentucky, sending its shares up 12.7 percent as investors welcomed an end to the high cost of the business.
Centene posted its first loss in more than five years last quarter as high medical costs in its Kentucky and Texas Medicaid contracts outstripped premium revenue.
Centene said it would exit the Kentucky market effective July 5, 2013.
In addition, its Kentucky Spirit unit filed a formal dispute with Kentucky's Cabinet for Health and Family Services for damages incurred under the contract.
Centene expects to record a pre-tax premium deficiency reserve, or an estimate of loss on unearned premiums, of about $60 to $70 million related to the Kentucky operations in the third quarter ended September 30.
"Since the inception of the contract, we have been in discussions with the Cabinet about our concerns with the Medicaid managed care program but have been unable to resolve our differences," Jesse Hunter, Centene's executive vice president of operations, said in a statement.
"Consequently, we do not believe there is a viable path to a sustainable managed care program in Kentucky."
In June this year, Centene warned that its 2012 earnings will take a hit as it was seeing rising costs in its Texas and Kentucky health plans and also its Celtic business, which offers private health insurance.
Rival Molina Healthcare Inc (MOH.N) has also been seeing high medical costs at its Texas Medicaid plan and reported losses in the second quarter.
Centene shares jumped to $39.42 on the New York Stock Exchange before easing back to $38.77 by mid-morning.
(Reporting by Esha Dey in Bangalore)