June 11, 2012 / 12:15 PM / 6 years ago

Centene cuts 2012 view on high health costs, claims

(Reuters) - Centene Corp said its 2012 earnings will take a hit, the second major health insurer to do so in less than a week, due to margin pressures in Texas, where a new Medicaid contract led to unexpectedly high costs and claims.

The company’s shares plunged nearly a third to a low of $24.26 in early trade on Monday, pressuring the stocks of several rivals as well.

Centene said it will post a loss in the second quarter and slashed its earnings forecast for 2012, citing rising costs in its Texas and Kentucky health plans and its Celtic business, which offers private health insurance.

The company now expects 2012 earnings of $1.45 to $1.65 per share, down sharply from its previous outlook of $2.64 to $2.84 a share.

“The problems mostly seem to relate to new business, and Centene has been aggressive in picking up new business,” Wells Fargo Securities analyst Peter Costa said.

“We expect that in time Centene can work with the states to resolve these issues since several insurers seem affected by the same issues.”

Rival Molina Healthcare Inc withdrew its 2012 earnings forecast last week, saying high medical costs were outstripping premium revenue at its Medicaid plans servicing the El Paso and Hidalgo counties in Texas.

Centene too said on Monday it saw a significant rise in certain non-inpatient claims in its Hidalgo service area.

The health insurer said it was also evaluating the goodwill and intangible assets of its Celtic business and the review may result in a non-cash charge of about $28.0 million. The charge has not been accounted for in the current outlook, it added.

The charge can amount to an additional 53 cents a share, analyst Costa estimated.

Centene expects to return to profitability in the third quarter.

The company’s shares were dragged down last week, along with Molina. However, both stocks recovered much of their lost value later in the week as they won back Medicaid contracts in Ohio.

Shares of rival Amerigroup Corp, which has plans for the El Paso and Hidalgo counties, were down 7 percent at $58.34, while Molina and Cigna Corp were down marginally.

Reporting by Esha Dey in Bangalore; Editing by Sreejiraj Eluvangal and Supriya Kurane

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