Centene's expected hit to EPS this year 'horrifying', says Jim Cramer

Key Concepts:

• Managed Care Companies
• Centene (Government Supported Healthcare Plans)
• Full Year Forecast Withdrawal
• Health Insurance Marketplace Data
• Actuarial Firm
• Obamacare Exchange Plans
• Risk Adjustment Revenue Transfers
• Earnings Per Share (EPS)

Centene's Stock Plunge and Forecast Withdrawal

The primary topic is the significant decline in the stock price of Centene, a managed care company specializing in government-supported healthcare plans. The stock experienced its worst single-day performance, plummeting over 40%. This was triggered by the company's withdrawal of its full-year forecast after the market closed.

Analysis of Health Insurance Marketplace Data

Centene's decision to withdraw its forecast stemmed from an analysis of health insurance marketplace data provided by an independent actuarial firm. This firm covered 22 out of the 29 states where Centene operates. The data revealed two critical issues:

1. Lower Market Growth: The overall market growth in the 22 states was lower than Centene had anticipated. This means fewer individuals enrolled in plans offered through state healthcare exchanges (Obamacare exchanges).
2. Less Healthy Enrollees: Individuals who did enroll in these Obamacare exchange plans turned out to be less healthy than expected. This translates to higher healthcare costs for Centene.

Impact on Risk Adjustment Revenue and Earnings

Centene's preliminary analysis of the data led the company to anticipate a $1.8 billion reduction in expected risk adjustment revenue transfers from the federal government. Risk adjustment is a mechanism designed to compensate insurers for enrolling a disproportionately sick population. A reduction of $1.8 billion is considered a "huge hit."

As a consequence of the reduced revenue, Centene's management now expects a $2.75 hit to earnings per share (EPS) for the current year. This is a substantial downward revision, especially considering that in late April, Centene projected earnings of over $7.25 per share for 2025. The speaker emphasizes the magnitude of this reduction.