Managed Care Organizations: Medicaid Cuts Loom if House Approves Senate Version of Budget Bill

In a 50-50 vote broken by Vice President JD Vance, Senate Republicans advanced their budget reconciliation bill. According to estimates from the Congressional Budget Office, the bill would cut 12 million people from Medicaid rolls by 2034.

Why it matters: In counterintuitive moves, most managed care stocks rose substantially after the July 1 vote, including leading Medicaid insurer Centene, which was up over 3% as of this writing.

• The difficulty of getting this vote across the line in the Senate suggests the House of Representatives’ vote may not be straightforward. Previously, the House approved its version of the bill by just a single vote.
• The Senate’s version appears to create concerns for both moderate and conservative Republicans in the House. For example, it would cut 1 million more people from the insurance rolls, and the budget deficit would be higher than the House version.

The bottom line: While we are maintaining our fair value estimates for now, we would consider revising our profit estimates for the managed care organizations in the intermediate and long term if the House approves the Senate’s version of the bill.

• As highlighted in our April research report, Centene’s profits look most at risk, due to Medicaid spending cuts and the pending expiration of individual plan subsidies. However, we see considered changes as immaterial to the other covered MCOs, especially after factoring in recent cash flows.
• Our recent moat rating updates in the industry also considered similar potential regulatory changes, including Centene’s no-moat rating, and we do not anticipate making further changes because of the possible passing of this bill on the MCOs.