Health startup Clover Health reported its third quarter results on Monday, with the increase in Covid-19 delta cases hanging above its results.
Clover Health is a Medicare Advantage insurer focused on using data-driven primary care to reduce medical costs.
Here are three things to keep in mind if the company is reporting after the market closes.
Medical expenses
Clover Health posted a medical expense ratio of 111% for the second quarter of this year, driven by higher than expected Covid costs. That means the company paid out 11% more than it took in bonuses, resulting in unexpected losses during the quarter.
“We are more regional than dear [UnitedHealth] or Humana, so you’re more exposed to regional influences. And I think that’s made worse by something like COVID, “said Andrew Toy, Clover’s chief technology officer, when I interviewed him last month at the HLTH conference in Boston, Feeling for certain statistics around the company.”
The company says part of this oversized impact is due to the makeup of its membership; more than half come from underserved communities, compared to an industry average of 30%.
Clover predicts that full-year medical costs will normalize at 94% to 97%, but the delta increase in the third quarter could cause that measure to be missed.
Humana, the country’s second largest Medicare insurer, reported significantly higher than expected medical costs related to Covid in the third quarter, causing the company to lower its profit outlook for 2021.
Membership and sales growth
With a likely loss, investors will be suspicious of any signs of a slowdown in earnings or membership growth.
Clover announced to investors that it expects annual sales of $ 1.4 billion to $ 1.6 billion for the full year. Analysts estimate the company had third-quarter sales of $ 415.8 million.
The company kicked off the third quarter with 66,000 Medicare Advantage members, well on track to exceed its full-year forecast of 68,000 to 70,000 members.
In 2022, Clover will offer Medicare Advantage plans in twice as many counties as this year. The larger competitors are also expanding.
UnitedHealth Group, which employs tens of thousands of physicians in its Optum Care unit, plans to take advantage of this primary care benefit over the next year to help reduce the medical costs of health insurers and provide savings for its Medicare Advantage members.
“An infrastructure needs to be built, which we have done and continue to do in many markets so that providers, and Optum Care in particular, are able to manage it and [deliver] better results, lower costs and ultimately a simpler experience, “UnitedHealthcare CEO Dirk McMahon told CNBC in a Boston interview last month. As part of this effort,” they must be able to provide information to patients through their patient portal put “. called.
Stock reaction
The past 10 months have been a wild ride for Clover stock since the company was listed on the New York Stock Exchange on Jan. 8 through a merger with venture investor Chamath Palihapitiya’s Social Capital SPAC.
In February, Hindenburg Research accused the company of failing to disclose an SEC pre-listing investigation, which drew traders’ attention and increased short interest in the stock to 40%.
In June, retailers on Reddit led a short squeeze that propelled stocks to a record high of nearly $ 29 over the course of a week.
Clover’s Toy said in an interview that he appreciated the vote of confidence in the company from private investors.
“Investing in retail is democratizing access to financial products and services that may previously have been a bit focused in terms of access,” Toy said. “Clover is about providing great health care to everyone in the US while we all look at Medicare access. I think it’s a great topic there.”
But that meme trade has faded, and Clover stocks are down 73% from their June high. The reaction to a surprise in earnings gains could be relatively subdued as short interest in the stock fell to 13.4% this month, according to FactSet data.
Most of the healthcare technology stocks that have been listed in recent years are deep in bear market territory. Evercore ISI analyst Elizabeth Anderson said the general retreat in the tech sector was exacerbated by reopening trading this year.
“With the pandemic and all the attention to healthcare, you have had a lot of non-healthcare investors investing in healthcare … [and] You saw these people move to other sectors, ”said Anderson. However, she noted that health technology companies “have continued to grow well … and still perform reasonably well from a revenue and growth perspective. “
