What Happened?
Shares of health insurance company Clover Health (NASDAQ:CLOV) fell 20.3% in the afternoon session after the company reported mixed second-quarter results where rising medical costs and a wider-than-expected loss overshadowed strong revenue growth. The technology-focused insurer announced revenue of $477.6 million, which climbed past analyst forecasts, fueled by a 32% jump in Medicare Advantage membership. However, the company posted a net loss of $0.02 per share, a reversal from a profit in the same quarter last year and a miss on analyst expectations. Investors focused on the increase in the Insurance Benefits Expense Ratio (BER), a key metric showing the portion of premiums spent on medical care, which rose to 88.4%. Compounding the issue, Clover Health also raised its forecast for the full-year BER, signaling that these higher costs would likely persist. In response to the report, analysts at UBS cut their price target on the stock.
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What Is The Market Telling Us
Clover Health’s shares are extremely volatile and have had 42 moves greater than 5% over the last year. But moves this big are rare even for Clover Health and indicate this news significantly impacted the market’s perception of the business.
The previous big move we wrote about was 8 days ago when the stock dropped 3.5% on the news that industry bellwether UnitedHealth Group (UNH) slashed its 2025 profit forecast after reporting a significant surge in medical costs, sending shockwaves across the health insurance sector. The core of the issue stems from an “unprecedented medical cost trend environment,” particularly within the Medicare Advantage market, which are privately run versions of the federal health insurance program. UnitedHealth, the largest provider in this space, now expects these costs to rise by 7.5% in 2025, a significant jump from its earlier 5% projection, with the potential to accelerate to almost 10% in 2026. In response, the insurer announced it will drop plans covering over 600,000 people. The company's lowered earnings forecast has raised investor concerns that these surging costs and utilization rates are an industry-wide problem, impacting the profitability of other carriers as well.
Clover Health is down 27.2% since the beginning of the year, and at $2.28 per share, it is trading 52.7% below its 52-week high of $4.82 from January 2025. Investors who bought $1,000 worth of Clover Health’s shares 5 years ago would now be looking at an investment worth $215.08.
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