Investor fears that health insurance companies are unprepared for a spike in utilization are dragging publicly traded company share prices while buoying for-profit health systems since the start of the year.

A fundamental mismatch between how insurers, providers and medical devicemakers have described demand for healthcare services during recent investor calls is stoking anxiety on Wall Street, said Gary Taylor, managing director and senior equity research analyst at the investment bank Cowen.

Large hospital systems reported strong growth in patient visits during the first quarter, device manufacturers reported higher sales related to more surgeries, but insurance companies are telling investors that utilization has been below expectations.

This discrepancy is raising questions among investors about whether insurers accurately modeled medical cost trends when developing policies and setting premiums for the year to the extent that profits will come up short. Health insurance stocks are down an average 13.6%, while shares of leading for-profit hospitals are up 18.2% so far in 2023. The Standard & Poor’s 500 has delivered an 8.9% rate of return so far in 2023.

“The bulk of the provider reporting showed that trend picked up, the medical device companies told you that trend picked up and the managed care companies barely beat and their reserves are down,” Taylor said. “In my mind, there’s no ambiguity about the fact that the trend picked up. But health insurance companies are not inclined generally to say that, or concede that because obviously that causes quite a reaction in their investor base.”

During the COVID-19 pandemic, patients deferred care, hospitals limited elective procedures, and interest rates rose and yielded strong investment returns, leading to record profits and reserves for insurance companies. Insurers predicted that patients would flock to providers with more severe health conditions and higher costs as the crisis waned and accordingly raised premiums. Yet these companies now say that hasn’t come to pass.

Still, the health insurance industry’s pandemic heyday may have come to an end. As of April, healthcare prices were up 3.4% from the prior year, the fastest rate of cost growth since 2007, according to a report the consulting company Altarum published in May. And utilization rose 4.3% the most in more than a year, according to Altarum.


The data affirm what health systems and devicemakers have reported.

Hospital companies attribute their strong financial performances to increased inpatient and outpatient visits. HCA Healthcare raised profit expectations for the year and announced plans to build more hospitals after demand grew. The Nashville, Tennessee-based health system said same-facility inpatient and outpatient surgeries respectively increased 3.6% and 5.1%, admissions grew 4.4%, and emergency department visits jumped more than 10%.

Medical device companies such as Stryker and Zimmer Biomet likewise raised profit forecasts after reporting strong demand.

Insurers are cautioning investors that the rise reflects pent-up demand, not an increase in high-cost, high-acuity cases, and that overall utilization remains lower than expectations.

Medicare Advantage enrollees are returning to outpatient facilities for hip and knee surgeries at higher levels than normal, UnitedHealthcare Chief Financial Officer John Rex during an investor conference this month. But across the company’s lines of business, pricey emergency department visits and inpatient stays remain below pre-pandemic levels, Rex said. UnitedHealth Group hasn’t altered its financial projections for the year.

“This is straight-up care activity, not cost-per-case. We’re not seeing anything with the acuity level but certainly a meaningfully higher level of cases being performed,” Rex said during the Goldman Sachs Global Healthcare Conference.

At the same event, Elevance Health likewise said emergency department visits remained lower than normal, but noted the company is not seeing patients catching up on deferred care. The insurer attributed its rising profits in the first quarter to a declining medical expenses.

CVS Health subsidiary Aetna said patient visits had normalized for the most part, with inpatient hospital stays lower than anticipated.

While every insurer met Wall Street’s profit and medical loss ratio expectations in the first quarter, investors worry that a decline in days claims payable could signal they’re experiencing unexpected medical expenses, which would cut into profits as the year progresses, Taylor said. Days claims payable measures how much money insurers hold in reserve to pay claims and generally goes down when utilization goes up. Nearly all of the large, for-profit insurers reported declines in days claims payable during the first quarter.

Insurers had to dip into reserves during the first quarter to meet Wall Street expectations, Taylor said. “Cost trends were up and companies didn’t want to miss MLR and didn’t want to miss earnings. My view is they used a little bit of those reserves to get to their earnings in the first quarter,” he said.

Health insurance companies attributed the decline to factors such as a lag in processing COVID-19 claims, rising pharmacy spending and higher payments to risk-bearing providers. All reassured investors that they have sufficient cash reserves and will meet their profit targets.

“Investors would prefer to see the reserves staying at a conservative level, given some of these uncertainties that are all out here with healthcare utilization trends,” said Scott Fidel, managing director at the financial services firm Stephens Inc. “It’s considered at least a yellow flag when the days claims payable do start to come down.”