Shares of insurers Molina Healthcare Inc. and Centene Corp. sank Monday, one trading day after the state of Ohio picked some competitors to administer its Medicaid program for more than 1.5 million people.
State officials said Friday they selected Aetna Better Health of Ohio, CareSource, Meridian Health Plan, Paramount Advantage and United Healthcare Community Plan of Ohio. Medicaid is a state and federal program that covers the aged, blind, needy and disabled. States hire private health insurers to run their Medicaid programs.
Aetna and Meridian Health are new entrants to the Ohio program, Bernstein analyst Ana Gupte said in a research note.
The loss is "most problematic" for Long Beach, Calif.-based Molina, Citi analyst Carl McDonald said in a separate research note. He called Ohio Molina's most important state and said it is expected to generate more than $1.2 billion in premiums this year, or about 20 percent of the company's total.
But he also noted that Ohio's contribution to Molina earnings would have dropped in the next couple of years due in part to growth in the rest of Molina's business. McDonald also said the loss means Molina now has capital it would have used to support its Ohio program available for other expansions.
Centene plans to file a formal protest over the lost contract, the St. Louis company said in a filing with the Securities and Exchange Commission.
Ohio represented about 9 percent of Centene's revenue, Goldman Sachs analyst Matthew Borsch said in another note. Other incumbent providers pushed out for the contract, which starts in 2013, include WellCare Health Plans Inc. of Tampa, Fla., and Amerigroup Corp. based in Virginia Beach, Va. Ohio represents a much smaller portion of revenue for those companies compared to Molina and Centene.
Borsch said the decision could put these companies, all of which focus on government business like Medicaid or Medicare, at a disadvantage later this year, when Ohio awards a potentially lucrative contract to cover and coordinate care for people who qualify for both Medicaid and Medicare.
Shares of Molina fell $9.36, or 26.7 percent, to $25.65 Monday, while Centene's stock dropped $7.83, or 15.4 percent, to $42.97.
Shares of WellCare lost 7.4 percent and Amerigroup stock fell 4.8 percent as the broader markets declined about 1 percent.