CNBC’s Jim Cramer has warned investors to steer clear of the managed care sector, citing recent troubling developments from Centene as a signal of broader industry challenges. He emphasized that the entire managed care industry has become “borderline un-investable” following the healthcare company’s abrupt decision to withdraw its full-year earnings forecast. Cramer predicted further pain for the sector, advising investors not to be tempted even by stocks that have already suffered steep losses.
Earnings Slashed as Centene Faces Slower Growth and Rising Healthcare Cost Pressures
Centene, a company heavily involved in government-sponsored healthcare programs like Medicaid and Medicare, shocked investors by slashing its earnings guidance. The company reduced its projected adjusted diluted earnings per share from $7.25 to just $2.75, citing significantly lower-than-expected market growth in the majority of the states it serves. This unexpected move triggered a steep sell-off, with Centene’s stock dropping over 40% to a new 52-week low, and pulling down other stocks in the managed care sector.
Jim Cramer Warns Investors as Centene’s Collapse Signals Crisis in Managed Care SectorCramer pointed to rising healthcare costs as a central issue plaguing insurance providers. He explained that insurers like Centene are being forced to spend more than anticipated to cover their policyholders’ healthcare needs. Compounding this issue, there appears to be a drop in healthier enrollees within the healthcare exchanges, leaving a more expensive pool of less healthy individuals. This trend further stresses profitability and hints at deteriorating fundamentals across the sector.
Premium Hikes, Policy Shifts Threaten Centene’s Future Amid Mounting Industry Pressures
According to Cramer, Centene may have to raise premiums to keep pace with the rising cost burden, but this move risks driving away potential enrollees. He noted that only those with severe medical needs—who are also the most expensive to insure—are likely to stay enrolled, creating a negative feedback loop for the company’s finances. Moreover, if unfavorable market data emerges from additional states, Centene’s earnings could face even more pressure.
Legislative changes may further complicate Centene’s outlook. Cramer highlighted President Trump’s recently passed Senate bill, which includes major Medicaid reforms that could shrink Centene’s customer base significantly. The bill not only threatens to reduce the number of insured Americans but also curbs the fees that help finance Medicaid, creating added financial strain for providers. Cramer concluded that while Centene is bearing the brunt of these developments, the broader health insurance sector is deeply troubled, with systemic issues still unfolding.
