HEALTHCARE

Private Insurers Used To Rely On Medicare and Medicaid For Big Profits. Now, The Programs Are Costing Them Billions.

Nearly 145M Americans — seniors, low-income, and disabled individuals — rely on public healthcare plans like Medicare and Medicaid. That’s around 42% of the population. But don’t be fooled: the primary beneficiaries of these cheaper healthcare plans haven’t been the patients but the private insurers who manage plans for virtually all Medicaid enrollees and half of Medicare users. However, this might soon change.

Insurance disturbance: For years, major insurers profited from government healthcare plans like Medicare Advantage and Medicaid. But post-pandemic, medical claims have surged, outpacing enrollments — and government reimbursements haven’t kept up with rising costs. The Centers for Medicare and Medicaid Services approved a modest 3.7% increase in 2025 Medicare Advantage plan rates, a slap in the face for insurers who expected more. Consequently, private insurers are bearing the brunt financially.

• Humana ($HUM), which manages Medicare plans for 6M Americans and receives 80% of its revenue from the program, axed its 2024 outlook after reporting a $541M loss in Q1.

• UnitedHealth ($UNH) CEO Andrew Witty said it would take several quarters for states to reimburse higher Medicaid costs.

Insurers Learn What it Means to “Pay Out of Pocket”

Due to rising costs and claims, private insurers have struggled this year, following years of strong market performance. CVS Health ($CVS) and Humana are down 26% and 16% year-to-date, respectively.

• In recent years, CVS’ Aetna business offered generous plans to catch up to industry leaders and had set a goal to add more than 600K members this year — a bet that turned out to be poorly timed.

• CVS CFO Thomas Cowhey stated that next year’s focus will shift to “margin over membership,” adding that the company might lose up to 10% of its Medicare plan users (WSJ).

Less for more: In response to these challenges, insurers intend to hike prices and cut benefits. UnitedHealth and others plan to reduce vision, dental, and prescription drug coverage — and some might exit markets entirely. But despite losing millions of Medicaid members last year, insurers saw revenue from these programs increase — indicating that shrinkflation is expanding beyond the grocery aisle.

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LARGECAP RECAP

☁️ Salesforce Growth Hits Record Low, Flashing Red Alarms For Software Companies

Most Americans might not know exactly what Salesforce ($CRM) does, but its latest warning is an omen for software firms everywhere. The customer relationship management giant, worth over $200B, just reported its slowest growth ever, with sales increasing only 9% year-over-year — the first time in its history that growth hasn’t hit double digits.

• Salesforce explained that businesses are taking longer to convert to paying customers as companies become more budget-conscious and cautious with software spending.

• The news sent $CRM plummeting over 21% on Thursday, marking its worst day since 2004.

SaaS slowdown: Salesforce’s warning wasn’t the only bad news in the tech space this week. On Wednesday, UiPath ($PATH) CFO Ashim Gupta noted that bigger deals face “increased deal scrutiny,” causing longer sales cycles. As a result, $PATH dropped more than 30%. With many software firms maturing, this trend could continue — with growth rates expected to slow further.

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Markets & Economy

Tesla ($TSLA) blasts Glass Lewis recommendation: Elon Musk’s $50B+ compensation package, recently struck down by a court, is up for another vote. But Glass Lewis, a major proxy voting service, advises investors to vote “no.” Tesla has responded. [Read]

Disney ($DIS) activist reportedly sells stake: After two proxy battle losses, activist investor Nelson Peltz has reportedly sold his stake in Disney, ending his push for serious changes at the entertainment giant. [Read]

Skydance submits sweetened Paramount ($PARA) bid: David Ellison’s Skydance Media has given Paramount a revised offer, which the board is set to review, possibly ending weeks of negotiations. [Read]

Business & Wealth

Jeep ($STLA) to launch $25K EV: Stellantis CEO Carlos Tavares announces plans to bring a “safe, clean, and affordable BEV to the US,” joining automakers like VW, Volvo, and Kia. [Read]

Argentina President to meet US tech leaders: Self-professed anarcho-capitalist Javier Milei is expected to meet with US tech leaders, including OpenAI’s Sam Altman, Apple’s Tim Cook, and Google’s Sundar Pichai, to attract investment. [Read]

IRS to expand free tax filing: Following a pilot with over 140K users in 10 states, the Internal Revenue Service will expand its free tax filing program nationwide in 2025, aiding millions with simple tax returns. [Read]

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DIGIT OF THE DAY

Unemployment Rates Rose in 78% of US Metro Areas In April

In the stock market, bad news can sometimes be good news. Over the past year, US unemployment has inched up from 3.4% to 3.9%. Recent data from the Bureau of Labor Statistics points to a contracting economy, with jobless rates rising in 305 out of 389 metro areas. In nearly 10% of these cities, unemployment jumped by more than one percentage point.

• According to Piper Sandler’s Chief Global Economist Nancy Lazar, 21 states — which account for nearly 40% of US GDP — saw their unemployment rates rise by 0.5 percentage points from their 12-month lows.

• Yesterday, the Bureau of Economic Analysis also revised the first quarter US GDP growth from 1.6% to 1.3%, indicating that the economy grew slower than expected.

But it’s all part of the plan: The GDP data signals that higher borrowing costs are starting to impact the economy — ironically, a positive sign for those waiting for interest rates to fall. Historically, a slowing economy and improving corporate earnings create “the best macro environment for stocks,” according to Bank of America strategists. Why? Because it often leads to lower interest rates.