Health insurer Clover Health Investments (CLOV 0.12%) has been under the weather for much longer than December, trailing steadily lower from the peak it hit in June when it rode the wave of a renewed meme stock trading frenzy.
But last month was a particularly tough month as investors saw their shares of Clover lose another 25% of their value, according to data provided by S&P Global Market Intelligence, and there's nothing to indicate January won't be more of the same. At least investors can console themselves that its performance wasn't as bad as it had been in November, when it lost over a third of its value.
Those heady days of June seem like a distant memory now as its business operations deteriorate. While Clover was taking care of more Medicare patients in the third quarter, up 125% year over year, it was also paying out more in claims than it was taking in in premiums as its medical care ratio (MCR) was 102% compared to 86.7% last year.
Clover, though, maintains that when you adjust for the impact the COVID-19 pandemic has on repayment rates and patient risk rates, which affects premium revenue, its normalized MCR was 94.8%, an improvement over the 94.6% rate last year.
Perhaps, but investors were still bothered by Clover further diluting their stake in the company. It sold 60 million new shares (including the option offered to the underwriters) at a price of $5.75 per share, a big 12% increase in its share count, offered at a discount to where Clover had been trading.
Without stock buybacks, those extra shares will end up reducing per-share earnings in the future.
Clover Health turned a profit according to generally accepted accounting principles (GAAP) of $12.7 million in 2021 into a $34.5 million loss this year, but even on an adjusted basis, normalized earnings before interest, taxes, depreciation, and amortization (EBITDA) saw the health insurer's losses nearly double from $36.8 million to more than $61 million in the current quarter.
One of Clover's primary drivers for growth is supposed to be its Clover Assistant program that helps physicians reduce the cost of providing care to Medicare Advantage patients and get reimbursed faster by Medicare. In doing so, Clover believes doctors will be incentivized to remain on the platform longer, especially because Clover reimburses doctors with an amount that is about twice the industry average.
That seems like a problem. While Clover wants to reduce costs to make up the difference from what its paying out, this elevated payment schedule doesn't seem sustainable. It even admits it doesn't really know if Clover Assistant actually helps. "We may not fully understand the impact of the Clover Assistant on our business and long-term prospects," the company said in a report to the Securities and Exchange Commission.
That doesn't generate a lot of confidence in the health insurer and suggests Clover Health's stock may have a lot further to fall.