Jim Cramer on what is behind Centene's 40% drop

Centene's Financial Performance and Forecast - Centene's stock plunged over 40%, marking its worst single-day performance, after withdrawing its full-year forecast [1] - The company expects a $18 billion (18,000 million) reduction in expected risk adjustment revenue transfers from the federal government [4] - Management anticipates a 275% hit to earnings per share (EPS) this year, a significant downturn from the initial expectation of earning more than $725% per share for 2025 [5] - The assessment is based on data from a firm that only covered 22 of the 29 states where they offer exchange plans, and they're assuming that those states will be just as bad [6] Healthcare Exchange and Medicaid Challenges - Overall market growth in the 22 states is lower than expected, indicating fewer people signed up for plans from the state healthcare exchanges [3] - Individuals who enrolled in Obamacare exchange plans are less healthy than anticipated, leading to higher costs for Centene [4] - Centene's Medicaid business has experienced a step up in medical cost trend, particularly in behavioral health, home health, and high-cost drugs, especially in New York and Florida [7][8] - The second quarter Medicaid health benefits ratio should be higher than it was in the first quarter [8] Industry-Wide Concerns and Potential Impacts - The government is cracking down on inappropriate or fraudulent enrollments in healthcare plans sold on exchanges [10] - The population remaining in Obamacare exchanges is less healthy, requiring more healthcare and making them less lucrative customers [12] - Analysts suggest that Centene will likely have to raise its premiums, potentially leading to fewer people enrolling, creating an "insurance spiral" [14] - Negative trends in Obamacare exchanges and higher costs for Medicaid plans are hurting the managed care industry [17]