Dive Brief:
- A second major health insurer is warning investors about higher-than-anticipated outpatient care utilization that could hike medical costs, potentially cutting into profits.
- Humana filed an 8-K with the U.S. Securities and Exchange Commission on Friday morning saying elevated outpatient trends are expected to push its medical loss ratio, a marker of how much payers spend on patient care, toward the high end of its outlook for both the second quarter and the full year.
- UnitedHealth, the parent company of the largest private payer in the U.S., first flagged the trend during Goldman Sachs’ investor day on Tuesday, sparking a managed care selloff earlier this week. Stocks in large health insurers dipped again slightly on Friday morning following Humana’s filing.
Dive Insight:
Pent-up demand for healthcare delayed during COVID-19 is making a reappearance, pressuring medical costs for health insurers that had a financial windfall during the pandemic. The return of delayed services could once again raise health insurer spending that was suppressed as Americans avoided non-essential medical services during the pandemic.
The 8-K, filed in advance of Humana’s investor meetings, says Humana’s outpatient utilization has been higher than expected in recent weeks, including emergency room visits, outpatient surgeries and dental services. Humana’s inpatient utilization has also been higher than expected, diverging from seasonal patterns — unlike UnitedHealth, which said it wasn’t seeing elevated inpatient utilization.
Higher-than-expected inpatient utilization is notable as inpatient medical care is pricier than outpatient services, so generally has a stronger impact on payers’ medical costs.
“Those [inpatient] comments seem more negative as compared to [UnitedHealth’s] commentary,” SVB Securities analyst Whit Mayo wrote in a note on Humana’s 8-K.
Humana expects to reach the top end of its MLR range of between 86.3% to 87.3% in both the second quarter and through 2023.
Humana didn’t attribute the rising utilization to specific drivers, but UnitedHealth chalked it up to normalizing medical activity after COVID kept seniors away from non-essential care.
“We’re seeing as behaviors kind of normalize across the country in a lot of different ways and mask mandates are dropped, especially in physician offices, we’re seeing that more seniors are just more comfortable accessing services for things that they might have pushed off a bit,” said Tim Noel, UnitedHealth’s chief executive for Medicare and retirement, during Goldman’s investor conference.
Like UnitedHealth, Humana has also incorporated the higher outpatient trend into its Medicare Advantage bids for 2024 placed early June.
Humana said it expects to offset higher costs through ongoing expense reductions, higher investment income and general business outperformance. The Louisville, Kentucky-based insurer plans to reaffirm its full-year earnings guidance issued earlier this year during its investor meetings.
Humana also noted MA membership growth in the second quarter has been better than preliminary expectations. The growth does include more age-ins, or seniors newly eligible for Medicare, than Humana expected. Those members, as compared to the average new member, generally result in a higher MLR.
Humana — currently the second-largest MA payer after UnitedHealth — has said it expects MA membership to increase 17% in 2023 compared to 2022, higher than expected industry growth. The payer announced earlier this year it would exit the employer insurance business altogether to focus on government programs.
The resurgence in volume is resulting in wary health insurers, but bodes well for hospitals, especially those with a large outpatient footprint like Tenet.
Many providers have struggled financially during the pandemic with low utilization and subsequent loss of revenue, but recent surveys have indicated significant volume growth for hospitals in the second quarter as demand returns and labor shortages ameliorate, freeing up capacity.
One recent analysis found 95% of hospital executives project outpatient volumes will increase this year, and 40% foresaw increases of 10% or higher.
