Dive Brief:
- Humana is the latest victim of elevated medical costs in the fourth quarter. The health insurer on Thursday lowered its 2023 profit outlook after members utilized more healthcare than expected as the year drew to a close.
- Humana now expects $26.09 in adjusted earnings per share for full-year 2023, according to a financial filing. That’s down from its prior guidance of at least $28.25.
- Humana also lowered its expectations for growth in the lucrative Medicare Advantage program. The insurer now expects to increase MA membership 1.8% this year. Previously, Humana said it would outstrip expected industry growth of 6% to 8%.
Dive Insight:
Higher medical costs hit insurers starting in the second quarter last year as seniors who put off non-essential care during the COVID-19 pandemic returned in droves to their doctors’ offices.
Most payers have yet to report their fourth quarter results, but UnitedHealth recorded its highest medical costs since COVID-19 began at the end of 2023.
Other major insurers expressed concerns about ongoing costs during the J.P. Morgan healthcare conference in San Francisco earlier this month, though payers promised investors that they were heading off the worst of medical care spikes through plan pricing and cost containment measures.
That strategy hasn’t appeared to work for Humana. The payer was “unable to offset the entirety of the higher than anticipated medical costs that continued to increase through the end of the fourth quarter,” according to Thursday’s filing with the Securities and Exchange Commission.
Humana received claims in December and January that reflected higher inpatient and outpatient utilization at the end of the fourth quarter than the payer had anticipated. More seniors using physician care, outpatient surgeries and supplemental benefits primarily drove higher outpatient trend, according to the payer.
The utilization is expected to bump Humana’s fourth quarter medical loss ratio, a measure of how much the insurer is spending on patient care, to 91.4%, versus its prior guidance of 89.5%.
Humana hasn’t yet provided guidance for 2024 but said its outlook for this year could be at risk if the higher utilization continues.
The Kentucky-based insurer also slashed its expected MA growth this year. It’s a meaningful change for Humana, which is the second-largest provider of MA plans in the U.S. after UnitedHealth. Medicare premiums make up the lion’s share of Humana’s revenue, and the company refocused its business entirely on government plans earlier this year.
The federal government released MA enrollment data for 2024 on Wednesday. Direct year-over-year growth comparisons are shaky due to weaknesses in last year’s January release. Yet based on the data, analysts expect overall MA enrollment growth to slow for the third year in a row, to around 5.6%.
Humana was in the middle of the pack for MA open enrollment membership growth
Based on the CMS data, TD Cowen analyst Gary Taylor predicted in a Wednesday note that Humana’s MA enrollment growth could slow to 3% to 4% this year.
However, Humana says growth is likely to be even slower — under 2%, or about 100,000 new MA members over the course of this year.
Humana said its sales were in line with expectations during open enrollment, which runs from mid-October to early December, but significant volume was driven by existing members changing plans. That left Humana with fewer new members than the payer had expected. Humana also had more attrition during the period than it had planned, according to the filing.
Yet the decelerated growth may not be an entirely bad thing, analysts said. Faster membership growth could have exacerbated cost pressures, J.P. Morgan’s Lisa Gill wrote in a note on Thursday.
Humana’s stock dropped 11% in morning trading Thursday to its lowest level since February 2022.
Humana moved up its fourth quarter earnings release from Feb. 5 to Jan. 25 to more quickly address investors’ concerns.
