Dive Brief:
- Humana beat Wall Street expectations on earnings and revenue in the second quarter, reporting a topline of $26.7 billion, up 13% year over year, and profit of $959 million, up 38% year over year.
- Rising medical utilization earlier in the quarter appears to have stabilized based on recent claims activity, management said. The payer on Wednesday reiterated 2023 medical loss ratio guidance of between 86.3% and 87.3%.
- Humana also raised its Medicare Advantage membership growth expectations following the quarter. The Louisville, Kentucky-based health insurer now expected to add 825,000 MA members in 2023.
Dive Insight:
Humana’s stock rose following the earnings, which — along with comments from other payers — suggest the uptick in outpatient care flagged earlier in the quarter is moderating.
Humana reported a MLR of 86.3% in the second quarter, up from 85.8% same time last year but better than analysts expected. It’s at the midpoint of Humana’s range for 2023, despite Humana warning investors in June that its MLR would likely be at the top end of guidance.
The results indicate higher-than-anticipated MA utilization “has stabilized,” CEO Bruce Broussard told investors on a Wednesday morning call.
However, higher-than-anticipated inpatient utilization has continued, according to CFO Susan Diamond.
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.
“All in, we view utilization data received in recent weeks as incrementally positive compared to the assumptions utilized in our June update. That said, we continue to point you to the top end of our full-year insurance segment [MLR] range,” Diamond said on the call. “We’ll continue to monitor emerging trends.”
Humana added 127,000 Medicare Advantage lives in the second quarter, better than internal expectations. A little more than half the added lives are dual-eligibles, which typically results in higher medical costs. That “should have pressured MLR, but the effect wasn’t seen,” Jefferies analyst David Windley wrote in a note on the results.
Humana has also seen a “substantial increase” in age-ins as a percentage of total sales, Broussard said.
Age-ins, or seniors newly eligible for Medicare, tend to have higher initial medical costs, but also higher retention rates than the average new MA member, according to the CEO.
Humana — currently the second-largest MA payer after UnitedHealthcare — announced earlier this year it would exit the employer insurance business altogether to focus on government programs.
The payer raised its MA membership growth outlook to 18% growth, or about 825,000 more people, in 2023 overall — ahead of earlier forecasts of 17%, Diamond said.
The increase is because Humana expects more Medicare-eligibles to shop for plans, amid benefits reductions stemming from new CMS rates and star ratings headwinds experienced by Humana competitors like Aetna and Centene, according to Broussard.
“As a result of this direct disruption, we believe Humana has an opportunity for another robust year of membership growth,” Broussard said.
