Humana, a major healthcare insurer, experienced an 11% drop in stock value, marking its lowest since February 2022. The decline followed difficulties in offsetting higher-than-anticipated medical costs in the fourth quarter of 2023. Despite strategic efforts to manage expenses, the insurer faced challenges due to an unexpected surge in seniors seeking non-essential care. Additionally, Humana revised its Medicare Advantage growth projections for the year, reflecting potential impacts on its revenue. Analysts suggest the decelerated growth may alleviate cost pressures. To address investor concerns, Humana expedited its fourth-quarter earnings release to January 25, aiming to provide transparency on its challenges and reassure investors.
Humana, a prominent healthcare insurer, faces a significant downturn in its stock value, signaling challenges in managing escalating medical costs. The unexpected surge in seniors seeking delayed care during the COVID-19 pandemic posed financial hurdles for the insurer. Despite industry-wide assurances of strategic cost containment measures, Humana struggled to offset the full impact of rising medical expenses. This article delves into the factors contributing to Humana’s stock decline, exploring the implications of heightened medical costs and a revised outlook on Medicare Advantage growth. The repercussions of these challenges are examined in the broader context of the healthcare insurance landscape.
Humana Faces Stock Downturn Amidst Challenges in Medical Costs and Reduced Growth Projections
While several insurers are yet to disclose their fourth-quarter results, UnitedHealth has already reported its highest medical costs since the onset of the pandemic at the close of 2023. This trend has raised concerns among major insurers, as discussed during the J.P. Morgan healthcare conference in San Francisco. Insurers, including Humana, assured investors that strategic measures such as plan pricing and cost containment would mitigate the impact of escalating medical care costs.
Contrary to these assurances, Humana faced challenges in offsetting the entirety of the unexpectedly high medical costs that persisted throughout the fourth quarter. In a filing with the Securities and Exchange Commission on Thursday, it was revealed that the payer couldn’t fully counteract the surge in medical expenses.
Humana received claims in December and January indicating higher inpatient and outpatient utilization than initially projected. The increased usage of physician care, outpatient surgeries, and supplemental benefits primarily contributed to the higher outpatient trend. As a result, Humana anticipates its fourth-quarter medical loss ratio, a metric gauging the percentage of insurer spending on patient care, to reach 91.4%, compared to its prior guidance of 89.5%.
While Humana has not guided for the year 2024, it acknowledged that the outlook for the current year could be jeopardized if the elevated utilization of medical services persists. Additionally, the insurer revised its expected Medicare Advantage (MA) growth for the year, signifying a notable shift for the company.
As the second-largest provider of MA plans in the U.S. after UnitedHealth, Humana heavily relies on Medicare premiums, constituting the majority of its revenue. Having realigned its business focus entirely on government plans earlier in the year, any impact on MA growth is significant for the insurer.
The federal government released MA enrollment data for 2024, indicating an anticipated slowdown in overall MA enrollment growth for the third consecutive year, expected to be around 5.6%. Analysts, based on CMS data, projected Humana’s MA enrollment growth to slow to 3% to 4% in 2024. However, Humana countered this by suggesting an even more conservative estimate, projecting growth to be under 2%, equating to approximately 100,000 new MA members over the year.
During the open enrollment period from mid-October to early December, Humana reported that its sales were in line with expectations. However, the significant volume was driven by existing members changing plans, resulting in fewer new members than anticipated. The insurer also experienced more attrition during the period than initially planned.
Despite the decelerated growth, analysts have indicated that this might not be entirely detrimental for Humana. Faster membership growth could have exacerbated cost pressures, as highlighted in a note by J.P. Morgan’s Lisa Gill. Nevertheless, the market responded negatively to these developments, with Humana’s stock witnessing an 11% decline in morning trading, reaching its lowest level since February 2022.
Humana’s recent stock dip highlights the complexities insurers face in managing healthcare costs, exacerbated by a surge in demand for medical services. The impact on Medicare Advantage growth projections underscores the delicate balance between revenue streams and cost containment. While the decelerated growth may offer relief from heightened cost pressures, the market response signals investor concerns. Humana’s proactive move to expedite its earnings release reflects a commitment to transparency and addressing uncertainties. As the healthcare landscape evolves, the industry will closely watch how insurers navigate challenges to ensure financial resilience and sustained investor confidence.