Dive Brief:
- Humana on Thursday released a profit outlook for 2024 that fell well short of Wall Street’s already-diminished expectations, as the health insurer continues to be plagued by high medical spending on seniors.
- The Louisville, Kentucky-based payer expects to bring in $16 in adjusted earnings per share in 2024 — a whopping $13 short of analysts’ consensus expectations. In comparison, Humana brought in $26.09 in adjusted earnings per share this year.
- Humana also rescinded its earnings target for 2025. The health insurer’s stock plunged 15% in morning trade Thursday following the results.
Dive Insight:
Humana tried to prepare investors for its fourth-quarter earnings. The health insurer still missed Wall Street earnings expectations on Thursday by a startling degree.
Other insurers, including UnitedHealth and Elevance, have also said they’re seeing high medical costs that first rose last year continue into 2024. Though Elevance absorbed the worst of cost growth through premium increases, UnitedHealth did not.
Neither did Humana. Even after lowering its profit outlook earlier this month because of the higher spending, Humana still underperformed, posting results CEO Bruce Broussard called “disappointing” during a call with investors Thursday morning.
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 received “short stay” or brief admissions into the hospital, while fewer underwent observation visits in the emergency room, which are technically outpatient events, CFO Susan Diamond said on the call.
Short-stay admissions have a four times higher average cost than an observation event, according to Diamond.
As for outpatient spending, Humana had a higher cost per member in the fourth quarter than it had in the third due to increases in physician and outpatient surgical care and supplemental benefits.
“The increase in utilization that emerged late in the fourth quarter was a significant deviation from an already elevated level impacting the industry,” Broussard told investors.
Other payers have called out elevated spending on seasonal respiratory illnesses, like COVID-19 and RSV, but that wasn’t a contributor to Humana’s higher trend, according to management.
Humana's medical spending reached a decade-long high in the fourth quarter
Diamond called out recent government regulations requiring Medicare Advantage payers to relax their utilization management policies as a potential driver of the higher inpatient spending. The changes, which kicked in Jan. 1, require MA plans to comply with coverage determinations in traditional Medicare, and are expected to result in more care being approved (and correspondingly, more payer spending).
“We did have an expectation as a result of those changes that we will see a larger number of inpatient authorizations approved where in the old model they may have been downgraded say to an ER or observation event or denied for medical necessity. So we do anticipate a meaningful impact to inpatient utilization trends as a result of that,” Diamond said.
Humana will watch provider appeals and ultimate uphold rates to see how much the regulation will affect its outlook for 2024, according to the CFO.
Overall, Humana posted a net loss of $540 million in the fourth quarter, on revenue of $26.5 billion. That’s 30 times larger than the payer’s loss of $18 million same time last year.
Humana plans to raise premiums and cut benefits to boost its margins come 2025, and could even exit markets, management said. Though, Broussard noted the goal is not to “lose hundreds of thousands of members” as a result, analysts said the move will likely result in below-market membership growth.
And, “some areas will have disproportionate cuts which will have disproportionate impacts on membership,” Diamond said.
Humana is the second largest provider of MA plans in the U.S. after UnitedHealth, and has gone all-in on government plans, even refocusing its business entirely on MA and Medicaid early last year.
However, insurers are struggling with significant turbulence in MA as they attempt to adjust to the impact of risk adjustment and rate changes, along with other uncertainties. Humana is currently suing the federal government over its plan to audit MA payers, which could lead the HHS to claw back billions of dollars in overpayments from health insurers.
It’s Humana’s first earnings release since the payer’s potential merger with Cigna crumbled at the close of last year. The two companies were interested in merging into a large diversified healthcare organization, but the deal fell through following lackluster investor sentiment.
