Humana
set off the second managed-care selloff in two weeks, revealing that the medical costs it paid out in the end of 2023 were starkly higher than anticipated.
The
Humana
news, disclosed via a filing with the Securities and Exchange Commission, ramps up investors’ anxiety over the prospects of the Medicare Advantage business, the federally-funded private insurance plans for older Americans. A long list of managed-care companies have plunged significant resources into that area.
It also highlights the lingering impact of Covid-19. While Humana’s Thursday announcement doesn’t mention the virus, the company attributes the higher costs it paid in November and December to high levels of hospitalizations among older adults. The virus was surging during those months.
Though the public is less focused on the virus, and vaccination levels have plummeted, Covid-19 has shown a persistent ability to drive abrupt surges in medical spending that surprise investors.
Humana shares was down 12% shortly after the open, while shares of the managed-care provider
CVS Health
were down 4.8%,
UnitedHealth Group
was down 4.6%, and
Elevance Health
lost 5.2%. Even
Cigna Group,
which is reportedly on the brink of selling its Medicare Advantage business, was down 2.1%.
Health insurers had been warning for months that older Americans have been using medical services more heavily than normal, and investors have had some signs that Medicare Advantage costs were high in the final months of 2023. Last Friday,
UnitedHealth Group
reported that its medical costs in the fourth quarter of the year were well above expectations, citing the impact of Covid-19, among other factors.
Humana shares dropped 3.6% on the day of UnitedHealth’s earnings report, while CVS shares dropped 3%, and UnitedHealth itself fell 3.4%.
The Humana announcement on Thursday, however, appears to paint an even grimmer picture for Medicare Advantage than the UnitedHealth earnings did.
Humana said that Medicare Advantage costs in November and December were higher than anticipated, due to higher-than-expected hospitalizations, among other reasons. The company said it expected that its fourth quarter adjusted insurance-segment benefit ratio, the proportion of premiums paid out to cover medical expenses, to have been 91.4%. The metric is more commonly known as a medical loss ratio
The company had expected an adjusted insurance benefit ratio for the quarter of 89.5%, while analysts had expected an 89% ratio, according to
FactSet.
Humana said that because the surge in medical spending came late in the year, it wasn’t able to make adjustments to avoid a significant drag on earnings. It now expects to report adjusted earnings of $26.09 a share for the full 2023 fiscal year, well below the FactSet consensus estimate of $28.29.
While the company didn’t lay out financial forecasts for 2024, it said that the impact of the higher utilization trends could be significant. “The Company is currently assessing the expected impact of emerging utilization trends on its 2024 outlook, which is anticipated to be material if current trends continue, and will provide an update on its fourth quarter 2023 earnings call,” Humana said in its SEC filing.
Humana said it would issue a full report on its fourth quarter earnings on Jan. 25.
Write to Josh Nathan-Kazis at josh.nathan-kazis@barrons.com and Angela Palumbo at angela.palumbo@dowjones.com
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