HUM - Humana slips after flagging higher medical costs in Medicare Advantage business
2023-11-01 14:23:35 ET
Shares of Humana ( NYSE: HUM ) on Wednesday fell nearly 6% , after the U.S. health insurer flagged higher medical costs in its Medicare Advantage business and said it expects 2024 adjusted profit to be at the lower end of its previous guidance.
HUM stock was last down 5.7% to $493.80 in afternoon trade.
Managed-care players have been dealing with increased medical costs in general due to the surge in Medicare Advantage members opting to get surgeries delayed due to the COVID-19 pandemic.
Medicare Advantage is a Medicare plan offered by private insurers instead of the federal government, with these plans typically having lower out-of-pocket choice than traditional ones and offering additional benefits. Older adults have become increasingly more comfortable in signing up for these plans in order to get procedures that were pushed back during the pandemic.
The increased utilization trend in its Medicare Advantage business led Humana ( HUM ) to reiterate its targeted long-term range of 11% to 15% growth in 2024 adjusted earnings per share.
"Recognizing the increased utilization we have now seen in 2023 and prudently assuming this level of utilization continues into 2024, we currently anticipate growth at the low end of this range," HUM CFO Susan Diamond said on the earnings conference call .
Wells Fargo analyst Stephen Baxter weighed in with his thoughts: "Despite reaffirming 2024 EPS growth of 11-15% (albeit now low-end), we are not surprised to see stock pressure given commentary on non-inpatient (Medicare Advantage) trend and potential need to take some additional pricing action in 2025 to achieve targets."
Moreover, Diamond on the call said that Humana ( HUM ) had not seen an offset in non-COVID utilization, while also continuing to experience an increase in COVID admission in Q3.
The increased utilization also affected HUM's insurance segment, for which its benefit-expense ratio, or the percentage of payout on claims compared to its premiums, rose to 87.4% from 85.5% a year ago.
"Our insurance segment benefit ratio exceeded expectations by 40 basis points due to higher medical costs in our Medicare Advantage business," HUM CFO Diamond said.
For Q3, HUM reported adjusted earnings per share of $7.78, which beat estimates by 61 cents. Revenue rose 15.9% Y/Y to $26.42B, beating expectations by $840M.
Additionally, Humana ( HUM ) cut its full year 2023 GAAP earnings per share outlook to at least $26.31, from an earlier expectation of at least $26.91. The consensus revenue estimate is $28.30.
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Humana slips after flagging higher medical costs in Medicare Advantage business