Higher utilization is putting pressure on Medicare Advantage medical cost ratios and will likely continue through the end of 2023, executives from CVS Health and Humana told investors.
CVS Health revised its 2024 earnings-per-share guidance from $9 to $8.50 to $8.70, citing a challenging Medicare Advantage environment as one of the factors for the change.
The company assumes Medicare Advantage utilization rates will stay elevated through the end of 2023, CFO Shawn Guertin told investors on an Aug. 2 call.
The trend is isolated to Medicare Advantage, executives said, with costs for commercial and Medicaid businesses in line with expectations. Costs are mostly increasing among outpatient services, Dan Finke, president of Aetna, said.
"This is likely due to some of these services that have been postponed by our seniors not feeling comfortable accessing the healthcare system during the pandemic," Mr. Finke said. "You can think about this as outpatient orthopedic procedures, hips and knees, some cardiac procedures, a little bit of increase in dental, and we're still seeing some continued levels of elevated mental health use."
CVS Health's medical benefit ratio increased to 86.2 percent in the second quarter, compared to 82.7 percent during the same period last year.
Humana reported it was expecting higher rates of medical utilization in non-inpatient care in June.
On a call with investors Aug. 2, Humana CFO Susan Diamond said this increased utilization is stabilizing and in-line with updated estimates the company published in June.
Ms. Diamond said the growth in outpatient rates is somewhat offset by declining inpatient care costs.
"While we would typically not comment on 2024 this early in the year, given the questions in the market regarding pricing resulting from the higher-than-expected utilization in 2023, I would reiterate that our Medicare Advantage pricing contemplated the rate environment, emerging utilization trends and related offsets, as well as the competitive landscape and resulting growth opportunity," Ms. Diamond said.
Humana's benefits expense ratio was 86.3 percent in the second quarter, up from 85.8 percent in the same quarter of 2022.
Humana is planning to offset some of the additional costs in its Medicare Advantage business by finding ways to cut administrative costs, Ms. Diamond said.
"The main lever that I would say that we're relying on internally to offset some of the elevated trend in the back half of the year is more administrative expense savings," she said.