Humana is expecting higher medical costs and lower Medicare Advantage enrollment to hurt its year-end earnings.
In documents the company filed with the Securities and Exchange Commission Jan. 18, Humana said medical costs continued to climb in the fourth quarter of 2023. Humana reported a medical loss ratio of 91.4% in the fourth quarter, compared to the 89.5% it predicted. The company's full-year medical loss ratio in 2023 was 88%, higher than the 87.5% the company predicted.
Higher inpatient utilization and increased outpatient surgeries and supplemental benefit use drove the increase, according to the filing.
Humana "worked diligently throughout the year to leverage the strength, scale, and agility of the organization to offset the elevated medical costs with various administrative cost containment, productivity and other initiatives," the company said in the regulatory filing, but it was unable to offset all of the medical costs.
Humana cut its projected adjusted earnings-per-share guidance for 2023 based on the rising medical costs — it expects to report $26.09 in adjusted EPS in 2023, down from the $28.25 it projected in November.
In addition to rising medical costs, Humana also reported its Medicare Advantage growth during the annual enrollment period was below its expectations. The company added around 100,000 new members, representing a 1.8% growth rate, lower than the company's previous expectation that it would hit average industry growth or slightly higher.
Insurers warned of rising medical costs throughout 2023, especially among the Medicare Advantage population, driven in part by pent-up demand for elective surgeries delayed during the COVID-19 pandemic.
UnitedHealthcare, the largest Medicare Advantage insurer, reported a medical loss ratio in the fourth quarter of 2023 at 85%, up from 82.3% in the third quarter.
Humana said in its regulatory filing it expected the rising medical costs to have a "material" impact on its 2024 earnings if current trends continue.
Share prices for Humana fell nearly 12% following the disclosure, The Wall Street Journal reported. Prices for other insurers, including UnitedHealth Group and CVS Health, fell by around 4% after Humana's report.
Humana said it will provide additional details on its 2024 outlook on its fourth quarter earnings call, scheduled for Jan. 25.