Both CVS Health and Humana contend with rising inpatient costs in Medicare Advantage, but each points to different causes for the increases.
In 2023, insurers began warning that Medicare Advantage costs were climbing, as older adults sought out services put off during the COVID-19 pandemic.
UnitedHealth Group, the largest Medicare Advantage insurer, has reassured investors that medical costs are in line with expectations. Increasing medical costs in the second quarter of 2024 were mostly due to relaxed prior authorization requirements during the Change Healthcare cyberattack, executives said on a July 16 call.
Humana and CVS Health, the second and third largest insurers, respectively, also said costs are on the rise, especially in inpatient care.
On a July 31 call with investors, Humana CEO Jim Rechtin said inpatient admissions among Medicare Advantage were higher than expected in the second quarter of 2024. The company's earnings guidance for the rest of 2024 "prudently assumes" costs will stay elevated through the end of 2024, he said.
Susan Diamond, Humana's CFO, pointed to the "two-midnight rule" as the most likely reason for rising inpatient admissions.
At the beginning of 2024, new CMS regulations took effect requiring Medicare Advantage plans to provide coverage for an inpatient admission, rather than observation, when the admitting physician expects the patient to require hospital care for at least two midnights.
CVS Health CFO Tom Cowhey said inpatient costs rose in the second quarter of 2024, but the company did not believe it was because of the two-midnight rule.
"We don't believe that this is an increase in two-midnight. It's just that we're seeing broad-based inpatient pressures," he said on an Aug. 7 investor call.
CVS Health's earnings guidance for the rest of the year reflects that costs in the second half of the year could be higher than the first, Mr. Cowhey said.
If the current trend continues, CVS may have to dip into its reserves to cover the cost of claims, Mr. Cowhey said. The potential shortfall in premiums should not affect the company's earnings, he said.