Unprecedented Medicare Advantage costs drive steep losses for Humana

Humana reported a $541 million loss in the fourth quarter of 2023, facing what executives called an unprecedented increase in Medicare Advantage medical costs. 

In prepared remarks published Jan. 25, the company's leadership said they are "disappointed with the impact of the late and unexpected development of higher trends on our 2023 results and 2024 outlook." 

Ahead of publishing its fourth-quarter earnings Jan. 25, Humana warned that rising medical costs hurt its 2023 earnings and were likely to persist into 2024.  

Humana's shares tumbled roughly 11% following the earnings report, The Wall Street Journal reported. The company cut its earnings guidance for 2024 and 2025 based on the increase in spending. 

The cost increases in the last months of 2023 were primarily driven by increased inpatient costs and more spending in outpatient surgeries and supplemental benefits, according to Humana's executives. CFO Susan Diamond told investors on a Jan. 25 call that inpatient short-stays increased in the last months of 2023, and observation stays decreased. 

"That's something we will continue to analyze and understand better, but frankly, we are going to need more time and more claim development to understand the admissions, diagnosis codes and other things to fully assess the nature of the uptick in inpatient and corresponding decline in observations and understand if they are in any way related," Ms. Diamond said. 

Early indicators from January show the increased utilization is not cooling off yet, Ms. Diamond said. 

Several other insurers have warned of rising medical costs, and the trend is likely to cut across the industry, Humana CEO Bruce Broussard told investors. 

"I look at next year as a year that I think the whole industry will possibly reprice. I don't know how the industry can take this kind of increase in utilization along with regulatory changes that will continue to persist in 2025 and 2026. I expect the industry to have disciplined pricing as a result of that," Mr. Broussard said. 

In addition to increased medical spending, Medicare Advantage insurers are facing rate adjustment changes from CMS, which the industry says are cuts. The agency maintains the change is a slight funding increase. 

CMS' changes are being phased in over the next three years, and insurers are bracing for more changes. Ms. Diamond told investors the company expects CMS' rate announcement for 2025 to be negative. 

The company is prioritizing margin recovery over growing its Medicare Advantage membership in the coming years, according to the statement from its executives. On Jan. 25, Humana announced it appointed David Dintenfass as president of enterprise growth, a new position leading customer acquisition and retention. 

Mr. Dintenfass joins Humana from Fidelity, where he was executive vice president and head of products and emerging growth markets. 

See more details on Humana's fourth-quarter and 2023 financial results here.

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