In a recent statement, Humana Inc. (HUM) has underscored its concerns about the persistent impact of soaring medical costs and regulatory changes on its profits, extending the timeline of potential repercussions through 2025. This cautionary note has not only affected Humana’s shares but also triggered a broader decline in the stock prices of other health insurance providers such as UnitedHealth Group Inc. (UNH) and CVS Health Corp. (CVS), given the acknowledgment by Humana that rising costs are an industry-wide challenge.
According to Humana, the Medicare Advantage sector is currently undergoing a “complex and dynamic period of change.” The health insurance industry, it states, is grappling with “significant regulatory changes while also absorbing unprecedented increases in medical cost trends.” The company, while releasing its fourth-quarter results, disclosed a substantial loss of $591 million, significantly wider than the $71 million loss reported for the same period in 2022. The loss per share for the quarter was 11 cents, a sharp contrast to the $1.97 earnings per share (EPS) reported year-on-year.
Humana’s outlook for the current year remains cautious, with an expected EPS of $16. The company attributes this projection to the anticipation that the elevated Medicare Advantage medical costs experienced in the fourth quarter will persist throughout the year. This forecast marks a considerable decrease from the previous year’s EPS of $26.09. Furthermore, Humana has adjusted its 2025 EPS target from $37 to a growth range of $6 to $10 per share, citing the continuous impact of climbing medical costs.
The company elaborated that the surge in medical costs was primarily driven by higher-than-anticipated “inpatient utilization, primarily for the months of November and December, and a further increase in non-inpatient trends.” This follows a recent adjustment in Humana’s 2023 EPS outlook, downgraded to $26.09 from the initial estimate of $28.25, falling short of analysts’ predictions. Last week’s announcement already hinted at the expectation that the increased medical utilization observed during the third quarter in its Medicare Advantage business would persist throughout the year.
The market response to Humana’s concerns was evident in the sharp decline of its shares, reaching their lowest level since the onset of the pandemic in 2020. As of 2 p.m. ET, Humana’s shares were down 10.7% at $359.15, indicating a nearly 20% decline over the past 12 months. UnitedHealth stock also witnessed a 6% decrease, while CVS Health experienced an almost 4% decline in its share value. The industry’s collective response underscores the widespread impact and challenges faced by health insurance providers amidst evolving regulatory landscapes and escalating medical costs.
