Humana boosts 2024 earnings guidance thanks to Medicare Advantage member retention

Dive Temporary:

Actions taken by Humana to climate tumult within the Medicare Benefit program seem like bearing fruit. On Wednesday, the insurer reported better-than-anticipated third quarter outcomes and modestly elevated its 2024 earnings steerage after retaining extra MA seniors than anticipated — and people members having larger danger scores, boosting reimbursement.
Humana now expects so as to add 265,000 particular person MA members this 12 months, representing 5% development, in comparison with its earlier steerage of 225,000 new MA members.
Regardless of the stronger membership, Humana doesn’t count on earnings development in 2025 due to heavy investments the insurer plans to make to spice up its MA stars — invaluable high quality rankings linked to plans’ income within the privatized Medicare program.

Dive Perception:

Humana, the second-largest MA payer within the nation, has been slammed by larger prices in MA as seniors continued to make the most of extra medical care than anticipated. The development has pressured once-comfortable margins in this system, main Humana to slash its earnings steerage a number of instances this 12 months and sending its inventory plummeting.

Humana has hustled to vary the story, paring again its MA choices for subsequent 12 months and exiting poorly performing markets fully.

The cuts ought to lower the insurer’s membership base however go away remaining members extra worthwhile — and now, any losses might be subtracted from a bigger whole than Humana beforehand anticipated.

Nonetheless, the insurer nonetheless expects to lose just a few hundred thousand members subsequent 12 months.

Humana’s membership development began slowly after the annual enrollment interval, or AEP, final fall, however the insurer has made “fairly important features” over this 12 months, particularly from investing in inner gross sales, CEO Jim Rechtin advised traders on a Wednesday morning name.

Because of this, Humana bumped its adjusted earnings-per-share expectations for 2024 from “roughly” $16 to “at the very least” $16.

“Precisely the place we land is essentially depending on plenty of funding choices in AEP and in stars that we proceed to judge,” Rechtin mentioned.

Regardless of the progress, Humana expects 2025 earnings to be consistent with outcomes this 12 months. For the reason that Kentucky-based insurer has dedicated to margin enchancment in MA, together with reaching a 3% margin goal by 2027, the flat outlook is “considerably disappointing,” Leerink Companions analyst Whit Mayo wrote in a notice Wednesday.

Earnings subsequent 12 months might be depressed by new investments Humana needs to make in its enterprise that Rechtin defended as obligatory for the insurer’s long-term success.

Humana additionally plans to focus on investments towards worthwhile membership development, managing medical prices and streamlining administration.

“Our intent is to stability long-term earnings potential with near-term earnings development. We have to stability these. All in all, we’re not going to do issues that hurt the enterprise long-term to work our method by a short-term situation,” the CEO advised traders.

Humana is reeling from a steep drop in its star rankings for 2025, which may trigger the payer to lose billions of {dollars} in income. The insurer plans to take a position to enhance measures like affected person and supplier engagement, Rechtin mentioned. Humana can also be suing the federal government in a bid to overturn the outcomes.

Rechtin allowed that Humana may also have to make significant enhancements to star rankings to succeed in its 3% MA margin goal by 2027.

Although Humana declined to offer an actual sum, analysts estimate investments might be to the tune of $500 million to $700 million.

Within the third quarter, medical bills typically got here in the place Humana anticipated, with decrease inpatient prices balancing out larger prices exterior of the hospital. CFO Susan Diamond known as out specialty drug spending in areas like oncology as notably elevated.

Humana was additionally affected by a mismatch in the price of Medicaid beneficiaries’ care and state cost charges within the quarter.

The disparity is a aspect impact of states rechecking beneficiaries’ eligibility for the safety-net program — a course of often called unwinding or redeterminations — that’s eliminated tens of thousands and thousands of Individuals from the protection. People who stay usually tend to be sick, saddling payers with larger prices.

In third-quarter earnings calls, Medicaid insurers have assuaged traders that the majority states are bumping their charges, together with off-cycle. The disparity isn’t affecting all payers equally — Elevance, for instance, lowered its 2024 revenue steerage consequently, whereas Medicaid-heavy insurers Centene and Molina had been in a position to hold it from affecting their backside strains.

Larger medical prices drove Humana’s insurance coverage section to submit a medical loss ratio of 90.6% within the quarter, up from 87.6% identical time final 12 months. 

In the meantime, Humana’s major care enterprise, known as CenterWell, continues to exceed expectations, administration mentioned. Humana has centered on rising the enterprise — quietly closing an acquisition of Dallas-based residence well being and hospice supplier Intrepid within the quarter — and sees alternatives for added M&A, administration mentioned.

Humana expects to function roughly 340 CenterWell areas by the top of the 12 months.

General, Humana posted income of $29.4 billion within the quarter, up greater than 11% 12 months over 12 months.

Nonetheless, the insurer’s web earnings of $480 million is sort of half of Humana’s $832 million revenue on the identical time final 12 months.