Humana Faces Rough Start to 2024 Following Surprise Fourth Quarter Loss and Surge in Medicare Advantage Business Utilization

LOUISVILLE, Kentucky – Humana, a leading insurance company, is facing significant challenges as it entered 2024, with its stock trading near a four-year low. The company recently reported a surprise loss in the fourth quarter and cited higher usage in its Medicare Advantage business as the cause. This surge in older patients seeking care last year led to an imbalance between premiums and the cost of care for Humana.

CEO Bruce Broussard acknowledged the complexity of the current period for the Medicare Advantage sector due to regulatory changes and unprecedented increases in medical cost trends. The company now expects adjusted earnings in 2024 to reach $16 per share, a significant decrease from the previous year.

Following its earnings report, Humana stock fell by 12%, adding to a decline of nearly 28% over the last year. This is especially concerning as the wider S&P 500 index has experienced a gain of over 20% during the same period.

The Medicare Advantage market has proven to be highly profitable, with 51% of eligible Medicare beneficiaries enrolling in a Medicare Advantage plan last year. However, Humana’s challenges in 2023 were compounded by changes in utilization rates, payments from the federal government, and changing demographics.

While the company faces pressure to maintain a medical loss ratio (MLR) within the mandated range, Humana has struggled to keep it within the required 80%-85% range set by the Affordable Care Act. Despite efforts to merge or be acquired, the company’s fortunes remain closely tied to the Medicare Advantage business.

As Humana grapples with its challenges, other major players in the Medicare Advantage market, such as UnitedHealth Group and CVS, are also navigating similar issues. However, the entire industry is expected to reprice in response to the surge in usage seen in late 2023.

Looking ahead, the growth in enrollment of Medicare Advantage plans may not be as explosive as previously experienced due to changing demographic trends. The “silver tsunami” that once propelled this market is expected to fade, with growth in the 65+ market projected to moderate in the coming years.

In summary, the challenges faced by Humana and the wider Medicare Advantage market reflect ongoing shifts in healthcare utilization and demographics, and the industry is likely to undergo significant repricing in the coming years.