Late-year medical costs spike forces Humana to scale back profit expectations for 2023

A Humana logo is seen in a lake on the Palmer Private Course at PGA West during the first round of the Humana Challenge PGA golf tournament in La Quinta, Calif., in this Jan. 17, 2013, file photo. Shares of Humana are tumbling after the health insurer said it was still dealing with higher-than-expected care costs from its Medicare Advantage customers and it chopped earnings expectations. The health insurer said Thursday, Jan. 18, 2024 that its Medicare Advantage patients used more inpatient care than it expected in November and December. (AP Photo/Ben Margot, File)

Shares of Humana tumbled Thursday after the health insurer said it was dealing with higher-than-expected costs from its Medicare Advantage customers, forcing it to chop profit expectations.

The update from Humana arrived less than a week after rival UnitedHealth Group surprised Wall Street, saying that its overall medical costs had soared 16% in its most recent quarter.

Humana said its Medicare Advantage patients used more inpatient care than it expected in November and December. The health insurer also saw more growth in care that doesn’t involve a hospital stay, like doctor visits and outpatient surgeries.

Humana said it now expects adjusted earnings for last year to total about $26.09 per share.

That falls more than $2 below what it predicted in November. Wall Street forecasts $28.29 per share, according to the data firm FactSet.

Humana has yet to lay out its forecast for 2024.

The company said Thursday that its still trying to figure out the impact current trends will have on its outlook, but it plans to provide an update soon. It moved up its report on the fourth quarter to Jan. 25 from Feb. 5.

Humana is one of the nation’s largest providers of Medicare Advantage plans, which are privately run versions of the federal government’s Medicare program mostly for people age 65 and older. Medicare Advantage plans are one of Humana’s biggest forms of coverage outside insurance it provides for military families and retirees.

Insurers dealt with higher-than-expected costs from Medicare Advantage patients through most of last year, partly because people continued to return to surgery centers and doctor offices after shying away during the COVID-19 pandemic.

For the new year, Humana also said it now expects less than 2% enrollment growth from its Medicare Advantage business, which covered about 5.4 million people at the end of last year.

These plans finished their annual enrollment period last month, a window at the end of year when people can switch plans or buy new coverage.

Leerink Partners analyst Whit Mayo called Humana's growth from the enrollment period “lackluster.” He said in a research note that it will wind up slower than overall market growth, which he expects to be around 6%.

Humana said it was prudent when it set 2024 prices for its Medicare Advantage coverage, and its pricing approach “resulted in a lower share of overall industry growth.”

Shares of Humana Inc., based in Louisville, Kentucky, fell 11% to $398.48 Thursday morning while the Standard & Poor's 500 index rose slightly.

The stock is more than a year removed from an all-time high price of more than $571, which it reached in November 2022.

Shares of UnitedHealth Group Inc. also dropped 4% on Thursday. The Blue Cross-Blue Shield insurer Elevance Inc. fell 3.5%