Susan Marie Diamond
Chief Financial Officer at Humana
Thank you, Bruce, and good morning, everyone. Today we reported second quarter 2023 adjusted earnings per share of $8.94, consistent with internal expectations. Results for the quarter are inclusive of the higher-than-anticipated utilization in our Medicare Advantage business we discussed last month, which as Bruce shared, has stabilized and is tracking in line with our updated estimates. I will provide additional detail on emerging trends in a moment. The higher-than-anticipated utilization in the quarter was offset by better-than-expected favorable prior year development, a more positive midyear Medicare risk adjustment payment, and slightly favorable investment income, as well as other business outperformance, particularly in our Medicaid business. Our performance to date reflects the strength of the enterprise, highlights our ability to successfully navigate near-term uncertainty, and importantly, includes better than anticipated individual Medicare Advantage membership growth. We now expect to add approximately 825,000 members in 2023, reflecting an impressive 18% growth rate, fueling our ability to continue to deliver compelling earnings growth in the future. Further, for the full year, we have reaffirmed our adjusted EPS guidance of at least $28.25, which was increased by $0.25 with our first quarter earnings release and reflects a 12% increase over 2022, putting us on a solid path to our 2025 adjusted EPS target of $37.
I will now provide additional details on our second quarter performance and full-year outlook beginning with our insurance segment. As highlighted in our 8K filing last month, beginning in early May, we noted the emergence of higher-than-anticipated non-inpatient utilization trends in our Medicare Advantage business. At the same time, we began seeing higher-than-anticipated inpatient utilization diverging from historical seasonality patterns. These trends continued in early June. Based off of this intra-quarter information, when we filed the 8K on June 16th, we made the assumption that we would continue to experience moderately higher than expected trend for the remainder of the year. We were pleased to see that our June paid claims data received in July reflected positive restatements for the first quarter, as well as stabilizing outpatient utilization levels in April and May. While July claims data is not yet complete, early views support our year-to-date booking levels. With respect to inpatient activity, the higher-than-initially-anticipated utilization has continued, consistent with our June update. All in, we view the utilization data received in recent weeks as incrementally positive as compared to the assumptions utilized in our June update.
That said, we continue to point you to the top end of our full-year insurance segment benefit ratio guidance range of 86.3% to 87.3% and will continue to monitor emerging trends. This guidance also contemplates the individual Medicare Advantage membership growth post the annual election period, which has included a higher-than-expected proportion of agents. As Bruce discussed, agents initially run a higher benefit expense ratio than the average new member, which negatively impacts the current year benefit ratio, but results in a larger margin expansion opportunity on these members over time. As previously noted, we anticipate that the higher than originally expected benefit ratio in 2023 will be offset by a variety of factors, including higher than expected favorable prior-year development, additional administrative expense reductions, higher than previously anticipated investment income, and other business outperformance.
And while we would typically not comment on 2024 this early in the year, given the questions in the market regarding pricing resulting from the higher than expected utilization in 2023, I would reiterate that our Medicare Advantage pricing contemplated the rate environment, emerging utilization trends and related offsets, as well as the competitive landscape and resulting growth opportunity. As we sit here today, we remain confident that our 2024 pricing, combined with the strength, scale, and agility of the organization, will allow us to deliver earnings growth that keeps us on a reasonable trajectory to our 2025 adjusted EPS target of $37. As a result, our intent is to target adjusted EPS growth within our historical long-term target range of 11% to 15% in 2024. We look forward to sharing more on 2024 later this year.
Turning to Medicaid, the business continues to outperform with second quarter results exceeding expectations, driven by favorable membership results, combined with disciplined medical cost management initiatives, and lower-than-expected utilization. Redeterminations, which began in the second quarter, are tracking slightly favorable to our initial expectations. In addition, the Louisiana and Ohio contracts, which were both implemented in the first quarter, are performing as anticipated. At this time, we continue to expect an increase of 25,000 to 100,000 Medicaid members for the full year, as the membership gains in Louisiana and Ohio will be largely offset by membership losses resulting from redeterminations. Membership in our standalone PDP business is tracking favorable to expectations, driven by better-than-anticipated retention. As a result, we've improved our full-year guidance from down approximately 800,000 to down approximately 700,000.
Now turning to CenterWell. The segment has continued to build on its solid start to the year, performing modestly better than expected in the second quarter. Our primary care organization continues to report better than expected patient growth year-to-date, adding 10,000 patients, or nearly 52% growth in our de novo centers, and 12,000 patients in our more mature wholly-owned centers, representing 7% growth year-to-date. We now anticipate full-year patient panel growth of approximately 27,000 to 30,000, as compared to our original estimate of 20,000 to 25,000 patients, more than doubling the patient growth achieved in 2022. In addition, our primary care organization continues to improve the operating performance in our wholly owned centers, and we're pleased to report that we estimate we will increase the number of centers that are contribution margin positive from 110 at the end of 2022 to approximately 125 at year-end 2023, a 14% increase year-over-year.
In addition, we expect to increase the number of centers that have reached our 3 million contribution margin target from 31 in 2022 to approximately 40 at the end of 2023, a compelling 30% increase year-over-year. While we do expect the risk model revision to have an impact on our center contribution margin performance in 2024, as Bruce shared, we are focused on advancing our clinical capabilities, driving operational efficiencies, and implementing other actions that we believe will largely mitigate the ultimate impact of the risk adjustment model changes that will be phased in over the next three years. In the home, total same store new start of care admissions and our core fee for service home health business were up 5.8% year-over-year as of June 30th, in line with our expectations of mid-single-digit growth.
In addition, in the quarter, we saw episodic admission growth of approximately 10% year-over-year, which is inclusive of the acquisition of Trilogy Health completed in April. While new start admission growth is strong, we continue to experience pressure on recertifications due to utilization management programs of Medicare Advantage payers. And as expected, our cost per visit continues to run approximately 2% higher year-over-year with continued nursing labor pressure. From a quality perspective, we have seen significant improvement in star ratings for CenterWell Home Health over the last year, increasing the percent of our branches with a 4.5 star or above rating from 18% in January 2022 to 50% today. Further, as Bruce highlighted, we are seeing positive results as we continue expansion of our value-based home model, tracking towards our goal of covering 40% of our Medicare Advantage membership by 2025, while also expanding the standalone components in certain markets to accelerate value creation.
Finally, our pharmacy business performed well in the quarter, benefiting from higher-than-expected individual Medicare Advantage membership growth, as well as favorable drug mix. As anticipated, year-to-date mail order penetration for our Medicare membership is 40 basis points lower than prior year as a result of retail pharmacy copays now largely being on par with mail order benefits. We continue to provide awareness and education of the benefits of mail order for our large block of new members to drive increased penetration throughout the year. Investment income slightly outperformed expectations in the quarter, and we now anticipate that investment income will increase by approximately $500 million year-over-year, up from our original expectation of a $450 million year-over-year increase.
From a capital deployment perspective, we initiated open market repurchases in March and have completed approximately $800 million in repurchases to date, taking advantage of the recent dislocation in the stock price relative to our confidence in the long term earnings outlook of our business, underpinned by our strong Medicare Advantage platform and the continued build out and integration of our CenterWell assets. We now expect share repurchases of approximately $1.5 billion in 2023, up from our original expectations of $1 billion. With our strong cash flows and decreasing debt-to-cap ratio, we've accelerated these share repurchases while maintaining sufficient capital for normal course M&A activity.
Lastly, with respect to earnings seasonality, we expect the percentage of third quarter earnings to be approximately 25%. In addition, we expect the third quarter insurance segment benefit expense ratio to be 87%, consistent with current consensus estimates, before increasing in the fourth quarter, consistent with historical seasonality patterns. Before closing, I want to echo Bruce's sentiment that Humana's fundamentals are strong, and we are pleased with our ability to grow individual M&A membership by 18% in 2023, while guiding to a robust 12% year-over-year in adjusted EPS. We are confident in our ability to leverage the strength and scale of the enterprise to navigate through the near term impacts of the higher than expected Medicare Advantage utilization, while continuing to advance our strategy. And importantly, we remain committed to our 2025 adjusted EPS target of $37, reflecting a 14% CAGR from 2022 to 2025. With that, we will open the lines up for your questions. In fairness to those waiting in the queue, we ask that you limit yourself to one question. Operator, please introduce the first caller.
