Health insurer Humana warns of hit to 2025 profit, shares sink
By Leroy Leo and Sriparna Roy
(Reuters) -Health insurer Humana said on Thursday an "unprecedented" increase in medical costs that will hit its earnings this year has also put its 2025 profit target out of reach, sending its shares plunging 13%.
Medical costs for health insurers were elevated in 2023 and picked up more in the fourth quarter as older adults returned to hospitals to catch up on procedures like hip and knee replacement surgeries.
The company is the first insurer to warn of a profit hit in 2024 and 2025 from high medical costs, while others such as UnitedHealth and Elevance have said that expenses are so far tracking prior expectations.
Humana's business is focused on the market of Medicare Advantage (MA) plans, under which private insurers are paid a set rate to manage healthcare for people aged 65 and older or with disabilities.
Humana said the sector "is navigating significant regulatory changes while also absorbing unprecedented increases in medical cost trends."
The company pointed to a rise in inpatient procedures during November and December, and a further increase in outpatient surgeries and medical care by physicians, reiterating its comments from last week.
Oppenheimer analyst Michael Wiederhorn said it was not clear if the high costs were an industry-wide issue, or specific to Humana.
"Given diverging commentary from peers, including UnitedHealth and Elevance, the jury is still out," Wiederhorn said.
Shares of rivals including CVS , Cigna, Centene and UnitedHealth fell between 2% and 5%.
Humana said that while it would price its 2025 Medicare Advantage contract bids to reflect the high costs, it would take a balanced approach to avoid losing members.
The company's benefit ratio - the percentage of premiums spent on medical care - rose to 90.7% in the fourth quarter of 2023, higher than analysts' estimates of 89.7%.
Humana forecast an adjusted profit of about $16 per share for 2024, versus LSEG estimates of $29.10.
Humana now expects 2025 earnings between $22 and $26 per share, versus $37 per share previously.
The insurer posted a surprise adjusted loss of 11 cents per share for the fourth quarter due to the elevated costs. Analysts were expecting a profit of 15 cents per share.
(Reporting by Sriparna Roy and Leroy Leo in Bengaluru; Editing by Maju Samuel)
