Humana Inc (HUM) Faces Headwinds: Q4 Losses and Elevated Medicare Costs Impact 2023 Performance
Q4 2023 Loss Per Share: Reported a GAAP loss of $4.42 per share and an adjusted loss of $0.11 per share.
FY 2023 Earnings: Delivered $20.00 EPS on a GAAP basis and $26.09 on an adjusted basis.
Revenue Growth: Annual revenues increased to $106.374 billion in FY 2023 from $92.870 billion in FY 2022.
Benefits Expense Ratio: Saw an increase to 90.7% in Q4 2023 from 87.3% in Q4 2022.
2024 EPS Guidance: Projects approximately $14.87 GAAP EPS and $16.00 adjusted EPS for FY 2024.
Medicare Advantage Membership: Affirms growth expectations of approximately 100,000 or 1.8 percent for 2024.
On January 25, 2024, Humana Inc (NYSE:HUM) released its 8-K filing, detailing the financial outcomes for the fourth quarter of 2023 and providing initial guidance for the full year of 2024. The company, a leading health insurer in the U.S. with a focus on Medicare Advantage plans, reported a loss per share of $4.42 on a GAAP basis and an adjusted loss per share of $0.11 for Q4 2023. Despite the quarterly loss, the full-year earnings per share stood at $20.00 on a GAAP basis and $26.09 on an adjusted basis.
Humana's performance in the fourth quarter was impacted by an increase in Medicare Advantage medical cost trends, driven by higher inpatient utilization, particularly in November and December, and a rise in non-inpatient trends. These trends are expected to persist throughout 2024, as reflected in the company's initial full-year guidance of approximately $14.87 GAAP EPS and $16.00 adjusted EPS for the upcoming year.
The company's revenue grew significantly in FY 2023, reaching $106.374 billion, up from $92.870 billion in FY 2022. However, the benefits expense ratio also increased to 90.7% in the fourth quarter of 2023 from 87.3% in the same period the previous year, indicating higher costs relative to the premiums earned. The operating cost ratio saw a decrease, suggesting improved efficiency in managing operating expenses.
Financial Highlights and Challenges
Humana's financial achievements in FY 2023, including the revenue growth and the management of operating costs, are significant in the context of the healthcare plans industry, where managing costs and maintaining profitability are critical amidst rising healthcare expenses. The company's ability to affirm its Medicare Advantage membership growth for 2024 also underscores its competitive position in the market.
However, the challenges faced in the form of increased medical costs and the resultant impact on the benefits expense ratio are areas of concern. These factors may lead to problems if not managed effectively, potentially affecting the company's profitability and market position.
Key financial metrics from the income statement, balance sheet, and cash flow statement, such as the operating cash flows of $3.981 billion and the parent company cash and short-term investments of $510 million, provide insights into the company's liquidity and financial health. The debt-to-total capitalization ratio of 41.8% and days in claims payable (DCP) of 41.4 days are also important indicators of the company's financial stability and operational efficiency.
Segment Performance
The Insurance segment, which encompasses the majority of Humana's business, reported revenues of $102.854 billion for FY 2023, with an adjusted benefits expense ratio of 88.0%. The CenterWell segment, which includes Humana's healthcare services, reported revenues of $18.405 billion for the same period, with an operating cost ratio of 91.2%.
Humana's management has provided commentary on the results, stating that the company is focused on addressing the challenges faced in the fourth quarter and is taking steps to manage the elevated medical cost trends going forward. The company remains committed to its strategic initiatives, including the growth of its Medicare Advantage and CenterWell businesses.
For a more detailed analysis and commentary on Humana Inc (NYSE:HUM)'s financial results and future outlook, investors and interested parties are encouraged to review the full earnings release and participate in the upcoming conference call or access the archived webcast.
Value investors and potential GuruFocus.com members seeking to understand the implications of Humana's financial performance can find comprehensive insights and analysis on GuruFocus.com, where we strive to provide the most up-to-date and accurate information on companies of interest.
Explore the complete 8-K earnings release (here) from Humana Inc for further details.
This article first appeared on GuruFocus.
