Health insurance stocks tumble on higher medical costs

A number of health insurance stocks are tumbling on Thursday after Humana (HUM) warned that higher-than-expected medical costs may impact its 2024 outlook. It comes after UnitedHealth Group (UNH) reported the same issue in its fourth-quarter earnings report. In the video above, Yahoo Finance's Akiko Fujita and Rachelle Akuffo break down the challenges facing insurers.

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Video Transcript

AKIKO FUJITA: Let's take a look at some trending tickers that we are watching out this hour. Health care stocks Humana, CVS, and UnitedHealth all falling this morning as rising medical costs weigh on the industry. Humana cut its full-year forecast this morning citing high inpatient utilization in its Medicare Advantage business. This comes just a week after UnitedHealth Group reported the same thing in its fourth quarter results.

You see Humana, seeing that taking the biggest hit today, down about 11.5%. Rachelle, you know, I'm thinking back to those conversations that we had at the height of the pandemic, so many Americans putting off those elective, non-emergency procedures. Now we're still seeing that trickle through. And that's leading to really high costs, added costs for these medical insurance companies.

RACHELLE AKUFFO: It's true. And I mean, we've seen that health care-related stocks have really been beaten up year-to-date, apart from those that have been benefiting from GLP-1 and obesity drugs. They have been beaten up. Now, keep in mind, of course, health care does tend to be a more defensive sector because it's not usually tied to the whims of the economy, the shakes and the economy. But we really haven't seen investors pouring into those defensive stocks as well. So also playing into that as well. But unfortunately, we're continuing to see that these health care stocks are getting a bit beaten up here in the middle of earnings season.

Well, shifting gears, we also have our eyes on Netflix. A Citi analyst suggesting this morning that investors hit pause on the stock ahead of its earnings next week, citing three big reasons. One, 2024 revenue estimates may be too high. Two, 2025 content investments may exceed estimates. And three, of course, we can't rule out potential acquisitions.

So it's interesting to look at what they're expecting in terms of spending on content because we know that Netflix had in fact been pulling back on some of these very expensive programming, leaning more into earning some ad tiers, to its gaming as well. But for some reason, we're not seeing that reflected in that Citi note there, at least not to the degree that's not giving some sort of caution ahead of earnings here, Akiko.

AKIKO FUJITA: Yeah. The content span always a big concern with these streaming platforms. But in many ways, the Netflix story has been a good one when you think about those additional levers they put in place, four additional channels for revenue. We're talking about the ad-based platform, you know, the subscription or the password sharing crackdown as well. And so you could argue that investors have kind of moved ahead on that.

Maybe this is about a valuation play. I'm looking at the numbers here that Netflix has publicly confirmed for the streaming platform's ad-based plan. 23 million global monthly active users. That's a huge gain from what they last reported back in November, 15 million. So that positivity or that positive story has in many ways already coming through for Netflix.

But other analysts still pretty bullish on that. When you look at BofA securities analyst, Jessica Ehrlich saying that she thinks there still can be more gains for subscribers, specifically in those lower price options as customers become more and more cost-conscious. There are other options they can tap into. So we'll have to watch very closely when Netflix reports those results next week.