Shares of health insurer Humana (HUM) fell sharply after the company reported disappointing fourth-quarter earnings on the bottom line and initial 2024 guidance. Despite beating on revenue, Humana posted major losses with a 91.4% medical loss ratio exceeding analyst projections.
Yahoo Finance Health Reporter Anjalee Khemlani breaks down the details.
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Editor's note: This article was written by Angel Smith
Video Transcript
ANJALEE KHEMLANI: I know that we've talked about this before when Humana kind of indicated early on that they were expecting these numbers for their full-year outlook-- or sorry, full-year results. And that is a lot of pressure on the expenses of what they've had to pay because of higher utilization of their market.
So what we have is basically a pressure on the Medicare Advantage market right now as a result of this higher utilization. Humana feeling the pain a little bit more than others because it makes up such a large portion of the company's business.
If you take a look at this chart, you'll see just what it looks like in terms of the players that are in this field. UnitedHealth one of the largest players with 29% of the market and Humana second with about 14%. So that just kind of tells you-- or rather 18%-- tells you just what you're looking at in terms of this field that you have with Medicare Advantage players.
Now, Humana specifically saying that they looked at 91.4% MLR, Medical Loss Ratio, and what that means is that the number of the dollars they got in with premiums was less than or was close to, rather, what they spent. And typically companies want to stay between 80% to 85%. That's the mandate they got from the Affordable Care Act, but Humana has seen a little bit more than that.
And while you would anticipate that that would be good that they're spending the dollars they're getting in, it actually means lower profits for the company. So that's where Humana is under pressure right now. They saw an uptake in inpatient and outpatient procedures also because of the supplemental benefits that Medicare Advantage has.
They did not see the impact on this from flu or RSV, which you might have expected, because of that previous bullet point. But it actually is just sort of pent-up demand from the pandemic still playing out as well as the continued increase of those that are 65 and older.
Now, JPM analysts note that by the time Humana looks to be able to rightsize this, which could be after 2025, it could be too late. Humana did already rescind their 2025 outlook, and in a note, JPM analyst said that growth in this market 65 and above is expected to moderate from high single digits to mid single digits in the back half of the decade. So that's where you can see, you know, sort of that play for the company.
And it's important to note that other large insurers may not feel this pressure because they have more diversified books of business between commercial and other sectors, while Humana really largely in that Medicare Advantage space.
JULIE HYMAN: Yeah, the second largest player in it too. Thanks so much, Anj. Appreciate it.
