Humana flags higher medical costs could hurt 2024 profit growth

11:35 am Wednesday, November 01st, 2023

By Khushi Mandowara

(Reuters) – Humana on Wednesday said it expected elevated demand for non-urgent surgeries to spill over into next year and hurt its profit growth, sending its shares down nearly 4%.

Humana and rival UnitedHealth had in June warned that older adults were getting more comfortable opting for surgeries delayed during the pandemic.

The health insurer expects 2024 adjusted profit growth to be at the lower end of its long-term target range of 11% to 15%, assuming same level of utilization continues into next year, Humana’s finance chief Susan Diamond said.

CVS Health Corp also tempered its forecast for 2024 earnings to account for potentially higher medical costs at its Aetna insurance unit.

Humana reaffirmed its profit expectations for this year as it remains cautious about rising medical costs.

In contrast, rivals UnitedHealth and Elevance have raised their 2023 profit forecasts citing lower-than-expected medical costs.

Humana reiterating its annual guidance implies the company expects medical costs to increase further in the fourth quarter, said Leerink Partners analyst Whit Mayo.

Humana’s benefit-expense ratio, or the percentage of payout on claims compared to its premiums, rose to 86.4% in the third quarter, from 85.3% a year ago. Analysts were expecting a ratio of 86.7%, according to LSEG data.

The company is focused on increasing membership in its main business of Medicare Advantage – government-backed plans for people over 65 years or those with certain disabilities – as it shuts down its commercial insurance business.

Humana raised the forecast for 2023 Medicare Advantage membership for the second time this year, and now expects to add at least 860,000 people.

The health insurer reported a quarterly adjusted profit of $7.78 per share, beating analysts’ estimate of $7.16 per share.

It still expects 2023 adjusted profit of at least $28.25 per share.

(Reporting by Khushi Mandowara in Bengaluru; editing by Milla Nissi)