8-K: Humana Lowers 2024 Medicare Advantage Growth Outlook and Revises 2023 Earnings Guidance Due to Rising Medical Costs

Humana has revised its 2024 Medicare Advantage membership growth forecast and lowered its 2023 earnings per share guidance due to higher than anticipated medical costs.

Summary

• Humana now expects individual Medicare Advantage membership growth of approximately 100,000 members for 2024, a 1.8% increase, down from previous expectations of at or slightly above industry average growth.
• This reduced growth is attributed to a balanced pricing approach, resulting in a lower share of overall industry growth, and higher plan change activity by existing members rather than new member sales.
• The company also experienced slightly higher attrition during the annual enrollment period (AEP) than expected, and anticipates further attrition in its Dual Special Needs Plan (D-SNP) offerings due to Medicaid redeterminations.
• Humana's fourth quarter 2023 results reflect an increase in Medicare Advantage medical cost trends, driven by higher inpatient utilization and increased non-inpatient costs in physician, outpatient surgeries, and supplemental benefits.
• The higher medical costs are expected to result in a fourth quarter 2023 Adjusted Insurance segment benefit ratio of approximately 91.4%, compared to the previous expectation of 89.5%, and a full year ratio of approximately 88.0%, compared to the previous expectation of 87.5%.
• Humana now expects to report GAAP EPS of approximately $20.00 and Adjusted EPS of approximately $26.09 for the year ended December 31, 2023.
• The company is assessing the impact of these trends on its 2024 outlook, which is expected to be material if current trends continue, and will provide an update on its fourth quarter 2023 earnings call.

Sentiment

Score: 3

Explanation: The document contains negative news regarding reduced growth expectations and increased medical costs, leading to a lower earnings forecast. While the company highlights its strengths, the overall tone is negative due to the financial revisions.

Positives

• Humana believes it took a prudent approach to 2024 pricing considering the current regulatory changes and evolving utilization environment.
• The company believes it remains well positioned to compete as an industry leader in the attractive Medicare Advantage market.
• Humana has differentiated capabilities, including diversified value-based care arrangements, high quality scores, and strong consumer experience rankings.
• The company has continued growth and integration of its CenterWell capabilities.

Negatives

• Humana's Medicare Advantage membership growth is lower than previously expected.
• The company experienced higher attrition during the AEP than expected.
• There is an expectation of higher attrition within its Dual Special Needs Plan (D-SNP) offerings.
• Medical cost trends increased more than anticipated in the fourth quarter of 2023.
• The company was unable to fully offset the higher medical costs with cost containment initiatives.
• The emerging utilization trends are expected to have a material impact on the 2024 outlook if they continue.

Risks

• The company faces the risk of continued higher medical costs impacting profitability.
• There is a risk of further attrition in the D-SNP offerings due to Medicaid redeterminations.
• The emerging utilization trends could materially impact the 2024 outlook.
• Regulatory changes and the evolving utilization environment pose ongoing challenges.
• The company's pricing strategy may not be competitive enough to capture a larger share of the market.

Future Outlook

The company is currently assessing the expected impact of emerging utilization trends on its 2024 outlook, which is anticipated to be material if current trends continue, and will provide an update on its fourth quarter 2023 earnings call. The company anticipates the trends will be contemplated in the 2025 Medicare Advantage pricing cycle.

Management Comments

• Humana believes it took a prudent approach to 2024 pricing considering the current regulatory changes and evolving utilization environment.
• Humana believes it remains well positioned to compete as an industry leader in the attractive Medicare Advantage market.
• Management believes that the non-GAAP measures provide a comprehensive perspective to more accurately compare and analyze the Company's core operating performance over time.

Industry Context

The document suggests that the increased medical costs are impacting the industry broadly, indicating a potential trend affecting other healthcare providers in the Medicare Advantage market. This could lead to industry-wide pricing adjustments in the future.

Comparison to Industry Standards

• Humana's previous commentary was for growth at or slightly above industry average, but the current expectation of 1.8% growth is below that benchmark.
• The document does not provide specific comparisons to other companies, but the statement that the trends are impacting the industry broadly suggests that other companies may be facing similar challenges.
• The company's industry leading Stars scores and best in class consumer experience rankings are mentioned as strengths, but the financial results are below expectations.

Stakeholder Impact

• Shareholders will likely react negatively to the reduced growth outlook and lower earnings guidance.
• Employees may be affected by potential cost-cutting measures.
• Customers may experience changes in plan offerings or pricing.
• Suppliers and creditors may be impacted by the company's financial performance.

Next Steps

• Humana will provide an update on its 2024 outlook during its fourth quarter 2023 earnings call.
• The company will assess the impact of emerging utilization trends on its 2024 outlook.
• The company will contemplate the emerging trends in the 2025 Medicare Advantage pricing cycle.

Key Dates

Keywords

Medicare Advantage, Medical Costs, Enrollment, EPS, Humana, Healthcare, Insurance, Utilization, AEP, D-SNP