Humana Expects To Lose ‘few Hundred Thousand’ Medicare Advantage Members Next Year

Dive Brief:

• Medicare Advantage giant Humana expects to lose a “few hundred thousand” members in its marquee business next year, after seriously shrinking its benefits and exiting markets for 2025 in a bid to boost profits, the insurer disclosed Wednesday.
• It’s the first time Humana has estimated membership losses from culling its plan footprint, and squares with past guesses from market watchers. MA margins should improve as a result, setting Humana on the path to a long-term target of at least 3%, management told investors on a call. Currently, analysts peg Humana’s MA margin as basically flat, as the Kentucky-based payer has been rocked by rising medical costs among seniors in the privately run Medicare plans.
• However, Humana also expects to emerge from 2024 stronger from a membership perspective than it previously thought. The insurer now expects to add 225,000 MA members this year, up from its previous forecast of 150,000 new lives.

Dive Insight:

Humana — the second largest provider of MA plans in the U.S. — has gone all-in on government plans, refocusing its business entirely on MA and Medicaid last year. Medicare is its biggest bet: Individual and group MA plans make up 38% of Humana’s members, but 86% of its premium revenue.

That gamble started to backfire last year, as seniors in MA began using significantly more medical care than insurers had planned, and regulators in Washington began cracking down on profiteering in the popular insurance program.

Humana struggled as a result, posting low earnings expectations for 2024 and withdrawing its 2025 guidance earlier this year.

Although Humana surpassed Wall Street expectations for earnings and revenue in second-quarter results released Wednesday, the insurer once again slashed its unadjusted earnings guidance for 2024, citing a sticky rise in hospitalizations among its MA members.

Revenue of $29.5 billion was up more than 10% compared to the same quarter last year, thanks to Humana nabbing higher reimbursement from the government for covering sicker members, along with lower administrative spending. However, the payer reported profit of $679 million, down 29% year over year.

Humana slashed its plan presence and benefits for next year to try and improve profits, citing utilization headwinds and a weak payment update from the government. The full scale of the reductions won’t be known until the CMS releases more information on 2025 bids in October.

However, Humana gave investors more details on a Wednesday morning call. Most of the estimated few hundred thousand members lost will come from Humana exiting unprofitable plan markets, according to management.

The “vast majority” of members impacted by those exits will still have a Humana plan in their area, said CEO Jim Rechtin.

Humana’s insurance segment posted a medical loss ratio — a measure of how much in member premiums is spent on their medical care — of 89.5% in the quarter, up from 86.8% same time last year.

That increase was driven by higher than anticipated inpatient admissions, though offset slightly by lower inpatient cost of care and fewer observation stays, said Humana CFO Susan Diamond.

Diamond said the higher admissions were mostly because of the two-midnight rule, a CMS regulation that requires payers to cover an inpatient admission if the patient is expected to require hospital care for at least two midnights.

In earnings this year, some hospitals have cited the rule as a revenue driver. However, it’s having the opposite effect on insurers by forcing them to shell out for pricier inpatient admissions as opposed to cheaper observation stays.

Though its cracking down on claims reviews to try and curb costs, Humana expects higher net inpatient costs to continue into the back half of the year, resulting in a full-year MLR of around 90%.

Some analysts on the call asked whether Humana’s bid assumptions for 2025 were now inadequate, given the inpatient pressure appeared after the payer submitted bids to the CMS.

But more positive recent trends, like higher member risk scores garnering higher payment from the government to cover their care, were also not considered in the bids, Diamond said.

“Considering all of those factors, we continue to feel good about our bid assumptions in the aggregate,” the CFO noted.

As for Medicaid, Humana’s peers in the safety-net insurance program have flagged pressures from rising medical costs as Americans are kicked off Medicaid amid ongoing state eligibility checks.

Humana said spending is generally tracking in line with its expectations, although the payer is experiencing a bump in claims in states it’s recently entered. Those include Oklahoma, where Humana is seeing an increase in pharmacy spend, and Kentucky, where behavioral care is elevated, Diamond said.

Humana said its states are mostly done with Medicaid unwinding. The insurer still expects to retain 20% of the 300,000 members it gained during the COVID-19 public health emergency once redeterminations are complete.

Despite cutting its full-year earnings guidance on a GAAP basis, Humana reaffirmed its adjusted earnings target of about $16 per share for 2024.

Analysts said that’s a conservative goal, especially since Humana outperformed expectations in the second quarter. Humana retaining the target, which is viewed as easily hittable, is probably due to the new chief executive being cautious, commented TD Cowen analyst Ryan Langston in a Wednesday note.

It is Humana’s first earnings under Rechtin, who assumed the top post on July 1 after the departure of decadelong chief executive Bruce Broussard.

“Overall quarterly results look fine, yet the synthetic 2024 guide-down and continued lack of clarity around 2025 likely overshadow this,” wrote Leerink analyst Whit Mayo in a note on the results.

Humana’s stock fell more than 9% in morning trade Wednesday.