Updated at 9:46 am EST
human (HUM) – Get a free report Shares fell in early trading on Thursday, dragging rival health insurers firmly into the red after warning that higher medical costs would hit their short-term profits.
A huge surge in demand for elective and non-emergency medical procedures following the worst of the Covid pandemic, first highlighted by UnitedHealth (UNH) – Get a free report last spring, has led to significant cost increases for the nation's largest health insurance providers.
Related: UnitedHealth Plunges as Higher Medical Costs Cloud Optum's Performance
This adds to pressures on the medical cost ratio – a key profitability metric – not only for UnitedHealth but also for rivals such as Humana and CVS Health. (CVS) – Get a free reportowner of Aetna, since a greater portion of the premiums collected is paid in insurance claims.
In fact, Humana sought to mitigate those pressures late last year when it disclosed merger talks with Cigna Group. (IC) – Get a free reportnoting that the group “continued to experience an increase in Covid admissions in the third quarter.”
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However, the talks were ultimately scrapped amid concerns that the Federal Trade Commission, which has taken a much more active role in challenging megamergers under Lina Khan's leadership, would block the 10-mil merger proposal. millions of dollars.
Humana warns about costs
Humana, which will report its fourth-quarter earnings next week, told investors on Thursday that higher medical payments would not only cut into its year-end profits but also its overall results in 2024.
Humana's third-quarter profit-to-expense ratio, which tracks claims payments against premiums collected, rose more than a percentage point from a year earlier to 86.4%. It likely rose to about 91.4% during the final three months of last year, the company said.
“Fourth quarter actual results reflect a further increase in Medicare Advantage medical cost trends, driven by higher-than-anticipated inpatient utilization, primarily during the months of November and December,” Human said in a presentation to the Securities and Exchange Commission.
“A further increase in non-hospitalized patient trends, predominantly in the physician, outpatient surgery and supplemental benefit categories, (also) emerged with the November and December paid claims data.”
Humana shares fell 11.2% in early trading Thursday to change hands at $397.83 each. Shares of UnitedHealth, a Dow component, fell 4.26% to $5,000.84, while CVS Health fell 4.8% to $73.32 each.
Last week, UnitedHealth said its medical cost ratio was 85%, up from 82.8% in the same period a year ago. Overall premiums increased 13.2% to $73.23 billion and operating costs increased 14.3% to $86.74 billion.
That offset a stronger-than-expected set of fourth-quarter earnings, which included record revenue of $92.4 billion and a bottom line of $6.16 per share.
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FTC investigates pharmacy benefit managers
The FTC is also continuing its investigation into the three largest pharmacy benefit managers (CVS's Caremark, Cigna's Express Scripts and UnitedHealth's OptumRx) and has warned the group about potential changes to broader industry regulation.
“As drug prices have skyrocketed and independent pharmacies have closed, scrutinizing (pharmacy benefit managers') practices is more critical than ever,” the FTC said in a July 20 statement.
“The FTC is conducting an investigation into the PBM industry, designed to capture and detail the current realities in this complex market,” the statement added.
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