human (HUM) Shares fell sharply in early trading Tuesday, while rivals UnitedHealth UNH and CVS Health (CVS) traded firmly in the red as the health insurance industry took another hit to its 2024 profit forecasts.
The three major health insurance groups have lagged the broader market this year, with Humana falling nearly 25%, amid concerns that profit margins will be hit by a rise in medical costs linked to an increase in elective procedures. These procedures had been delayed by the covid pandemic.
UnitedHealth's medical cost index, a key industry metric, rose nearly 3 percentage points, to 85%, during the final three months of last year, suggesting that a larger portion of its collected premiums was paid on medical claims. insurance.
Humana said its profit-to-expense ratio rose more than 3 percentage points to 90.7% during the fourth quarter of 2023 compared to the same period a year earlier. It was also up more than 3 percentage points from Q3 2023 levels.
The group noted “elevated Medicare Advantage utilization trends,” which it said “further increased in 4Q23, driven by higher-than-expected inpatient utilization, primarily for the months of November and December, as well as a additional increase in non-hospitalized patient trends, predominantly in the physician, outpatient surgery and supplemental benefit categories.”
Humana Health Cost Warning
In fact, Humana sought to mitigate those pressures late last year when it disclosed merger talks with Cigna Group. (IC) noting that the group “continued to experience an increase in Covid admissions in the third quarter.”
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 the leadership of President Lina Khan, would block the proposed merger. more than 120 billion dollars.
Related: UnitedHealth hit by antitrust investigation and report on ransomware hackers
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 possible changes to the industry's broader regulation.
Fixed Medicare Advantage Payments
More pressure was added to profit margins Tuesday when the U.S. Centers for Medicare and Medicaid Services said Medicare Advantage payments would increase by only an average of 3.7% next year.
Analysts expected an increase of around 4.7%, based on the CMS's January proposal of 3.7%, following increases of around 1.22% each year between 2019 and 2024 compared to preliminary figures from the CMS.
The payments, which reimburse insurers for the treatment of American patients over 65, will effectively be lower than current levels when adjusted for costs and inflation.
More medical care:
- Johnson & Johnson Updates 2024 Forecast After Strong Q4 Report
- Health insurer stocks pay the price as more people seek elective care
- Leading health scientist warns of major risks facing shift workers
“We view Humana as the most exposed both for its 84% revenue exposure to Medicare Advantage and sentiment given its challenging turnaround in the Medicare book,” said Cantor Fitzgerald analyst Sarah James.
“We would also point to CVS as more exposed to sentiment than the 17% revenue exposure would imply, particularly given investors' huge focus on 2024 Medicare Advantage margins and 2025 offering strategy for the company.” , he added.
Humana shares fell 9.2% in premarket trading, indicating an opening price of $318.70 each. CVS shares fell 5% to $75.56 each, while UnitedHealth fell 4% to $469.95 each.
Related: A veteran fund manager picks his favorite stocks for 2024
