Updated at 9:45 am EST
human (HUM) – Get a free report The stock extended its recent collapse on Thursday after the health insurance giant warned that a rise in medical costs would hit industry profits over the next two years.
Humana, which warned earlier this month that a surge in demand for elective and non-emergency medical procedures following the Covid pandemic would increase its underlying costs, doubled down on its concerns following a dismal fourth-quarter earnings report.
Related: Humana sinks amid major health insurance warning; UnitedHealth and CVS fall
Health insurance groups are seeing payouts to policyholders increase as more Americans, typically those of retirement age, find the time and space for elective surgeries at hospitals that were previously overwhelmed by Covid patients.
This has added significant pressure to the medical cost ratios of the industry's largest companies, including UnitedHealth Group, CVS Health (CVS) – Get a free report and Cigna. The ratio, a key profitability metric, isolates an insurer's payments from the premiums it charges.
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's adjusted fourth-quarter loss was 11 cents per share, compared with Wall Street forecasts for a profit of 15 cents, while revenue rose 20.8% to $25.73 billion.
As for 2024, things aren't looking much better, with Humana forecasting adjusted earnings of $22 to $26 per share, well below LSEG's forecast of $34.50.
Humana shares fell 11.8% in early trading Thursday to change hands at $355.24 each, a move that would extend the stock's three-month decline to about 31%.
Shares of UnitedHealth, a Dow component, fell 4.5% to $489.82, while CVS Health fell 3.6% to $71.55 each.
Earlier this month, UnitedHealth (UNH) – Get a free report said its medical cost ratio was 85%, up from 82.8% in the same period a year earlier. Overall premiums increased 13.2% to $73.23 billion and operating costs increased 14.3% to $86.74 billion.
That offset a string of better-than-expected fourth-quarter earnings, including record revenue of $92.4 billion and a bottom line of $6.16 per share.
Talks between Humana and Cigna are ruled out
Humana had previously sought to mitigate medical cost pressures late last year when it unveiled merger talks with Cigna. (IC) – Get a free report.
However, the talks were 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 merger proposal from more of 120 billion dollars.
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
The FTC is also continuing an 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 broader industry regulation.
“As drug prices have skyrocketed and independent pharmacies have closed, examining the practices (of pharmacy benefit managers) 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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