Humana (HUM) faces a challenging start to 2024 as its shares hit a four-year low due to a surprise loss in the fourth quarter, primarily driven by higher usage in its Medicare Advantage business. The surge in older patients seeking care disrupted the balance between premiums and care costs, leading to a deviation from expected levels in the industry.
Humana’s CEO, Bruce Broussard, highlighted the complexity of the Medicare Advantage sector, attributing the challenges to significant regulatory changes and unprecedented increases in medical cost trends. The company anticipates elevated costs in this segment to persist throughout the year, impacting adjusted earnings, which are expected to reach $16 per share in 2024, down from $26.09 in 2023.
The unexpected financial downturn resulted in a 12% drop in Humana’s stock following its earnings report. The Medicare Advantage market, known for its profitability, has been criticized for realizing profits at the expense of taxpayers. However, changes in utilization rates, federal government payments, and shifting demographics contributed to Humana’s struggles in 2023.
Notably, Humana ranks second among Medicare Advantage plans, with 18% of the total market, while UnitedHealth Group holds the highest share at 29%. The pressure on Humana is reflective of broader challenges in the industry, as demonstrated by Centene’s recent layoffs and the changing star ratings criteria.
While Humana sees the industry possibly repricing in response to the surge in usage, concerns about slowing enrollment growth in Medicare Advantage plans arise. The demographic forces, often referred to as the “silver tsunami,” that once fueled market growth are expected to fade. JPMorgan analysts note that the growth in the 65+ market is projected to moderate, impacting Humana’s membership profile.
The Census Bureau projects a shift in the US population aged 65 and older, growing from 56.1 million in 2020 to 73.1 million by the end of this decade. However, the rate of growth is expected to slow in the next decade, with projections of 80.8 million Americans over 65 by 2040. As Humana grapples with current challenges, the industry may face a more balanced margin and membership profile in the future.
