- Humana reported growing medical costs in its insurance segment during the third quarter as a result of increased medical utilization among Medicare Advantage members and higher-than-anticipated COVID-19 admissions.
- The payer expects higher levels of utilization to continue for the remainder of the year, and is now forecasting its 2023 medical loss ratio will outpace prior guidance. Humana is projecting a MLR of 87.5% for 2023, up from the 86.6% to 87.3% range it previously expected.
- Humana’s shares slid following the earnings release Wednesday, despite the insurer beating Wall Street expectations on revenue of $26.4 billion and profit of $1.1 billion.
Humana first warned investors about rising outpatient care utilization in June, saying that its MLR — an indicator of how much insurers spend on medical care — for 2023 was expected to land at the upper end of its projections. Executives said that high MA utilization seemed to have stabilized during a second quarter earnings call this summer.
But higher-than-anticipated MA utilization caused Humana’s MLR to rise by 190 basis points year over year in the third quarter. The insurer reported an MLR of 87.4% — stripping out the impact from Humana’s decision to exit the employer insurance business earlier this year — compared to 85.5% in the prior year period.
Increased utilization was driven by a rise in inpatient COVID admissions and a lack of non-COVID medical utilization that diverged from previous patterns, Humana CFO Susan Diamond told investors during a Wednesday morning call.
“Considering the most recent trends, we're planning for the higher level of utilization seen in the third quarter to continue for the remainder of the year,” Diamond said.
The payer also expects higher levels of utilization due to a higher-than-expected proportion of “age-ins” in its MA membership growth. Age-ins, or seniors newly eligible for Medicare, tend to have higher initial medical costs but also higher retention rates than average MA members.
Humana — the second-largest MA insurer after UnitedHealthcare — raised its MA growth outlook for 2023.
The insurer now expects to grow its MA rolls by 19%, or about 860,000 lives, in 2023 compared to 2022. The payer also expects MA growth of approximately 45,000 members in 2024, thanks to small and midsize contract wins, according to Diamond.
The percentage of age-ins and MA growth is a factor in Humana’s 2024 pricing strategies for new bids, executives said.
“One of the things we'll still have to assess as we refine the thinking for  will be this year's membership growth and the composition of the new enrollment versus retention,” Diamond said.
Like other payers, Humana saw a boost in its MA star ratings after the CMS released stars guidance last month. The insurer’s largest contract, which holds approximately 40% of its MA members, maintained 4.5 stars while the payer’s second-largest contract improved from 4.5 to 5 stars, according to a TD Cowen analyst note.
Plans with four or more stars receive a 5% quality bonus adjustment for the following year, which will reflect in Humana’s 2025 earnings.
Humana’s Medicaid business outperformed expectations in the quarter, executives said, despite ongoing Medicaid redeterminations. The payer expects its total Medicaid footprint to grow to approximately 1.5 million members by year-end 2024.
Humana reaffirmed its 2023 guidance. The payer expects $104.4 billion to $106.4 billion in revenue this year.