Humana rides MA wave, beats Q4 earnings expectations
- Humana on Wednesday reported fourth-quarter revenues of $14.17 billion, up from $13.19 billion a year ago, marking the fourth consecutive quarter the payer has beat revenue expectations. Annual revenue totaled $56.91 billion, compared to $53.77 in 2017. The company expects revenue as high as $63.7 billion in 2019.
- The Louisville, Kentucky-based payer also continued its two-year streak of beating earnings per share estimates, reporting $2.65 per share in the fourth quarter of 2018, up from $2.06 per share a year earlier. Humana shares were down Wednesday morning.
- On the Medicare Advantage front, Humana added 340,000 members in 2018, and expects membership to grow by as many as 400,000 members in 2019, representing a 13% growth rate. CFO Brian Kane said on the company's earnings call that preliminary data suggest more than 40% of Humana's new MA members came from competing payers in the MA market.
Humana picked up where it left off in Q3, which also saw revenue growth fueled by MA membership and the industry trend of lower inpatient medical utilization. The trend helped to offset Humana's high retail spending as a result of individual and group membership growth as more people become uninsured and fewer people receive care.
"The theme of lower inpatient utilization, partially offset by higher outpatient costs once again contributed to the outperformance," Jefferies analysts noted.
The payer, which exited the Affordable Care Act individual market last year and became the second-biggest MA payer behind UnitedHealth, has exceeded expectations for both the fourth quarter and the year in EPS, GAAP and adjusted pretax income — the last two being favorably impacted by the Trump administration's tax breaks.
Humana will continue to scout the primary care arena for potential acquisitions as it moves into the home health space. Last summer, Humana and two private equity firms completed their acquisition of Kindred Healthcare, with Humana taking a 40% stake in the company's home health business, Kindred at Home.
While Kane said Humana will remain "bullish" on growing its retail segment, its focus moving forward — in line with other payers — will continue to be on MA. Kane said the company is expecting earnings per share to increase by as much as 20% in 2019 as a result of MA growth as that market continues to boom.
"The investments we made in 2018 to improve consumer experience, clinical programs and external broker relationships all contributed to our ability to exceed average industry growth in MA for 2019, with full membership growth estimated between 375,000-400,000 members," Humana President Bruce Broussard said in a statement. "Also, both the 2019 improved MA rates and moratorium on the health insurance industry fee allowed us to deliver improvements to our members through better benefits and lower premiums."
CMS last week issued its proposed 2020 MA and Part D payment rates, including an estimate that MA plans will experience an average 1.59% increase in benchmark funding. Kane sounded optimistic about this rate increase, referring to it as "strong" during the company's earnings call.
Humana's positive Q4 is in line with those of its peers, though it still trails industry leader UnitedHealth, which saw success in the individual exchange and experienced a revenue hike largely attributable to its health services arm Optum, which surpassed $100 billion in revenue for the first time.
Cigna, on the other hand, had an "underwhelming" quarter according to some analysts, despite posting revenues of nearly $49 billion — a 15% increase from 2017. Anthem, which beat expectations despite reporting somewhat modest revenue growth for the quarter, watched its stock price shoot up nearly 10% after announcing it would speed up the launch of its PBM.
Managed care giant Centene, one of the last payers to bank on the ACA market, saw revenues climb to $16.6 billion in Q4, totaling $60.1 billion for the fiscal year — growth the payer can attribute to the 1.8 million members it added through the year through increased participation in the ACA exchanges and state Medicaid contracts.
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