- Humana bested Wall Street expectations as it gained more members during the third quarter, generated higher revenue and beat earnings estimates, according to its quarterly results released Tuesday morning.
- The payer's medical utilization continued to trend slightly below pre-COVID levels during the third quarter, though still well above the severe dip in March and April. The lower levels of utilization were partially offset by higher COVID-19 testing and treatment costs as cases began to tick back up.
- Executives warned during Tuesday's call with investors that they expect a loss in the fourth quarter due to a number of issues, including COVID-19 testing and treatment and rebounding utilization.
As patients have put off care amid the pandemic, insurers have recorded sizable profits, though they have been sensitive to those optics and have waived copays and cost sharing for members among other benefits.
But Humana warned on Tuesday that it expects to record a loss of $2.40 per share on an adjusted basis for the fourth quarter due to COVID-19 costs, rebounding utilization and member support like waiving cost sharing and copays.
David Windley, an analyst with Jefferies, said in a research note that "as utilization returns, the beneficiary cost mitigations (e.g. copay waivers) become a more significant cost."
Humana expects what it calls its medical expense ratio to be considerably higher in the fourth quarter compared with the third quarter due to a meaningful increase in its group and specialty segments, which encompasses its commercial members. Unsurprisingly, its Medicare members, who are more likely to get severe COVID-19 symptoms if infected, have been slower to return than commercial members.
Humana has narrowed its 2020 earnings guidance and expects to generate EPS between $24.70 and $24.95, compared to the previous range of $23.74 and $24.24.
"We continue to expect our results for the second half of 2020, including an anticipated loss in the fourth quarter, to entirely offset the significant outperformance experienced in the first half of the year that resulted from historically low medical utilization levels," CFO Brian Kane said during Tuesday's call.
During the third quarter, Humana increased revenue 24% to $20 billion compared with the prior-year period. Revenue growth was driven by higher premiums from its Medicare Advantage business and membership growth in its state-based contracts.
Income increased to nearly $1.3 million compared with $689 million during Q3 2019. Operating expenses increased nearly 19% during the third quarter compared with the prior-year period.