Humana is crediting Medicare Advantage growth and lower inpatient medical utilization for a positive third quarter that included a 7% year-over-year revenue increase to $14.21 billion.
Premiums and services revenues were $14.09 billion for the quarter, a 7% increase over a year ago. Higher premium revenues primarily drove the growth in MA. Those gains were partially offset by lower revenues from the individual commercial business, which Humana exited this year.
The Louisville-based payer finished the quarter with an 82% benefit ratio, also called medical loss ratio, which was a 10 basis-point improvement over a year ago.
Humana said a lower tax rate enacted last year has allowed it to invest pre-tax dollars in employees, communities, technology and the integrated care delivery model. On the other hand, the return of the health insurer fee this year, enhanced MA member benefits and a more severe flu season in 2018 worked against those gains.
Humana, the second largest MA payer behind only UnitedHealthcare, continued its growth in the market while losing fully-insured commercial members.
The payer's Q3 retail segment revenues increased 9% and finished the quarter at $12.07 billion. The increase came primarily from individual and group MA membership growth and higher per-member premiums. That was offset partially by declines in state-based contracts. Year-to-date retail revenues were up 7% to $36.22 billion through the first three quarters.
Individual MA membership increased 7% in the quarter to slightly more than 3 million members. Group MA membership rose 13% to 496,800 members.
Humana's military services membership also skyrocketed 91% to 5.9 million members. The increase came mostly from the insurer providing healthcare services to military service members, retirees and their families under the TRICARE east region contract, which covers 32 states.
However, Humana saw membership losses in Medicare Part D and Medicaid. The stand-alone Medicare Part D drug plan membership ended the quarter with 5 million members, a 5% drop from a year ago. The lower enrollment was mostly because of losing auto-assigned members in Florida and South Carolina, Humana said.
Also, enrollment in the payer's co-branded Walmart Part D plan was lower than expected. Humana said new low-priced competitors have cut into the plan's membership. CEO Bruce Broussard said the company will lose more Part D members next year, but it must maintain its pricing discipline rather than following others and dropping prices. "We just don't want to follow the market down," Broussard said.
Meanwhile, state-based contract members, including dual-eligible demonstration members, dropped 11% to 323,800 to end the quarter. The decrease came from Humana not participating in Illinois' Integrated Care Program in Medicaid and lower enrollment in Florida's Medicaid contract because of improved economic conditions.
Humana also lost members in its fully-insured commercial medical plans. The payer ended the quarter with 1.03 million members in that sub-sector, a 6% decrease from a year ago. The trend of small group accounts moving to administrative services only (ASO) contracts this year partially led to the decrease. On the other hand, group ASO commercial medical membership increased 1% to 449,900 members in Q3. As an example of how small companies are moving more into ASO contracts, Humana said small group membership made up 21% of group ASO medical members in Q3, which was a 12 percentage point year-over-year increase.
"We're quite bullish on this level-funded product. We've had quite good growth there," Humana CFO Brian Kane said.
Looking ahead to 2019, Kane said the company has "meaningful tailwinds," including the lower tax rate and the upcoming health insurance fee moratorium. Kane said that combination will allow Humana to invest in benefits and provide "competitive Medicare Advantage products which are expected to drive significant membership growth."
Broussard said the payer's MA customers will see stable or enhanced benefits in 2019. He added that 93% of MA plans will have no premium change or will pay lower premiums in 2019. Also, 1.6 million MA members will have zero primary care provider copays, which is an increase of 400,000 from 2018. Nearly 40% will have a specialist copay reduction.
Plus, 1.3 million members will be in plans with no prescription deductibles and 1 million members will see their maximum out-of-pocket expense reduced in 2019.
"Early indicators from the annual election period reflect member and broker excitement and we are expecting strong individual Medicare Advantage growth in 2019," Broussard said.
Kane said Humana expects individual MA membership will grow 250,000 to 300,000 members in 2019. Medicaid is predicted to increase by 120,000 to 140,000 members mostly because of growth in Florida.
However, Medicare Part D will face headwinds. Kane said the market is increasingly competitive and Humana isn't the lowest-cost plan in markets. The payer expects to lose 500,000 Part D members next year.