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“Humana Shares Plummet as Health Insurer Issues Dismal Full-Year Earnings Guidance”

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Humana, one of the leading health insurers in the United States, experienced a significant drop in its shares after issuing a bleak full-year earnings guidance. The company cited soaring medical costs as the primary reason for the disappointing forecast, which has raised concerns among investors about the profitability of health insurance companies in the face of rising expenses.

The surge in medical costs can be attributed to the increasing number of older adults returning to hospitals for procedures they had postponed during the pandemic. Joint and hip replacements, among other surgeries, have seen a significant uptick as individuals seek to address their healthcare needs that were put on hold.

Humana primarily provides government-backed insurance through the Medicare Advantage program, and it expects adjusted earnings of approximately $16 per share for 2024. This projection falls short of analysts’ expectations, who had anticipated earnings of $29.10 per share, according to LSEG (formerly known as Refinitiv).

The guidance provided by Humana has further fueled concerns on Wall Street regarding declining health insurance company profits due to the surge in medical costs. UnitedHealth, another major player in the industry, also reported an increase in medical expenses, although not as drastic as Humana’s.

As a result of Humana’s forecast, its shares plummeted by over 10% on Thursday. The decline in Humana’s stock value also had a ripple effect on other health insurance companies. UnitedHealth and CVS Health both experienced drops of more than 6% and 4%, respectively, while Cigna and Centene saw their stocks slide by about 4%. Elevance Health also fell by 2% on Thursday.

However, unlike Humana, Elevance Health managed to exceed estimates for its 2024 earnings guidance. The insurer attributed this success to higher premiums in its commercial business, which helped control medical costs in the fourth quarter.

The outlook for Humana’s 2024 earnings guidance was already pessimistic following the company’s warning last week about higher-than-expected medical costs in the fourth quarter. Humana confirmed these concerns by reporting a medical benefit ratio of 90.7% for the period, indicating a higher percentage of payout on claims compared to premiums. Analysts had estimated the ratio to be 89.7%, according to LSEG.

Humana attributed the increase in medical costs to a rise in outpatient services, particularly orthopedic surgeries, and an increase in inpatient care during November and December among Medicare Advantage enrollees. Medicare Advantage plans are privately run versions of the federal government’s Medicare program, primarily catering to individuals aged 65 and older. These plans constitute a significant portion of Humana’s coverage, alongside insurance provided for military families and retirees.

Despite the disappointing earnings guidance, Humana managed to surpass analysts’ revenue estimates for the fourth quarter. The company reported revenue of $26.46 billion, exceeding the expected $25.42 billion, according to LSEG data. However, Humana also posted a loss of $591 million, or $4.42 per share, during the same period. This compares to a loss of $71 million, or 12 cents per share, in the fourth quarter of the previous year. Excluding certain items, Humana reported a loss of 11 cents per share, falling short of analysts’ expectations of 15 cents per share.

The future remains uncertain for Humana and other health insurance companies as they grapple with the challenges posed by rising medical costs. Investors will be closely monitoring their strategies to mitigate these expenses and ensure sustainable profitability in the years ahead.

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