Humana Faces Uncertainty as Utilisation Surge Drags Down its Finances

According to the company's projections, it aimed for $16 in earnings per share and consolidated revenue of $113 billion for 2024.

Global Health insurance player, Humana, has expressed concerns due to the spike in utilisation that dragged down its finances in the fourth quarter of 2023.

The company's leadership addressed the challenges during an earnings call, highlighting a significant spike in utilisation that adversely impacted its financial performance in the fourth quarter of 2023.

According to the company's projections, it aimed for $16 in earnings per share and a consolidated revenue of $113 billion for 2024. However, in prepared remarks, Humana acknowledged the "greater inherent uncertainty" in their outlook and expressed a willingness to amend guidance if the situation improves throughout the year.

Commenting on the same, Bruce Broussard, CEO, said, "I think the whole industry will possibly reprice, alluding to the challenges posed by increased utilisation and ongoing regulatory changes anticipated in 2025 and beyond." 

The Varied Market Response

Humana's shares experienced a sharp decline, reflecting investor concerns about the company's financial performance. The stock drop followed a disappointing fourth-quarter call, where Humana reported a $541 million loss.

Emphasising the importance of monitoring utilisation trends, Susan Diamond, CFO, Humana, said, “We’re watching utilisation trends very closely, as well as the annual Medicare Advantage rate notice. With uncertainties surrounding regulatory changes and the potential impact on Medicare Advantage payouts, we remain vigilant in assessing competitors’ pricing strategies and adjusting our plans accordingly.”

Last week, Humana prepped investors for a disappointing fourth-quarter call, and the trend continued with a reported $541 million loss. While analysts had anticipated a loss, it fell short of projections. Despite this setback, the company exceeded revenue expectations, reporting $26.5 billion for the quarter.

For the entire 2023, Humana recorded $106.4 billion in revenue and a $2.5 billion profit. Although revenue grew compared to 2022, profits declined slightly year-over-year. The insurer's stock plummeted by 16% before the market opened after the report's release.

The filing with the Securities and Exchange Commission last week revealed a significant spike in utilisation during the fourth quarter, impacting Humana's finances. This disclosure triggered a downward slide in stock prices, affecting major competitors in the health insurance sector.

Humana's primary focus is on Medicare Advantage, where a rise in care utilisation has been observed throughout the year. The filing highlighted increases in outpatient services, such as orthopaedic surgeries, and a surge in inpatient care in November and December, possibly linked to seasonal respiratory diseases.

Anticipating a continued trend in elevated utilisation, Humana set its 2024 guidance at $16 in earnings per share. The company also affirmed a 1.8% growth rate in Medicare Advantage membership for 2024, adding approximately 100,000 new lives.

Recently, in a strategic move, Humana appointed David Dintenfass to the newly created role of president of enterprise growth. Dintenfass, with a proven track record at Fidelity, is expected to focus on the company's growth strategy, emphasising consumer retention and experience improvement.

Expansion Plans & Potential Merger Talks

Additionally, Humana's CenterWell senior-focused primary care division plans to open 50 new centres by 2025. This expansion aims to enhance healthcare access for the growing ageing demographic, prioritising quality outcomes and holistic healthcare over sheer geographical outreach.

In a potential game-changer for the U.S. health insurance landscape, Cigna is reportedly in talks to merge with Humana in a deal exceeding $60 billion. The discussions, expected to face intense antitrust scrutiny, come after legal setbacks for Cigna, raising questions about the dynamics of the health insurance sector.