Humana posts $541 million loss in Q4, blames high Medicare Advantage costs

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Despite logging $26.6 billion in revenue for the fourth quarter of 2023, insurer Humana posted a $541 million overall loss, pinning much of the blame on a higher-than-anticipated increase in Medicare Advantage costs. 

In a prepared statement on its financial performance, Humana said it was "disappointed with the impact of the late and unexpected development of higher trends on our 2023 results and 2024 outlook."

The Wall Street Journal reported that Humana's stock dipped 11% following the earnings report, prompting the organization to cut its earnings guidance for this year and next due to the increase in spending.

Officials said the cost increases were largely driven by climbing inpatient costs and more spending on outpatient surgeries and supplemental benefits. Inpatient short stays increased during Q4, while observation stays decreased.

Comparing year-over-year performance, Humana reported $22.4 billion in revenue and a $15 million loss in Q4 2022.

WHAT'S THE IMPACT?

For the full year, Humana recorded $106.4 billion in revenue and $2.5 billion in profit. 

In its remarks, the insurer said the Medicare Advantage sector "is navigating a complex and dynamic period of change" marked by regulatory changes. The sector is also "absorbing unprecedented increases in medical cost trends," Humana said.

The organization maintains that these elevated MA costs are an industry dynamic that isn't specific to Humana, and that these costs could persist for an extended period, or in some cases permanently reset the baseline.

"The MA program was designed to be able to adjust to unexpected medical trends through annual revisions to CMS benchmarks, the inherent mechanism of risk adjustment and the ability to re-price annually," Humana said. "Although we intend to prioritize margin recovery over membership growth near-term, we no longer believe the previously communicated $37 adjusted EPS target for 2025 is achievable. It is our intent to deliver $6 to $10 of adjusted EPS growth in 2025 through MA pricing actions, earnings growth in other lines of business, as well as our ongoing productivity and trend mitigation initiatives."

Despite those challenges, officials maintained confidence in its "core fundamentals" and in the growth outlook for MA and value-based care.

THE LARGER TREND

A November report questioned the affordability of the MA program, which costs a minimum of 6% more per enrollee.

This growing expense, even prior to factoring in the effects of selective enrollment into MA, elevates federal expenditures, widens deficits and ultimately heightens costs for all beneficiaries, the authors said.

The allure of supplementary benefits and capped out-of-pocket expenses within MA designs has attracted older and disabled Americans, while attempts to incorporate such services within traditional Medicare have met consistent failure due to explicit cost constraints. The report notes the federal government indirectly shoulders these expenses through augmented payments to plans, and adds that the profits amassed by MA plans – which it says verge on being excessive – may not uniformly represent genuine efficiencies or enhanced value.

Humana and Cigna called off a proposed merger in December after failing to agree on a price. A combination would have created a company with a value exceeding $140 billion based on their market values.

Earlier this month Walgreens Boots Alliance agreed to pay $360 million to Humana to settle a lawsuit alleging the retail pharmacy overcharged for prescription drug reimbursements. Humana brought the lawsuit against Walgreens in February 2022, claiming the retailer had inflated prescription drug prices for years. The insurer was awarded $642 million in private arbitration.

Jeff Lagasse is editor of Healthcare Finance News.
Email: jlagasse@himss.org
Healthcare Finance News is a HIMSS Media publication.