Humana logs $679 million in Q2 profit
CEO Jim Rechtin said a "challenging external environment" is preventing the company from reaching its full potential.
Photo: d3dign/Getty Images
Health insurer Humana pulled in $679 million in profit and $29.5 billion in revenue in the second quarter, bringing profit and revenue for the first half of the year to $1.4 billion and $59.2 billion, respectively, according to its Q2 earnings results.
While revenue was up from the $26.7 billion the insurer logged in Q2 2023, profit was down from the $959 million posted in the prior-year quarter.
At 89.5%, the medical loss ratio was higher in the quarter than it was in Q2 2023, when it hovered around 86.8%. Officials said this was due to higher Medicare Advantage utilization, which the insurer said is affecting performance.
Humana said it reduced benefits in the quarter to account for finalized rates from the Centers for Medicare and Medicaid Services.
WHAT'S THE IMPACT?
According to a letter posted to Humana's website by newly instated CEO Jim Rechtin, the long-term stability of the Medicare and Medicare Advantage program is central to the company's ability to effectively serve its customers, and its work in this regard resulted in 30.1% fewer inpatient hospital admissions compared to fee-for-service Medicare in 2022.
Rechtin added that Humana's Medicare Advantage Value-Based contractual arrangements saved 23.2% in medical costs in 2022 compared to FFS Medicare, while beneficiaries have a 21% higher rate of seeing a physician within 14 days of leaving the hospital as compared to individuals in FFS Medicare.
The business is attractive for investors, Rechtin said, with Medicare Advantage and CenterWell primary care clinics positioning Humana for long-term growth and "significant earnings power."
"We believe that Medicare Advantage is a mid- to high-single digit member growth business with a long-term margin profile of 3% or better that generates an attractive mid-teens return on invested capital," wrote Rechtin. "This is where the industry should perform. We expect to perform better."
That expectation, he said, is based on a number of factors, including strong clinical performance and medical margin over time, close relationships with members and a network of value-based providers. Humana has deployed more than $10 billion in capital, largely into CenterWell, with a double-digit aggregate portfolio internal rate of return, he said.
However, Rechtin added that the "full promise" of the company is not being realized due to a "challenging external environment," with a rate environment that has not kept pace with accelerated medical cost trends.
"It is our job to shape that environment to make it as stable and predictable as possible," he said.
THE LARGER TREND
Humana said in April that membership may take a hit from future Medicare Advantage pricing resulting from the Centers for Medicare and Medicaid Services payment rate notice released earlier in the month.
Because of the lower-than-expected payment and benchmark rates, Humana is actively evaluating plan level pricing decisions and the expected impact to membership.
Jeff Lagasse is editor of Healthcare Finance News.
Email: jlagasse@himss.org
Healthcare Finance News is a HIMSS Media publication.