Humana warns high medical costs may hit 2024 forecast, shares slump

By Sriparna Roy

(Reuters) -U.S. health insurer Humana said on Thursday an increase in demand for medical care among older adults would hurt fourth-quarter results and added uncertainty to its 2024 outlook, sending its shares down 14%.

Higher demand would drive up medical costs in the fourth quarter, Humana said, becoming the second major insurer to flag a jump in such expenses in less than a week. Larger rival UnitedHealth on Friday reported higher-than-expected medical service costs but said it did not expect those levels to remain through 2024.

Shares of UnitedHealth, CVS and Elevance Health fell between 2% and 5%, after Humana signaled higher costs could be an industry-wide issue.

Health insurers recorded higher medical costs in 2023 due to a rise in demand for procedures such as orthopedic and heart-related surgeries.

Demand for medical care rose during November and December among people enrolled in Medicare Advantage plans for those aged 65 and older, Humana said. Along with higher-than-expected demand for inpatient services, patients were also opting for more outpatient surgeries.

Analysts at J.P.Morgan and Leerink said the higher use of medical services also raised the possibility that the company would not meet its 2025 earnings targets.

Humana will now report fourth-quarter results on Jan. 25, a week before previously expected, where it will provide an update on the full-year forecast.

"Longer-term investors may be questioning the growth prospects of the Medicare Advantage market, too," said Morningstar analyst Julie Utterback.

Humana said it experienced lower-than-expected growth in new members during Medicare's annual enrollment period.

According to Utterback, the weak results during the annual enrollment period could also be adding to investor concerns.

Humana said it expects to account for the high costs in the 2025 Medicare Advantage pricing cycle.

The company expects adjusted medical benefit ratio in its insurance segment at 91.4% in the fourth quarter, versus 89.5% forecast previously. The medical benefit ratio refers to the percentage of premiums spent by an insurer on medical care.

(Reporting by Sriparna Roy in Bengaluru; Editing by Shilpi Majumdar)