Humana posted major profit in Q3. But the good times are expected to end in Q4, they said

Humana building
Humana released its third-quarter earnings on Tuesday morning. (Humana)

Humana brought in $1.3 billion in profit for the third quarter, the insurer reported Tuesday morning.

But heading into the end of the year, the health insurance giant is bracing for some whiplash, projecting a loss in the fourth quarter, executives said on a call with investors.

Chief Financial Officer Brian Kane said the insurer is expecting a loss of about $2.40 adjusted earnings per share as health utilization rebounds while COVID-19-related costs remain high.

He said that service use has largely rebounded from "trough levels" seen in late March and early April at the height of pandemic-related shelter in place orders. In September and October, he said, utilization hovered at about 95% of expected pre-pandemic levels, with inpatient care utilization a bit higher and outpatient and physician services utilization a bit lower.

"We continue to expect our results for the second half of 2020, including an anticipated loss in the fourth quarter, to entirely offset the significant outperformance experienced in the first half of the year that resulted from historically low medical utilization levels," Kane said.

Humana execs expect to see non-COVID-19 services stay at a similar level through the rest of the year, especially as cases of the novel coronavirus begin to climb again in a number of regions across the country, Kane said.

Service use rebounded more quickly in the insurer's group and individual plan segments, and more slowly for Medicare and Medicaid plans, he said.

All told, Humana expects to spend $1 billion on COVID-19 testing and treatment costs alone in 2020, Kane said.

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That represents a 94.5% climb from net income in the third quarter of 2019, which was $689 million. Revenues for the quarter totaled $20 billion, also up 23.6% from $16.2 billion in the prior-year quarter. Performance in both earnings and revenue beat Wall Street projections.

Through the first nine months of the year, profits were up 65.9% over the year before, reaching $3.6 billion. Revenues through the first three quarters of 2020 totaled $58 billion, a 19.6% hike.

Humana attributed some of the earnings increase to market gains from its investments and its payout from a lengthy suit against the federal government over the Affordable Care Act's risk corridors, payments it had written off.

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As the earnings report was released in the midst of Medicare's open enrollment period, much of the focus was on that business line. Humana said it expects individual Medicare Advantage (MA) membership to grow by 375,000 people, or about 10%.

It previously estimated membership growth of between 330,000 and 360,000 people.

The insurer added that for 2021, 92% of its members are enrolled in MA plans with 4 stars or more, including 960,000 Floridians enrolled in either 4.5-star or 5-star plans. CEO Bruce Broussard said in a statement that the star ratings push insurers like Humana to "take a holistic approach."

“We continue to see more Medicare beneficiaries choosing Medicare Advantage plans over Medicare fee-for-service due to MA’s ever-increasing value proposition," Broussard said. "What’s driving this strong value is the fact that plans must constantly innovate to stay competitive as Medicare beneficiaries have the freedom to choose a plan that’s affordable for them and that suits their lifestyle needs."

Humana adjusted its full-year earnings projections to between $18.50 and $18.75 per share, and the insurer said it is bracing for a loss in the fourth quarter as healthcare utilization restabilizes under the pandemic alongside the growing cost of COVID-19 testing and treatment.