Humana downplays higher medical costs while riding wave of MA membership growth

Humana’s flourishing Medicare Advantage (MA) numbers didn’t slow down in the second quarter, leading the Louisville-based insurer to again raise its 2023 membership expectations and maintain an upbeat disposition despite “higher-than-anticipated” utilization.

The company announced Wednesday second-quarter earnings of $956 million, or $7.66 per share, up 37.8% from last year’s $697 million, or $5.48 per share. Adjusted earnings per share (EPS) landed at $8.94, extending its streak of earnings landing above market analyst estimates.

Humana’s more than $26.7 billion of revenue for the quarter was a 13% improvement over the second quarter of 2022 and beat out market estimates of $25.8 billion. The company’s stock is trading nearly 6% higher in the hours after market open.

Headlining the performance was word that Humana is now raising individual MA membership growth numbers for 2023 by 50,000 members, representing 18% year-over-year growth or about 825,000 new members.

The membership growth “exceeds initial expectations and as previously shared represents high-quality growth supported by better-than-expected retention and a greater proportion of our new sales coming from competitors than initially planned,” Humana CEO and President Bruce Broussard told investors Wednesday morning.

Back in February, Humana had predicted MA membership to grow 13.7% year over year, and a clear turnaround from 2022 when its slashed membership outlook due to a poor open enrollment performance.

Broussard said the company expects its MA growth, as well as that of the broader MA industry, to continue into 2024, helping Humana reach its adjusted EPS target of $37 for 2025.

Meanwhile, executives sought to downplay the increased MA utilization highlighted in a Securities and Exchange Commission filing last month.

Chief Financial Officer Susan Diamond told investors that data received in the past few weeks are "incrementally positive as compared to the assumptions utilized in our June update,” but continued to point toward the higher end of the company’s 86.3% to 87.3% benefit expense ratio guidance range.

That guidance considers the high individual MA membership growth after the annual election period “which has included a higher-than-expected proportion of age-ins [who] initially run a higher benefit expense ratio than the average new member, which negatively impacts the current year benefit ratio but results in a larger margin expansion opportunity on these members over time,” she said.

Diamond added that the higher utilization rates were offset during the recently closed quarter by “better than expected favorable prior year development, more positive midyear Medicare risk adjustment payments and slightly favorable investment income as well as other business out-performance, particularly in our Medicaid business.”

Within that Medicaid business, executives announced that the company was recently recommended by the Oklahoma Health Care Authority to cover the state’s Medicaid beneficiaries, which is expected to begin in early to mid-2024. With the kickoff of contracts in Ohio and Louisiana earlier this year, Broussard said Humana will have a total Medicaid footprint of nine states and nearly 1.5 million members by the end of 2024.

Diamond specified that the company is still expecting Medicaid membership to increase by somewhere between 25,000 and 100,000 members for the full year, noting that the Louisiana and Ohio gains “will be largely offset by membership loss resulting from redetermination.”

CenterWell—a unit that includes the payer’s senior-focused primary care clinics, home health business and pharmacy benefit manager—grew from 249 locations and 266,000 primary care patients in the first quarter to 257 centers and 272,000 patients.

Broussard said these centers are seeing year-over-year increases in retention as well as higher presentation rates. He also noted that the value-based payment model supported by CenterWell’s services is yielding lower home health hospital admissions than other providers, while members utilizing the CenterWell pharmacy are logging lower inpatient admission rates.

Alongside the quarter’s earning numbers, Humana revised its full-year EPS guidance to “at least $26.91” on a GAAP basis and “at least $28.25” on an adjusted basis. Year-to-date EPS currently stands at $17.54 on a GAAP basis and $18.32 on an adjusted basis.

“As we look ahead to 2024 we believe the MA industry will continue to see strong growth fueled by MA’s compelling value proposition compared to original Medicare,” Broussard said.