Humana's 2023 forecast brightens with higher projections for Medicare Advantage business

Humana made significant investments in its Medicare Advantage business more than a year ago and it appears to be paying off as the insurer is projecting to add 775,000 MA members this year.

If the insurer hits that target it would translate to 17% Medicare Advantage membership growth over 2022 which represents a significant boost to previous projections and is "meaningfully higher than industry growth," executives said. In February, Humana said it expected to add 625,000 MA members, or growth of 13.7% from 2022.

This would represent a significant reversal of fortune for the company, which made waves a year ago when it drastically slashed its membership outlook after a disappointing open enrollment performance.

"The targeted investments we made in benefits, marketing and distribution for 2023 have continued to drive success post the annual election period, or AEP," Bruce Broussard, Humana’s president and CEO, told investors and analysts during the company's first-quarter 2023 earnings call Wednesday morning.

Humana said MA enrollment jumped 11% to more than 5.6 million people in the quarter. Individual MA enrollment at the end of the first quarter stood at 5.15 million members, up 13% from 4.5 million members a year ago.

Humana ended the quarter with 17.1 million members across all of its plans, including 8.6 million across its MA and standalone Medicare prescription drug plans. 

"Growth in states with robust or growing value based provider penetration remains strong. We have grown membership nearly 13% year-to-date in Texas, Georgia, Florida and Illinois, which are highly penetrated value-based markets. Empirically the growth we're experiencing in 2023 continues to be high quality, with better than expensive expected retention," Broussard said.

The insurer also has 1.3 million Medicaid members, up 36% from a year ago, and will grow its Mediaid business to an eighth state, Indiana, in 2024.

Humana had a strong start to 2023 reporting first-quarter earnings of $1.24 billion, or $9.87 a share, up from $930 million, or $7.29 a share, a year ago.

Earnings, adjusted for one-time gains and costs, were $9.38 per share. The results exceeded Wall Street expectations. The average estimate of eight analysts surveyed by Zacks Investment Research was for earnings of $9.25 per share.

The Louisville, Kentucky-based insurer reported revenue of $26.7 billion in the first quarter of 2023, up 12% from $23.9 billion a year ago. Revenue for the quarter also topped Street forecasts. Eight analysts surveyed by Zacks expected $26.32 billion.

Humana said in a statement that its first-quarter 2023 performance was underpinned by robust membership growth and favorable inpatient utilization trends in the individual Medicare Advantage (MA) business.

The insurer raised its full-year 2023 earnings guidance to "at least $27.88" per share on a GAAP basis and "at least $28.25" per share on an adjusted basis.

"We’ve had a strong start to the year, with our outperformance underpinned by strong membership growth and favorable inpatient utilization trends in our individual Medicare Advantage business. The strength of our results enabled us to raise our full year 2023 Adjusted EPS by $0.25 to ‘at least $28.25’," said Broussard said in a statement.

"Complementing our strong financial results is our progress in advancing our strategy and growing our core businesses, including our industry-leading individual Medicare Advantage growth now projected at 17% for 2023, our continued organic growth in Medicaid, our recent Tricare contract award, and the continued expansion of our CenterWell assets in primary care, home health, and pharmacy. All in, we are pleased with the solid start, which reflects our company's strong fundamentals and positions us well for meeting our mid-term Adjusted EPS target of $37 in 2025."

Humana continues to see strong growth in its CenterWell business which includes the insurer's senior-focused primary care clinics, its home health business and its pharmacy benefit manager, the fourth largest in the country. CenterWell offers senior-focused primary care at 249 locations serving 266,000 patients, Broussard said.

"This represents 16% growth in center count and 11% growth in patients served year over year," he said.

Humana is aiming to significantly expand the reach of CenterWell over the next several years and said it intends to open between 30 and 50 centers each year through 2025.

"We remain on track to end the year at the high end of our previously communicated annual center growth of 30 to 50 through a combination of de novo build and programmatic M&A. With over 17,000 new patients year-to-date, patient growth for 2023 is trending ahead of previous expectations and significantly higher than the 3,900 patients added for the same period in 2022," Humana's CEO said.

The company said it has adjusted previously reported numbers to reflect the exit of the employer group commercial medical products business, which was announced in late February.

"Our decision to exit this business augments humanity's ability to focus resources on our greatest opportunity for growth and where we can deliver industry-leading value for our members, customers and shareholders," Broussard said. "It is in line with our strategy to focus our health plan offerings on public-private partnerships and specialty businesses, advancing our leadership position in integrated value-based care, including expanding our CenterWell healthcare service capabilities."

Humana is projecting full-year 2023 non-GAAP revenue between $100.7 billion to $102.7 billion with its insurance segment bringing in $97.5 billion to $99 billion and its CenterWell business expected to bring in $18 billion to $18.5 billion in 2023 revenue.