Payer stocks skid as Humana slashes 2023 outlook amid elevated utilization

Amid a surge in utilization and disappointing results in the annual enrollment period, Humana lowered its outlook for 2023, according to a new filing.

The insurer said that while it had braced for elevated costs in the quarter, expenses exceeded those expectations, pushing its medical loss ratio to 91.4%, compared to an expected 89.5%. Its MLR for the full year was also above it projections, landing at 88% compared to an anticipated 87.5%.

Following the news, the company's stock dropped by 11%, trading at its lowest rate since it slashed its outlook in early 2022 following the Medicare Advantage enrollment window.

The reports also dragged down rival insurers. UnitedHealth Group, Elevance Health, CVS Health, Centene and Cigna were all trading down as of mid-afternoon on Thursday.

Humana said in the filing that the utilization spike included higher-than-expected inpatient care use in November and December alongside a continued trend of rising utilization in outpatient services.

This tracks with data reported last week by UnitedHealth Group on its earnings call. The industry giant said it saw a spike in COVID-19 hospitalizations in the fall, as well as elevated interest in vaccinations for respiratory syncytial virus (RSV) among seniors.

"The Company worked diligently throughout the year to leverage the strength, scale, and agility of the organization to offset the elevated medical costs with various administrative cost containment, productivity and other initiatives," Humana said in the filing. "However, due to the recency and significance of the latest emerging trends, the Company was unable to offset the entirety of the higher than anticipated medical costs that continued to increase through the end of the fourth quarter."

Alongside the increase in utilization, Humana said that its performance during the Medicare annual enrollment period fell short of its estimates. The company said it expects to add about 100,000 members this year, for growth of 1.8%.

Humana said a "balanced approach to pricing" likely drove a lower-than-expected growth rate. While its overall performance in the AEP was in line with its projections, Humana added that it saw a large volume of sales coming from members switching between plans, rather than new member gains.

It said it added about 120,000 members during the AEP, and expects that to decline due to a lack of sales opportunities in the rest of the year, and potential attrition in the dually eligble population because of Medicaid redeterminations.

The insurer said that as a result, it's lowering its guidance for the year to $26.09 in earnings per share, and moving its earnings call up to Jan. 25.