Health insurer Humana warns over hit to 2025 profit, shares sink

By Leroy Leo and Sriparna Roy

(Reuters) -Health insurer Humana said on Thursday an "unprecedented" increase in medical costs that will hit its earnings this year has also put its 2025 profit target out of reach, sending its shares plunging 15%.

Medical costs for health insurers were elevated in 2023 and picked up more in the fourth quarter as people, especially older adults, returned to hospitals to undergo procedures like joint replacements which they had delayed during the COVID-19 pandemic.

"We believe the elevated (Medicare Advantage) medical costs are an industry dynamic, not specific to Humana, and that they may persist for an extended period or, in some cases, permanently reset the baseline," Humana said.

Humana's forecast and comments also dragged shares of its peers CVS, Cigna, Centene and UnitedHealth down around 3%.

Expectations around Humana's 2024 profit were already low following its announcement last week of a hit from medical costs this year, with some analysts saying that the insurer may not be able to meet its 2025 target of $37 per share.

Humana now anticipates 2025 earnings between $22 and $26 per share, but said it would finalize the outlook once its contract bids for the year are finalized. Analysts expect a 2025 profit of $34.52 per share.

Demand for medical care rose during November and December among members enrolled in Medicare Advantage plans for older adults, Humana said.

Besides higher-than-expected demand for inpatient services, people were also opting for more outpatient surgeries, the insurer added.

Humana's 2024 forecast signals that the health insurer mispriced its contracts for the year and did not take into account the higher costs, Morningstar analyst Julie Utterback said.

Humana forecast an adjusted profit of about $16 per share for 2024, much lower than analysts' expectations of $29.10 per share, according to LSEG data.

The company, which primarily provides government-backed insurance through the Medicare Advantage program, saw an increase in its medical benefit ratio to 90.7% in the fourth quarter, higher than analysts' estimates of 89.7%.

(Reporting by Sriparna Roy and Leroy Leo in Bengaluru; Editing by Maju Samuel)