(Bloomberg) -- Humana Inc. shares tumbled after the company warned of higher-than-expected inpatient hospital admissions that point toward elevated costs for the insurer.
The company saw “higher than anticipated inpatient admissions” in the latter half of the second quarter, according to prepared remarks posted Wednesday on its website. The shares fell as much as 10% in New York after losing about 12% this year through Tuesday’s close.
Humana is still recovering from a disastrous start to the year when rising medical expenses seemed to take the insurer by surprise. The company slashed its outlook in January and in April backed off an earnings target for 2025 that had already been revised lower.
The comments may raise warning signs for investors jittery over elevated care expenses. Other US health insurers slumped after the update, with shares of UnitedHealth Group Inc. down as much as 2.4% and CVS Health Corp. dipping as much as 4.5%.
New CEO
It’s the first quarterly report under Chief Executive Officer Jim Rechtin, who took over this month. The higher inpatient admissions persisted into July, he said on a call with analysts, though he said the trend “ultimately can be mitigated.”
The rise in inpatient care was likely tied to a recent policy change in how private Medicare insurers pay hospitals, executives said. Certain hospital visits that were previously considered observation stays are now classified as inpatient admissions, which are more expensive.
The trend stabilized at a higher level than expected going into the quarter, CFO Susan Diamond said on a call with analysts. A “slight amount” Covid cases also contributed to the higher costs, she said.
Humana reported adjusted earnings of $6.96 a share, beating analysts’ average estimate by more than a dollar a share. A key measure of medical expense in the quarter was in line with analysts’ expectations, according to a statement, aided by reserves from prior periods.
Conservative Target
In April, the Medicare-focused insurer pointed investors to a 2024 adjusted earnings target of approximately $16 a share, which some analysts have called overly conservative. Humana left the outlook untouched, and said it would leave room for higher inpatient expenses to persist for the rest of the year.
Humana didn’t establish revised earnings targets for 2025, but said it expects to boost margins and adjusted earnings per share “as the first step on our multiyear path” to recover Medicare profits.
While Humana and some rivals deal with elevated care costs, federal policy changes are making the private Medicare Advantage program less lucrative for insurers. The combination has squeezed some managed care companies that had become accustomed to Medicare Advantage driving growth and profits year after year.
Humana is planning to exit some markets where it currently sells Medicare Advantage plans. The company anticipates its individual Medicare Advantage membership will drop by a “few hundred thousand” in 2025. Its expecation for this year is to add 225,000 members.
(Updates with company comments in fifth and sixth paragraphs.)
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