Written by Sriparna Roy
(Reuters) – U.S. health insurer Humana said on Thursday that rising demand for medical care among seniors will hurt its fourth-quarter results and add uncertainty to its 2024 outlook, sending its shares tumbling 14%.
Humana said medical costs could rise in the fourth quarter due to increased demand, making it the second major insurance company to report higher medical costs within a week. Big rival UnitedHealth on Friday reported higher-than-expected medical service costs but said it doesn't expect those levels to continue into 2024.
Shares of UnitedHealth, CVS and Elevance Health fell 2% to 5% after Humana suggested high costs could become an industry-wide problem.
Health insurance companies recorded an increase in medical expenses in 2023 due to increased demand for things like orthopedics and heart-related surgeries.
Humana said demand for medical care increased from November to December among people enrolled in Medicare Advantage plans for people 65 and older. In addition to higher-than-expected demand for inpatient services, patients are requesting more outpatient surgeries.
Analysts at JPMorgan and Leerink said the increased use of medical services also raised the possibility that the company would miss its 2025 revenue target.
Humana is scheduled to report its fourth quarter results on January 25, one week before its previous forecast, and will provide an update on its full-year forecast there.
“Long-term investors may also have doubts about the growth outlook for the Medicare Advantage market,” said Morningstar analyst Julie Utterback.
Humana said growth in new members during Medicare's annual enrollment period was lower than expected.
Poor results during the annual registration period may also be adding to investor concerns, Utterback said.
Humana said it expects higher costs to be taken into account in the 2025 Medicare Advantage pricing cycle.
The company expects its insurance segment's adjusted medical benefits ratio to be 91.4% in the fourth quarter, compared to its previous forecast of 89.5%. Medical benefit rate refers to the percentage of premiums that an insurance company spends on medical care.
(Reporting by Sriparna Roy in Bengaluru; Editing by Shilpi Majumdar)