As a result, Humana has lowered its expected cash flow expectations this year by up to $450 million. JP Morgan analyst Justin Lake said the decrease is “in step with previous discussions of worse-than-expected risk pool.” The company did not change it's 2014 earnings forecast as a result, however, leaving that at $7.25 to $7.75 per share.
Broussard did not detail other reasons for Humana's relatively low number of enrollees. He did sound a note of optimism about the insurer seeing a slight uptick in younger enrollees since December.
“While still early, as we analyze the demographics of our exchange membership, we are seeing enrollees skewing a bit more to the younger side,” Broussard said. “This is likely the result of premium-subsidized younger enrollees choosing the lower deductibles offered with the higher metal tier plans.”
Those 40 and younger accounted for 35% of Humana exchange enrollment as of Dec. 31 and 37% as of Jan. 27, a 2% increase, according to information Humana made public during the call. Data released by HHS in January showed 30% of enrollees nationally were under 35.
Of those who have signed up with Humana, 63% were 41 or older, with 42% being in the 50 to 64 range. Fifty-eight percent of the exchange enrollees have chosen silver plan coverage, likely due to the tax credits the program provides, Broussard said. Approximately 82% of Humana new members from the exchanges are receiving subsidies.
Less than robust sign-ups may mean staff cuts at Humana. “When we don't get the revenue that we anticipated and we've built the administrative infrastructure to support that, we have a scale issue,” said James Murray, Humana's chief operating officer.
Humana's Medicare Advantage membership grew 7% from 2012 to more than 2 million members. The company attributed the increase to a successful enrollment season associated with the 2013 plan year as well as sales to newly-eligible Medicare beneficiaries throughout the year.
The increase comes as both United Healthcare and WellPoint have decreased their foot print in the Medicare market, said Sarah James, a Wedbush Securities analyst, in a client note. She called Humana “the clear beneficiary” of its competitors' decisions to decrease their presence in this space, noting Humana added members in 38 states.
Approximately 54% of Humana's new Medicare Advantage members were from competitors, up from 42% in the prior year and 39% in 2012, according to Humana.
Financial issues led competitors to lower benefits, exit markets and adjust their provider networks, the company noted. Humana was able to avoid making such changes. However Broussard said it may not be immune much longer. The CMS is expected to announce its rates for Medicare Advantage plans on February 21, and Humana is anticipating the rates will lower its funding by 6% to 7% in 2015.
“The anticipated 2015 rate reduction, combined with the cumulative historical reductions, could potentially require us to follow our competitors' adverse actions of cutting benefits and exiting markets,” Broussard said. “This could be disruptive to the program, ultimately reversing some of the programs' success in care management, improved outcomes and value-based payments leading to lower costs.”
Overall, fourth-quarter revenue for Humana rose to $10.19 billion, up 7% from $9.56 billion a year earlier. The company reported a net loss of $30 million in the fourth quarter compared to $192 million in earnings in the same quarter a year earlier. The fourth quarter loss resulted from a $243 million charge it had taken for reserves set aside for long-term care policies it does not sell any longer.
Follow Virgil Dickson on Twitter: @MHvdickson
