Humana gave the first indication Wednesday that hospital spending could eventually eat into the earnings of health insurers. The announcement dented the stocks of all health insurers.
Competitors Aetna, Anthem and UnitedHealth Group reported this month that their medical-loss ratios in the first quarter had decreased, and none said there was an underlying surge in healthcare utilization. That so far has been in direct contrast to economic indicators and guidance from hospital chain HCA that show hospital spending and admissions were on the rise.
However, Humana began to track higher hospital admissions among its Medicare members toward the end of the quarter.
“We have seen some of the hospital published data, which suggest higher Medicare usage of inpatient services, and have also witnessed in the last number of weeks an uptick in inpatient authorizations,” Humana Chief Financial Officer Brian Kane said on a call with investors. “During the last weeks of the quarter and into April, we are seeing an elevated level of authorizations for hospital admissions, which, although still declining, are slightly higher than we had anticipated.”
Humana's stock dropped more than 7% to $168.05 by the close of trading Wednesday. Shares of every other publicly traded insurer were down anywhere from 2% to 7.4%.
U.S. stocks were down overall, however, on preliminary federal data suggesting the economy slowed to a standstill in the first quarter of 2015 and a signal from the Federal Reserve that an interest-rate hike remains on the table for later this year.
Higher inpatient admissions suggest Humana's medical-loss ratio, the amount of plan premiums spent toward covering medical care, “could remain at a higher level,” said Jeffrey Loo, an equity analyst at S&P Capital IQ. Humana's medical-loss ratio increased from 82.3% in the first quarter of 2014 to 83.1% in the same period this year. Medical claims increased for Humana's group segment, which includes fully insured and self-insured employer plans, as well as for the Medicare and individual market populations.
Humana still posted $430 million of profit in the first quarter, a 17% jump from the same period in 2014. But the gains didn't live up to the hype of Humana's peers, who beat expectations and raised their financial guidance for the rest of the year. Adjusted earnings per share were $2.47, which was below financial analysts' expectations of $2.55. When including the tax benefits from the sale of Concentra, Humana's earnings per share reached $2.82.
Concentra is Humana's occupational medicine and wellness division. Humana agreed to sell Concentra to Select Medical Holdings Corp. and private-equity firm Welsh, Carson, Anderson & Stowe in March for $1.05 billion.
Most of Humana's business comes from selling Medicare Advantage and Medicare prescription drug plans. The insurer had roughly 3.2 million individual and group Medicare Advantage members as of March 31. Enrollment in stand-alone Medicare drug plans increased 14% year over year to 4.4 million.
Total revenue climbed 18% to $13.8 billion in the quarter. Medicare represented 71% of that figure.
Humana CEO Bruce Broussard said the Louisville, Ky.-based company will provide an update on the status of its pharmacy benefits management business in the third quarter of this year. Executives have said on numerous occasions that Humana will not sell the pharmacy segment.