Humana plans to trim $700 million in administrative expenses after recording a disappointing fourth quarter and 2023, the company announced Thursday.
The health insurer warned investors last week that medical costs exceeded expectations in 2023. On Thursday, the company disclosed that expenses were $3 billion more than anticipated. Quarterly and annual earnings didn't meet projections amid rising costs and disadvantageous Medicare Advantage policies.
Related: Medicare Advantage enrollment 2024: Winners and losers
Losses deepened more than tenfold during the fourth quarter to $541 million, or $4.42 per share, on revenue growth of 17.9% to $26.5 billion. Full-year net income declined 10.7% to $2.5 billion, or $20 per share, and revenue rose 14.5% to $106.4 billion. Humana expects adjusted earnings per share to increase $16 in 2024, and rise another $6-$10 next year.
Humana insurance products generated a 90.7% medical loss ratio in the fourth quarter, a 15% increase, and 87.3% in 2023, 1.2% higher.
The insurer aims to save $700 million on administrative expenses over several years via artificial intelligence and other technologies, Humana Chief Financial Officer Susan Diamond said during a call with investment analysts Thursday.
Humana, the second-largest Medicare Advantage insurer by membership, increased enrollment 15% to 5.9 million by year-end and anticipates growth below industry average in 2025, Diamond said. She added that it will exit some Medicare Advantage markets.
“We are being very intentional around what markets have further integration opportunities and have CenterWell assets, particularly primary care, and you will see us prioritize those markets,” Diamond said.
Humana named former Fidelity Investments executive David Dintenfass president of enterprise growth Thursday, a new role focused on Medicare Advantage membership and margin growth.
More Humana Medicare Advantage beneficiaries were admitted for short hospitals stays in November and December rather than being observed and released, Diamond said. In April, the Centers for Medicare and Medicaid Services finalized a rule applying the "two midnight" rule that limits observation status for Medicare Advantage plans, which may have influenced the admissions trend, she said.
Respiratory illnesses, such as a resurgent COVID-19, did not drive rising expenses, Diamond said.
Humana anticipates Medicare Advantage costs will to continue escalating this year and will negatively impact 2025 earnings, Diamond said. Like other Medicare Advantage carriers, Humana also is contending with less-generous risk adjustment payments and rate cuts, she said. Humana expects CMS to further reduce rates for the 2025 plan year, she said.
Humana’s miss does not reflect unsustainable pricing because the insurer made the industry's largest benefit cuts in response to lower rates this year, outgoing CEO Bruce Broussard said. The company cut benefits by an average of $13 per member per month. Next year, the carrier will not underprice premiums to attract share and accelerate margin growth or drastically cut benefits to improve profitability, he said.
Broussard addressed Humana's mergers and acquisitions strategy in the aftermath of a now-scuttled potential deal to join forces with Cigna.
“The board and management team evaluate what is in the best interest of the shareholders and they continue to do that. In terms of size and scale, we are constantly asking questions like that strategically, and if there comes a need to take action on that, we’ll definitely take it,” Broussard said. “We do believe today being a specialty player in the fastest growing part of the industry is the best value for shareholders.”
Humana shares opened at $350.63 on the New York Stock Exchange Thursday, down 12.9% from the prior day’s close.
