Humana stock plunges as medical costs rise, annual earnings outlook revised

Humana (NYSE:HUM) shares fell around 10% on Wednesday morning even as the health insurer exceeded profit estimates with its Q2 results, while reaffirming adjusted EPS and benefit ratio forecasts for the year.

For the full year, the company reaffirmed its adjusted EPS target of ~$16.00 (missing consensus estimate of $16.34 a share) and benefit ratio of ~90% for its insurance segment, which allows for the higher net inpatient costs observed in Q2 to continue for the remainder of the year. However, full-year GAAP EPS guidance was cut to ‘approximately $12.81’ from ‘approximately $13.93’ previously.

The firm raised Medicare Advantage annual membership growth target by 75,000 to now anticipate annual growth of around 225,000, or 4.2%, supported by better-than-expected retention and non-DSNP sales.

Looking ahead to 2025, Humana (HUM) continues to anticipate margin expansion and adjusted EPS growth as the first step on its multiyear path to a normalized individual MA margin of at least 3%.

In Q2, Humana (HUM) generated adjusted earnings of $6.96 a share on revenue of $29.54B that grew 10.4% Y/Y. Both metrics were well ahead of Wall Street estimates, and the company attributed this performance to “slightly higher than anticipated member risk scores, favorable claims development and lower than planned administrative expenses.”

However, adjusted earnings per share fell ~22.1% YoY to $6.96, and insurance segment benefit ratio (adjusted), which measures the proportion of premium spent on medical benefits, rose to 89.4% vs. 86.6% in the prior-year quarter. Operating cost ratio in its insurance segment dropped slightly from 9.2% a year ago to 8.4%.

The managed care company has been grappling with higher-than-expected medical costs in its Medicare Advantage business, which has resulted in it lowering its outlook twice this year previously.

“The second quarter benefit ratio was positively impacted by favorable claims development and slightly higher than anticipated member risk scores. This favorability was partially offset by higher MA (Medicare Advantage) net inpatient costs,” the management said in prepared remarks.

Other managed care insurers down premarket include: Cigna (CI) 0.92%, UnitedHealth Group (UNH) 2.83%, Centene (CNC) 0.88%, Molina Healthcare (MOH) 1.64%