Humana warns of tough times ahead for Medicare Advantage

LOUISVILLE, Ky. (WDRB) -- Louisville-based Humana Inc. warned investors of tough times ahead in the next few years for Medicare Advantage, even as the company maintains that its bread-and-butter business will recover in the long term.

On April 24, Humana backed off its 2025 profit targets for the second time since January, citing the federal government's planned payments to Medicare Advantage plans as well as regulatory changes.

Humana and other insurers have said the Medicare Advantage payments will not keep pace with rising costs from senior citizens using their benefits for hospital stays, outpatient procedures and other medical costs.

As a result, Humana anticipates cutting benefits in its Medicare Advantage plans — even exiting some plans and U.S. counties — for the 2025 plan year as it seeks to shore up its finances. The company said it expects its insurer competitors to take similar steps to avoid losing money in Medicare Advantage.

"We acknowledge that the industry is experiencing a dynamic and challenging time that we must navigate," CEO Bruce Broussard told investment analysts on the company's quarterly call Wednesday.

Among large health insurers, Humana is uniquely concentrated in Medicare Advantage. The federal program provided a little more than 80% of the company's $106 billion in revenue last year.

The business has razor-thin profit margins, but it is the fastest growing area of health insurance thanks to Baby Boomers aging into Medicare eligibility.

After years of steady year-to-year growth, Humana insures about 6 million people through Medicare Advantage.

But on Wednesday, the company said its trimming of plans and the footprint where it offers coverage would likely result in its losing members next year.

"We are anticipating that membership declines for 2025 largely because we do intend to exit certain plans in counties," chief financial officer Susan Diamond said on the earnings call.

Other insurers are grappling with how to sustain their Medicare Advantage businesses amid higher costs.

"Our strategy continues to focus on providing as much stability as possible in the reduced funding environment," UnitedHealth CEO Andrew Witty said the company's April 16 investor call. 

Humana's stock, already down about 37% in the last six months, lost another 4% in trading Wednesday.

In January, Humana reset its self-imposed bar for performance, saying it would likely earn $22 to $26 per share in 2025 — a far cry from the $37 the company had previously stated as a goal. On Wednesday, Humana backed off further, saying $22 to $26 is no longer "the appropriate target range" for 2025. It did not provide a new target.

The company reported results for the January – March quarter that exceeded Wall Street estimates, but were still significantly worse than a year earlier.

Humana's net income of $1 billion was down from $1.6 billion during the same period in 2023.

The challenges come as Broussard, who has led Humana for more than a decade, plans to step down as CEO this year.

Broussard's designated successor, Jim Rechtin, told analysts Wednesday that Humana and the broader Medicare Advantage industry still have a "strong" outlook.

"It's important to recall that this is not the first time that we've had to navigate challenging times, and that we've seen difficult periods in the past," Rechtin said. "Humana has navigated those periods successfully, adjusting as needed, and continuing to grow."

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