Humana Sinks, Driving Down Insurers, After Cutting Medicare Outlook

(Bloomberg) -- Humana Inc. shares plunged the most intraday in 13 years, dragging down rivals’ stocks, after the health insurer cut its forecast for Medicare membership growth by about half.

Humana expects to add 150,000 to 200,000 new members in Medicare Advantage plans this year, down from an earlier estimate of 325,000 to 375,000, the company said Thursday in a filing. The insurer cited higher-than-expected terminations during the recent enrollment window for 2022 Medicare coverage. 

Shares of Humana fell as much as 21% as of 3:33 p.m. in New York, their biggest intraday loss since Feb. 26, 2009. UnitedHealth Group Inc. declined as much as 5.4%, weighing down the price-weighted Dow Jones Industrial Average. Shares of newer Medicare-focused companies, including Clover Health Health Investments Corp. and Oak Street Health Inc. also fell sharply, sinking as much as 8.4% and 7.6%, respectively.

Private Medicare Advantage health plans have been driving growth for health insurers and attracting new entrants to the market. It’s the core business for Humana, the second-largest seller of those plans after UnitedHealth.

Aggressive Pricing

Humana Chief Executive Bruce Broussard cited competition from rivals with pricing that he said might not be sustainable. 

“There’s some really aggressive pricing going on in the marketplace,” he said in an appearance at a Goldman Sachs conference Thursday, mentioning competition in Florida, the Los Angeles area and other markets.

Humana may focus more on profitability across the business rather than margins in the individual Medicare business, he said, as the insurer and its competitors provide more direct medical care.

Changing Dynamics

“The dynamics over the last number of years have changed, and the margin conversation needs to evolve,” he said. Broussard also said Humana has a “broader business base” than it used to.

Health insurance companies face restrictions on how much they can profit. They owe money back to consumers if they don’t pay a certain amount of premiums out in medical claims. But increasingly Humana and its rivals operate care providers that don’t have such profit caps, and Broussard alluded to the growing importance of that part of the business.

“The enterprise margin has unregulated businesses that are growing,” he said.

Broussard said the company planned to have a conversation with investors around margins in the second quarter, adding that the Humana will continue to focus on improving productivity. The sell-off in Humana shares deepened after those remarks.

It’s unclear whether Humana’s lowered projections reflect only members going to competitors or a slowdown in the growth of the Medicare Advantage market overall.

Humana reaffirmed its earnings-per-share guidance for 2021 and reiterated that 2022 adjusted earnings would be at the “low end” of its target growth rate of 11% to 15%.

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