Humana's Earnings Report: How MA is Draining Payers Too

Hospitals and health systems aren't the only ones dealing with revenue loss from Medicare Advantage (MA).

Humana, the second largest provider of MA plans in the U.S., recently released its Q4 2023 earnings report, and it missed Wall Street's earnings expectations by a surprising margin.

Even though Humana lowered its profit outlook due to increased spending, it still didn't perform well. Its CEO, Bruce Broussard, called the results "disappointing" during a call with investors.

Overall, Humana had a net loss of $540 million in the fourth quarter, which is a huge jump compared to the $18 million loss they had at the same time last year.

So what went wrong?

Well, Humana received more claims in December and January than they expected, which reflected higher inpatient and outpatient utilization at the end of the fourth quarter, the company says.

More seniors had short stays in the hospital, while fewer had observation visits in the ER. As we know, those short-stay admissions are more expensive than observation visits.

And when it comes to outpatient spending, Humana saw a higher cost per member in the fourth quarter compared to the third. This was because of increases in physician and outpatient surgical care and supplemental benefits.

Broussard told investors that the increase in utilization towards the end of the fourth quarter was a big deviation from what they expected.

To turn things around, Humana is planning to increase premiums and cut benefits in 2025 to improve their margins, but analysts predict they might have below-market membership growth.

Humana has gone all-in on government plans and even refocused their business on MA and Medicaid. But it's a tough market with risk adjustment and rate changes, along with other uncertainties. In fact, Humana is currently suing the federal government over its plan to audit MA payers.

This is Humana's first earnings release since their potential merger with Cigna fell through at the end of last year due to investor concerns.

At the time, "shareholders balked" and the companies couldn't agree on what would have been a Cigna cash-and-stock acquisition of Humana "with a large stock component," the WSJ said.

What providers might be thinking

It's likely providers have little sympathy for MA plans, especially as they have been dealing with the same MA cost challenges for years.

As HealthLeaders has been reporting, the payer-provider battle is raging, and more organizations have been fighting back against MA.

But why MA? While not the only culprit of the turmoil, organizations have been fighting back against MA’s low reimbursement rates for years, and CFOs are finding no fiscal viability in the relationship with the payer.

One case in point is Scripps Health. Two medical groups within the system canceled their MA contracts for 2024 because of low reimbursement rates, denials, and administrative costs to manage high utilization and out-of-network care.

These challenges have led to annual losses that exceeded $75 million for the system.

“We’re unfortunately on the vanguard of what I think is going to be a very ugly few years between hospitals and commercial insurance companies,” Chris Van Gorder, president and CEO of Scripps, told USA Today.

While the government has even begun weighing in on MA regulations, the MA turmoil being felt from both the provider—and the payers—isn’t likely to ease up anytime soon.