Louisville insurance giant Humana tempers 2024 profit expectations following layoffs
Louisville-based healthcare insurer Humana said it aims to gradually return to profitability through "targeted pricing decisions" after a year in which the company announced layoffs and fell short of its Medicare enrollment goal.
The move comes on the heels of new government regulations, which caused Humana and its competitors to raise prices.
Before Wednesday's earnings call, Humana saw its stock drop by 40 points, its lowest rate since March 2020, and an obvious indicator of the company's financial stress. In an SEC filing on Jan. 18, Humana noted it added 100,000 new members during open enrollment in 2023, increasing its membership by 1.8%.
"While the Company’s overall (annual election period) sales volume was in line with expectations, a higher proportion was driven by plan change activity by existing members, resulting in lower new member sales than expected," the report stated.
Humana also anticipates shareholders will earn less in 2024 than previously estimated. After projecting earnings of $29 per common share, Humana changed its projection to $16 per share, according to a 2024 financial guidance report.
Humana initially scheduled its fourth quarter earnings call for Feb. 5, but officials elected to move the call to Thursday to "provide a more timely update on the company’s performance and 2024 guidance."
In an opening statement, Humana CEO Bruce Broussard said he was disappointed to discuss the company's fourth quarter performance, but the company's confidence "in the long term attractiveness of this sector and our position within has not changed."
"We take our commitment seriously and are disappointed we are unable to offset these higher cost trends, despite our best efforts to find mitigation opportunities throughout the year," Broussard said.
What went wrong for Humana in 2023?
Company officials said new government regulations caused Humana and its competitors to raise prices.
In a statement on its fourth quarter financial results, Humana said regulatory changes have an "adverse effect" on the company's operations and its financial position. Some of the effects listed were:
A loss of revenue
A decrease in enrollment and premium growth in certain products and market segments
An inability to expand into new markets
An increase in medical and operating costs
Humana's SEC filing stated the company's fourth quarter results "reflect an additional increase in Medicare Advantage medical cost trends, driven by higher than anticipated inpatient utilization, primarily for the months of November and December."
What other events occurred leading up to the earnings call?
Days before the earnings call, Humana said it will have a "limited" numbers of layoffs, representing a "small percentage" of its total workforce.
A month earlier, a potential merger with fellow insurance giant Cigna that Humana had been linked to broke down, according to a report from the Wall Street Journal.
In November, it was announced Broussard would step down later in 2024 as part of a "multi-year succession plan." Jim Rechtin, a Kentucky native and former president and CEO of Envision Healthcare has been tapped to replace him.
Rechtin currently serves as president and chief operating officer, a role he began Jan. 8.
What does Humana expect for 2024 and beyond?
The higher costs in the fourth quarter will likely persist in 2024, Broussard said, and believes that in 2025, costs associated with Medicare will stabilize, allowing the company to restore profit margins and "resume a path of compelling earnings growth."
"We are committed to ensuring we are going to move the margin and at the same time we don't want to fall off the cliff and lose hundreds of thousands of members," he said during the call.
Humana Chief Financial Officer said to investors that Humana plans to make "very targeted" pricing decisions in 2024.
"There are some plans and geographical areas that are seeing more under-performance than others, and so you may see disproportionate impact in those areas, as to both recovery and to membership, which we feel are no-regret moves to make sure the financial performance is as we would expect," Diamond said.
Broussard said he believes the rising price trends are not sustainable in the long term.
"If you look at our growth over an extended period of time, you will see these volatilities year-to-year, but that's not a result of our pricing, that's a result of the industry pricing," Broussard said. "We usually have been fairly considerate in our pricing in the industry and have not been as aggressive as our competitors."
Broussard said Humana does not consider pricing as an important factor in how it competes with other insurance providers.
"You price to be economically solid and price to provide value to your customer, but at the end of the day, we don't look at that as a competitive advantage," he said. "We look at our capabilities as a competitive advantage and we will continue to look at our capabilities and the differentiation in our capabilities."
Business reporter Olivia Evans contributed. Reach reporter Leo Bertucci at lbertucci@gannett.com or @leober2chee on X, formerly known as Twitter
This article originally appeared on Louisville Courier Journal: Humana 'disappointed' by Q4 results, expects high prices in 2024
