Humana's lower medical costs ease investor fears after UnitedHealth results

Time of India

01-05-2025

Bengaluru: Health insurer Humana on Wednesday reported lower-than expected medical costs in the first quarter, allaying investor concerns about the sector after bellwether UnitedHealth's disappointing financial results earlier this month.
Humana also beat quarterly profit estimates by a large margin, lifting shares of most other insurers, while broader markets were down. Shares of UnitedHealth were down 1.5 per cent.
Shares in the
health insurance sector
have been volatile since UnitedHealth on April 17 missed quarterly estimates for the first time since 2008, and lowered its outlook for the full year, as high
healthcare demand
among older adults drove up costs in its Medicare Advantage (MA) plans.
UnitedHealth said earlier this month its MA plans, which serve adults aged 65 and above and those with disabilities, saw increased use of medical services, driving its costs above expectations.
Investors were afraid that UnitedHealth's warning would echo in the results of other insurers too. But "Humana's results should be a calming influence," said Jefferies analyst David Windley.
Humana, which is a top provider of U.S. government's MA plans, said it captured members from competitor insurers, just as UnitedHealth did. But its medical costs remained in line with the company's expectations, said Humana CEO
James Rechtin
.
Humana, like Elevance, has said it is not seeing anything unusual around medical use in both its insurance and caregiving operations, said Julie Utterback, an analyst at Morningstar. "So perhaps there is a UnitedHealth-specific issue going on."
Humana said its MA plans are performing as anticipated to date, and it is progressing on its decision to exit certain unprofitable counties.
The company even expects to reach a Medicare Advantage margin of 3 per cent by 2027, but that goal is dependent on the company's
Stars performance rating
, said Humana chief financial officer Celeste Mellet.
In 2024, Humana sued the Department of Health and Human Services on its less favorable performance rating.
"I think the best way to describe where we are at this moment is that while there are still challenges to navigate, there are no surprises," said CEO Rechtin. "The external environment is evolving as we expected, and we are executing on the things we control."
The company's first-quarter medical cost ratio in its insurance segment - the percentage of premiums spent on medical care - came in at 87.4 per cent, compared with analysts' estimates of 87.5 per cent, according to data compiled by LSEG.
On an adjusted basis, Humana earned a profit of $11.58 per share in the first quarter, above analysts' average estimate of $10.07.
It also reaffirmed its 2025 adjusted profit forecast of about $16.25 per share.