Humana's Reality Check: The Sky-High Costs Rocking Medicare Advantage

Well, here we are again, it seems. The stock market, a fickle beast at the best of times, delivered a harsh blow to Humana (HUM) recently, sending shares tumbling with a rather unsettling thud. And the reason? A stark, cold dose of reality: the company dramatically walked back its financial expectations for 2025, a move that frankly, no one likes to see, least of all investors.

You see, the heart of the problem, and indeed the main culprit behind this downturn, lies squarely with rising medical costs. It’s a narrative we’ve heard echoes of before, from others in the insurance game, but for Humana, the impact is particularly acute in its sprawling Medicare Advantage business. Here, utilization—that’s to say, how much healthcare people are actually using—has simply shot up, surprising everyone involved.

What kind of utilization, you ask? Well, it’s a mix, but certainly, a notable surge in inpatient care, coupled with an uptick in those more complex, often expensive, orthopedic and cardiac surgical procedures. These aren't minor visits; these are significant, cost-intensive services that add up quickly. And when more people need them than you've budgeted for, well, your profit margins start looking a little thin, don't they?

The numbers, if you're curious, tell a pretty clear story. Humana is now forecasting adjusted earnings per share to be "at least $6.00" for 2025. Now, that might sound okay on its own, but hold on a second—that's a steep decline from their previous, far more optimistic, projection of "at least $10.00." We're talking about a significant chunk of change essentially vanishing from the future forecast. Furthermore, the company now expects its medical care ratio, a crucial metric, to land between 90.0% and 90.5% for 2024, a notable climb from the earlier estimate of roughly 89.5%. It all points to the same thing: higher expenses eating into the bottom line.

Bruce Broussard, Humana’s CEO, was quite candid about it, highlighting the elevated utilization observed throughout the fourth quarter. And, frankly, he anticipates this trend, this higher demand for services, to just keep on rolling into 2024. Of course, the company isn't sitting idle; they're talking about taking pricing and clinical actions to try and rein in these spiraling costs. But here's the kicker, isn't it? These things—these strategic shifts—they don't happen overnight. It takes time, often a good deal of it, for such measures to actually show tangible results. For now, investors are left grappling with a rather sobering outlook, watching and waiting to see how Humana navigates these choppy, and increasingly costly, waters.