By Sriparna Roy
(Reuters) -U.S. health insurer Humana said on Thursday an increase in demand for medical care among older adults was driving up costs and warned of a potential hit to its outlook for 2024 from the surge, sending its shares down 14% before the bell.
Humana is the second major insurer to flag a jump in medical costs in less than a week. Larger rival UnitedHealth on Friday reported higher-than-expected medical service costs but said it did not expect those levels to remain through 2024.
Shares of UnitedHealth, CVS and Elevance Health fell between 4% and 6%, after Humana said the higher costs were impacting the industry.
Demand for medical care rose during November and December among people enrolled in Medicare Advantage plans for those aged 65 and older, Humana said. Along with higher-than-expected demand for in-patient services, patients were also opting for more outpatient surgeries.
Health insurers like Humana recorded higher medical costs in 2023 due to a rise in demand for procedures such as orthopedic and heart-related surgeries among older adults.
J.P.Morgan analyst Lisa Gill said she sees an increased risk to Humana’s 2025 adjusted profit target of $37 per share, if 2024 results miss expectations.
Humana said it expects to account for the high costs in the 2025 Medicare Advantage pricing cycle.
The company expects adjusted medical benefit ratio in its insurance segment at 91.4% in the fourth quarter, versus 89.5% forecast previously. The medical benefit ratio refers to the percentage of premiums spent by an insurer on medical care.
Humana on Thursday rescheduled its fourth-quarter results to Jan. 25 from Feb. 5 earlier.
(Reporting by Sriparna Roy in Bengaluru; Editing by Shilpi Majumdar)