Key Takeaways
- Humana shares fell nearly 10% in extended trading Monday after the rate increase to Medicare Advantage plans left investors disappointed.
- Medicare Advantage plans will receive an average payment increase of 3.7% from 2024 to 2025—the same percentage increase proposed in January.
- Humana chief financial officer Susan Diamond told investors last month that the health insurer would fall short of reaching its upper earnings-per-share growth target without a bigger increase in payments.
- The Humana share price may find buying interest around $318 near a key horizontal trendline stretching back to the April 2020 pandemic recovery.
Humana (HUM) led after-hours declines in healthcare stocks Monday evening, dropping nearly 10% after the Centers for Medicare & Medicaid Services (CMS) announced that federal payments to Medicare Advantage plans will match the initial proposal outlined in January, effectively crimping health insurers’ profit margins amid rising medical costs.
The CMS said Medicare Advantage plans will receive an average payment increase of 3.7%, or over $16 billion, from 2024 to 2025—the same percentage increase proposed in January. The agency said the federal government projects to contribute between $500 billion and $600 billion in Medicare Advantage payments to private health plans in 2025. The CMS aims “to maintain the stability of the Medicare Advantage” program and keep payments “up-to-date and accurate,” said agency administrator Chiquita Brooks-LaSure.
The payment revision, after excluding the estimated growth in patient risk scores, represents a 0.16% decline, disappointing investors and leading health insurers who had lobbied for a higher increase. Research from JPMorgan cited by Bloomberg revealed that there has only been one instance in the past decade where Medical Advantage plan final rates have not increased from the government’s initial rate proposals.
CVS Health (CVS), UnitedHealth Group (UNH), and Centene (CNC) also tumbled following the news late Monday, losing 5.9%, 4.5%, and 2.3%, respectively, in after-hours trading.
But shares of Humana, which had warned in January that higher-than-expected medical costs to cover Medicare Advantage patients would hurt its full-year profit, were hit hardest. The stock fell 9.6% to $317.70 in Monday’s extended trading, putting it at levels not seen since the early days of the pandemic in March 2020.
Last month, Humana’s chief financial officer, Susan Diamond, told investors at a conference that the health insurer would fall short of reaching its upper-end earnings target of $6 to $10 per share in 2025 without a more significant increase in payments.
The Humana share price gapped below a broad descending triangle in mid-January following an ominous death cross pattern appearing on the chart, with declines accelerating through February and early March. More recently, the price has traded mostly sideways on declining share turnover as investors reassess the stock’s next move.
Amid Tuesday’s expected news-driven sell-off to a multi-year low, investors should keep an eye on a key horizontal trendline that stretches back to the stock’s April 2020 pandemic recovery an area that may attract buying interest around $318.
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