Shares of Humana (NYSE: HUM) are down 11.8% so far this week as of Thursday’s close, according to data provided by S&P Global Market Intelligence, after the U.S. Centers for Medicare and Medicaid Services (CMS) finalized an “underwhelming” payment rate increase for patients with Medicare Advantage plans in 2025.
On the “underwhelming” payment rate increase for Medicare Advantage plans
In a press release early Monday, the CMS announced its final decision for a 3.7% payment rate increase from the government to Medicare Advantage (MA) plans. While this might sound like a favorable announcement on the surface — noting that the payments from the government to MA plans should increase by around $16 billion next year — that 3.7% increase is a risk-adjusted rate accounting for the underlying health of covered enrollees. According to industry analysts who have closely followed the decision, “core” MA payment rates will actually decline by around 0.16% in 2025, after accounting for a combination of expected higher utilization and rising costs of medical care.
That’s bad news for companies like Humana that have an outsized reliance on Medicare Advantage membership and cost trends. Even as Humana’s consolidated revenue last quarter grew nearly 18% year over year to $26.46 billion, that translated to an adjusted (non-GAAP) net loss of $0.11 per share, down from net income of $1.97 per share in the same year-ago period. That bottom-line loss primarily reflected higher-than-expected inpatient utilization during the quarter from Medicare Advantage patients.
What’s next for Humana investors?
Humana wasn’t alone in its declines this week. Several other health insurance managed-care stocks fell in tandem with the news of the 3.7% rate hike — a level that, in the weeks leading up to the final determination, CVS Health CEO Karen Lynch asserted was “[not] sufficient to cover current medical costs.”
Katie Smith Sloan, CEO of LeadingAge, a provider of aging services, added that the “inadequate rates” will only serve to “destabliize the financial health of provider organizations more broadly.”
Given the prospect of collecting yet more unprofitable revenue growth in the coming quarters, it’s hardly surprising to see shares of Humana falling this week in response along with other major health insurance stocks.
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Steve Symington has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
Why Humana Stock Fell 10.9% This Week was originally published by The Motley Fool