Humana Crumbles Under Heavy Medical Costs

It has suddenly become much more challenging to be an insurance provider in the 20s

BREAKING NEWS

Humana stock dropped over 10% in early trading thanks to a massive shift in guidance. What went wrong here?   

WHAT HAPPENED

Humana updated their guidance in an SEC filing this morning that reflected an EPS drop to $26.09. That’s a pretty sharp drop from their original projections. But Humana’s reason for lower earnings raised a few alarm bells. 

Humana explained that rising medical costs stemming from Medicare Advantage customers were getting a little out of hand. More Medicare Advantage customers had to use inpatient services in Q4—adding a lot of strain to Humana’s ability to serve medical costs. 

TROUBLING PATTERN

While that’s a seemingly small piece of news, this is the second time in 6 days that a healthcare provider has mentioned onerous increases in medical costs. With an aging population and a brutal cold and flu season amplified by elevated levels of RSV and another COVID surge—folks expected medical costs to rise this year. However, that increase may be coming faster than expected and may hit harder than insurance companies are prepared for. 

WHY IT MATTERS

Once again—investors are extremely sensitive to rising costs, especially when those costs may be playing out sector-wide. While Humana’s EPS drop is manageable, analysts simply don’t know if this is the peak of a trend or the start of something much bigger. For now, caution wins as Humana’s stock dropped over 12% on open.