Insurer Humana flags higher medical care use, shares slide

By Sriparna Roy

(Reuters) -Humana said on Wednesday that demand for medical care was higher than it had anticipated in the second quarter, dampening investor hopes that elevated costs in the Medicare Advantage market would stabilize this year.

Shares of the company, which is a top provider of government-backed Medicare Advantage plans for adults aged 65 and older, fell 8.5% to $370.10, dragging rivals UnitedHealth and CVS Health lower.

Humana flagged more-than-expected inpatient admissions in late June, suggesting that costs would remain elevated for the year, and maintained its annual profit forecast despite beating second-quarter estimates.

The pressure continued into July, CEO Jim Rechtin said on a conference call, but added that the trend "ultimately can be mitigated".

The health insurer reaffirmed its annual profit forecast of about $16 per share, which "prudently assumes that the higher inpatient costs will continue even as we work to mitigate that pressure," said Rechtin.

Inpatient admissions - hospitalizations that require overnight stay - rose above the company's expectations in the second quarter.

At least four Wall Street analysts said Humana's annual forecast reflected a conservative stance, as some peers have indicated that medical use was stabilizing in the Medicare Advantage market.

Humana's comments create concerns over the "forward trend" for the industry, said Oppenheimer analyst Michael Wiederhorn.

The industry has been struggling with elevated medical costs since late last year, as older adults catch up on delayed procedures, and lower-than-expected payments from the government for managing healthcare for Medicare members.

Humana, which plans to exit a few states where it currently sells Medicare Advantage plans, fears a drop of "few hundred thousand" in memberships in 2025.

On an adjusted basis, Humana reported a second-quarter profit of $6.96 per share, higher than LSEG estimates of $5.85 per share.

(Reporting by Sriparna Roy in Bengaluru; Editing by Shinjini Ganguli)