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Radar On Market Access: Humana Reports Strong Earnings, But Expects Fourth-Quarter Loss

Posted by Leslie Small on Nov 10, 2020


While Humana Inc. has seen its profits swell as members avoided non-coronavirus-related care during the pandemic, the company is making it crystal clear that those financial gains will be erased before the year is over, AIS Health reported.

"We continue to expect our results for the second half of 2020, including an anticipated loss in the fourth quarter, to entirely offset the significant outperformance experienced in the first half of the year that resulted from historically low medical utilization levels," Chief Financial Officer Brian Kane said during Humana's third-quarter earnings call, according to a transcript from The Motley Fool.

That's despite the fact that medical utilization has not yet returned to normal among Humana's members, as it was tracking at 95% in September and October. And with COVID-19 cases once again rising throughout the country, the insurer anticipates the use of non-COVID care "to remain modestly below pre-COVID expectations through the end of 2020."

Humana is also expecting to spend more on COVID-19 patients' care than it originally anticipated. "[W]e now expect COVID testing and treatment costs to approach $1 billion in 2020," Kane said.

For the third quarter of 2020, Humana reported earnings per share (EPS) of $10.05, or $3.08 on an adjusted basis. The large discrepancy is because the latter figure saw an impact from two major items: the receipt of unpaid Affordable Care Act risk corridor payments following a favorable Supreme Court ruling, and "a market gain from publicly traded investments," chiefly primary care startup Oak Street Health, Inc., which raised more than expected in its initial public offering in August.

Humana's adjusted EPS for the third quarter — which excluded the Oak Street and risk corridors impact — came in 27 cents above the Wall Street consensus, Evercore ISI analyst Michael Newshel advised investors. The insurer's consolidated medical loss ratio of 85.3% was 60 basis points below consensus, Newshel added, "but operating costs were higher."

Wall Street analysts took an optimistic view of Humana's financial results. "Core utilization is still running below the baseline, which affords [management] flexibility to absorb COVID costs while pulling forward investments," Jefferies analyst David Windley observed.

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Topics: Industry Trends, Data & Analytics, Payer