Release Date: July 31, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Humana Inc (HUM, Financial) exceeded expectations for their second-quarter results.
- Medicare business outperformed expectations with better-than-expected member growth and a lower benefit ratio.
- The company raised its forecast by 75,000 members, expecting over 4% growth for the year.
- Humana Inc (HUM) is making progress in managing administrative costs, focusing on automation and reducing costs in various segments.
- The company reaffirmed its full-year 2024 adjusted EPS and benefit ratio guidance, indicating confidence in mitigating current pressures.
Negative Points
- Humana Inc (HUM) experienced medical cost pressure in the second quarter, particularly from higher inpatient admissions.
- The pressure from inpatient admissions has continued into July, leading to cautious planning for continued pressure.
- There is frustration with the volatility in the external environment, impacting the company's ability to achieve its full potential.
- The company acknowledged that it is not currently achieving its full potential and needs to improve operating discipline.
- Higher inpatient costs were not anticipated in the 2025 bids, potentially impacting future margin recovery.
Q & A Highlights
Q: Is the pressure on inpatient trends solely due to the two-midnight rule, or are there other areas of pressure?
A: Yes, the two-midnight rule has been a significant factor. We saw some variation in month-to-month inpatient results and avoidance rates. Initially, our win rates were lower but stabilized by the end of the first quarter. However, inpatient levels were higher in the back half of the second quarter and continued into July. This is consistent with what hospitals have reported in terms of volume and revenue per patient.
Q: Can you break down the impact of seasonality versus the continuation of July trends on the second half MLR?
A: The second half MLR anticipates higher inpatient volumes continuing, partially offset by lower average unit costs and lower observation stays. Seasonality contributes about 80 basis points to the third quarter MLR, with an offset expected in the fourth quarter due to favorable workday seasonality.
Q: How do you get investors comfortable with your 2025 bids given the recent inpatient cost pressures?
A: While the higher inpatient utilization was not explicitly contemplated in the bids, we also did not include positive factors like higher risk scores and lower unit costs. Considering these offsets, we feel good about our bid assumptions and the ability to deliver margin and earnings expansion as planned.
Q: Can you provide an updated impact of the two-midnight rule on MLR?
A: Initially, we estimated the two-midnight rule would impact MLR by 50 to 75 basis points. However, the higher inpatient costs suggest a greater impact. Despite this, favorable prior year development and other positive factors have mitigated much of this pressure.
Q: What are your updated thoughts on the multiyear margin recovery and the pace of this recovery?
A: We continue to expect a multiyear margin recovery driven by regulatory environment and TBC limitations. We aim for a 3% margin in our Medicare Advantage business by 2027, with incremental improvements each year.
Q: Are you seeing the same inpatient pressures in your provider business as in the health plan?
A: The provider business has seen similar results but with less inflation pressure. They have demonstrated better impact in working with hospital systems on authorization requests, often avoiding unnecessary inpatient stays.
Q: Can you discuss your expectations for the PDP segment in 2025, including membership and profit margins?
A: The industry is focused on mitigating increased exposure and liability risk for 2025. The higher direct subsidy is reflective of these higher costs. We are awaiting additional guidance from CMS on the demonstration project and will provide more details once bids are finalized.
Q: How are you thinking about capital deployment in light of your strategic review?
A: We see growth opportunities in CenterWell and Medicaid, which have synergies with our Medicare book. Capital deployment will focus on areas that drive lower total cost of care and quality, offering attractive returns on capital.
Q: Can you elaborate on the mitigation activities for higher inpatient activity and the potential for claim revisions?
A: We have front-end review processes for authorizations and post-pay reviews for claims. These programs are operating as intended, and we do not expect material changes. We are also working on better aligning incentives with providers to manage appropriate utilization.
Q: How do you make the case to policymakers that Medicare Advantage offers value to taxpayers?
A: We deliver better outcomes and health security at a lower cost than original Medicare. We need to better document and explain this value proposition, ensuring the regulatory environment allows this value to accrue back to taxpayers.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
