Humana is starting the year posting a fourth-quarter loss, preparing for Medicare Advantage reductions and worrying a bit about commercial risk pools. But with revenue growing, the company is banking on an integrated insurance and care model.
Revenues across Humana's businesses grew 6 percent last year to $41.3 billion, bringing in net income of $1.23 billion, just a bit above 2012's $1.22 billion, with a consolidated medical loss ratio of 83.9 percent.
The fourth quarter of last year brought a $30 million loss stemming from a need to shore up cash reserves for long-term care, the company detailed in its latest financial report. Between the Obama Administration's late-year decision to extend non-Affordable Care Act compliant plans and pending Medicare Advantage rate reductions, last year signalled more challenges ahead.
All of Humana's business segments showed improved results year over year in 2013, CEO Bruce Broussard noted in a media release. "Although we continue to have confidence in our 2014 earnings projections given the strength of our integrated care delivery model and better-than-expected Medicare membership growth, continued growth in 2015 and beyond will be driven by the degree of headwinds presented by public policy surrounding government programs," he said.
Broussard and company executives reaffirmed earnings guidance of $7.25 to $7.75 per share for 2014 and described a number of potentially favorable developments in the pipeline, but they also warned investors about a number of obstacles and uncertainties.
The extension of ACA-non compliant plans has led to a "deterioration of the risk pool," Broussard said, while also arguing that that may be offset by the fact that 82 percent of their new individual members are receiving subsidies.
As of the end of January, 42 percent of the 200,000-plus exchange members were ages 50 to 64, and 58 percent of all exchange members had chosen silver plans. More than 20 percent chose platinum and 10 percent gold.
The demographics and relatively rich benefit choices of those members so far may leave Humana a bit more exposed than others, although the ACA's risk adjustment, reinsurance and risk corridor programs could be helpful with offsetting that as well. Plus, exchanges are "just three percent of our total revenue," as Steven McCulley, Humana's interim CFO, said.
McCulley added that new exchange members are taking a bit more help in getting set up than they expected. "This group of people is very different in terms of service," and it's taken a different service approach "to get folks the answers they're looking for."
In Medicare Advantage, "sustainable funding" is still an ongoing concern, Broussard said, adding that the company is anticipating an announcement by the Centers for Medicare & Medicaid Services in late February of rates being reduced by another 6.5 percent.
If that's the reduction and depending on other factors, Broussard said Humana may have to "follow competitors' adverse actions" of "cutting benefits, exiting markets and changing networks."
The company is still predicting enrollment growth, though, expecting to add at least another 370,000 seniors to the ranks of its 2.3 million Medicare Advantage membership, along with another 450,000 in stand alone Medicare drug plans.
Broussard also thinks Humana's clinical programs "position us well to deal with the growth we're dealing with in 2014." Humana's SeniorBridge company is hiring more nurse practitioners for both over-the-phone care management and home care, he said.
And in addition to Metropolitan Health Networks, bought in 2012 for $500 million, Humana is planning to rely on another recent acquisition for integrated care, Florida-based long-term care and nursing home diversion company American Eldercare.
Broussard said they're particularly looking to deploy American Eldercare is coordinating care for Medicaid-Medicare dual eligibles, a relatively new business for Humana, with three large contracts starting this year.