By Sriparna Roy and Sneha S K
April 29 (Reuters) – Humana on Wednesday beat quarterly earnings estimates due to tighter control over medical costs, but kept its annual adjusted profit forecast unchanged unlike rivals who raised theirs.
The health insurer, a major provider of plans for seniors and people with disabilities, has been growing membership even as large competitors pull back from the Medicare Advantage market, a segment hit by sustained cost pressures for nearly three years.
“HUM has several signals that the back-half of the year could be difficult to manage. The pre-market reaction indicates investors are reading it as a warning sign,” said Cantor analyst Sarah James.
Humana shares fell 5% in morning trading.
Talking about the share decline, Morningstar analyst Julie Utterback said, “investors may have been disappointed that Humana did not increase its outlook for 2026 given its strong start to the year.”
Its first-quarter insurance segment benefit ratio – or the percentage of premiums spent on medical care – came in at 89.4%, compared with the company’s outlook of just under 90%. The ratio is a key metric tracked by investors to gauge costs.
Humana expects the ratio in the second quarter to be slightly above 91%.
The company also flagged that medical and pharmacy cost trends were faring slightly better than expectations.
ADJUSTING BENEFITS
Humana said it continues to see a persistent gap between final rates for payments to private insurers offering Medicare Advantage plans and the amount paid for healthcare by the company.
The U.S. government said earlier this month it would raise payments to private insurers offering Medicare Advantage plans to older adults in 2027 by 2.48% on average.
Humana said it plans to adjust benefits as necessary to ensure that it remains on track to deliver a stable margin.
CEO Jim Rechtin said the use of medical services and costs remained in line with expectations, but the gap between those costs and funding from the federal government has grown compared to the previous year.
“Every year we’re going to step back and look at our whole portfolio,” said Rechtin. “The practical reality is, all product, if priced appropriately, is good product.”
The company expects annual adjusted profit to be at least $9, but lowered its reported profit forecast to at least $8.36 from the previous estimate of at least $8.89.
The forecast anticipates a year-over-year decline as a result of the Star Ratings given by the Medicare agency. The ratings, on a scale of one to five stars, are linked to bonuses paid to insurers.
Humana earned quarterly adjusted profit per share of $10.31, surpassing estimates of $10.19, per data compiled by LSEG.
(Reporting by Sneha S K and Sriparna Roy in Bengaluru; Editing by Devika Syamnath)
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