Humana Gains Despite Medicare Advantage Losses—What’s the Catch?

Key Points

• Humana is the nation's second-largest Medicare Advantage (MA) plan provider.
• Humana posted a Q4 EPS loss of $2.12 as its benefits ratio rose to 91.9%.
• The company warned it could see a decline of 10% or 550,000 MA plan members in 2025 after it decided to exit unprofitable geographies and counties, which initially caused shares to rise.

Health insurance giant Humana Inc. NYSE: HUM stock initially rose in reaction to its fourth quarter of 2024 earnings report despite posting losses.

The medical sector giant was one of the first carriers to sound the alarm of rising inpatient utilization costs, notably with its Medicare Advantage (MA) plan members in Q4 2023.

Since then, many other MA plan providers like CVS Health Co. NYSE: CVS, UnitedHealth Group Inc. NYSE: UNH, and Centene Co. NYSE: CNC have seen their medical care ratio (MCR) rise as profits shrank.

Here's Why the MCR Is So Critical For Health Insurance Carriers

The MCR represents the percentage of patient premiums an insurance company uses to cover medical services and benefits—the core expenses directly impacting members. The lower the MCR, the higher the profits, and vice versa. Lately, the rising costs of healthcare have caused MCRs to rise as profits fell. Some carriers call it a medical loss ratio (MLR) or medical benefits ratio (MBR). Humana calls it a benefit ratio (BR) or adjusted benefit ratio (ABR). Humana’s BR rose to 91.9% in the quarter. MA plans have high BRs, and Medicaid has even higher BRs.

Humana CFO Celeste Mellet points this out in their Q4 2024 conference call when asked about their 2025 MLR guidance, “First, the majority of the improvement is driven from the MA plan exits, which all had very high benefit ratios. We also made other adjustments to our benefits in our remaining plans, which also improved the ratio. Medicaid carries a higher benefit ratio versus MA, as you know. Second, the IRA impact, which increases the benefit ratio given increased revenue with offsetting increases in claims. And third, incremental investments, which are important to the long term, but increase the benefit ratio in the near term.”

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Q4 Wraps Up a Painful Year of Rising Benefit Ratios

Humana reported a Q4 EPS loss of $2.16, which still beat consensus estimates by 5 cents. Revenues grew 10.4% YoY to $29.21 billion, beating $28.81 billion consensus estimates.

Humana “warned” they could see a 10% decline (550,000) in MA memberships due to its decision to exit several unprofitable markets and counties. The market took this warning with a sigh of relief as shares rose. The company is the second largest MA plan provider behind UnitedHealth. The company issued downside full-year 2025 earnings guidance of EPS around $16.25, missing $16.71 consensus analyst estimates. The full-year revenue forecast for FY 2025 is $126 billion to $128 billion.

To its credit, Humana was “early” in spotting the surging MA member utilization rates. Still, unlike The Cigna Group NYSE: CI, which sold its whole Medicare business, Humana decided to continue growing its MA membership. However, they have started to reduce exposure in 2025. This is why the stock saw an uptick the following day.

Humana Stock Nears Breaking Point—Will Bulls or Bears Win?

A descending triangle is typically a bearish chart pattern. It features a descending upper trendline acting as resistance and a flat lower trendline providing support. The pattern is confirmed when the stock breaks below the lower support line, although a breakout above the resistance line can occur less frequently.

HUM formed a daily descending triangle with the descending upper trendline resistance that formed at $364.51, converging with the flat-bottom horizontal lower trendline support at $231.65. The daily anchored VWAP resistance is $265.42, and the daily RSI is oversold at the 33-band. While HUM initially bounced on its Q4 report, investors used that opportunity to sell into short-term strength. As time goes on, the channel will get narrower towards the apex point, where a definitive breakout through the upper trendline or breakdown through the lower trendline will follow through. Fibonacci (Fib) pullback support levels are at $241.79, $223.11, $210.30, and $196.66.

HUM stock’s average consensus price target is 15.55% higher at $293.05, and its highest analyst price target sits at $396.00. It has 19 analysts' Buy ratings and five Hold ratings. The stock has a 3.82% short interest.