Humana (HUM) 2024 Wells Fargo Healthcare Conference summary

Utilization and cost trends

• Inpatient activity increased in late Q2, but overall hospital events matched expectations, with a shift from observation to inpatient stays due to adaptation to the Two-Midnight Rule.

• Utilization and authorization levels stabilized from late May through August, with no concerning trends in claims or reserves.

• Non-inpatient costs, such as chemo, showed higher trends, but orthopedic pressures have stabilized.

• Appeal and overturn rates for inpatient authorizations remain stable, with higher appeals incorporated into forecasts.

• Avoidance rates improved after provider and clinician training, and CMS audits validated appropriate care determinations.

Medical loss ratio (MLR) and seasonality

• MLR progression in 2024 differs from prior years due to business mix and insurance pre-tax contribution.

• Higher MLR in the back half of the year is expected due to seasonality, respiratory season, and increased supplemental benefit utilization.

• Anticipated higher use of benefits in Q4 2024 as members respond to 2025 benefit reductions.

• Favorable prior year claims development and higher risk scores contributed positively to 2024, with seasonality expected to normalize in 2025.

Membership and plan exits

• Net loss of a few hundred thousand members expected in 2025, with 560,000 impacted by plan exits, but most have alternative plan options.

• Retention of roughly half of impacted members is assumed, with exits focused on unprofitable plans.

• Membership growth is not required for earnings progression; retained members are expected to be margin positive.

• Industry-wide, low-margin plans are being exited, while high-performing plans may see investment to retain and grow membership.