By Mariam Sunny and Leroy Leo
(Reuters) -Humana withdrew its already downscaled 2025 profit forecast on Wednesday, citing disappointing government Medicare reimbursement rates, sending the health insurer's shares down over 5% in morning trade.
The company, which heavily depends on government-backed insurance such as Medicare Advantage (MA), has been facing multiple challenges.
Humana (NYSE:HUM)'s stock has fallen nearly 19% since the insurer slashed its 2025 profit forecast to $22 and $26 per share from $37 in January, anticipating a rise in medical claims.
The latest setback for the company is the U.S. government's lower-than-expected final rates for 2025 MA plan, which would cut insurers' reimbursements and squeeze their margins.
CEO Bruce Broussard said the rates are "not sufficient to address their current medical cost trend environment and regulatory changes", referring to the U.S. government's measures to curb Medicare expenses under its Inflation Reduction Act.
Humana withdrew its 2025 profit forecast and said it would provide a more specific outlook once it has clarity.
The regulatory concerns around Medicare spending could constrain rates through 2026, and "it may be a longer slog to right the ship at Humana than previously thought," Morningstar analyst Julie Utterback said.
Humana has already warned of a potential hit to profits this year and next from increased demand for medical procedures, especially among older adults who are returning for non-urgent surgeries they had delayed during the pandemic.
The company recently also set aside bigger reserves for medical claims following disruptions caused by a recent hack at UnitedHealth (NYSE:UNH) tech unit Change Healthcare (NASDAQ:CHNG).
Humana's medical benefit ratio - percentage of premiums spent on medical care - rose to 88.9% in the quarter, compared with analysts' expectation of 88.45%, according to LSEG data.
On an adjusted basis, Humana reported a profit of $7.23 per share in the first quarter, higher than the average analyst estimate of $6.12.