Investing.com — Shares of Humana Inc . (NYSE:) tumbled 6.5% as investors reacted to concerns regarding the company’s potential earnings exposure from its Humana Honor plans, which primarily serve veterans. A recent scenario analysis by analysts at Piper Sandler, inspired by a Wall Street Journal article, highlighted the earnings risks associated with members who are covered both by the Veterans Affairs (VA) and Medicare Advantage (MA).
The analysis, which delved into Humana’s 375.7K Humana Honor plan members, suggested that while these plans were designed to attract veterans, they could represent a significant earnings risk in 2025. This comes at a time when the new administration has vowed to cut healthcare costs and eliminate waste.
The scenario analysis put forth by industry experts estimates that Humana Honor plans could contribute $5.16 of adjusted earnings per share (EPS) in 2024. It assumes that 80% of Honor Plan members are utilizers of both traditional Medicare benefits and supplemental benefits. Conversely, it is estimated that 20% of members are non-utilizers, who do not consume any benefits covered by Fee-For-Service Medicare. This analysis aligns with the assertions made in the WSJ article, suggesting that Honor Plan members generate 77% of the premium per member per month compared to non-Honor MA members.
The estimated medical loss ratio (MLR) for VA utilizers is 85%, which is considered conservative against the utilization data from the WSJ article. For non-utilizers, the estimated MLR is 20%, based on an analysis of supplemental benefits in the top 10 Humana Honor plans. The analysis also factors in operating expenses at 10.5% of premiums and applies a 21% corporate tax rate.
Analyst Jessica Tassan commented, “We estimate that Humana Honor plans will contribute $5.16 of adjusted EPS in 2024. Our scenario analysis assumes 80.0% of Honor Plan members are utilizers, meaning they consume some level of traditional Medicare benefits as well as supplemental benefits. We assume 20.0% of Honor Plan members are ‘non-utilizers,’ meaning they do not consume any benefits covered by FFS Medicare.”
Investors are closely monitoring these developments, as the potential for reduced earnings from these plans could impact Humana’s financial performance in the upcoming year. The company’s focus on veterans through the Humana Honor plans is under scrutiny as the market seeks clarity on the long-term sustainability of its earnings amid evolving healthcare policies.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.
