MA plan quality improvement drags down profits, Hemenah (HUM.US) full-year performance guidance falls short of expectations.

US healthcare insurance giant Humana (HUM.US) announced lower-than-expected profit guidance for 2025, citing a recent downgrade in government ratings. The company stated that it will invest significant funds to improve the quality of its Medicare Advantage (MA) plans. As an insurance company that heavily relies on revenue from MA plans, Humana has a higher business share in this area compared to its peers. Medicare Advantage is a healthcare insurance plan provided by the US government, aimed at providing more comprehensive medical coverage for senior citizens. This plan serves as an alternative to traditional Medicare and is managed and operated by private insurance companies such as Humana and UnitedHealth Group Incorporated (UNH.US). The government's downgrade of Humana's quality rating (a measure of the quality of various insurance plans included in MA) will impact the company's future Medicare payment amounts, causing concerns among investors about its long-term performance. In a statement on Tuesday, the company projected adjusted earnings per share of at least $16.25 for 2025, lower than analysts' expectations of $16.78. In the fourth quarter, Humana reported an adjusted loss of $2.16 per share, in line with analysts' expectations. Despite the earnings forecast falling short of expectations, Humana's stock price rose over 2% in pre-market trading on Tuesday. As of Monday's close, the stock had declined by 5.2% year-to-date. In recent years, Humana, UnitedHealth Group Incorporated, and other insurance companies have rapidly expanded their enrollment in private Medicare plans. According to the non-profit health policy and data analysis organization KFF, slightly over half of Medicare beneficiaries chose MA plans in 2023, more than doubling from 2010. However, due to changes in market trends, investors have had to adjust their profit expectations for Humana. Last year at this time, Humana withdrew its 2025 profit forecast for similar reasons. Due to rising patient care costs, the company also issued lower-than-expected profit guidance for 2024, leading to a significant drop in its stock price. Meanwhile, government regulatory agencies have increased scrutiny on billing practices for MA plans, accusing private insurance companies of exaggerating the severity of patients' conditions and medical costs they cover. In response to the government's downgrade in quality ratings, Humana, along with other insurance companies, filed a lawsuit last year. Last month, the US government dropped its appeal in a case against UnitedHealth Group Incorporated, the largest health insurance company in the US, while Humana's lawsuit is still ongoing.