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Medicare Spike Hits Insurers: UnitedHealth, CVS, Humana Stocks Tumble

UnitedHealth, CVS Health, and Humana shares dropped 3.2%, 7.5%, and 14.3% due to unexpected high medical service usage by Medicare Advantage seniors. Insurers face fixed premium risks from the government; higher utilization rates may impact earnings, with Humana's medical loss ratio at 91.4% versus an expected 89.5%. - Increased healthcare utilization in late 2023 surprised insurers, potentially influencing CMS pricing decisions for Medicare Advantage in 2025. ## Medicare Advantage Program Risks Impact Insurers The sharp spike in hospital and doctor office visits among older Americans has raised concerns about the profitability of the Medicare Advantage program for insurers. Managed-care companies, including UnitedHealth Group, CVS Health, and Humana, have reported higher-than-expected medical service utilization by seniors on Medicare Advantage plans in the final months of 2023. This led to selloffs in their shares, with UnitedHealth Group falling 3.2%, CVS Health dropping 7.5%, and Humana plummeting 14.3% so far this year. ## Fixed Premiums Pose Significant Risk While insurers see Medicare Advantage as a fast-growing market with high premiums paid by the federal government creating huge profit opportunities, they now face significant risks due to fixed premiums when medical costs come in higher than expected. The increased utilization rates announced over the past week show how Medicare Advantage can also be a lead weight for insurers. Analysts believe that while companies might be able to compensate for higher utilization over time through better terms from the federal government or cutting benefits, there could be significant impacts on earnings this year due to fixed premiums set by the government until 2024. ## Impact on Earnings & Future Pricing Decisions UnitedHealth's medical loss ratio was above consensus estimates at 85% in Q4 while Humana's ratio was even higher at 91.4%. Both companies cited various reasons for increased medical spending such as Covid-19 hospital admissions and outpatient surgeries late in the year. Humana expects these higher utilization trends to impact pricing decisions made by Centers for Medicare and Medicaid Services for 2025 but remains uncertain about their impact this year. Investors are eagerly awaiting fourth-quarter earnings reports from Humana on Jan.25 and CVS on Feb.7 to gain more insights into how these trends will affect future earnings. ## STREET VIEWS - David Windley, Jefferies Analyst (**Neutral** on UnitedHealth Group and Humana): > "United suggested that the higher utilization was basically a 2023 issue. Today’s Humana news makes that [trend] unlikely to be done." <div style="display: flex; flex-direction: row;" class="divbox"> <a style="display: flex; flex-direction: row;" class="MuiButtonBase-root wallstreet-review-item" href="https://www.barrons.com/articles/humana-stock-unitedhealth-cvs-medicare-advantage-ea828e53" target="_blank" rel="noopener noreferrer"> <div style="font-family: monospace; display: flex; ">  [1]  </div> <span> Humana and Other Insurers Bet Big on Medicare Advantage. Now the Risks Are Coming Into Focus.    </span> <span class="MuiTouchRipple-root"></span> </a> </div><div style="display: flex; flex-direction: row;" class="divbox"> <a style="display: flex; flex-direction: row;" class="MuiButtonBase-root wallstreet-review-item" href="https://www.barrons.com/articles/humana-stock-forecast-cut-df5f7bef" target="_blank" rel="noopener noreferrer"> <div style="font-family: monospace; display: flex; ">  [2]  </div> <span> Humana Stock Crumbles as Forecast Cut on Higher Medical Costs    </span> <span class="MuiTouchRipple-root"></span> </a> </div><div style="display: flex; flex-direction: row;" class="divbox"> <a style="display: flex; flex-direction: row;" class="MuiButtonBase-root wallstreet-review-item" href="https://www.tipranks.com/news/article/humana-stock-nysehum-under-400-looks-like-a-great-deal" target="_blank" rel="noopener noreferrer"> <div style="font-family: monospace; display: flex; ">  [3]  </div> <span> Humana Stock (NYSE:HUM) Under $400 Looks Like a Great Deal    </span> <span class="MuiTouchRipple-root"></span> </a> </div>

1/18, 16:15 EST