Last year it was WellPoint, Inc., which acknowledged in a quarterly earnings call that it was experiencing very high medical loss ratios in a big portion of its Medicare Advantage business — specifically a regional PPO in California — because of a form of adverse selection in the enrollees it selected. Its stock was punished, but industry analysts generally figured the problem was isolated to one company in one location. But this week it was MA market powerhouse Humana Inc. that had a somewhat similar story to tell when it moved up the second-quarter earnings call with investors by a week to disclose somewhat similar problems, and this time the problem related to new individual MA business in multiple locations and even to some aspects of its existing business.
Specifically, Humana said July 30, it was lowering earnings-per-share guidance for full-year 2012 by about 7% mainly because of "higher-than-previously-expected individual Medicare Advantage benefit ratios associated with new members and increased utilization for both new and existing members." And the possible reasons it cited for that could give other MA sponsors pause. "One potential cause," said Chief Operating Officer Jim Murray, is that "the 2012 [MA] age-in members may not have had access to prior coverage due to the difficult economy, and as a result have some level of pent-up demand, which should ease over time."
Wall Street didn't like what it heard, and one securities analyst, Ana Gupte of Sanford C. Bernstein & Co., even went so far as to say "Humana management had been aggressive and mispriced their retail Medicare book of business." The company's stock price slid 15% in the first four hours of trading following the disclosure.
But is there a broader message here? Is it perhaps partly that baby boomers joining MA plans are not as passive as the older Medicare generation and actively seek out more medical care, especially if there is good access to out-of-network providers? Is the economy a major or minor contributor here? As commercial markets show weakness because employers are cutting back on staffing and benefit costs, and insurers therefore look increasingly at MA, is there something else they should be doing before "crossing the Rubicon" into an MA expansion?
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