(Bloomberg) — Humana Inc. said it expects new Patient Protection and Affordable Care Act customers to be sicker and costlier than anticipated, after the U.S. government’s decision to let healthier people keep their existing plans.
Enrollees through the PPACA’s insurance exchanges will be “more adverse than previously expected,” Humana said in a regulatory filing yesterday. While affirming its 2014 profit forecast, the Louisville, Kentucky-based health insurer said it was evaluating expectations for the new year.
Facing a wave of policy cancellations triggered by the higher standards of the Affordable Care Act, President Barack Obama said in November he would let people keep their existing health plans for an extra year. Analysts and insurers said the move might upset the financial stability of the exchanges by allowing younger, healthier customers to opt out of PPACA.
“Humana was already assuming the exchange business would be unprofitable,” Carl McDonald, a Citigroup analyst, said in a note to clients today. “It now appears Humana believes it could lose even more money because the mix of exchange enrollment is less favorable than anticipated.”
The company also said it expects steeper funding cuts in the government’s Medicare Advantage program, which pays private insurers to provide benefits to the elderly. Proposed payments for 2015 plans will be announced next month, and Humana now estimates they will be cut by 6 percent to 7 percent, compared with an initial 4 percent to 5 percent projection
Humana reiterated its 2014 earnings forecast of $7.25 to $7.75 a share. The company sees sales and enrollment ahead of expectations for Medicare Advantage plans this year, as well as for Medicare prescription drug plans.
Humana’s exchange offerings lean toward pricier plans with more generous coverage, so it’s unclear what the company’s warnings say for the rest of the system, McDonald said.
“It’s worth asking the question of whether Humana believes the entire exchange risk pool is worse than anticipated,” McDonald wrote, or whether the company’s own mix of products is partly to blame.