Humana's Profit Plummets Amid Medicare Advantage Challenges

Humana, the second-largest Medicare Advantage (MA) insurer in the United States, reported a significant drop in profits for 2024, with earnings falling by more than half compared to the previous year. The Louisville, Kentucky-based company faces mounting pressures in its MA business, prompting strategic adjustments and raising questions about the future of privatized Medicare plans.

Steep Profit Decline and Membership Losses

Humana's 2024 profit fell to $1.2 billion, down from $2.5 billion in 2023, primarily due to higher medical spending in its Medicare and Medicaid programs. The insurer now expects to lose 550,000 individual MA members in 2025, representing approximately one-tenth of its MA footprint. This membership loss is substantially larger than initially anticipated and stems from the company's decision to cut unprofitable plans to improve margins.

As of January, Humana's individual MA membership had already decreased by 8%, or nearly 445,000 members, compared to the end of 2024. Notably, about one-quarter of this reduction occurred in dual special needs plans, which serve individuals eligible for both Medicare and Medicaid.

Quality Ratings and Financial Challenges

Compounding Humana's difficulties is a steep decline in its MA plan quality ratings, known as "stars," for 2025. This drop could result in billions of dollars in lost revenue. In response, Humana has taken the unusual step of suing the federal government to overturn these ratings, with the outcome remaining uncertain.

Despite these setbacks, Humana's CEO Jim Rechtin reaffirmed the company's commitment to achieving a 3% MA margin by 2027. However, this goal hinges on improved star ratings and increased reimbursement from the federal government.

Strategic Investments and Industry-Wide Issues

To address these challenges, Humana plans to invest several hundred million dollars in strengthening its operating performance, including efforts to improve its star ratings. The company will focus on better managing medical spending, enhancing patient and provider engagement, driving profitable membership growth, and reducing administrative costs.

Rechtin also acknowledged broader issues facing the healthcare industry, particularly in light of recent events such as the tragic death of a UnitedHealthcare executive. He emphasized the complexity and fragmentation of the U.S. healthcare system, pledging that Humana will work to improve preventative care, communication, and navigation for its members.

As the healthcare landscape continues to evolve, Humana's struggles highlight the ongoing challenges facing insurers in the Medicare Advantage market and the broader healthcare industry. The company's efforts to adapt and improve its performance will be closely watched by industry observers and stakeholders in the coming years.