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Humana (HUM) Cuts Medicare Enrollment Outlook, Tumbles 19.4%

Humana Inc.’s HUM shares tumbled 19.4% yesterday, after it slashed its Medicare membership growth forecast by around 50% in a recent filing. The news also affected rival companies’ stocks.

The health insurer anticipates adding 150,000-200,000 new members to Medicare Advantage plans in 2022, down from the previous estimate of 325,000-375,000. The primary cause behind the decline is higher-than-expected terminations during the 2022 enrollment window. The group Medicare Advantage membership is expected to remain flat this year, with competitive pricing possibly playing a crucial role.

Aggressive pricing in certain markets can cut down profits for Humana and its peers like Molina Healthcare, Inc. MOH, UnitedHealthGroup Incorporated UNH, and Centene Corporation CNC. Competition in pricing might result in an unsustainable scenario.

While HUM stock witnessed a 19.4% decline yesterday, Molina Healthcare, UnitedHealth, and Centene fell 3.5%, 4.1%, and 4.3%, respectively. All these companies have a significant presence in the Medicare market.

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Last year, Molina Healthcare purchased Texas Medicaid and Medicare-Medicaid Plan contracts and specific operating assets for $60 million to boost its business. UnitedHealth was expected to add 900,000 people in individual and group Medicare Advantage and dual special needs plans in 2021. UNH has plans to further expand its service area in 2022. Centene has expanded its Medicare Advantage offerings in 1,575 counties across 36 states last October for the 2022 Medicare Annual Enrollment Period.

It is to be seen whether Humana’s estimate revision is going to be a landmark for the overall industry. In general, the government’s backing of the Affordable Care Act is one of the major positives for health insurers and acts as the bedrock for the industry. It is bringing more Americans under the health insurance coverage, in turn buoying health insurers’ top line. Looking ahead, moves like lowering the Medicare eligibility age to 60 from 65 through the Improving Medicare Coverage Act can expand Medicare to more than 23 million people. This will likely result in more business wins for health insurers, indicating a long-term boon for the industry.

In case of prescription drug plans, HUM expects net memberships to decrease by 125,000 members in 2022 compared with the earlier estimate of a drop of “a few hundred thousand members.” For 2021, the Zacks Rank #4 (Sell) company reiterated its adjusted earnings per share guidance of $20.50. For 2022, the metric is expected to be at the lower end of the targeted growth rate of 11-15%.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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