By Sneha S K and Christy Santhosh
Nov 6 (Reuters) - Humana raised its full-year profit forecast on Friday after reporting lower-than-expected medical costs as the health insurer positions itself for a return to improved profit margins by 2028, sending its shares up 3.2% in morning trading.
The company, one of the largest providers of Medicare Advantage plans for older adults and people with disabilities, is bucking an industrywide pullback by expanding enrollment in these plans while rivals broadly
retreat.
Investors are counting on Humana to capitalize on this strategy after it emerged as the biggest beneficiary of the new 2027 Medicare Advantage star ratings, which will affect the government's bonus payments to insurers in 2028.
Medical cost trends were at the lower end of the company's expected range for the year, CFO Celeste Mellet said in an earnings call, citing better-than-expected performance in inpatient care and Medicare Part D that had helped drive the increase in its full-year forecast.
Its approach to its price and benefit design for 2027 Medicare Advantage plans would help it progress toward a pre-tax margin of at least 3% in 2028, the company said.
"We continue to believe Humana is well-positioned to deliver strong EPS growth over the next two years, driven by repricing in 2027 and the Stars recovery in 2028," said Barclays analyst Andrew Mok.
Its individual Medicare Advantage membership increase of 23% year to date through the third quarter tracks its expectation of about 25% membership growth through 2026, Humana said.
It said 95% of its Medicare Advantage members will be enrolled in plans rated four stars or higher in 2027, a 20% increase over 2026.
Humana expects a one-time earnings boost in 2028 from the stronger ratings and plans to use part of that benefit for investments, the company said.
The higher forecast signaled strong confidence in cost trends that was not reflected in investor consensus, Cantor Fitzgerald analyst Sarah James said.
Humana's quarterly insurance segment medical cost ratio, the percentage of premiums spent on medical care, was 93.7%, below analysts' expectation of 94.39%, according to data compiled by LSEG.
The company sees annual adjusted profit of at least $9.50 per share, higher than at least $9 per share estimated previously. Analysts on average expected 2026 profit of $9.15 per share.
On an adjusted basis, it reported a quarterly loss of 70 cents per share, compared with analysts' estimate of a $1 per share loss.
Its CenterWell care-delivery unit, which provides senior-focused primary care and other services, reported a quarterly operating cost ratio of 95.9%, higher than the previous year.
The increase was mainly due to higher primary care costs, largely "concentrated to a group of specific patients in a single geography."
(Reporting by Christy Santhosh and Sneha S K in Bengaluru, Amina Niasse in New York; Editing by Pooja Desai)
