Filed Under:Health Insurance, Ltci

Humana faces $401 million loss, and Medicare headaches

Earnings season continues

Humana has about 3.2 million Medicare Advantage plan enrollees. (Image: CMS)
Humana has about 3.2 million Medicare Advantage plan enrollees. (Image: CMS)

Humana Inc. has already cut back on sales of individual major medical insurance market, and now it says it's facing challenges in the private Medicare plan market.

The Louisville, Kentucky-based health insurer talked about the Medicare plan worries today when it announced its earnings for the fourth quarter of 2016.

Humana is reporting a $401 million net loss for the quarter on $13 billion in revenue, compared with $101 million in net income on $13 billion in revenue for the fourth quarter of 2015.

The net loss included two major unusual items: a $583 million write-off of receivables from a troubled Affordable Care Act program, and the addition of $505 million to the reserves for an old block of long-term care insurance business.

Excluding the effects of those charges and some other one-time charges, adjusted operating income for the quarter increased to $643 million, from $452 million for the fourth quarter of 2015.

The company ended the quarter providing or administering health coverage for a total of 14 million people, about as many people as it was covering at the end of 2015.

Medicare worries

The Centers for Medicare & Medicaid Services gave insurers an early look at how the Medicare Advantage and Medicare Part D prescription drug plans might work last week, in the 2018 Medicare program Advance Notice.

Related: CMS seeks bids for Trump’s first Medicare plan menu

Medicare Advantage program managers give plans quality ratings based on a 5-star rating system. Managers are trying to shift toward paying bonuses, or extra subsidy money, to plans with higher Star ratings, and less to plans with lower Star ratings.

Humana is a major Medicare Advantage plan provider. About 3.2 million of the company's enrollees are in Medicare Advantage plans, down from 3.3 million a year ago.

Humana said that, if the rules in the Advance Notice stick, the quality incentive program might affect how much CMS pays Humana for 2018 Medicare Advantage plan enrollees, because the percentage of Humana enrollees in program plans with ratings of 4 stars or higher has dropped.

"The company continues to believe that its Star ratings for the 2018 bonus year do not accurately reflect the company's actual performance under certain Star measures," Humana said in a statement accompanying its earnings release. "The company filed for reconsideration of those measures."

Humana said that also it might change its "contract structures" to compensate for the effects of Star bonus revenue problems in 2018. Humana did not specify whether it was referring to provider contracts or other types of contracts.

Medicare Advantage is the successor to the old Medicare+Choice managed Medicare plan program. In the late 1990s, Republicans generally supported the idea of encouraging private carriers to sell private Medicare plan alternative coverage. Some Democrats thought the subsidies for the private Medicare plan issuers were too high. Congress capped private Medicare enrollee subsidies. In 2000, the subsidy caps led to Medicare plan issuer turmoil, and many issuer exits from the market.

Related: Inside Products: This side of Medicare HMO withdrawals stinks

Humana also talked today about its participation in the Affordable Care Act public exchange market and the off-exchange individual major medical market.

Humana is reporting a $401 million net loss for the quarter on $13 billion in revenue, compared with $101 million in net income on $13 billion in revenue for the fourth quarter of 2015. (Photo: iStock)Humana is reporting a $401 million net loss for the quarter on $13 billion in revenue, compared with $101 million in net income on $13 billion in revenue for the fourth quarter of 2015. (Photo: iStock)

Individual health

Humana said it ended 2016 with 655,000 individual major medical enrollees, down from 899,000 at the end of 2015.

The company said it now has only about 244,000 individual major medical enrollees in 11 states, down from about 655,000 enrollees in 15 states a year earlier.

Only about 152,000 of the current individual coverage insureds are in Affordable Care Act-compliant plans, and most of those appear to be in ACA exchange plans. The rest are in plans originally sold before Jan. 1, 2014, when major ACA commercial health insurance market changes took effect.

Humana has discontinued the sale of most off-exchange individual major medical coverage.

Humana also talked about its efforts to try to get the federal government to pay the benefits offered by the Affordable Care Act risk corridors program for 2014, 2015 and 2016.

The ACA risk corridors program was supposed to use cash from thriving ACA exchange plan issuers to help struggling issuers, but it ended up collecting only enough cash from thriving issuers to pay about 15 percent of the program obligations for 2014.

Republicans in Congress put a law prohibiting the U.S. Department of Health and Human Services from using any cash other than payments from thriving exchange plan issuers to pay program obligations into a must-sign budget package that was signed into law by President Barack Obama.

Insurers are still fighting for their right to collect payments in the federal courts. But Humana said it will record the $583 million charge for the risk corridors program because of a federal court decision that casts doubt on its ability to collect on the program obligations.

Related: Humana to write off $591 million in ACA risk corridor money

Humana also gave investors a peek at its closed block of long-term care insurance business.

Humana has a block of long-term care insurance business, consisting of policies written from 1995 through 2005, because of its 2007 acquisition of KMG America. (Photo: iStock)Humana has a block of long-term care insurance business, consisting of policies written from 1995 through 2005, because of its 2007 acquisition of KMG America. (Photo: iStock)

Long-term care insurance, and Aetna

The company ended 2016 with 30,800 LTCI policyholders, down from 32,600 a year earlier.

The company said it has added $505 million to the reserves for the policies in part because interest earnings on the assets backing the LTCI policies have been so low.

Humana is also increasing the reserves because of evidence that LTCI claims are lasting longer than expected and the policyholders are living longer, the company said.

In the past, Humana has held quarterly conference calls with securities analysts to discuss its earnings. The company has stopped holding the calls since a proposed acquisition by Hartford-based Aetna Inc. A judge recently ruled against Aetna's efforts to acquire Humana. Humana said it will hold a conference call to provide an update on the Aetna transaction by Feb. 16.

Related:

Humana Closes on KMG

Medicare+Choice applications trickle in slowly

Bill would undo Medicare+Choice rate caps

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Nichole Morford

Nichole Morford
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