TL/DR –
Health insurance providers are grappling with higher than anticipated medical costs due to older patients visiting the doctor more frequently. CVS, which owns health insurer Aetna, recently reduced its full-year profit outlook due to anticipated medical costs eating into its profits. This comes on the back of insurance giant Humana citing the same reason for a dismal 2024 earnings forecast; rising medical costs have been driven by a surge in Medicare Advantage patients seeking delayed medical procedures, including joint and hip replacements, in the wake of the Covid pandemic.
Health Insurers Face Increased Medical Costs Due to Aging Patient Base
The health insurance industry, including companies like CVS and Humana, are experiencing increased medical costs due to an aging patient base seeking more care than anticipated. CVS, which owns Aetna, recently lowered its full-year profit expectations due to potential higher medical costs. Similarly, Humana issued a pessimistic 2024 earnings forecast due to similar concerns.
Medical costs for Medicare Advantage patients have risen notably in the past year, largely due to the increased number of older adults seeking medical procedures they delayed during the pandemic. These privately-run health insurance plans, contracted by Medicare, have seen over half of Medicare beneficiaries enrolling in such plans lured by lower premiums and additional benefits not covered by traditional Medicare.
However, insurers, including UnitedHealth Group and Elevance Health, worry about these rising costs, which may not decrease soon.
Impact of High Medical Costs on Health Insurers
CVS executives disclosed on a recent earnings call that the company’s insurance division observed higher outpatient care rates, including hip and knee surgeries, in the last quarter. They also noted increased use of supplemental benefits like dental and vision care. The impact of these increased medical costs was seen in the insurance segment’s medical benefit ratio rising from 85.8% to 88.5% for the last quarter.
Humana has also experienced a significant increase in medical costs in the fourth quarter, driving its medical benefit ratio to 91.4%, up from 87.4%. The higher medical costs are a significant issue for Humana as its Medicare Advantage business contributes over 80% of its earnings.
Additionally, all three companies – CVS, Humana, and UnitedHealth Group – are anxiously monitoring how a new policy, the \”two-midnight rule\”, will impact their insurance businesses. This rule requires Medicare Advantage plans to cover their members’ hospitalizations at the elevated inpatient rate if a stay beyond two midnights is anticipated.
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