Humana Inc.

Case Details

Class Period: July 27, 2022 - January 24, 2024
Date Filed: June 03, 2024
Case Number: 1:24-cv-00655
Jurisdiction: District of Delaware
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Case Summary

Humana is a health insurance company that provides medical benefit plans to approximately 17 million members. The Class Period begins on July 27, 2022, when Humana announced its second quarter 2022 financial results. Therein, Humana reported adjusted earnings per share (“EPS”) of $8.67 for the quarter, an “outperformance” of approximately $1.00 per share higher than the Company’s previous projections. Humana stated that its “outperformance” versus prior expectations was “driven primarily by . . . better-than-anticipated medical cost trends in the company’s individual Medicare Advantage and Medicaid businesses” and further explained that medical costs for Humana’s individual Medicare Advantage business were “running favorable to our expectations.”

Throughout the Class Period, Defendants continued to assure investors—and analysts who repeatedly inquired about potential pent-up demand for healthcare services that built-up under COVID restrictions—that “in-patient unit costs and non-in-patient trends [were] coming in lower than [the Company] initially estimated” and that “there really isn’t pent-up demand that [the Company has] to be concerned about” negatively impacting utilization rates and profitability.

Investors began to learn the truth about the pressures on the Company’s profitability on June 13, 2023, when UnitedHealth Group Inc. (“UnitedHealth”), one of Humana’s primary health insurer competitors, revealed that it was seeing “higher levels” of outpatient care activity and suggested that higher utilization rates were due to “pent-up demand or delayed demand being satisfied.” UnitedHealth further explained that it was “seeing very strong volumes” in certain areas, including ambulatory surgery, and an overall “higher number of cases that are being performed.” Given the similarities in Humana’s and UnitedHealth’s businesses, and the likelihood that Humana was also suffering from increased utilization and costs due to pent-up demand, the price of Humana common stock declined $57.63 per share, or more than 11%, from a close of $512.63 per share on June 13, 2023, to close at $455.00 per share on June 14, 2023.

Thereafter, Humana made several additional disclosures about its profitability and financial condition, however, Defendants continued to downplay pressures on the Company’s adjusted EPS resulting from increased medical costs associated with pent-up demand for healthcare procedures (especially as COVID concerns abated) which, contrary to the Company’s assurances, resulted in increased utilization rates and costs.

On January 18, 2024, Humana shocked investors when it preliminarily released its financial results for the fourth quarter and full year 2023 and revealed that its benefits expense ratio had increased to approximately 91.4% for the fourth quarter of 2023 and approximately 88% for the full year 2023. As a result, the Company’s 2023 adjusted EPS were only $26.09 per share, or more than $2 per share less than what the Company had predicted in November 2023. In response to this announcement, the price of Humana common stock fell $35.78 per share, or approximately 8%, from a close of $447.76 per share on January 17, 2024, to close at $411.98 per share on January 18, 2024.

Finally, a week later, on January 25, 2024, Humana further shocked the market when it announced a loss for the fourth quarter of 2023, and stated that it expected the higher level of medical costs would persist for all of 2024. As a result, Humana revealed that it expected 2024 adjusted EPS of only $16 per share (a $10 per share decrease from 2023 and well below analysts’ expectations of $29 per share). In response to these revelations, the price of Humana common stock declined an additional $47.04 per share, or nearly 12%, from a close of $402.40 per share on January 24, 2024, to close at $355.36 per share on January 25, 2024.