A class action lawsuit was filed against Humana Inc. (HUM) on June 3, 2024. The plaintiffs (shareholders) alleged that they bought HUM stock at artificially inflated prices between July 27, 2022, and January 24, 2024 (Class Period) and are now seeking compensation for their financial losses. Investors who bought Humana stock during that period can click here to learn about joining the lawsuit.
Humana is one of the largest American health insurance companies offering Medicaid and Medicare Advantage programs. Plus, Humana provides group and individual medical, dental, and vision plans in the private insurance market. As of 2023 end, Humana claimed to be serving 17 million members in the medical benefit plans and 5 million members with the specialty products plans.
Humana’s Misleading Claims
The plaintiffs maintain that Humana and two of its senior officers (Individual Defendants) deceived investors by repeatedly making false and misleading public statements about the company’s business practices and prospects during the Class Period.
As per the lawsuit, the defendants repeatedly noted during the Class Period that both inpatient and non-inpatient utilization trends were favorable. Accordingly, the associated medical costs were included in the company’s full-year outlook. The company also noted in one of its earnings calls that its analysis indicated that there was no large pent-up demand, and consequently, there was no reason to believe that the utilization costs could rise.
Here’s How the Truth Was Revealed
The lawsuit accuses the defendants of omitting truthful information about utilization rates and costs from SEC filings and related material. According to the lawsuit, the company’s claims about its benefits expense ratio are central to the case.
The information became clear in a series of events that transpired between June 13, 2023, and January 25, 2024. Importantly, the company released preliminary results for Q4 and FY23 on January 18, in which it revealed a higher benefits expense ratio (adjusted) of 88% for FY23 and 91.4% for Q4. Owing to these, Humana guided for adjusted earnings per share (EPS) of $26.09, which was $2 per share lower than the initial guidance.
Furthermore, in the earnings release for Q4 FY23 on January 25, Humana reported an unexpected loss for Q4. Humana cited the higher benefits expense ratio (adjusted) as the reason for the lower profits in the full year and the unexpected loss in Q4.
Moreover, Humana stated that medical costs are expected to remain high during 2024. As a result, the company guided for FY24 adjusted EPS of $16 per share, which was $10 per share lower than the FY23 figure. What’s worse, the adjusted EPS guidance fell short of analysts’ consensus of $29 per share. Overall, in contrast to the aforementioned claims about favorable trends, Humana was unable to meet its guidance given in 2023 owing to the higher levels of medical costs that the company failed to project properly.
Notably, HUM shares plunged over 11% on January 25, and have lost more than 14% so far in 2024, causing massive damages to shareholders’ returns.
