Morningstar | Humana's 2019 Outlook Consistent With Expectations Despite Weaker Part D and Commercial Membership
Humana reported full-year results that largely tracked our expectations and provided 2019 outlook that appears to bracket our and consensus' projections. While we don’t intend to make any sizable changes to our model as a result of today's release, we may update our fair value estimate as we reassess the competitive landscape in the managed-care industry following the mergers of CVS/Aetna and Cigna/Express Scripts. For now, we intend to leave our no-moat and negative trend ratings for Humana in place.The firm's strength continues to emanate from its Medicare Advantage book of business, which is slated to see market share gains in the coming year. Management saw a strong initial response to its offerings in the individual MA market for 2019 and indicated that nearly 44% of its gross sales during open enrollment came from wins versus competing plans. We're encouraged by the continuing acceleration of MA membership growth for the company with the 12%-13% expected for this year far surpassing the roughly 7% rate seen in 2018. Medicaid is also expected to be a positive contributor in 2019, as the company has fully implemented its newly won managed Medicaid contract in Florida as of Feb 1. This should add nearly 130,000 lives to the firm's medical enrollment rolls.
While the medical benefits business has seen acceleration over the last year, the company's Part D prescription drug plan offering has been undermined by industrywide pricing pressure. Guidance implies a roughly 14% drop in membership following an approximate 6% loss last year.
Finally, while there's some underlying cost volatility associated with the health insurer fee moratorium in 2019, overall segment-level operating margin for the business appears to be roughly consistent with 2018 results. We're encouraged by the firm's consistency despite expected weakness in Part D and modest enrollment losses in its large-group commercial book.
Humana is a holding company. Through its subsidiaries, the company is a health and well-being company. The company manages its business with three segments: Retail, which consists of products sold on a retail basis to individuals including medical and supplemental benefit plans, such as Medicare and state-based Medicaid Contracts; Group and Specialty, which consists of employer group commercial fully-insured medical and specialty health insurance benefits, including dental, vision and life insurance benefits, as well as administrative services only; and Healthcare Services, which includes pharmacy solutions, provider services, clinical care services, and predictive modeling and informatics services
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