The performance of players in the health insurance industry (XLV) depends largely on the demographic mix, social mix, and regulatory framework in key markets. Accordingly, managed care organizations such as Humana (HUM), Aetna (AET), Anthem, Cigna (CI), and Wellcare Health plans (WCG) operate in select markets to balance risk and earn sustainable profits.
Medicare enrollments, including individual and group MA (Medicare Advantage) plans and MA-PDP (Medicare prescription drug plans), make up a major portion of Humana’s total enrollments.
MA is a health insurance program provided by managed care organizations covering inpatient and outpatient services to Medicare beneficiaries. It’s a substitute for Original Medicare. MA-PDP, meanwhile, offers additional coverage to Medicare beneficiaries for prescription drug expenses.
Humana has expanded its network in California, Florida, and Texas, as these states are key health insurance markets. They’re the top three states with the highest number of Medicare-eligible people. To balance the regulatory risks present with government revenues, Humana also offers fully insured and self-insured group insurance. With fully insured plans, the company assumes the risk of claims. With self-insured plans, the company performs only administrative services.
Over-reliance on government revenues from either self-insured plans or discount payers can reduce Humana’s profit margins.
Tricare, a healthcare program of the U.S. Department of Defense Military Health System, provides civilian health benefits to military personnel and military retirees. Tricare accounts for 27% of Humana’s total enrollments. Humana Military Healthcare Services provides Tricare services to the entire southern region of the US, including Alabama, Arkansas, Florida, etcetera.