Humana Exit From Employer Coverage Illuminates Medicare’s Lure

The exit of Humana Inc. from the employer health insurance market may foreshadow difficult decisions ahead for large insurers as they face greater scrutiny on costs from companies while being lured by the more lucrative Medicare Advantage market.

Humana announced Feb. 23 that it will phase out its commercial business with employer health plans over the next 18 to 24 months to focus on its core government business, primarily operating private Medicare plans known as Medicare Advantage.

Pressure on health insurers continues to grow as employers seek to curb soaring health-care costs, demanding access to their claims data and in some cases suing to get it. Fortune 500 company Owens & Minor Inc. this month sued an Anthem Blue Cross affiliate, saying the insurer had repeatedly refused to turn over claims data requested since 2021.

That information, as well as negotiated price data that hospitals and health plans are now required to make public, is aimed at helping employers and consumers see if they’re paying reasonable prices compared to what other companies are paying on medical bills. The savings for employers could be substantial, but insurers could take a hit.

As the provider networks and fees charged by insurers become more transparent, “what we’re seeing is the charges we’re being charged on the commercial side are both exorbitant and unjustified,” Michael Thompson, president and CEO of the National Alliance of Healthcare Purchaser Coalitions, said in an interview. The alliance represents groups that work with employer health plans.

Over the long term, that will likely lead to less variation in health-care costs, Thompson said. Currently, there can be wide variations in prices employers pay hospitals and health-care providers in the networks set up by insurers.

As fees become public, it isn’t clear that employers are benefiting from using health insurers’ networks to get fair prices, Thompson said.

“As that data becomes more available, it’s easier to discern what’s going on in the marketplace, and it’s easier to contemplate a universe where the health plans become less essential or required to get a good deal,” he said.

No Broader Exodus in Short Term

Insurers that serve the employer health plan market aren’t likely in the short term to exit the market as Humana is doing.

Humana, based in Louisville, Ky., had just under 1 million members in commercial plans at the end of 2022, or less than 6% of its total medical membership of about 17 million people, according to its fourth quarter 2022 financial results. The company’s Medicare membership totaled about 8.7 million at the end of last year.

About 159 million Americans had employer-sponsored coverage in 2022, according to Kaiser Family Foundation.

“There are other players that are more entrenched in the employer market,” such as UnitedHealthcare, CVS Health’s Aetna, Elevance, Cigna, and other Blue Cross Blue Shield companies, Duane Wright, a senior health-care policy analyst with Bloomberg Intelligence, part of Bloomberg LP, said in an interview.

In contrast to Humana, Cigna has about 15 million commercial market members, Wright said.

But the government market may be increasingly enticing to insurers. “Aside from Medicare, aside from Medicaid, there are expanding and growing opportunities with the Affordable Care Act,” Wright said.

Humana’s exit from the employer plan market “will impact certain areas of the country where there will be meaningfully reduced competition,” David Muhlestein, chief research and innovation officer of health-care consulting firm Health Management Associates, said in an interview. He cited Georgia as a state that may be affected more heavily.

In most markets, Humana has the fewest numbers of physicians that are covered by their networks when compared with the other large national insurers, Muhlestein said.

Growth but Uncertainty in Medicare Advantage

Health insurers currently see a profitable business in privately run Medicare Advantage plans, Muhlestein said.

Medicare “is the only growth market within the health insurance landscape,” Glen Losev, senior equity analyst for health care for Bloomberg Intelligence, said in an interview. More baby boomers are entering the Medicare market, and people are living longer than they used to, he said.

“Humana is probably one of the best and most knowledgeable in the Medicare space,” Losev said.

However, “If there are changes made to the program and that profitability suffers, what do they have to fall back on?” Muhlestein asked, referring to Humana. “There have been proposals time and again to reform Medicare Advantage, and doing so could really hurt them.”

The Centers for Medicare and Medicaid Services’ 2024 advance notice could reduce Medicare Advantage spending by $540 per Medicare Advantage enrollee on average next year, the Better Medicare Alliance said recently, citing an analysis from Avalere Health.

“With 30 million seniors and individuals with disabilities enrolled in Medicare Advantage, a vital part of Medicare, this could result in higher premiums and/or reduced benefits for these beneficiaries,” the Better Medicare Alliance, which supports Medicare Advantage, said.