(Bloomberg) -- Humana Inc. shares fell after management pulled its guidance for next year amid mounting pressures in its Medicare business.

The insurer’s first-quarter report showed some strength amid the uncertainty. Its quarterly profit substantially beat Wall Street’s expectations and management left this year’s guidance intact.

Going forward, Humana’s leadership no longer believes the range of $6 to $10 of adjusted earnings-per-share growth that they had forecast for 2025 “is the appropriate target.” They didn’t provide new targets either, citing a need for “greater clarity.”

Humana’s shares were down 1.3% to $323.65 at 9:47 a.m. in New York. 

In January, Humana slashed its outlook for this year and next on unexpectedly high medical costs and lower payments from the US government. Since then, Medicare finalized 2025 payment rates for private plans that disappointed the industry. Humana had warned last month that its 2025 earnings target would be challenging to meet without bigger payments from the government.

By withdrawing its 2025 guidance entirely, Humana went further than some had expected. RBC Capital Markets analyst Ben Hendrix said in a research note he’d only thought the insurer would pull down the high end of its forecast prior to its quarterly results.

Private Medicare Advantage plans have driven growth and profits at large insurance companies for years, as the program expanded to cover half of all people on Medicare. Humana is the second-largest Medicare Advantage insurer, with more than 6 million members in the private plans.

Yet the rising cost of insurance raised alarms in Washington. The Biden administration made a series of changes to rein in payments to private Medicare insurers. The 2025 payment rates finalized this month surprised Wall Street and sent company share prices down across the sector.

With lower payments than it had planned on, Humana expects to exit some markets and reduce benefits for seniors, the company said. 

Margin recovery is “likely going to take a bit longer than the two years we had hoped previously,” Chief Financial Officer Susan Diamond said.

Earnings Beat

For the first quarter, adjusted earnings were $7.23 a share, compared to the $6.04 average expected by analysts in a Bloomberg survey, the company said in a statement Wednesday.

Humana’s medical-loss ratio, which shows how much premium revenue is paid out for medical care, was 88.9%, slightly above the average 88.8% analyst estimate. Wall Street views a smaller number more favorably.

Lower-than-expected operating costs aided the results, JPMorgan Securities analyst Lisa Gill wrote. The company’s conservative estimates of medical expenses in the first quarter “could give investors some incremental confidence in the 2024 outlook,” she wrote.

Humana shares lost 28% this year through Tuesday’s close, compared to a 6% gain in the S&P 500 Index. The stock is down so much that a Jefferies analyst noted Monday that “the math now works” if rival Cigna Group were to revive acquisition talks that stalled last year.

(Updates with share move and additional context starting in first paragraph.)

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