Humana shares moved firmly higher in early Monday trading following reports that suggest the health insurance group could revisit merger talks with its smaller rival, Cigna Group.
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Humana (HUM) , and much of the health insurance sector, is struggling with the prospect of smaller reimbursements from Medicare and Medicaid under a new payout system and a surge in broader medical costs tied to an aging customer demographic.
The implications of the new Medicare payout levels, in fact, prompted the Louisville-based group to file a lawsuit in federal court last week, accusing the government of being “arbitrary and capricious” in calculating its reimbursements for the country's second-largest Medicare Advantage provider behind UnitedHealth (UNH) .
Others in the sector are struggling with the new payout levels following a decision by the U.S. Centers for Medicare and Medicaid Services earlier this spring that capped Medicare Advantage payments by an average of 3.7% next year.
CVS slashes forecast, UnitedHealth slumps
Analysts were looking for an increase of around 4.7%, based on CMS's January proposal of 3.7%, followed by an increase of around 1.22% each year between 2019 and 2024.
Related: Humana hit by troubling Medicare Advantage change
The payments, which reimburse insurers for treatments of U.S. patients over age 65, will be effectively lower than current levels when adjusted for costs and inflation.
UnitedHealth shares fell more than 5% last week after it reported a big jump in its medical-cost ratio, a gauge of the amount the group is collecting from premiums against the payouts it needs to make to customers, and issued a muted 2025 profit forecast.
CVSHealth (CVS) , meanwhile, slumped nearly 10% after it slashed its full-year profit forecast in May and posted a near 6 percentage-point surge in the benefit-expense ratio at Aetna, its health insurance unit.
To arrest that rise and boost sales and profits at its retail pharmacy division, CVS said Friday that it had replaced CEO Karen Lynch, who was appointed in 2021, with CVS Caremark President David Joyner.
Related: CVS Health stock crushed as Medicare Advantage hit triggers big changes
Humana, meanwhile, is looking to revive merger talks with Cigna Group (CI) , according to a late Friday report from Bloomberg. It may seek to consolidate in the face of the massive sector changes ahead.
Talks between the two companies, which emerged last year, broke down quickly, however, amid concern that the Federal Trade Commission would prevent a merger.
The FTC has taken a far more active role in challenging megamergers under the leadership of Chairwoman Lina Khan, leading to worry it would block the proposed $125-plus billion tie-up.
The FTC is also continuing its probe into the three largest pharmacy-benefit managers – CVS's Caremark, Cigna's Express Scripts and UnitedHealth's OptumRx – and has warned the group of likely changes to the industry's broader regulation.
Cigna, for its part, agreed earlier this year to sell its Medicare business to Health Care Service Corp (HCSG) for around $3.3 billion.
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“While we continue to believe the overall Medicare space is an attractive segment of the healthcare market, our Medicare businesses require sustained investment, focus, and dedicated resources disproportionate to their size” within the company’s portfolio", CEO David Cordani said at the time.
Humana shares were marked 4.25% higher in premarket trading to indicate an opening bell price of $278.51 each, a move that would still leave the stock down nearly 40% for the year.
Cigna, meanwhile, were marked 3.6% lower from Friday's close at $324.00 each.
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