Among the healthcare stocks plunging in today’s session is Humana (NYSE:HUM). Shares of HUM stock are down a whopping 12% in early afternoon trading, which is a massive move for this healthcare giant. Humana is currently valued at more than $55 billion after today’s drop.
This stark decline appears to be tied to news that many Americans — senior citizens in particular — are seeking out more care. As the U.S. population ages and Medicare enrollees sign up for surgeries that may have been delayed due to the pandemic, it’s expected that insurance claims will rise at a time when premium revenue is on the decline. (Typically, premiums for Medicare members are far lower than that of commercial members.) Thus, the medical cost ratio — a key metric in the healthcare insurance industry — is important for investors to watch right now.
In addition to Humana, other major health insurers such as UnitedHealth (NYSE:UNH) are down big on this assessment. Let’s dive into what investors should make of the news as well as today’s drop across the sector.
Why Is HUM Stock Plunging Today?
This sort of dynamic shouldn’t surprise investors and analysts. Indeed, with the onset of the pandemic, many elective surgeries were put off — common knowledge that most investors had priced into their models. Of course, rising costs associated with Covid-19 did offset many of the benefits that would have otherwise occurred from such a gap. Still, here we are.
The recent analysis provided at Goldman Sachs’ (NYSE:GS) Global Healthcare Conference yesterday isn’t earth-shattering. However, it has called attention to shifting dynamics in the healthcare sector, which could provide an unfavorable runway for years to come. The baby boomer generation is aging. One of the side effects of that shift is what’s expected to be a surging medical cost ratio in the sector.
Moving forward, investors appear to be assigning greater risk to insurers with higher percentages of their population either within the Medicare bracket or likely to transition into that bracket. For now, this is a key factor investors will clearly be paying closer attention to, especially as we see more data flow in over the coming quarters.
On the date of publication, Chris MacDonald did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
