Humana Loses 308,000 Health-Plan Members, Just Like That

(MoneyWatch)  Earlier this year, Humana warned that it was having trouble estimating demand for the prescription-drug plans it manages for Medicare, but it turns out that wasn't the last of its woes. Now the giant health plan has revealed in an SEC filing that it expects to lose 308,000 members from those plans -- almost 10 percent of its total enrollment in such plans -- by January.

Humana's explanation is interesting because it's yet another indication that the insurance-company strategy of hiking premiums to cover rising medical costs is hitting the wall. Humana, it turns out, bid too high -- that is, set its premiums too high -- for that Medicare program. The company explained it this way in its 8-K:

As discussed on numerous occasions during the past six months, Humana's 2009 Part D and Medicare Advantage bidding strategy has been to adjust premiums and benefits to both reflect medical cost trends and achieve an overall Medicare pretax operating margin of approximately five percent. The Company continues to expect that it will achieve both of these objectives with its 2009 Medicare bids.

Translation: We've had no luck holding down drug prices, so we had no choice but to raise premiums high enough to maintain our five percent operating margin, and got outbid for the business as a result.

Some analysts are already arguing that the development is good news for Humana, since these particular plans tend not to be very profitable, although Humana shares dropped on the news. This particular Medicare Advantage plan consists of more than six million low-income seniors that also qualify for state Medicaid programs. The government insures their drug plan and allocates them among insurance companies whose bids are lower than the average of all those received.

More to the point, this is another harbinger of how quickly health plans like Humana are likely to flee the Medicare Advantage plans once they're no longer heavily subsidized by the government, as seems likely within the next few years. As if we needed it, it's also a sign of how little health plans seem to care that their overall customer base is shrinking, as if business-as-usual in a collapsing market made all the sense in the world.