Humana reports third-quarter drop

Associated PressNovember 6, 2013 

LOUISVILLE — Humana Inc. said Wednesday that its third-quarter net income fell nearly 14 percent as the health insurer's retail segment that includes its lucrative Medicare Advantage business saw a larger share of premium dollars going to pay for medical claims.

The Louisville-based company exceeded Wall Street forecasts and kept intact its full-year earnings forecast in the range of $8.65 to $8.75 per share.

Membership in Humana's individual Medicare Advantage business stayed above 2 million at the end of the third quarter, up 7 percent from a year ago. Humana is one of the largest providers of Medicare Advantage plans, which are privately run versions of the government's Medicare program for elderly and disabled people.

Much of the attention, however, focused on what lies ahead as a result of the health care overhaul.

"We have some distinct challenges ahead," Humana President and CEO Bruce D. Broussard said during a conference call with industry analysts. "Funding and regulatory pressures, in particular, are significant."

The company faces a Medicare Advantage funding cut mandated by the health care law, which aims to cover millions of uninsured people.

Humana expects to expand combined membership in its individual and group Medicare Advantage businesses by 260,000 to 305,000 next year, but dealing with the funding cut will be "no easy task," Broussard said.

Looking ahead to the next year, Humana projected earnings of $7.25 to $7.75 per share for the year ending Dec. 31, 2014.

It forecast coming-year investment spending and startup expenses amounting to 50 cents to 90 cents per share on the company's newer state contracts and health care exchange business tied to the health care overhaul.

Broussard said Humana anticipates those investments will abate in 2015. And the company expects to start recouping those investments in 2015, if the government fixes problems marring the start of its health care website to buy insurance, he said.

"We believe long term the potential size of exchanges is a significant opportunity for Humana," he said.

For the quarter ending Sept. 30, Humana reported net income of $368 million, or $2.31 per share. That's down from $426 million, or $2.62 per share a year ago. Analysts polled by FactSet expected $2.15 per share.

Revenue rose 7 percent to $10.3 billion, essentially matching analysts' forecasts.

Humana reported pretax income of $338 million for its retail segment in the third quarter, compared to $418 million a year ago. The $80 million decline was primarily due to the higher percentage of premium dollars from its members that went to pay for medical claims, compared with a year ago

The income drop in the retail business also was due partly to the calendar. Humana said its expenses rose because there were more business days in the third quarter, resulting in more doctor and pharmacy visits by its members during the period.

Membership in Humana's individual stand-alone Medicare prescription drug plans stood at 3.25 million at the end of the third quarter, up nearly 8 percent from a year ago.

Enrollment increased 15.6 percent to 425,400 in Humana's employer-sponsored, group Medicare Advantage plans for which Humana provides insurance and doesn't just administer the policies.

Humana reported pretax income of $156 million in its health care services segment, compared with $144 million a year ago.

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