Humana Profits Drop 21% – Shares Drop 7%

LOUISVILLE, Ky. (Reuters)—Humana Inc. posted a 21% decline in quarterly profit on Monday, missing Wall Street’s target, as higher medical benefit costs weighed on the health insurer’s results.
Its shares fell nearly 7%.The first-quarter report from Humana, one of the largest providers of Medicare plans for the elderly, comes after rival insurers Aetna Inc. and Coventry Health Care Inc. posted lower-than-expected profits last week.Health insurers’ profits benefited last year from Americans’ low use of medical services in the weak economy, which kept their claim costs low. But some companies have registered fewer such gains in the first quarter of this year as they brace for an increase in medical claim costs.”We’ve seen a slight uptick in medical cost trends across a number of HMOs,” said Les Funtleyder, a portfolio manager with Miller Tabak. “Granted it’s coming off an artificially low rate, but I think it’s caught some people by surprise.”Shares of UnitedHealth Group Inc., Humana’s chief rival in offering Medicare plans, fell 3.4% after Humana’s report.Humana said its quarterly net income fell to $248 million, or $1.49 per share, compared with $315 million, or $1.86 per share, a year earlier.Analysts were expecting $1.53 per share. Humana said the earnings did top its expectations of $1.35 to $1.45.Humana pointed to the extra day of claims at the end of February because of the Leap Year, requirements due to the new U.S. health care overhaul law and the increased membership in its plans for the increase in health benefit costs.%%BREAK%%In 2011, many health insurers recognized significant gains from money they set aside to cover medical claims, due to actual claims submitted turning out to be lower than the companies had forecast.Humana only saw moderate gains from recognizing such reserves in the quarter—3 cents per share—while some analysts were expecting more significant benefits, just as they had been with Aetna. A year ago, Humana reported 31 cents per share in additional profit by recognizing claim reserves.”While Q1 was ahead of guidance it was below consensus and shows the same trend displayed at some of the other health insurers this quarter,” Wells Fargo analyst Peter Costa said in a research note.Humana’s revenue rose 11.2% to $10.22 billion, about $100 million ahead of estimates.The company spent 85.4% of premium revenue on medical benefits, up from 83.8% a year before.Its profit fell 47% in Humana’s retail segment, which includes its Medicare plans, primarily because of the higher medical benefit costs.Membership in Humana’s Medicare Advantage plans rose 18% to 1.88 million.Humana raised its 2012 earnings forecast to a range of $7.55 to $7.75 per share, an increase of 5 cents on both ends. Analysts had been looking for $7.99.Humana shares fell 6.8% to $81.84 in morning trading on the New York Stock Exchange. Through Friday, its shares were up 0.2% this year, underperforming a nearly 9% rise for the Morgan Stanley Healthcare Payor index of health insurers.

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