Skip to main content

The Journal Gazette

Monday, April 30, 2012 5:59 pm

Humana reports 21 percent drop in 1Q profit

By BRUCE SCHREINERAssociated Press

Humana Inc. said Monday that its first-quarter profit fell 21 percent as the health insurer paid out more in claims and beefed up spending to handle expected growth in its lucrative Medicare Advantage membership.

The company, based in Louisville, nudged up its earnings expectations for the full year to a range of $7.55 to $7.75 per share, up from its prior forecast of $7.50 to $7.70 per share.

But the first-quarter results and the increased forecast were short of Wall Street expectations. Its shares fell more than 8 percent in trading Monday.

Humana cited favorable claims trends from prior periods in raising its forecast.

In essence, Humana set aside more money in previous quarters than was needed to pay claims during a slowdown in the use of health care services by consumers who felt pinched during the recession. That prior favorable claims trend amounted to 3 cents per share in the first quarter, compared with a 31-cent-per-share windfall in the same period a year ago, company said.

Several insurers have said they expect health care use to return to more normal levels this year, which means they would pay more claims. Humana said it paid more in claims in its retail and employer group segments in the first quarter than it had a year earlier.

The earnings period offered mixed results among some of the nation's largest health insurers. Two of Humana's competitors, WellPoint Inc. and UnitedHealth Group Inc., reported first-quarter results that beat Wall Street expectations and raised their annual forecasts. Another key competitor, Aetna Inc., missed Wall Street expectations and didn't raise its 2012 earnings forecast.

Humana reported double-digit membership gains for its Medicare Advantage offerings and its stand-alone Medicare prescription drug plans.

Medicare Advantage plans offer privately run, government-subsidized comprehensive health insurance for seniors with extras like vision or dental coverage in addition to basic Medicare coverage.

"This growth trajectory has contributed solidly to our results for the first quarter and our continued confidence in our projected results for the full year," Chairman and CEO Michael B. McCallister said in a statement.

Its individual Medicare Advantage membership grew to 1.89 million as of March 31, up by 15 percent from the end of last year and 18 percent compared with a year earlier. Group Medicare Advantage membership rose 21 percent from the end of last year to 385,800 as of March 31. The year-over-year gain in the category amounted to 25 percent.

McCallister predicted during a conference call with analysts that it will keep adding members in Medicare Advantage and the Medicare prescription plans this year. The company expects its biggest rise in Medicare Advantage enrollments since 2006.

Humana said it increased its investments in anticipation of the Medicare Advantage membership increases, and many of those costs were borne in the first quarter. For example, it hired more nurses to help field health questions on the phone and visit members with chronic conditions at home.

For the three months that ended March 31, Humana reported net income of $248 million, or $1.49 per share, down from $315 million, or $1.86 per share, in the same period last year.

Revenue rose 11 percent to $10.2 billion.

Wall Street analysts had expected earnings of $1.52 per share on revenue of $10.14 billion.

Humana shares fell $7.14, or 8.1 percent, to end trading Wednesday at $80.68. They've retreated from a 52-week high of $96.49 reached in mid-January, but they remain well above the year's low of $65.20, reached in early October.

Humana's pretax profit in its retail segment fell to $115 million from $217 million a year ago. In its employer group, Humana's pretax income was $121 million in the first quarter, compared with $139 million a year ago.

For membership in its stand-alone Medicare prescription drug plans - where enrollment was 2.86 million as of March 31, up 13 percent from the end of 2011 and 22 percent from a year ago - Humana has benefited from teaming with Wal-Mart Stores Inc.

Humana also has expanded into the health care delivery business, which saw pretax income of $132 million, a 36 percent jump from a year ago. The increase mainly reflected growth in Humana's pharmacy business, the company said.