Humana Inc.'s third-quarter net income jumped 13 percent after another strong quarter of Medicare Advantage enrollment growth, and the health insurer also raised its 2011 earnings forecast, following a lead set the past couple weeks by other big insurers.
The Louisville, Ky., company said individual Medicare Advantage membership climbed 10 percent to 1.6 million people compared with last year's quarter, mainly because of a successful enrollment season last fall. The insurer's Medicare prescription drug coverage enrollment also jumped 47 percent to 2.5 million people, helped by a low-cost drug plan it offers with retail giant Wal-Mart Stores Inc.
Humana is the second-largest provider of Medicare Advantage plans, which are privately run versions of the government's Medicare program. Subsidized by the government, the plans offer basic Medicare coverage topped with extras like vision or dental coverage or premiums lower than standard Medicare rates. Medicare accounts for 64 percent of Humana's revenue.
Individual Medicare Advantage membership, which excludes group plans offered through employers, also climbed 10 percent in the second quarter, helping the insurer post a 35 percent jump in profit for that quarter.
Humana earned $444.7 million, or $2.67 per share, in the three months that ended Sept. 30. That compares with earnings of $393.2 million, or $2.32 per share, in the same quarter last year.
Revenue climbed 11 percent to $9.3 billion.
Adjusted income was $2.54 per share, which easily beat Wall Street expectations. Analysts surveyed by FactSet expected, on average, earnings of $2.03 per share on $9.26 billion in revenue.
Revenue from the company's health and well-being services segment climbed 29 percent to $2.83 billion, helped by Humana's acquisition of health care company Concentra Inc., which provides occupational medicine, urgent care, physical therapy and wellness services.
Balancing gains like that was an 11 percent increase in total operating expenses. Benefits, the insurer's largest expense, climbed 7.6 percent to $7.15 billion, but care use continued to rise at lower-than-expected rates, which has helped Humana and other insurers in recent quarters.
While Medicare Advantage enrollment grew, the company's commercial membership tumbled 9 percent to about 2.5 million people. Humana attributed that mainly to disciplined pricing, which means the insurer aimed to avoid dropping prices too low to boost enrollment.
Humana became the latest big health insurer to raise its 2011 forecast this month, following UnitedHealth Group Inc., WellPoint Inc., Humana Inc. and Cigna Corp. It now expects 2011 earnings of $8.35 to $8.40 per share. That's up from previous guidance of $7.50 to $7.60 per share. Analysts expect $7.69 per share.
The insurer's third-quarter performance and new 2011 forecast confirm "what was pretty much already known: 2011 has been an extremely strong year," Goldman Sachs analyst Matthew Borsch said in a research note. Goldman Sachs has done investment and noninvestment banking services for Humana.
The company also said it expects 2012 earnings of between $7.40 and $7.60 per share, which would represent a drop compared to this year. Humana's initial guidance last year for 2011 also represented an earnings decline because the insurer sets Medicare Advantage projections conservatively.
Leerink Swann analyst Jason Gurda said in another note the insurer's guidance has been well-below what it actually reports in recent years, "so we wouldn't read very much into the below consensus guidance range."
Analysts expect earnings of $7.79 per share for 2012.
Company shares climbed $1.29 to $81.64 in pre-market trading.
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