Tags: Humana | grows | Medicare | HUM

Humana Grows On Medicare Boost

By Tim Plaehn   |   Thursday, 27 Oct 2011 01:07 PM

Healthcare provider Humana (HUM) has posted significant earnings gains in the first half of 2011 due to the company's emphasis on Medicare plan enrollments. Future profitability thus may be dependent on a boost to government reimbursement rates and its own control over expenses.

Humana provides health insurance coverage through employer group insurance plans, individual insurance plans and Medicare Advantage programs, both individual and group. Two-thirds of Humana's revenues come from the Medicare programs. Four percent of revenues are from providing medical and prescription services. The balance is group and individual health plan premiums and fees.

For the second quarter of 2011, Humana surprised the market with earnings per share of $2.71, up from $2 a year earlier. The consensus earnings estimate before the actual numbers were released was $2.06 per share.

As a result of the stellar quarterly results, Humana management boosted full year guidance by almost 10 percent to a midpoint of $7.55. In April, the company started paying a dividend on common shares at an initial quarterly rate of 25 cents.

Analyzing margins

In its earnings reports, Humana publishes two ratios which define the company's profitability. The benefit ratio is the percentage of premiums received spent on member healthcare costs. For the second quarter the ratio was 82.2 percent.

The operating cost ratio is Humana's cost to run the business and was 13 percent in the second quarter. Full-year guidance from Humana management has expected ranges of 82.5 percent to 83.5 percent and 14 percent to 14.5 percent for these ratios. Lower actual results will mean higher net profits.

For the second quarter, the company had Medicare Advantage membership growth of 10 percent. Employer group enrollment increased by 4 percent year-over-year. Administrative services only membership dropped by 10 percent since the end of 2010.

The most recent analyst action on Humana was an upgrade by the analysts at Oppenheimer. The new rating is outperform, up from perform. The target price was also increased by $4 per share.

The company reports next on Oct. 31.

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Healthcare provider Humana (HUM) has posted significant earnings gains in the first half of 2011 due to the company's emphasis on Medicare plan enrollments. Future profitability thus may be dependent on a boost to government reimbursement rates and its own control over...
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