Humana Inc. said Monday its first-quarter profit rose 22 percent as the health insurer benefited from enrollment gains in its Medicare offerings and slower growth in health care use in its employer-based insurance plans.
In a sign of its growing diversity, the Louisville-based managed care company also doubled pretax income in its health and well-being services segment in the period.
Humana said its first-quarter earnings benefited by 31 cents per share because claims leftover from previous quarters came in lower than expected. That was down slightly from its benefit a year ago from slower health care use.
The company last week upgraded its full-year earnings forecast to a range of $6.70 to $6.90 per share from $5.95 to $6.15 per share.
Humana said Monday the higher projection was partly the result of a lower rate of growth in health care use. It projected that a smaller percentage of premiums will go to cover medical claims in its retail and employer group segments. The company also expects higher earnings from its health and well-being services business.
Humana CEO Michael B. McCallister said the earnings growth reflects discipline in the company's core businesses and a growing focus on a broader array of businesses.
"Our businesses are strong and producing solid operating results and cash flow," he said in a conference call with industry analysts.
Humana shares added 85 cents to $76.97 in morning trading Monday.
The company is among several large health insurers to report better-than-expected earnings.
Citi Investment Research analyst Carl McDonald said in a note to investors that Humana assumes a return to normal cost trends, beginning in the second quarter. "Like most plans, therefore, there is significant future (earnings-per-share) upside potential if medical costs remain at their current depressed level," he said.
Humana said membership in its individual Medicare Advantage offerings rose by 9 percent from year-end to reach nearly 1.6 million. Membership was up 10 percent from a year ago.
Humana also posted enrollment growth in Medicare Advantage plans sold to employers. Group Medicare Advantage membership reached 280,700 as of March 31, up 3 percent from the end of 2010 and up 5 percent from the year-ago period. Medicare Advantage plans are privately run versions of the government's Medicare program. Subsidized by the government, the plans offer basic Medicare coverage topped with extras or premiums lower than standard Medicare rates.
Meanwhile, enrollment in Humana's individual stand-alone Medicare prescription drug plans totaled 2.35 million as of March 31, compared with 1.67 million at the end of 2010 and 1.7 million a year ago. The enrollment growth reflected Humana's successful partnership with retail giant Wal-Mart Stores Inc. last fall. The companies teamed up to offer a Medicare prescription drug plan.
Humana said its net income for the three months ended March 31 totaled $315.2 million, or $1.86 cents per share, compared to $258.8 million, or $1.52 per share, a year ago. Revenue totaled nearly $9.2 billion.
Analysts expected Humana to earn $1.49 per share on revenue of $9.11 billion, according to FactSet.
Humana said its employer group segment posted pretax income of $138.8 million in the quarter, up from $73.5 million a year ago. The increase was mainly due to claims leftover from previous quarters coming in lower than expected.
The company's health and well-being services segment had a pretax income of $96.4 million, doubling the $48.2 million a year ago. Humana attributed the segment's upswing to growth in its pharmacy business and its recent acquisition of health care company Concentra Inc., which provides occupational medicine, urgent care, physical therapy and wellness services from more than 300 medical centers.
McCallister said the segment is projected over time to outpace growth in the company's other divisions.
Humana's retail segment posted pretax income of $217 million, down from $264.8 million a year ago. The drop was mainly blamed on less-favorable trends for leftover claims from previous quarters.
The decline also was attributed to the impact of health insurance reform on Humana's individual commercial business, an industrywide trend.
Still, Humana Chief Financial Officer Jim Bloem was upbeat about the segment, saying, "We are experiencing both membership and revenue growth in every retail-segment business line."
Humana also offers Medicaid and commercial coverage and insurance for military members and their families. The company also operates more than 300 medical centers and 240 worksite medical facilities.
Humana has about 10.2 million medical members and 7.1 million members in specialty categories such as vision and dental.
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