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Humana Profit Climbs 26 Percent on Reserve Gain

Monday, 26 Apr 2010 08:02 AM

Health insurer Humana Inc. reported a 26 percent surge in first-quarter profit Monday, led by its expanding Medicare Advantage business plus a gain in its past medical claims reserves.

The Louisville, Ky.-based company also showed improvement in its commercial segment, which has struggled amid the sluggish economy.

Humana raised its earnings-per-share projection for the year to a range of $5.55 to $5.65, compared to its previous estimate of $5.15 to $5.35. The new estimate includes the gain from reserve developments. It also raised its revenue estimate to a range of $33.5 billion to $34.5 billion, up from $33 billion to $34 billion.

Analysts expect $5.53 per share and revenue of $33.4 billion, on average, according to a survey by Thomson Reuters.

Humana raised its estimate for Medicare Advantage membership but now expects a larger decline in Medicare Advantage prescription drug plan membership and lower commercial enrollment.

The company expects a profit of $1.65 to $1.70 per share in the second quarter including the reserve benefit. Analysts forecast $1.47 per share.

Humana earned $258.8 million, or $1.52 per share, in the first quarter ended March 31. That's up from $205.7 million, or $1.22 per share, a year earlier. Humana said it gained 37 cents per share from a greater-than-expected development of medical claims reserves. Excluding that benefit and greater tax costs, the company said it earned $1.19 per share. Revenue grew nearly 10 percent to $8.44 billion from $7.71 billion.

According to Thomson Reuters, analysts expected $1.14 per share and $8.27 billion in revenue.

"Our first-quarter results demonstrate solid execution in both of our business segments," said Humana President and Chief Executive Michael B. McCallister.

McCallister said the company is well positioned for the remainder of 2010 and "for the challenges of the post-health-reform environment."

Humana said its first-quarter consolidated benefit ratio — the percentage of premiums paid to cover medical claims — improved from a year ago.

The company's vast government segment posted pretax income of $279.2 million in the first quarter, up from $166.1 million a year ago. The improvement reflected the upswing in Medicare Advantage membership along with an $85.9 million benefit from prior-year claims adjustments.

Humana's Medicare Advantage membership grew to 1.74 million as of March 31, an increase of 273,400 members, or 19 percent, from a year ago. The total is up 233,800, or 16 percent, from the end of 2009.

Medicare Advantage premiums and administrative service fees totaled $4.8 billion in the quarter, up 19 percent from the year-ago period. Medicare Advantage plans are government-sponsored, privately run programs for seniors that offer comprehensive health coverage.

Membership in Humana's stand-alone Medicare prescription drug plans totaled 1.9 million as of March 31, down from nearly 2.1 million a year ago. The decline mainly reflected realigned premium and benefit designs to correspond with pharmacy claims, the company said. Premiums from the Medicare stand-alone drug plans fell 3 percent to $579 million in the quarter.

Meanwhile, Humana's slumping commercial segment posted pretax earnings of $137.8 million in the quarter, compared to $127.7 million a year ago. The upswing was mainly driven by the benefit of $14.1 million in higher-than-expected favorable reserve development. The gain was partly offset by a decline in average fully insured commercial medical membership from a year ago.

Commercial segment medical membership totaled 3.33 million as of March 31, down 140,000 from a year ago and down 79,300 from the end of 2009. Humana blamed the membership decline on the sluggish economy as high unemployment has trimmed the number of customers covered by employer-sponsored health insurance, a problem encountered by other health insurers as well.

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Health insurer Humana Inc. reported a 26 percent surge in first-quarter profit Monday, led by its expanding Medicare Advantage business plus a gain in its past medical claims reserves.The Louisville, Ky.-based company also showed improvement in its commercial segment, which...
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