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Humana Profit Falls 21%, Missing Street View

Monday, 30 April 2012 10:21 AM

Humana Inc. said Monday that its first-quarter profit fell 21 percent as the health insurer paid out more in claims and bolstered operational spending to handle continued strong 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 4 percent in premarket trading.

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.

The earnings period offered mixed results among some of the nation's largest health insurers. Two of Humana's largest 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 it failed to raise its 2012 earnings forecast.

Humana said Monday that it paid out more in claims in its retail and employer group segments during the first quarter.

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

"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," said Humana board chairman and CEO Michael B. McCallister.

Humana ranks as one of the largest providers of Medicare Advantage plans, which are privately run programs offering comprehensive health coverage for seniors. Subsidized by the government, the plans offer basic Medicare coverage topped with extras like vision or dental coverage.

Humana said its individual Medicare Advantage membership grew to nearly 1.89 million as of March 31, up by 15 percent from the end of last year and 18 percent above the year-ago count. Group Medicare Advantage membership was up 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.

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 care for members. Some nurses field health questions on the phone, and others visit the homes of some members with chronic conditions.

For the three months 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 per share of $1.52 on revenue of $10.14 billion.

Humana shares fell $3.82, or 4.4 percent, to $84 in premarket trading.

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

Membership in Humana's individual stand-alone Medicare prescription drug plans stood at 2.86 million as of March 31, up 13 percent from the end of 2011 and 22 percent higher than the year-ago period. Humana has benefited from teaming with retail giant Wal-Mart Stores Inc. to offer a Medicare prescription drug plan.

Humana's health and well-being services segment posted pretax income of $132 million, a 36 percent jump from a year ago. The increase mainly reflected growth in Humana's pharmacy business, including its mail-order business, the company said.

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Monday, 30 April 2012 10:21 AM
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