LOUISVILLE, Ky. (AP) -- Health insurer Humana Inc. posted a 44 percent jump in fourth-quarter profit Monday as its continued robust Medicare Advantage business drove sharply higher government income, offsetting a slumping commercial segment dragged by the sluggish economy.
Louisville-based Humana also raised its earnings projection for 2010 to a range of $5.15 to $5.35 per share, up from its previous estimate of $5.05 to $5.25.
The higher guidance mainly reflects a temporary contract extension in the Southern U.S. to administer Tricare benefits to some active-duty soldiers and their dependents, along with retired service members and their families, the company said.
Analysts expect a higher profit of $5.40 per share for the year.
Humana said its fourth-quarter profit rose as expenses related to prescription drug plans declined.
The company's pivotal government segment posted pretax income of $452.3 million in the fourth quarter, up from $267.3 million a year ago. The increase was mainly due to lower claims expenses in its Medicare prescription drug plans, higher Medicare Advantage membership and higher net investment income.
Meanwhile, Humana's commercial segment reported a steeper fourth-quarter pretax loss than a year ago.
Other large publicly traded health insurers have been hurt by declines in employer-sponsored insurance enrollment, a trend blamed on high unemployment that trimmed the number of customers covered by employer-sponsored health insurance.
Still, UnitedHealth Group Inc. and WellPoint Inc. recently reported higher fourth-quarter profit.
Wells Fargo analyst Matt Perry said in a research note that Humana's Medicare results were better than expected while its commercial business results did worse than anticipated. Perry said he sees potential for earnings-per-share upside for Humana from better Medicare health plan growth and margins as 2010 progresses.
Perry noted that in January, Humana made more gains in Medicare Advantage membership.
"This would seem to indicate that despite benefit cuts, Humana's Medicare health plans remain a good value proposition for seniors," he said.
Humana said its fourth-quarter consolidated benefit ratio improved from a year ago. The medical care ratio is the percentage of premiums paid to cover medical claims.
The health insurer earned $250.7 million, or $1.48 per share, for the period ended Dec. 31, meeting analysts' estimates. That's up from $174.1 million, or $1.03 per share, a year earlier.
Revenue grew 2 percent to $7.63 billion from $7.49 billion, partly on higher revenue from premiums and administrative services fees.
The results missed Wall Street's view of $7.78 billion.
For the full year, Humana earned $1.04 billion, or $6.15 per share, up nearly 61 percent from the previous year. Revenue grew 7 percent to $30.96 billion.
Michael B. McCallister, Humana's president and chief executive, summed up 2009 as success for the company despite a "challenging environment."
"Looking ahead, we see multiple revenue growth opportunities across our spectrum of products for 2010," he said.
Humana's Medicare Advantage membership exceeded 1.5 million at the end of 2009, up 5 percent from a year earlier. Total membership was relatively unchanged from the end of the third quarter in 2009.
Medicare Advantage plans are government-sponsored, privately run programs for seniors that offer comprehensive health coverage.
Medicare Advantage premiums of $4.07 billion in the fourth quarter were up 12 percent from the year-ago period, which the company attributed to higher enrollments and the introduction of member premiums for most of its Medicare Advantage products.
Humana said membership in its stand-alone Medicare prescription drug plans totaled nearly 1.93 million as of Dec. 31, down by more than 1 million members from a year earlier.
The company said the membership decline in the stand-alone drug plans was due mainly to some low-income seniors joining rival plans. Humana realigned its premium and benefit structures for those plans for 2009 to correspond with its prescription drug claims experience.
Humana experienced higher-than-expected claims in those prescription plans in 2008, stemming from bad assumptions on pricing and costs in its bids to the government. Those higher expenses were a drag on 2008 earnings.
Humana said premiums in those Medicare drug plans totaled $514.8 million in the fourth quarter, down 37 percent from a year ago.
Meanwhile, Humana reported a fourth-quarter pretax loss of $53.6 million in its commercial segment, compared to a pretax loss of $6.3 million a year ago. The company pinned the deeper loss mainly on a higher percentage of premiums going to cover medical claims along with other higher expenses.
For the entire year, pretax earnings of $104.2 million in the commercial segment were 50 percent lower than the previous year, the company said.
Commercial segment medical membership totaled just over 3.4 million as of Dec. 31, down 6 percent from the end of 2008. Humana said much of the decline was due to the economic recession and higher unemployment, which hurt its employer-sponsored health coverage plans.
Premiums and administrative services fees for the commercial segment totaled $1.88 billion in the fourth quarter, down 2 percent from the year-ago period.
In morning trading, shares of Humana fell $1.43, or 2.9 percent, to $47.19.
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AP Business Writer Michelle Chapman in New York contributed to this report.
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