Humana posts 18 percent profit increase

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Associated Press

Posted on August 1, 2013 at 8:01 AM

LOUISVILLE, Ky. (AP) — Humana Inc. said Wednesday its second-quarter profit rose by 18 percent, beating Wall Street forecasts, as the health insurer reported broad performance gains led by climbing enrollment in its Medicare Advantage and prescription drug plans.

The Louisville-based company also raised its 2013 earnings forecast, reflecting its better-than-expected performance in the three months that ended June 30. Humana said it now expects full-year earnings to range from $8.65 to $8.75 per share, up from its previous forecast of $8.40 to $8.60 per share. Analysts expect $8.57 per share, on average.

"Our strategy is on track," Humana President and CEO Bruce D. Broussard said in a conference call with industry analysts. "Our business segments are delivering solid performance and our execution focus is high. Despite near-term industry challenges, we believe Humana continues to have a bright growth future ahead."

For the second quarter, Humana reported net income of $420 million, or $2.63 per share. That's up from $356 million, or $2.16 per share, in the same period a year ago. Analysts polled by FactSet expected $2.47 per share in the most recent quarter.

Revenue rose 6.4 percent to $10.3 billion, essentially matching analysts' forecasts.

Humana shares traded at $91.62, up $2.36, or 2.6 percent, in morning trading Wednesday.

The company reported pretax income growth in its retail, employer group and health care services segments in the second quarter.

Membership in Humana's individual Medicare Advantage business surpassed 2 million at the end of the second quarter, up 7 percent from a year ago. The higher enrollment helped spur a 5.8 percent increase in premiums and services revenue to nearly $6.8 billion in the company's retail segment — the largest part of its business.

The company said there was essentially no change in the percentage of premium dollars from its members that went to pay for medical claims in the retail segment during the quarter, compared to the year-ago period.

Broussard said the company anticipates continued membership growth next year in its individual Medicare Advantage business.

"That said, the funding pressures from CMS (Centers for Medicare and Medicaid Services) are still quite onerous," he said during the call. "Facing these ongoing challenges makes continued investment and execution discipline ... all the more critical moving forward."

Funding for Medicare Advantage plans will be cut as part of the health care overhaul, which aims to provide insurance coverage to millions of uninsured Americans.

When private insurers first entered the Medicare program in the late 1990s, federal officials widely assumed companies would lower costs with their managed-care strategies. But the privately run Medicare Advantage programs ultimately grew more expensive than the traditional government-run program. The federal health care overhaul aims to equalize funding levels for Medicare Advantage and the government program.

Humana is the second-largest provider of Medicare Advantage plans, which are privately run versions of the government's Medicare program for the elderly and disabled people. Medicare Advantage plans bring in more than half of Humana's revenue, and the company trails only UnitedHealth Group Inc. in enrollment.

Membership in Humana's individual stand-alone Medicare prescription drug plans rose to 3.22 million, up nearly 8.5 percent from a year ago.

Enrollment increased nearly 16 percent to 416,600 in Humana's employer-sponsored, group Medicare Advantage plans for which Humana provides insurance and doesn't just administer the policies.

Humana recently said it signed a definitive agreement to acquire the largest provider of nursing home diversion services in Florida, American Eldercare Inc. American Eldercare said it provides home-based skilled nursing, medical rehabilitation and private-duty services.

Terms of the deal were not disclosed, but Broussard offered hints Wednesday about the transaction.

"The cash expended to be used in closing this deal should not impact our ongoing share repurchase or cash dividend activity," he said.

During the second quarter, Humana spent $130 million on share repurchases and $41 million on dividend payments.

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