Humana raises profit expectations on performance of key Medicare Advantage business
Louisville-based Humana Inc. reported higher than expected earnings in the April-June quarter and said it will be in a better position to earn extra payments from the federal government in 2018 for its bread-and-butter Medicare Advantage business.
LOUISVILLE, Ky. (WDRB) -- Louisville-based Humana Inc. reported higher than expected earnings in the April-June quarter and said it will be in a better position to earn extra payments from the federal government in 2018 for its bread-and-butter Medicare Advantage business.
In its first full quarter since walking away from a takeover bid by rival Aetna, Humana’s results “significantly exceeded our previous expectations,” CEO Bruce Broussard said.
The health insurer’s shares closed up about 4.5 percent, to $241, on Wednesday following the earnings report.
Humana reported adjusted earnings – which exclude some items – of $3.49 a share for the quarter, beating the average analyst estimate of $3.09, according to FactSet.
Humana said the improvement came in its individual Medicare Advantage business, in which the company manages Medicare benefits for 2.8 million seniors through plans sold individually to them.
The company raised its expectation for full year 2017 earnings per share by about 5 percent.
Humana also said that in 2018, twice as many of its Medicare Advantage members than first anticipated will be in plans rated as “four stars” by the federal government, which means the company will be eligible for more bonus money from the federal Centers for Medicare and Medicaid Services than first thought.
The agency, known as CMS, pays insurers like Humana a fixed amount to manage Medicare benefits and awards bonuses for high-quality plans.
Humana did not say how much additional money it would earn through bonuses, but a stock analyst who spoke on the company’s earnings call said it could be $600 million to $750 million.
Obamacare business turns around
The decision came on the same day Humana officially walked away from Aetna after their merger fell apart amid opposition from the U.S. Justice Department.
Humana said in February that it expected to lose $45 million in 2017 on its individual commercial business, which primarily includes plans sold on the so-called Obamacare exchanges.
But because enrollees in Obamacare plans are using fewer services than projected and other factors, Humana now expects to earn $85 million in the individual commercial business in 2017, chief financial officer Brian Kane said on Wednesday’s conference call.
Humana booked pretax income of $181 million in the individual commercial business for the first six months of the year, compared to a $237 million loss during the same period in 2016.
Humana’s Obamacare business is significantly smaller this year. The company sold plans in 11 states, down from 15 in 2016. Premiums declined by 76 percent.
Despite the turnaround in profitability, Humana still plans to totally cut its Obamacare business as of Jan. 1, Humana spokesman Tom Noland told WDRB.
“Our integrated care delivery strategy is better suited to our core businesses, including helping seniors with chronic conditions achieve their best health, than to the exchanges,” Noland said in an email.