LOUISVILLE, Ky. (WDRB) – Humana Inc. on Wednesday raised its profit expectations for 2018 and 2019 based mainly on growth in its bread-and-butter business, Medicare Advantage.
Shares of the Louisville-based health insurance company shot up about 7 percent following the news, closing at a record high $353.90, according to YahooFinance data.
Other health insurer stocks rose Wednesday following the midterm elections.
In a note to clients, industry analyst Ana Gupte of Leerink Partners said the new "purple" Congress -- with Democrats now in charge of the U.S. House of Representatives and Republicans' continued control of the Senate -- bodes well for Humana's Medicare business in 2019.
Humana covers about 3.5 million seniors, up 8 percent from the same time last year, through Medicare Advantage, which is an optional, privately run version of the government’s healthcare program.
Executives said Wednesday they expect individual-plan Medicare Advantage membership to grow another 8 to 10 percent in 2019, though results won’t be known until the end of the annual enrollment period later this year.
Chief Financial Officer Brian Kane said there is “anecdotal” information that Humana is “taking market share” from Medicare Advantage competitors rather than simply growing its business in line with the market.
Medicare Advantage is growing not only because more people are aging into Medicare, but also because a growing share of them are opting for the private plans offered by Humana, United Healthcare and other players, as opposed to traditional fee-for-service Medicare.
Other items from Humana’s quarterly earnings report:
More employees in line for bonuses
Humana warned stock analysts that the company’s operating costs will go up because of their decision, announced in February, to use a portion of the company’s savings from the 2017 Republican tax reform bill to extend bonuses tied to the company’s performance to the entire workforce, or about 28,000 additional employees.
“We are therefore pleased to have the opportunity to further reward all of our associates for their exemplary work,” CFO Brian Kane said Tuesday.
The company didn’t say how much it plans to spend the additional bonuses or how much employees will get.
In February, the company estimated it would save $4 per share this year from tax reform – which works out to about $555 million – and that it would reinvest about half the savings in the business. One of the investments was to extend performance-based pay to more employees.
To be sure, Humana is also spending $148 million on severance costs for voluntary buyouts and layoffs to reduce its headcount by 3,600 workers. The company took the special charge “workforce reduction” charge in 2017, and the severance payments are continuing through the end of 2018.
Humana had about 46,000 employees nationwide as of Dec. 31, 2017. Their median compensation was $57,385 per year, the company disclosed in March.
Kindred at Home
Executives said the company’s 40 percent stake in Kindred at Home, the home-health division of the former Kindred Healthcare, is performing in line with their expectations.
While sharing few details, they said Kindred’s in-home caregivers are helping manage the health of Humana’s Medicare members in four “pilot” markets: Richmond, Va.; Charlotte, N.C.; Virginia Beach, Va.; and Dallas.
Humana and two private equity firms took Kindred, also based in Louisville, private in a buyout last year, and Humana has said it eventually plans to own 100 percent of the Kindred at Home division.
Walmart drug plan faces lower-cost competitors
While Medicare Advantage hums along, Humana said it’s losing members in its stand-alone Medicare prescription drug plan offered at Walmart stores because competitors are offering better prices.
The Walmart plan is “no longer the low cost plan in any market,” Kane told analysts on the company’s conference call.
Humana covers about 5 million people in stand-alone drug plans and expects to lose about 500,000 next year.
Humana CEO Bruce Broussard said the company would rather lose members than “follow the market” to bargain-basement prices.
“We don’t think the market can continue to offer the pricing that’s in the marketplace and have a sustainable product,” he said.
Reach reporter Chris Otts at 502-585-0822, cotts@wdrb.com, on Twitter or on Facebook. Copyright 2018 WDRB News. All rights reserved.
