Humana Profit Falls on Medicare Drug Plan

Humana said fourth-quarter profit fell 28 percent, as medical costs consumed more premium revenue than some analysts expected, and the health insurer lowered its 2009 earnings forecast for its commercial segment for employers.

Its shares fell 3.9 percent even as the company backed its overall 2009 profit forecast.

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"The earnings were largely as expected but the quality of the report was disappointing," Morgan Stanley analyst David Veal said in a research note.

Net income fell to $174.1 million, or $1.03 per share, from $243.2 million, or $1.43 per share, a year earlier.

Excluding items, earnings were $1.07 per share, 1 cent ahead of the analysts' average forecast, according to Reuters Estimates.

Goldman Sachs analyst Matthew Borsch said a lower-than-expected tax rate helped results by 3 cents per share.

Revenue at the Louisville, Kentucky-based company rose 18 percent to $7.49 billion.

Humana relies heavily on its Medicare plans to generate profits, and investors are concerned about potential U.S. health reform efforts that could lower reimbursement to private plans.

Humana has capitalized in recent years on an expansion of the role of private insurers under Medicare, the U.S. health program for the elderly.

Its benefit ratio -- the amount of premiums spent on medical benefits -- spiked to 83.3 percent from 80.3 percent a year earlier, hurt by costs for its Medicare drug plans.

Analysts at Morgan Stanley had looked for 82.8 percent.

Last March, Humana warned that its 2008 results would suffer severely because the design of one of its Medicare drug plans led to steep costs. But it said the problems were correctable and that growth would bounce back this year.

Humana was expected to shed such unprofitable members this year, and indeed projected a sharp decline this year of as much as 1.2 million enrollees in its Medicare plans that provide only prescription drug coverage.

"They're giving up a product they weren't getting much margin on, if any," Morningstar analyst Matt Coffina said. The company's membership in its full-service Medicare Advantage plans stood at 1.44 million at the end of 2008, up 26 percent from a year earlier.

Humana posted a loss in its commercial segment for plans serving employers, as plan members reached their deductibles.

It also lowered its 2009 pretax earnings forecast for its commercial segment to a range of $270 million to $290 million, from $300 million to $320 million previously.

Humana expects 2009 earnings in a range of $5.90 to $6.10 per share. On that basis, Humana posted 2008 earnings of $3.83. Analysts expect $5.91 for 2009.

Humana shares fell $1.49 to $36.44 on Monday, from a Friday close of $37.93 on the New York Stock Exchange.

Through Friday, Humana shares had risen nearly 2 percent this year, less than a 4 percent rise for the S&P Managed Health Care index.

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