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Humana CEO Tells CNBC: Quarterly Results Are Best He's Seen


The chief executive of Humana told CNBC that the company's recent quarterly performance was the best he has seen during his tenure and expects the company to capitalize on further growth opportunities.

"In my seven years as CEO this is probably the best quarter we've had," president and CEO Michael McCallister said in an interview. "It's the result of virtually every product line doing quite well, in addition to seeing significant leveraged gains from the doubling of our company size in the last 24 months."

Rx for Profits

The health insurer posted a 19% rise in quarterly revenue on Monday as membership in its Medicare health plans for seniors grew.

Humana, one of the largest providers of Medicare plans, also projected its full-year profit margin for its Medicare products would reach the high end of its previous forecast.

Shares closed higher on Monday.

"Our biggest opportunity is to continue grow our Medicare business," McCallister said. "We've moved into 30-some states in the last 24 months and we have a lot of new opportunity to present our company and brand and products to a lot of folks over the age of 65. We're finding significant organic growth as a result of that."

Humana said net income rose to $216.8 million, or $1.28 a share, compared with $89.5 million, or 53 cents a share, a year earlier. Second-quarter revenue increased to $6.43 billion from $5.41 billion.

The Louisville, Kentucky-based company announced the same earnings-per-share figures on July 18, but did not provide aggregate net income and revenue numbers.

At that time, Humana attributed the better-than-expected profit to strong performance in both its Medicare business and the commercial segment that serves employers. It also raised its full-year outlook.

An aggressive bid by the company to expand its Medicare business, taking advantage of federal laws allowing a greater role for the private sector, has paid off for shareholders this year.

Enrollment Rises 18%

Enrollment in Humana's Medicare Advantage full-service plans was 1.13 million members at June 30, 18% higher than a year earlier. Membership in its Medicare plans covering prescription drugs fell slightly from a year ago to 3.44 million at June 30.

The company's medical expense ratio -- the percentage of premiums it spends on medical costs -- improved to 83.4% from 85.1% a year earlier. Humana cited both its government and commercial businesses for the improvement.

Humana said its 2007 pretax profit margin for its Medicare plans would be about 5%, compared with its prior projection of 4% to 5%.

CEO Michael McCallister said on a conference call with analysts that 5% will remain the company's profit margin target for its overall Medicare business.

"We think that's a reasonable amount to be paid to do this business," McCallister said. "Our future in Medicare is not so much margin expansion, it's on taking advantage of the huge opportunity to move people into private-sector plans."

He noted that about 8 million people are in Medicare Advantage plans out of a total Medicare population of 47 million.

McCallister also expressed confidence in his company's ability to weather any changes that may emerge to Medicare on Capitol Hill, where lawmakers are weighing reimbursement cuts.

"We feel pretty confident in our ability to manage this regardless of what happens in Washington over the next six months," McCallister said.

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