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UPDATE 2-US insurer WellCare tops earnings estimates on lower Medicaid costs

(Adds details on Medicare memberships, analyst comment)

Oct 31 (Reuters) - WellCare Health Plans Inc handily beat analysts' estimates for third-quarter profit on Tuesday, as it kept costs under control in its Medicaid business and added thousands of new members to its Medicare plans.

The bulk of WellCare's revenue is driven by serving low-income beneficiaries through the Medicaid business, in which the Florida-based insurer reined in expenses and reported a lower medical benefits ratio (MBR) for the quarter ended Sept. 30.

MBR, a key measure of costs, is the amount WellCare spends on insurance claims out of the premiums it earns. The lower the MBR, the better for the insurer.

WellCare's third-quarter Medicaid MBR improved to 86 percent from 87.4 percent a year ago, while memberships rose by about 290,000, boosted by new businesses in Arizona and Nebraska.

The company also benefited from higher memberships in its Medicare business, with enrollments rising 45 percent, or by 154,000 members, helped by WellCare's acquisition of Universal America Corp.

Analysts have said the acquisition, which closed in April, will help WellCare expand in the higher-margin Medicare Advantage business.

Medicare Advantage, an alternative to the standard fee-for-service government-backed plans for senior citizens in which private insurers manage health benefits, is the fastest growing form of government healthcare, with a total enrollment of 18 million people last year.

WellCare's net income more than doubled to $171.6 million in the third quarter from $68.6 million a year ago. Excluding one-time items, it earned $4.08 per share, topping analysts' average estimate of $1.91, according to Thomson Reuters I/B/E/S.

Revenue climbed nearly 23 percent to $4.40 billion.

The company also raised its earnings forecast for 2017. It now expects adjusted earnings of $8.25 to $8.40 per share, up from an earlier forecast of $6.75 to $6.95.

WellCare also said it expects to record a premium deficiency reserve (PDR) related to its contract with the Illinois Department of Healthcare and Family Services in the fourth quarter, that will dent earnings by 56 to 65 cents per share.

Piper Jaffray analyst Sarah James said she was "surprised" at the scale of the PDR. "It gives us concern over the long term margin of the contract," she added. (Reporting by Manas Mishra in Bengaluru; Editing by Sriraj Kalluvila and Sai Sachin Ravikumar)