Humana Profit Falls, But Guidance Comes in Above Views
11 February 2016 - 1:40AM
Dow Jones News
Humana Inc., which in July agreed to be acquired by rival Aetna
Inc., said profit fell 30% in the fourth quarter as it set aside a
reserve to account for losses expected on its 2016 Affordable Care
Act business, but the firm gave guidance for the year sharply above
Wall Street expectations.
"Humana faced challenges across a number of fronts in 2015,"
said Chief Financial Officer Brian Kane. But he said strength in
its clinical model and administrative cost discipline, along with
targeted pricing, helped position the company for "meaningful
margin improvement" in its core individual Medicare Advantage
business for the year.
For 2016, the health insurer expects adjusted earnings of $8.85
a share, compared with analysts' estimates for $8.73 a share,
according to Thomson Reuters.
The Louisville, Ky., company struck a $34.1 billion merger deal
with rival Aetna Inc. in July amid a flurry of consolidation in the
health care space, fueled by a desire to diversify and cut costs
amid a landscape changed by the Affordable Care Act. The tie up, if
approved by regulators, will vault Aetna toward the top of the
growing Medicare business.
Last month, Humana warned it would need to set aside a reserve
at the end of 2015 to account for losses expected on its 2016
Affordable Care Act business.
For Humana, Medicare Advantage membership increased 13% to 2.8
million while commercial membership declined 12% to 899,100. The
company said its commercial business continues to be challenged due
to volatility related to the start of the health care exchange
program created under the Affordable Care Act.
For 2016, Humana sees individual Medicare Advantage membership
growth of 100,000 to 120,000.
Humana's consolidated medical-loss ratio, or the share of
premiums paid out for members' health expenses, was 85.8%, up from
84.5% in the year-ago quarter.
Overall, the insurer reported a fourth-quarter profit of $101
million, or 67 cents a share, down from $145 million, or 94 cents a
share, a year earlier. During the quarter, Humana recorded a
so-called premium deficiency reserve of $176 million pretax, or 74
cents a share, related to some of its 2016 individual commercial
policies.
Excluding costs stemming from the Aetna merger, among other
items, quarterly earnings rose to $1.45 a share from $1.09 a year
earlier. Revenue increased 8.4% to $13.36 billion.
Analysts had projected adjusted profit of $1.45 a share on
$13.51 billion of revenue, according to Thomson Reuters.
Shares in the company, down 9.6% over the past three months,
were inactive premarket.
Aetna last week reported its overall profit leapt 38% in the
final quarter of the year, as a key measure of spending on medical
costs—its medical-loss ratio—fell. The strong quarterly results
were fueled largely by its government business, which includes
Medicare and Medicaid. However, Aetna joined other health insurers
to report losses on its 2015 Affordable Care Act business.
Humana's merger with Aetna is expected to close in the second
half of 2016.
Write to Anne Steele at Anne.Steele@wsj.com
(END) Dow Jones Newswires
February 10, 2016 09:25 ET (14:25 GMT)
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