Health insurer Humana reports Q1 profit drop

LOUISVILLE, Ky. – Health insurer Humana Inc. on Wednesday reported higher membership in its Medicare Advantage and prescription plans, but said first-quarter net income fell by 22 percent because of federal budget cuts hitting its Medicare business and the absence of last year's gain from settling contract claims with the government.

Membership in Humana's individual Medicare Advantage membership grew by 15.8 percent from a year ago to more than 2.3 million at the end of March. The total was up 12.7 percent from the end of 2013 for the offerings, an important segment of Humana's business.

The company raised its Medicare Advantage membership growth estimate for the year to between 395,000 and 435,000.

Humana is among the nation's largest providers of Medicare Advantage plans, which are privately run versions of the government's Medicare program for the elderly and disabled people.

Membership in Humana's individual stand-alone Medicare prescription drug plans reached 3.85 million at the end of March, up 20.3 percent from a year ago and 17.7 percent higher than at the end of 2013, the company said.

The company said it expects to expand membership in those prescription plans by 550,000 to 600,000 for the year.

Humana promotes its Medicare prescription drug offerings and other plans at Wal-Mart stores.

Overall, Humana reported $368 million in net income, or $2.35 per share, in the three months ending March 31. That's down from $473 million, or $2.95 per share, a year earlier. Revenue rose 12.3 percent to nearly $11.1 billion.

Analysts expected earnings of $1.96 per share on $11.44 billion in revenue, according to FactSet.

Humana said the comparison with last year's quarter was hurt by two factors, totaling 41 cents per share.

One was the settlement of contract claims with the Department of Defense, it said. In addition, this year's first quarter was hurt by mandatory across-the-board federal budget cuts, known as sequestration, that affected its Medicare Advantage business, the company said.

The federal health care overhaul aims to provide coverage for millions of uninsured people, but it also trims funding for Medicare Advantage plans and changes how insurers can write their coverage.

"We expect the strength of our integrated care delivery strategy combined with expanding enrollment opportunities … to position the company for further growth in a challenging Medicare funding environment," said Humana President and CEO Bruce D. Broussard.

The company also reported higher medical costs in the quarter from hepatitis C drug use. New, effective treatments have debuted on the market but come with high price tags.

Humana reported pretax income of $262 million in its retail segment, down from $350 million a year ago. The decline was due mainly to lower results in its stand-alone prescription drug plans and investment spending for exchanges and new state-based contracts, the company said.

The Louisville, Kentucky-based company also on Wednesday reaffirmed its 2014 earnings estimate of between $7.25 and $7.75 per share.