Managed care company Humana Inc (HUM.N) said on Wednesday it expects revenue to grow this year as it adds hundreds of thousands of new customers to its Obamacare plans, despite government funding cuts to its largest business, Medicare Advantage for seniors.
Humana stood by its forecast for a decline in profit this year, however, saying that it was still not sure about the health costs of the new individual customers or how much it will charge for premium prices in 2015 and 2016.
The company said it expects government payments this year of $575 million to $775 million in 2014 to offset its outsized risk on the new clients who signed up under President Barack Obama's healthcare law. Many of them were previously uninsured.
Humana is seeking to raise Obamacare premium rates by single to double-digit percentages for 2015, in part to offset declining risk payments next year. Humana is "just beginning" to work with state and federal regulators on how the individual exchange business will transition off these payments, which mostly end after 2016.
Obama's healthcare reform law, which is vehemently opposed by Republicans, is being scrutinized to determine if its costs will be sustainable. The plans, which are sold both on and off exchanges created by the government, come with income-based subsidies and must meet new benefits standards set by the government.
Humana said it has received 700,000 applications for individual healthcare plans for 2014, putting it on track to be one of the largest players on the exchanges.
Humana said it has studied the pharmacy claims of its early enrollees and that their health appears in line with previous expectations. Humana said it rolled back its view on the health of its customers three months ago after the government decided to allow the extension of some plans that don't comply with the new law, known as the Affordable Care Act, altering the make-up of the pool of customers.
This forecast comes in contrast to rival WellPoint Inc WLP.N, which reported similar sized exchange enrollment last week but said it is making money off its new customers and does not expect to receive any payments from the government.
"There's a lot of uncertainty," said Morningstar Research analyst Vishnu Lekraj. "We haven't seen a whole quarter or two of claims activity from the exchanges. We don't know what's going to happen there."
Humana shares were up 1.9 percent at $111.86 in Wednesday morning trading. UnitedHealth Group Inc (UNH.N), WellPoint, Aetna Inc (AET.N) and Cigna Corp (CI.N). were all trading slightly higher.
Humana said it will add 435,000 people this year to Medicare Advantage plans. At the end of the first quarter, it had about 2.8 million people in these plans, which are offered to seniors.
Humana had warned earlier this year that government funding cuts would negatively effect its Medicare Advantage business. On Wednesday it estimated a 2 percent cut to funding for 2015 based on the government payment rates, a smaller amount than its previous view of 3 percent.
The company stuck by its outlook for earnings of $7.25 to $7.75 per share, which it said has factored in higher-than-expected costs for new Hepatitis C treatments of about 40 cents to 50 cents per share. It spent $20 million on these drugs in Medicare programs during the first quarter, offseting some lower medical services use.
The company reported net profit of $368 million, or $2.35 per share, down from $473 million, or $2.95 per share a year earlier. The year-earlier figure included a 41 cent-per-share benefit from settling contract claims.
The company's earnings beat analyst expectations of $1.94 per share, according to ThomsonReuters I/B/E/S.
(Reporting by Caroline Humer; Editing by W Simon and Sofina Mirza-Reid)