(Adds more details on exchanges)
By Caroline Humer
May 7 Managed care company Humana Inc
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
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
, 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, WellPoint,
Aetna Inc and Cigna Corp. were all trading
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