(Adds analyst, share moves)
By Caroline Humer
July 30 U.S. health insurer Humana Inc
reported a lower profit owing to higher costs on Wednesday, as
mounting concerns about increased medical spending drove health
insurance industry shares lower for a second straight day.
Humana said its higher costs were related to medical
spending by new enrollees in the exchanges created under
President Barack Obama's healthcare reform law, investments for
those exchanges and costly new hepatitis C drug treatments.
Humana shares fell 6.5 percent to $119.26, while WellPoint
Inc, which also announced earnings on Wednesday,
declined 1.9 percent to $110.45. Aetna Inc
, which reported higher medical costs on Tuesday, fell
3.8 percent, UnitedHealth Group Inc declined 2.7 percent
and Cigna, which reports on Thursday, fell 1.9 percent.
Investor concerns about rising costs coincide with a rise in
the rate of people with health insurance. The Obamacare
exchanges signed up 8 million people for their first year in
2014, while enrollment in the government's Medicaid program for
the poor has swelled by 7 million. Hospitals including HCA
Holdings Inc have reported increased use of their
"Moving forward, the economy should increase utilization of
services and plan costs should go up accordingly. That's just
natural when the economy starts to pick up and people use
healthcare benefits a little bit more liberally," Morningstar
Research analyst Vishnu Lekraj said. U.S. economic growth
rebounded in the second quarter, the Commerce Department said on
Humana's second-quarter net income fell to $344 million, or
$2.19 per share, from $420 million, or $2.63 a share, a year
earlier. That was in line with analysts' estimates.
Most of Humana's revenue is from Medicare Advantage and
Medicare Part D, the privately run medical and drug plans under
the government health program for older people and the disabled.
But revenue from Obamacare and other individual plans became a
larger portion of its business, rising to $852 million from $241
million a year earlier.
Total revenue rose 18 percent to $12.2 billion. Both
Medicare Advantage and Medicare Part D added new customers. The
company's individual customer base increased 122 percent to more
than 1.1 million members.
Humana's medical benefit expense ratio, or the percentage of
premiums spent on medical services, fell to 83.1 percent from
Those ratios were higher in its retail and employer group,
partly due to the cost of a new drug for hepatitis C from Gilead
Sciences Inc, Humana said.
Humana said it is losing money on its new Obamacare exchange
customers but expects to break even in that market during 2015.
Higher use of medical services by these consumers should taper
off as it has in other businesses, Humana said.
Humana predicted 2014 earnings per share of $7.25 to $7.75,
lower than a Wall Street consensus of $7.84.
(Reporting by Caroline Humer; Editing by Michele Gershberg,
Lisa Von Ahn and Tom Brown)