UPDATE 5-Humana earnings jump, but sees lower 2010 profit
* Q3 EPS $1.78 vs $1.77 Wall Street estimate
* Sees 2010 EPS $5.05-$5.20 vs $6.15 for 2009
* Pressure on Medicare margins, but enrollment up
* Sees commercial enrollment down about 140,000
* Shares fall 1.7 percent (Adds comments from U.S. Senate Majority Leader's spokesman)
NEW YORK, Nov 2 (Reuters) - Health insurer Humana Inc (HUM.N) forecast a drop in profit next year due in part to pressure on margins as it sees lower U.S. government reimbursement for its Medicare plans for the elderly.
Humana, which also posted a 65 percent jump in third-quarter profit on Monday, is one of the largest providers of Medicare plans so investors have been concerned about a hit to earnings as the government squeezes rates.
Humana shares fell 1.7 percent. Its 2010 forecast was largely in line with Wall Street expectations, when excluding asset writedowns related to the end of a military contract, said Stifel Nicolaus analyst Thomas Carroll.
"They put it at a level in line with current expectations," Carroll said. "They talk about decent enrollment and revenue growth but also feeling some margin pain."
Humana, whose report comes as Congress debates health reform legislation, excluded from its forecast any potential impact from the health overhaul, such as an industry tax.
The insurer expects a big jump in Medicare Advantage enrollment -- adding as many as 240,000 members -- countered by a decline of about 140,000 members in commercial plans serving employers as the weak economy leads to fewer workers with coverage.
Humana expects an operating Medicare profit margin of about 5 percent next year, down from about 6.5 percent this year.
"They really managed to mitigate the margin hit a lot," said Sanford Bernstein analyst Ana Gupte. "And they're really dramatically increasingly Medicare enrollment."
Third-quarter net income was $301.5 million, or $1.78 per share, compared with $183 million, or $1.09 per share, a year earlier, when the company was hit by investment losses.
Analysts on average expected $1.77 per share, according to Thomson Reuters I/B/E/S.
Revenue rose 8 percent to $7.72 billion. Analysts expected $7.82 billion.
Humana is the first large health insurer to provide detailed 2010 forecasts, although it follows larger rival UnitedHealth Group (UNH.N) in expecting lower earnings per share next year.
WellPoint (WLP.N) and Aetna (AET.N) deferred giving a 2010 forecast until gaining more clarity on factors such as the state of the economy, the severity of the flu season and the outcome of health reform legislation.
Investor concern that reform will dramatically hurt future profits has pressured health insurer shares to rock-bottom valuations. Humana shares have underperformed rivals this year and trade at among the lowest price-to-earnings ratios as Wall Street worries over the future of the private sector in administering Medicare.
Humana's earnings report drew disdain on Capitol Hill several weeks after the insurer set off a political firestorm over letters sent to its Medicare customers about proposed health reform legislation.
"It's no wonder why Humana has been misleading seniors about health insurance reform -- they saw their profits rise 65 percent last quarter and want to make sure the gravy train doesn't end," said Jim Manley, a spokesman for Senate Majority Leader Harry Reid.
Quarterly pretax income at Humana's government segment, which includes its Medicare business, soared 75 percent to $474.5 million. Membership in its Medicare Advantage plans stood at 1.51 million on Sept. 30, up 11 percent from a year earlier.
Humana posted a pretax loss of $5.2 million for its commercial segment including health plans serving employers, as Americans losing their jobs also lost health coverage. Higher costs from the H1N1 flu also hurt results.
The company forecast 2009 earnings of about $6.15 per share, in line with its prior projected range of $6.10 to $6.20 per share. Analysts expect $6.14.
For 2010, Humana expects earnings of $5.05 to $5.25 per share. Analysts were looking for $5.36.
Humana's forecast included asset writedowns and charges tied to its exit of the military Tricare contract -- which amounts to about 25 cents per share, Stifel's Carroll said. Excluding the charge, Carroll said Humana's forecast equated to a range of $5.30 to $5.50 per share.
Humana shares fell 65 cents to $36.93 in afternoon trading on the New York Stock Exchange. Through Friday, Humana shares had risen about 1 percent this year, underperforming a 5 percent rise for the S&P Managed Health Care index .GSPHMO. (Reporting by Lewis Krauskopf; Editing by Derek Caney, Maureen Bavdek, Dave Zimmerman and Steve Orlofsky)
