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 services.
"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 Wednesday.
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 83.4 percent.
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 Lisa Von Ahn)