(Reuters) - Humana Inc (HUM.N) said its quarterly profit more than doubled as customers used medical services less than expected, so the company had to pay fewer claims. Humana also raised its profit forecast for the year.
Shares in the health insurer rose 5 percent to $77.82, leading increases for industry peers who have also beat Wall Street expectations before a major overhaul of the healthcare system under President Barack Obama.
Humana improved profitability in its businesses that administer the government’s Medicare health plans for the elderly and gave a conservative view for how it will be affected by cuts to Medicare in 2014, one analyst said.
“They seem to have a pretty balanced perspective on the headwinds for 2014,” said Ana Gupte, an analyst at Dowling & Partners Securities.
Obama’s healthcare overhaul takes full effect in 2014, aiming to expand insurance coverage to millions more Americans through new exchanges where individuals can buy health plans in each state.
Earnings were also boosted by a legal decision in its favor and an unexpected delay in government budget cuts to Medicare, which Humana had factored in to take effect on January 1, 2013. They actually started on April 1.
Competitors, including UnitedHealth Group Inc (UNH.N), WellPoint Inc WLP.N and Aetna Inc (AET.N) have also reported stronger-than-expected quarterly earnings due to Americans’ low use of medical services. L2N0D61U9.
Humana raised its 2013 outlook to a range of $8.40 to $8.60 per share because of the stronger-than-expected first quarter performance. It had previously forecast $7.60 to $7.80. Analysts were expecting $7.99.
For the second quarter, the company said it expected earnings of $2.40 to $2.50 per share, above the analysts’ estimate of $2.31.”
Humana said that it plans to participate in 14 health exchanges where it already has a strong network of contracts with doctors and hospitals. It will invest $33 million in 2013 to prepare for these exchanges, which are due to start enrolling new members on October 1.
The exchanges are part of the Affordable Care Act, which has also created new requirements for services insurance policies must provide for free. Cuts in government reimbursements under the law are also partly responsible for a 4 percent overall cut in government funding for Medicare that Humana expects in 2014.
Humana’s first-quarter net income nearly doubled to $473 million, or $2.95 per share, from $248 million, or $1.49 per share, a year earlier.
The company said results were 26 cents a share higher than expected because of favorable claims settlements and the delayed cuts to Medicare reimbursement. Excluding those benefits, earnings of $2.69 a share were far higher than the $1.81 that analysts polled by Thomson Reuters I/B/E/S were expecting on that basis.
Revenue rose far less sharply than earnings, increasing 2.6 percent to $10.49 billion because of higher enrollments in individual and Medicare health plans.
About two-thirds of Humana’s revenue comes from Medicare Advantage, a private Medicare plan for which the company is reimbursed by the government. Humana said new reimbursement rates, announced a month ago, were higher than first proposed, but remained challenging, “making 2014 earnings growth uncertain at this time.”
UnitedHealth, WellPoint and Aetna, which all offer private Medicare, have also said in the past two weeks that they believe the Medicare Advantage pricing from the government will be difficult in 2014.
Reporting by Caroline Humer; Editing by Michele Gershberg, Lisa Von Ahn and Kenneth Barry