(Reuters) - Health insurer Centene Corp (CNC.N) raised its 2018 earnings forecast, driven by its growing Obamacare business and the recent changes to U.S. tax laws, sending its shares up as much as 7.5 percent in morning trading on Tuesday.
The company, which has over 1.4 million Obamacare members, is one of the few insurers offering these plans that were part of former President Obama’s Affordable Care Act.
The Republican administration is working on rules to expand the use of association health plans, which would offer health insurance that does not comply with Obamacare. It has repeatedly tried to repeal and replace the law.
Total membership, which was 12.2 million as of Dec. 31, jumped 7 percent year-over-year.
Health benefits ratio, or the amount it spends on medical claims compared with its income from premiums, increased to 87.3 percent in the fourth quarter from 84.8 percent a year earlier.
The ratio was negatively affected by the additional expenses associated with the lack of federal funding for its Obamacare business and higher costs related to the strong flu season, the company said.
Piper Jaffray analyst Sarah James said the results were “largely positive,” noting that the strong flu season won’t likely repeat in 2018 and the insurer is progressing on lowering medical costs.
The United States is currently facing a severe flu season, with hospitalizations at the highest in nearly 10 years, health officials said last week.
“There is little headwind on flu, we recognized it, we manage it carefully,” Centene’s Chief Executive Michael Neidorff said on a conference call.
Centene’s fourth-quarter profit beat analysts’ estimates by 4 cents, as more people signed up for its insurance plans.
The insurer also raised its 2018 adjusted earnings forecast to $6.95-$7.35 per share from $5.47-$5.87 per share.
Analysts were expecting earnings of $6.11 per share, according to Thomson Reuters I/B/E/S.
Excluding items, the company earned 97 cents per share.
Total revenue rose 7.5 percent to $12.81 billion, ahead of analysts’ expectations of $12.54 billion.
However, net earnings attributable fell to $230 million, or $1.30 per share, in the quarter ended Dec. 31, from $261 million, or $1.49 per share, a year earlier, partly due to higher expenses.
Reporting by Ankur Banerjee in Bengaluru; Editing by Martina D'Couto