(Reuters) - U.S. health insurer Humana Inc (HUM.N) on Wednesday said that it now anticipated a higher percentage of customers will be in its most profitable Medicare Advantage plans for the elderly and people with disabilities in 2018, sending shares up more than 4 percent.
Humana announced last fall that the government regulator had cut quality ratings on many of its plans, which would have lowered government payments in 2018. But the company said on Wednesday it expected 74 percent of customers would be in higher-rated plans for 2018, versus the 37 percent it had announced last fall and the 78 percent for 2017.
Humana also reported a much better-than-expected quarterly profit due to strength in the Medicare Advantage business and raised its full-year earnings forecast.
Shares were up 4.5 percent, or $10.46, to $241.29 in morning trading.
Leerink analyst Ana Gupte said that the earnings beat and profit outlook for 2017 were both positives for the stock, while the news on the government ratings removed potential downside risk for 2018.During a conference call with investors, Humana said it expected its individual business to record a profit in 2017 versus previous expectations for a loss due to lower-than-anticipated medical costs for Obamacare exchange customers.
Humana, which walked away from its $34 billion deal with Aetna Inc (AET.N) earlier in the year after antitrust regulators sued to stop the merger, will exit the individual insurance Obamacare business in 2018 to focus on its Medicare products.
Analysts have expected privately managed Medicare to benefit in coming years even as Republican lawmakers seek to undo former President Barack Obama’s signature healthcare law, often called Obamacare. Those efforts are focused on the individual insurance business as well as the Medicaid program for the poor.
The retail Medicare Advantage business had lower-than-anticipated medical services use and higher-than-expected revenue per member, the company said.
Humana said it expects 74 percent of members in its Medicare Advantage plans to be in its 4-star plans or higher for 2018, which will increase government reimbursements.
Humana moved customers to higher rated plans after the federal government Medicare regulator, the Centers for Medicare and Medicaid Services, cut care and customer service quality or “star” ratings on many plans.
The company said net income rose to 650 billion, or $4.46 per share, in the second quarter ended June 30, from $311 million, or $2.06 per share, a year earlier.
Excluding items, the company earned $3.49 per share, beating the analysts’ average estimate of $3.08, according to Thomson Reuters I/B/E/S.
Total revenue fell 3 percent to $13.53 billion.
The company said it now expects full-year adjusted earnings to be at least about $11.50 per share from its previous guidance of at least $11.10.
Reporting by Caroline Humer in New York and Ankur Banerjee in Bengaluru; Editing by Shounak Dasgupta and Meredith Mazzilli