November 4, 2016 / 10:16 AM / 3 years ago

Humana profit beats on strength in Medicare Advantage unit

(Reuters) - Health insurer Humana Inc (HUM.N) reported a higher-than-expected quarterly profit on Friday due to strength in its Medicare Advantage business, which sells plans to the elderly and people with disabilities.

Humana’s shares were up 2.3 percent at $169.13 on Friday.

The company, which said in August it plans to shrink its individual commercial business to 156 counties next year from 1,351 counties, said its individual commercial unit’s performance was in line with its expectations.

President Barack Obama’s Affordable Care Act, popularly known as Obamacare, created online exchanges where consumers can shop for individual health insurance and get subsidies.

Insurers including Aetna Inc AET.N, UnitedHealth Group Inc (UNH.N) and Anthem Inc (ANTM.N) have said they are losing money on the exchanges because of lower-than-anticipated enrollments. Enrollees are also sicker and older than expected.

UnitedHealth and Aetna have largely pulled out of the exchanges for 2017.

Humana said on Friday it now expected premiums of $1 billion-$1.25 billion in 2017 from its Obamacare plans, up from $750 million-$1 billion it had estimated in August. The company had estimated premiums of about $3.4 billion for 2016.

The company said recent market exits from competitors resulted in members being assigned to companies that are continuing to offer Obamacare plans.

Credit Suisse analysts said higher revenue exposure could mean a higher level of losses than the brokerage was expecting.

Humana, whose acquisition by larger rival Aetna Inc AET.N has been challenged by U.S. antitrust authorities, said net income rose to $450 million, or $2.98 per share, in the third quarter ended Sept. 30, from $314 million, or $2.09 per share, a year earlier.

Excluding items, the company earned $3.18 per share, beating analysts’ average estimate of $3.15, according to Thomson Reuters I/B/E/S.

Humana’s consolidated benefit ratio, the percentage of premiums spent on claims, improved to 81.5 percent from 83.9 percent a year earlier, primarily due to lower utilization for the company’s Medicare Advantage business.

The company said its individual commercial business had no material impact on the benefit ratio for the quarter.

Membership in the insurer’s individual Medicare Advantage business rose 3 percent to 2.83 million at the end of the quarter. Membership in its individual commercial business fell 25 percent to 726,200.

Humana’s total revenue rose 2.5 percent to $13.69 billion, ahead of estimates of $13.41 billion.

Up to Thursday’s close, Humana stock had fallen 7.4 percent this year.

Reporting by Ankur Banerjee in Bengaluru; Editing by Shounak Dasgupta

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