(Reuters) - Health insurer Humana Inc said on Wednesday that its second-quarter profit rose 18 percent, helped by low medical costs and growth in both its direct-to-customer division and employer-based insurance unit.
Chief Executive Officer Bruce Broussard said while government cutbacks to private Medicare plans for the elderly planned for 2014 were ‘onerous’, he still anticipates growth in sales of these plans directly to individuals.
Humana will withdraw plan offerings in 2014 affecting 78,000 members, but will offer other Humana plans to most of those people, he said during a conference call.
Insurers have coped with government cuts in funding for private Medicare next year by cutting back on plans with extra services and regions that are not profitable.
“It seems like they are not going to cut back drastically on their membership. 2015 and beyond are where all the questions lie,” Morningstar analyst Vishnu Lekraj said.
Humana raised its earnings outlook for this year, in part to reflect higher-than-expected second quarter earnings.
The company reported net income of $420 million, or $2.63 per share, up from $356 million, or $2.16 per share, a year earlier.
Excluding 12 cents a share in costs of exiting a Puerto Rico Medicaid business for the poor, analysts were expecting earnings of $2.47, according to Thomson Reuters I/B/E/S.
Humana is the fourth major insurer to report second-quarter earnings that beat Wall Street estimates. UnitedHealth Group Inc, WellPoint Inc and Aetna Inc have all said their profits had benefited from reduced use of medical services by customers.
Humana said during the conference call that the rate of hospital admissions of patients had been more favorable to it than expected. Low admissions help insurer profits as they pay out fewer claims.
Like its competitors, Humana is planning to sell insurance plans on the health exchanges being created under President Barack Obama’s healthcare reform law. Humana plans to sell these plans in 14 states and said it is proceeding cautiously around the online rollout of the plans that begins on October 1.
Humana CEO Bruce Broussard said the company has contingency plans in place should there be technology issues. Humana has put in bids in these 14 states where it already sells insurance that “are pretty much in the middle and not too aggressive at the lowest end,” he said.
Many states are due to submit their approved rates to the government this week and have begun releasing premium rates that individuals could expect to pay, revealing wide ranges in some states.
Revenue rose to $10.3 billion from $9.7 billion, in line with analysts’ expectations of $10.3 billion.
Private Medicare, known as Medicare Advantage, accounts for about two-thirds of Humana’s revenue.
The company raised its full-year earnings forecast to a range of $8.65 to $8.75 per share to reflect the second-quarter results. Analysts were expecting $8.68 per share.
Humana said it had spent 83.4 percent of premiums it took in on medical benefits, down from 83.5 percent a year earlier. It had 12.37 million medical members at the end of the quarter, and another 8.27 million people were in dental, vision and other supplemental benefit plans.
Humana shares gained $2.03, or 2.3 percent, to $91.29 in morning trading.
(This story corrects revenue figures in 14th paragraph to $10.3 billion vs $9.7 billion, instead of $9.7 billion vs $9.2 billion; the error also appeared in earlier updates)
Reporting by Caroline Humer; Editing by Lisa Von Ahn and Sofina Mirza-Reid