Health benefits provider Humana Inc. (HUM) posted quarterly diluted EPS of $1.52 this morning, higher than analysts’ estimates of $1.14 and above the company’s own forecast of $1.10-$1.20. Included in those earnings were $0.37/share attributable to rising reserves and $0.04/share in increased tax expenses due to the health care reform act. Excluding these two one-time effects, the company posted EPS of $1.19, still above consensus EPS estimates of $1.14. Revenues totaled $8.44 billion for the quarter, compared with estimates of $8.27 billion.
Humana also raised its full-year guidance, following the footsteps of United Health Group Inc. (UHI), which raised its guidance last week following a strong quarterly report. Cigna Corp. (CI) is scheduled to report quarterly earnings next week and is expected to post good numbers. Aetna Inc. (AET), which is reporting later this week, is not expected to post similar gains.
Humana raised fiscal year guidance from $5.15-$5.35/share, to $5.55-$5.65. Analysts’ had been estimating full-year EPS at $5.53, so the company believes it’s on-track to beat that as well. The revised guidance takes into account the $0.37/share gain from this quarter and a further $0.06/share tax expense linked to health care reform.
In Humana’s two operating groups, the ratio of benefits paid compared with premiums collected improved by 80 basis points in the Government segment and 60 basis points in the Commercial segment. Both gains were attributed to higher prior-period reserve development.
The company’s prescription drug plan premium collections were down 3% as a result of a 13% decline in average membership which the company offset by an 11% hike in premiums. Premiums collected in Humana’s Medicare supplemental insurance company rose by 19% on a 19% increase in enrollment.
The relatively rosy outlook for health insurers stems from the recent health care reform act. For example, Aetna’s president said recently that premiums would increase, with the largest impact in 2014, when the law is fully in force. But a near-term change, extending coverage to dependents through age 26, will cause premiums to rise 1%-1.5%. On a family policy that costs, say, $1,000/month, that’s $10-$15 a month or $1,200-$1,800 annually.
Add that to premium increases that are never less than 10% and can go as high as 40%. One thing that may keep premiums down is the expanded pool of people buying insurance as a result of the mandated coverage included in the health care reform act.
When health care reform was first being discussed seriously, insurers supported it because they believed they would benefit from the new pool of people who would have to buy insurance or face a penalty payment. The companies laid low during the most heated parts of the debate over reform because they really didn’t believe they had a dog in the fight. If reform lost, the status quo was working fine for them. If reform was passed, they had a captive group to sell their products to.
It’s too soon to predict the ultimate effect of health care reform, either on insurers or consumers. But the next few years are likely to be very good for insurers.
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