Humana 1Q profit drops 22 percent

LOUISVILLE, Ky. (AP) _ Humana Inc. said Monday its first-quarter earnings fell 22 percent due partly to costs from the startup of the health insurer&#39;s Medicare prescription drug plans. <br/><br/>The

Monday, May 1st 2006, 10:17 am

By: News On 6


LOUISVILLE, Ky. (AP) _ Humana Inc. said Monday its first-quarter earnings fell 22 percent due partly to costs from the startup of the health insurer's Medicare prescription drug plans.

The Louisville-based company, among the most aggressive insurers in the Medicare prescription program, said its quarterly Medicare revenue rose by $1.25 billion, or 127 percent, from the year-ago period.

Humana also raised its earnings-per-share forecast for the year to $2.82 to $2.88, compared with $1.79 in 2005 and up from its earlier prediction of at least $2.81 for 2006.

The company reported quarterly net income of $83.7 million, or 50 cents per share, for the period ended March 31, down from $106.7 million, or 65 cents per share, in the year-ago quarter. Revenue rose 39 percent to $4.7 billion from $3.39 billion in the previous year.

Excluding certain investment gains, Humana earned $65.5 million, or 39 cents per share, in the latest quarter.

Analysts surveyed by Thomson Financial had forecast earnings per share of 43 cents, excluding the investment gains, on revenue of $4.71 billion.

Humana President and Chief Executive Michael B. McCallister called it a ``transformative year'' for the company, which has more than doubled its reach to include 46 states in the past year.

He said Medicare enrollment has exceeded expectations, helping put Humana on track for 2006 earnings and revenue growth topping 50 percent.

``I have never seen us positioned in a better way than we are today _ both in terms of our market, competitiveness, our product array as well as the performance of our business,'' McCallister said in a conference call on Monday with analysts.

The better-than-expected Medicare membership growth in the first quarter, combined with progress in the commercial sector, prompted the higher full-year earnings projection, McCallister said.

``By maximizing this year's opportunities, we're also establishing a strong foundation for robust growth in 2007 and beyond,'' he said in a statement.

The company said new earnings patterns, resulting from its new stand-alone Medicare prescription drug plans, as well as higher Medicare-related costs resulted in the expected year-over-year decline in profit.

Humana's government segment posted pretax earnings of $21.6 million for the quarter, compared with $70.5 million a year ago, a decline that the company said was anticipated.

Membership in Humana's stand-alone Medicare drug plan totaled nearly 1.96 million as of March 31. The company predicted membership would grow to 2.7 million to 2.9 million by year's end.

Humana said membership in its Medicare Advantage plans _ which offer comprehensive health-care coverage, rather than just prescription drug coverage _ rose to 741,200 as of March 31, up 291,300 from a year ago and an increase of 183,400 from the end of 2005. The company forecast membership of 900,000 to 1.1 million by year's end.

Humana incurred higher costs associated with the introduction of the Medicare prescription plans _ mostly due to a bolstered sales and service workforce and higher marketing costs.

TRICARE membership was essentially unchanged at 2.87 million at the end of March. Humana said it expects little if any change in membership during the year. Premiums and administrative service fees for TRICARE totaled $611.9 million for the quarter, up from $575.7 million a year ago. TRICARE provides health insurance for military families and retirees.

Humana's commercial segment posted pretax income of $109.6 million for the quarter, compared with $46.2 million a year ago.

Commercial medical membership increased about 40,000 from a year ago to total nearly 3.26 million as of March 31.

McCallister predicted the ramp-up of Humana's Medicare business would benefit the commercial segment as well. He said the bolstered sales staff pitching the Medicare plans will focus on the commercial side during the summer and early-autumn lull in Medicare enrollments.

Also, Humana said Monday it completed its approximately $65 million cash acquisition of CHA Health, a Kentucky-based health plan. The deal will give Humana about 92,500 additional commercial medical members.

Humana has about 9.3 million medical members.
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