Humana Reports 40% Decrease in Q3 Earnings in Part Because of Lower Medicare Drug Plan Revenues
Humana on Monday announced that third-quarter earnings decreased by 40% to $183 million, or $1.09 per share, from $302.4 million, or $1.78 per share, a year earlier, in large part because of investment losses and an expected decrease in premium revenue from Medicare prescription drug plans, the AP/Seattle Times reports. According to Humana, the company would have reported third-quarter earnings of $1.49 per share without investment losses of 40 cents per share. Humana also reported that third-quarter revenue increased by 13% to $7.15 billion from $6.32 billion a year earlier.Membership in Medicare prescription drug plans at the end of the third quarter totaled almost 3.1 million, a decrease from almost 3.5 million a year earlier, and premiums collected decreased by 12% to $782.9 million in the quarter, Humana said. In addition, Humana reported that membership in Medicare Advantage plans at the end of the third quarter totaled 1.37 million, a 20% increase from a year earlier, and that premiums collected for those plans increased by 24% to $3.5 billion.
Membership in the commercial health plans at the end of the third quarter totaled 3.55 million, an 8% increase from a year earlier, according to Humana (Schreiner, AP/Seattle Times, 10/27). Humana reduced 2008 earnings estimates to between $3.80 and $3.90 per share from between $4.30 and $4.40 per share (Britt/Wisenberg Brin, Wall Street Journal, 10/28). Humana also decreased fourth-quarter earnings estimates by $1 to $1.10 per share. For 2009, Humana estimated earnings of between $5.90 and $6.10 per share on revenue of between $30 billion and $32 billion (AP/Seattle Times, 10/27).
Long-Term Outlook for Health Insurers
Many health insurers recently have told investors that, although their "investment portfolios will suffer some exposure to the financial meltdown," the "bigger cause for concern is how the deepening economic slump will weigh on next year's profits," the Wall Street Journal reports. According to the Journal, health insurer "stocks have taken a particularly bad beating since September over concerns about their exposure to the debt of Lehman Brothers and other troubled financial companies."
Health insurers "appear to be weathering the credit crunch," but "it is much less clear how they will navigate a worsening economy and further waves of job losses," the Journal reports. "A protracted economic slump threatens to exacerbate those problems in several different ways," such an increase in the number of employers that drop health insurance for employees or require workers to pay more for coverage, and "declining tax revenue is prompting more states to curb Medicaid reimbursements, cutting into the profits of private insurers that run those programs," according to the Journal.
"What is potentially worse, insurers could see a surge in medical costs as people losing their jobs rush to use benefits while they can," the Journal reports (Fuhrmans, Wall Street Journal, 10/27).
