Though it's been a booming first quarter for the major for-profit health insurers, the smaller two of the big five are not booming quite as much.
Humana posted net income of $430 million for the first quarter of 2015, with operating earnings of $2.47 per share. That's 17 percent higher than this time last year, but below the $2.55 consensus Wall Street analysts were expecting, sending the Louisville-based company's stock price down from over $180 to below $170.
While UnitedHealth Group, Aetna and Anthem all saw healthy medical benefit ratios, pretty large first quarter profits and enough momentum to raise their forecasts, membership at both Humana and Cigna needed more spending, in some ways more than others.
Cigna did beat Wall Street's consensus, with net income of $533 million, or $2.04 per share, in a 1 percent year-over-year increase. But like Humana, Cigna's 2015 started with a higher medical benefit ratio--a consolidated MBR of 80.9, up from 79.3 last year.
Humana's consolidated benefit ratio of 83.1 percent increased from 82.3 percent this time last year, primarily due to higher ratios in both the retail and group segments.
In Humana's retail plans, where the MBR was up just slightly to 85.8 percent, Medicare Advantage membership grew by 355,000 to a total of 3.2 million individual and group Medicare Advantage members.
But it was in the company's HumanaOne individual plans--with public exchange and unsubsidized membership that increased 55 percent year-over-year to 1.1 million--where there was largely "break-even results" from higher risk-membership, particularly in Georgia.
"I wouldn't have said that it was adverse selection as opposed to the health condition of the entire population," said CFO Brian Kane. "We just have to price reflective of the health condition, and that may cause some of those members to move on to other plans, but we've got to get our pricing commensurate with the risk conditions that we're assuming."
The group medical benefit ratio, still fairly low at 73.4 percent, was up from 72.5 percent in the first quarter 2014, driven largely by high speciality pharmaceutical costs. On that front, executives said they're mulling over the future of the insurer's pharmacy benefits management unit, keeping open the possibility of a sale. "The PBM," said Kane, "it's under continued evaluation."
The company's large employer health plan segment is another moving part, although one where the decision is clear. "With the large group business, we're going to wind that down over the next several years, because we are not a national player, and we can't compete in that space. But we are focused on what we call our sweet spot of smaller case sizes," Kane said.
"Over the next several years, we're going to be evaluating our group business and again feel very good about its prospects for continued profitability, and it serves very nicely as a complement to our focus on local market scale." For 2015, Humana is expecting profits of $8.50 to $9.00 per share.
Over at Cigna, the trends are at once a little similar and little different. The company's commercial medical benefit ratio increased from 74.8 percent to 75.2 percent year-over-year; the government MBR, covering Medicare and Medicaid plans, increased from 86.5 percent to 89.4 percent.
Nonetheless, Cigna's benefits ratios are on track to be quite profitable and not necessarily indicative of high acuity or higher-than-average healthcare use, said CFO Thomas McCarthy.
"Our outlook for 2015, medical cost trends 5 percent to 6 percent, does anticipate some uptick in utilization over the course of the year and some expected increase in pharmacy trends due to specialty drug costs," McCarthy said, noting that membership in stand-alone Medicare Part D drug plans grew 18 percent year-over-year to 1.47 million.
Cigna's Medicare Advantage plans, covering 489,000 seniors mostly under the Health Spring brand, "really didn't see any significant change" in utilization, he said. "We're comfortable, we're going to again deliver a competitively attractive medical cost trend in 2015."
For the full year 2015, Cigna is expecting a medical benefit ratio in commercial plans of 78-79 percent and an MBR of 84.5-85.5 percent in government plans.
The company is forecasting full year adjusted income in the range of $2.1 billion to $2.2 billion, or $8.15 to $8.50 per share, up by $0.10 to $0.15 per share over previous expectations.