On Wednesday, insurer and managed care company Humana Inc. reported a significant increase in earnings for the first quarter of 2013 based on lower utilization of medical services and outperformance by virtually all sectors of the company's business.
Diluted earnings for the period ended March 31, per common share, were $2.95, a 91 percent increase from the same period last year when earnings totaled $1.49 per share. The results also significantly beat the company's internal estimates of $1.75 to $1.85 per share.
"The results were primarily driven by the combination of strong operating performance in each of our business units, as well as some discrete items that have not been anticipated in our previous earnings guidance," said Bruce D. Broussard, president and CEO of Humana in the company's earnings call with analysts. "These items include the settlement with the Department of Defense for certain contract claims and the benefit to our Medicare business for the delay in the federal government's implementation of sequestration."
As a result of the strong first quarter, the company raised its full-year 2013 earnings guidance by 80 cents to $8.40 to $8.60. Humana didn't raise guidance by the entire portion of its outperformance in Q1, the company said, due to what it anticipates will be higher-than-expected investment costs for its integrated delivery model and exchange strategy for the latter half of the year.
Yet, while 2013 appears like it will be a banner year for Humana, Broussard and other company officials still remain uncertain about what 2014 – the year when most of the significant changes under health reform begin to take effect.
And while the Centers for Medicare & Medicaid Services backed off its initial proposal for steep cuts in payments to companies who sell Medicare Advantage plans, Humana – the second largest provider of Medicare Advantage plans in the country – still sees challenges in this area for the company going forward.
"The challenging rate environment for Medicare Advantage continues," Broussard noted. "In aggregate, we anticipate our Medicare Advantage premiums from CMS will decline by 2.8 percent. Adding in the impact of the non-deductible industry fee, our government funding reductions for 2014 become well over 4 percent."
Consolidated first quarter revenues were $10.49 billion, an increase of 2.6 percent from $10.22 billion in the first quarter 2012. Total premiums and services revenue were also up 2.6 percent compared to the prior year's quarter. The year-over-year increase in premiums and services revenue was primarily driven by higher retail and employer group segment revenues resulting from higher average individual and group Medicare membership, partially offset by the company's new South Region TRICARE contract being accounted for as self-funded versus fully-insured for the previous contract.
The company reported strong growth in Medicare Advantage membership, which now totals just more than 2 million. The company has added 128,300 members over the past 12 months, the bulk of which, 84,500, were added in the past three months.
Following a trend of other major insurers, Humana also reported lower medical expense in the first quarter, as utilization trends remain low. First quarter 2013 benefit ratio expense for the company's retail segment was 85.9 percent compared to 87.5 percent in the same period last year. According to the company's earnings report, it expects medical utilization to remain low for the entirety of 2013 and has projected the full-year medical expense ratio to fall in the 84.5 percent to 85 percent range.