Humana's third-quarter net income fell almost 14 percent, but the company's leaders are maintaining this year's earnings guidance and see revenue increasing in 2014.
Humana posted a third-quarter profit of $368 million, or $2.31 per share, down from $426 million, or $2.62 per share, last year, while expecting full-year earnings between $8.65 and $8.75 per share.
Humana's third-quarter earnings were in part impacted by ongoing investments and startup costs for insurance exchanges and Medicaid managed care and dual eligible contracts -- business areas that the company views as worth the risks.
Humana may not end up seeing a return on those investments until 2015, especially for plans sold in insurance exchanges in 14 states, CEO Bruce Broussard said.
But Broussard is confident the company will see underwriting gains from exchanges, Medicaid and duals in the long-term. The individual market expanding through the Affordable Care Act and the new dual eligible contract are "opportunities too big to ignore," he said in an earnings call, expecting "robust growth for these two populations."
And in one of the few areas of inorganic growth for Humana, the company is increasing its presence in Medicaid long-term service supports after the recent acquisition of American Eldercare, which provides care to the frail and elderly in home and community-based settings.
In Medicare Advantage, one of Humana's core businesses, membership grew 7 percent over last year's third quarter, to more than 2 million, and the company is expecting up to 305,000 more seniors to buy its supplemental Medicare in 2014.
The rate reductions in Medicare Advantage are a challenge, as they are for other insurers, but even so, Broussard said the company's leaders think they're well positioned for the impacts.
"We are generally pleased with the affordability of our plans for beneficiaries as well as the competitiveness of our plans across the country," Broussard said in the conference call.
"Additionally, we believe our integrated care delivery model capabilities, like value-based provider contracting, chronic care management and advanced data analytics, provide a successful platform for the emerging opportunities and the challenges of the Medicare payment pressures in the coming years," Broussard said in a media release.
Humana's Medicare Advantage chronic care program -- one strategy the insurer has for improving beneficiary care and cost -- is set to reach enrollment of 275,000, he added.
In medical cost ratios, Humana saw a 1 percent increase on average, with a consolidated ratio of 83.3 percent for the 2013 third quarter.
Humana's retail segment, including individual, Medicaid and Medicare Advantage, had a medical cost ratio of 84 percent, an increase of 1.7 percent over last year, and its employer group segment had a ratio of 84.3, down almost 1 percent from last year.
Humana's total medical membership now stands at 12.4 million, including 3 million military members, 2.7 employer group members (1.1 million being fully-insured), and almost 6 million in the retail segment that includes individual plans, Medicaid managed care and Medicare Advantage.
That retail segment will be an increasing focus for Humana, with greater pressures on margins in group insurance, said CFO James Bloem, who is retiring at the end of the year.