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VOL. 126 | NO. 26 | Tuesday, February 8, 2011

Humana Posts Big Drop in 4Q Earnings

BRUCE SCHREINER | Associated Press

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LOUISVILLE, Ky. (AP)Humana Inc.'s fourth-quarter earnings fell 57 percent as operations were weighed down by expenses partly associated with its Medicare offerings and an expansion into health care delivery.

The result was lower income from Humana's crucial government segment and a bigger pretax loss in its commercial business when compared with a year ago.

But the managed care company on Monday also raised its earnings forecast for 2011.

Humana Chairman and CEO Michael B. McCallister said robust sales at the end of last year increased its growth estimates for its Medicare Advantage and stand-alone Medicare prescription drug membership.

"The 2011 Medicare selling season in November and December surpassed our expectations," McCallister said in touting the just-ended enrollment period during a conference call with industry analysts.

Humana now expects earning in a range of $5.70 to $5.90 a share in 2011, up from $5.45 to $5.65 a share previously.

It said improved operations helped partly offset incremental expenses during the quarter.

Humana Chief Financial Officer Jim Bloem said it also benefited from a continued lower use of health care services in its commercial segment in the quarter, continuing an industrywide trend from last year.

Humana absorbed $1.02 per share of expenses in the fourth quarter that included more concentrated marketing costs due to a shortened Medicare Advantage enrollment period. Costs were also incurred from Humana's agreement to team with retail giant Wal-Mart Stores Inc. last fall to offer a Medicare prescription drug plan.

Humana credited that partnership for a membership boost in its Medicare drug plans.

Other expenses included a buildup of claims reserves for a now-closed long-term care business, transaction costs associated with its purchase of health care company Concentra Inc. and a contribution to its charitable arm.

Louisville-based Humana said its net income fell to $107.3 million, or 63 cents per share, for the three months ended Dec. 31, down from $250.7 million, or $1.48 per share, a year earlier. Revenue rose 9.4 percent to $8.35 billion.

Analysts were expecting 73 cents per share on revenue of $8.39 billion, according to FactSet.

For the full year, Humana reported net income of $1.1 billion, or $6.47 per share, compared with just over $1 billion, or $6.15 per share, in the prior year. Revenue for the year totaled nearly $33.9 billion, up 9.4 percent.

Humana said enrollment for its lucrative Medicare Advantage business reached 1.76 million as of Dec. 31, up 17 percent from a year ago. By January, enrollment had risen to about 1.89 million, reflecting the better-than-expected performance during the recent enrollment period. Medicare Advantage plans are government sponsored, privately run programs offering comprehensive health coverage for seniors.

Membership in Humana's stand-alone Medicare prescription drug plans reached nearly 2.4 million in January, up more than 630,000 members from the end of 2010, the company said.

Humana posted fourth-quarter pretax income of $286.3 million in its vast government segment, compared with $452.3 million a year ago. The drop was due primarily to expenses of $40 million associated with the change in the Medicare Advantage enrollment period, $37 million for the launch of the Humana-Walmart prescription drug plan and $26.2 million for a contribution to its charitable arm.

The government segment's full-year pretax income of $1.65 billion beat the prior year's performance of $1.5 billion.

Meanwhile, Humana's commercial segment had a pretax loss of $111.8 million in the quarter, compared with a pretax loss of $53.6 million a year ago. The company incurred incremental expenses of $139 million associated with building claims reserves for its now-closed long-term care insurance business. Other expenses included $8.8 million for a contribution to its charitable arm and $15 million in transaction costs associated with its acquisition of Concentra, which delivers occupational medicine, urgent care, physical therapy and wellness services.

"We expect Concentra to support our commercial business immediately, while we simultaneously proceed with plans to expand the availability of these services to our Medicare members," McCallister said.

For the year, pretax commercial earnings of $101.6 million were $2.6 million lower than the prior year.

Commercial segment medical membership was at 3.1 million as of Dec. 31, down 9 percent from a year ago.

Copyright 2011 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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