Humana expects earnings to fall in 2011 as Medicare funding cuts

Humana Inc., the U.S. health plan with the best performing stock this year, said it expects earnings to fall in 2011 as reduced funding for Medicare and U.S. health law reduce earnings. The company's shares fell.

Humana forecast earnings of $ 5.35 to $ 5.55 per share for 2011 in a statement today at a meeting of investors in Louisville, Kentucky, where the company is headquartered. Profit margins will be reduced for plans offered to Medicare, the insurance program backed by the United States for the elderly, Humana said. Fifteen analysts polled by us had estimated an average of $ 6.11 per share.

Health law was signed in March calls for $ 130 billion in funding cuts to Medicare Advantage private providers, after Democrats said the plans received only U.S. government going to provide the same services. Humana forecast 2011 is the first of the insurers that depend on the program, such as UnitedHealth Group Inc. and WellPoint Inc. The companies may be subject to lower funding, said David H. Windley, an analyst at Jeffries & Co. in Nashville, Tennessee.

Human Welfare "will probably be seen as surprisingly conservative" and can reduce insurance fees, said Matthew Borsch, an analyst at Goldman Sachs Group Inc. in New York, in a note to clients. "That said, the management was equally conservative in their estimates of the previous year" and ended up raising its forecast for this year, he said.

Shares Fall

Humana fell $ 2.50, or 4.3 percent, to $ 55.55 at 9:47 am in the market for New York Stock Exchange. The above actions are reduced to 6 percent, the biggest drop since May. Before today, the stock had jumped 32 percent this year, the biggest gain among the index managed the six-member Standard & Poor's Health. The index fell 1 percent today.

Minnetonka, Minnesota-based UnitedHealth fell 40 cents, or 1.1 percent, to $ 34.93. WellPoint, based in Indianapolis, fell 44 cents to $ 56.01.

Medicare's history of underestimating the costs of health and, finally, the approval of higher rates suggests that long-term cuts will not be as bad as health law requires, said Michael McCallister, Humana's chief executive, in a presentation Louisville. The insurer has increased its enrollment Advantage and profit margins over the past two years, even when the government froze the rates, he said.

"Effectively, what we are seeing is the worst two years we could have lived," said McCallister. "The cuts that most people think of the future have gone ahead and has already experienced, and as you can see, we've grown quite well."

Increased membership

Humana Medicare Advantage members is increased as much as 65,000 years to come, he said.

Humana expects a "realignment" of their Medicare profit margins to 5 percent of revenue, down "results in less disruption of its Medicare members despite numerous changes in the program next year," said the company.

"Every year, conservatively plan to achieve a margin of 5 percent in Medicare," said Tom Noland, a Humana spokesman, in an e-mail. "But then we work throughout the following year, on behalf of our members - through care coordination and management of health care programs - to improve patient outcomes and reduce costs."

While Humana is likely to increase enrollment and Medicare plans, small out of the market, health law still means "the benefit of the majority of his business is down flat, because the margins are being squeezed," said Windley, analyst Jeffries.

Medicare Advantage Members

Had 1.76 million Humana Medicare Advantage members of November 1, second to 2.1 million UnitedHealth, said Carl McDonald, an analyst at Citigroup in New York, in a note to clients today. WellPoint is the top U.S. health plan for tuition, followed by UnitedHealth.

The insurer said it also expects medical costs to increase next year. health expenditures have been lower than expected in the industry over the past year, as unemployment levels of almost 10 percent kept more Americans out of their doctor, said McCallister.

While Humana is "a return to normalcy," it is difficult to predict how consumers make health care in 2011, he said. "There's just no place to really know exactly where we are today in relation to trends in medical costs, so we have taken the conservative approach," said McCallister.

UnitedHealth, the largest insurer by sales, expects earnings to fall next year as rising medical costs, CEO Stephen Hemsley said in a press conference on October 19.