Humana Profits Hit $694 Million As Medicare Costs Fall In Line

Humana reported second quarter net income of $694 million as costs of care for older adults in its Medicare Advantage plans fell in line with company expectations.

Like many of its rival health insurers, the company has been struggling to manage rising medical expenses of customers in its health plans, particularly older patients like those Humana covers. Wednesday’s results reflected costs that are still high with the company’s benefit ratio, which is the percentage of premium revenue that goes toward medical costs, eclipsing 91%, compared to 89.7% in the second quarter of last year.

Medical loss ratios have risen to 90% and above for several health insurance companies as claims pile up from doctors and hospitals seeing an influx of patients with a pent up demand for medical care. The industry would prefer such ratios to be below 90% and into the mid 80s, where the industry was less than two years ago.

But Humana, which added more than 1 million enrollees in its Medicare Advantage plans this year, said its benefit ratio of 91.2 percent was “in line with management’s guidance of ‘slightly above 91 percent” for the quarter.

“Based on information available to date, medical and pharmacy cost trends are in line with our expectations of ‘high single digit’ trend, across both new and existing membership,” Humana said in prepared remarks released Wednesday. “There are certain areas where we have seen slight favorability, particularly in the inpatient space, with favorability more heavily concentrated in members engaged with value-based providers.”

Humana reported net income of $694 million, or $5.73 per share compared to $545 million, or $4.51 per share in the year ago period. Revenue jumped to $40.8 billion thanks largely to the influx of Medicare Advantage enrollees compared to nearly $32.4 billion in the year-ago quarter.

Humana’s results beat Wall Street’s earnings expecations.

Medicare Advantage plans contract with the federal government to provide coverage available in traditional Medicare plus extra benefits and services to seniors, such as disease management, drug coverage and nurse help hotlines with some also offering vision, dental care and wellness programs.

Wall Street analysts have been worried about Humana’s Medicare Advantage enrollment growth of 25% at a time rivals, including UnitedHealth Group’s UnitedHealthcare and CVS Health’s Aetna pulled such plans out counties they deemed unprofitable. Humana reported 7.1 million Medicare Advantage enrollees compared to 5.8 million in the year-ago quarter.

“The first half of the year went well, and we’re right where we said we’d be at Investor Day last year,” said Humana president and chief executive officer Jim Rechtin. “When we get the clinical care right and run the business more efficiently, everything else follows—stronger earnings and better health and experiences for the people we serve.”