FORBES
Bruce Japsen, Contributor
Feb 10, 2016 @ 09:00 AM
Humana profits fell 30% in last year’s fourth quarter with the insurer unable to manage the rising medical costs of newly insured Americans signing up for individual coverage under the Affordable Care Act, leaving its participation on public exchanges in doubt beyond this year.
The Louisville-based health insurance company, which is being taken over by rival Aetna in a deal that may close later this year, said net income fell to $101 million, or 67 cents a share, in the fourth quarter from $145 million, or 94 cents a share in the year-ago period. Humana’s results included a charge of $176 million, or 74 cents a share, for a premium deficiency reserve “related to the company’s 2016 (Affordable Care Act)-compliant individual commercial medical offerings.”
Like other health insurance companies including UnitedHealth Group UNH +2.98%, Aetna AET +2.90%, Anthem ANTM +2.70% and several independent Blue Cross and Blue Shield plans, Humana HUM +3.91% is having a difficult time covering the medical expenses of individuals buying the health law’s subsidized policies. Premiums paid by enrollees as well as government subsidies aren’t apparently enough to cover a sick population of patients.
“The benefit ratio associated with many of the company’s individual commercial products, in particular ACA-compliant offerings, significantly exceeded its pricing expectations,” Humana said in its fourth-quarter 2015 and annual earnings statements. “The company continues to evaluate its participation in the individual commercial business for 2017.”
UnitedHealth, too, has said it will make a decision late this year on whether it participates in the ACA’s individual business segment. But some see insurers making such pronouncements as a way to get the attention of the White House and Congress to make tweaks to the program that ease certain requirements.
Humana executives released comments and the usual earnings statement this morning but didn’t have an earnings call due to the company’s pending merger with Aetna. Reached this morning, Humana declined further comment beyond statements in its press release.
“Similar to other companies’ reported results across the sector, Humana’s operating results for this business were challenged in (fiscal 2015) primarily due to unanticipated modifications in the program subsequent to the passing of the Affordable Care Act, resulting in higher covered population morbidity and the ensuing enrollment and claims issues causing volatility in claims experience,” Humana said in its statement.
For now, the company is remaining in the business for this year. And because Humana is expected to become a part of Aetna in the second half of this year, any decision on whether to participate in the individual commercial business under the health law might be left up to new management and Aetna chairman Mark Bertolini.
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Humana’s individual commercial membership, which includes about 500,000 who buy from the ACA’s public exchanges, was down 12% last year, or 117,000, to end the year at 899,100.
Humana said it has taken a number of steps to improve profitability in the individual commercial business, including raising prices and discontinuing “certain products” and exiting other markets.
Despite the individual commercial business, Humana chief executive Bruce Broussard said in a statement that the “operational corrections we made in 2015 provides us a solid trajectory to achieve our target margins for each of our businesses over time, including 4.5% to 5% for individual Medicare Advantage.”
Humana’s business lines are growing overall. In the fourth quarter, revenues rose more than 8% to $13.3 billion.
Humana is projecting net membership growth in its Medicare Advantage plans for seniors of “100,000 to 120,000.” It is also expecting net membership growth in sales of its standalone prescription drug plans of more than 300,000.