Humana Reduces 2008, First-Quarter Earnings Estimates Because Of Issues With Medicare Prescription Drug Plans

Main Category: Medicare / Medicaid / SCHIP
Also Included In: Health Insurance / Medical Insurance
Article Date: 14 Mar 2008 - 9:00 PDT

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Humana on Wednesday reduced 2008 and first-quarter earnings estimates, "adding to broader worries that accelerating health care costs could erode health insurers' profits," the Wall Street Journal reports (Rubenstein, Wall Street Journal, 3/13). For 2008, Humana officials said that the company expects earnings of $4 to $4.25 per share, compared with a Feb. 4 estimate of $5.35 to $5.55 per share. Humana officials also said that the company expects first-quarter earnings of 44 cents to 46 cents per share, compared with a previous estimate of 80 cents to 85 cents per share (Bloomberg/Los Angeles Times, 3/13). The price of shares of Humana stock, which has declined by 40% since March began, decreased by $6.50 to $40.88 on Wednesday (Rapaport, Bloomberg/Hartford Courant, 3/13).

Humana attributed the announcements to issues with Medicare prescription drug plans. Humana overestimated the usage of medications with higher copayments by beneficiaries enrolled in the Enhanced Medicare prescription drug plan. Based on this overestimate, beneficiaries overall would have ended up paying more out of pocket than Medicare allows.

In response, Humana reduced the copays for those medications, a move that required the company to pay for a larger share of the cost. In a different Medicare prescription drug plan, Humana lost a larger number of lower-cost beneficiaries than expected (Wall Street Journal, 3/13). Humana Chief Operating Officer Jim Murray during a conference call said, "In hindsight, we should have assumed that members would likely change their behavior and substitute lower-tier drugs rather than lowering our copays" (Wisenberg Brin, Dow Jones/CNN.com, 3/12).

According to the Journal, the announcements by Humana, as well as a similar announcement earlier this week by WellPoint, "underscore the challenges insurers face from cumbersome government coverage programs, skyrocketing health care costs and predicting how consumers might try to defray rising medical bills." Matthew Borsch, a health insurance industry analyst for Goldman Sachs, said that the announcements raise a "lot of questions about whether these are truly unrelated events or whether there isn't a common thread here related to pressure on the industry." The "big question now is what will happen to other insurers' growth prospects," the Journal reports (Wall Street Journal, 3/13).

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