“This issue could potentially alter some of the assumptions we made around risk mix as we priced our products,” Broussard said.
Accordingly, profits are expected to be lower in 2014. Humana predicted that earnings per share will be in the range of $7.25 to $7.75. Company officials also attributed that decline to infrastructure costs associated with expanding into the exchanges and state-based Medicaid contracts. Humana is participating more widely in the exchanges than some of its commercial insurance rivals.
A continuing bright note for Humana is its increasing business in the Medicare Advantage market. The company reported just over two million Medicare enrollees at the end of the third quarter. That's a 6.9 % percent increase over the same period a year earlier. Humana expects to add an additional 300,000 Advantage members in 2014.
Broussard pointed out that the average quality rating for the company's Medicare Advantage plans is four stars, which makes many of those plans eligible for bonus payments from the federal government. Broussard described this as providing a “solid competitive advantage across much of the country.”
Despite the dip in earnings, investors reacted favorably to Humana's third-quarter report. As of mid-day, the company's stock price was up 2%, nearing $96 per share. For the year, the company's stock price has increased by more than 25%.
Humana is the last of the five major publicly traded health insurance companies to release its earnings report for the third quarter. Results overall have been mixed. UnitedHealth Group, the country's largest insurer, has seen its stock price slip by more than 5% after failing to meet analysts' projections. But Cigna Corp. reported more robust profits than anticipated and has seen a corresponding uptick in its stock price.
The major insurers have generally taken a cautious approach toward the new exchanges. But even so, companies are tempering expectations for 2014 owing to uncertainty about how the federal healthcare overhaul will play out.
Humana also announced on Wednesday that Steven McCulley will serve at the company's interim chief financial officer starting in 2014. He will replace James Bloem, who is retiring at the end of the year. McCulley is currently Humana's controller and principal accounting officer.
Follow Paul Demko on Twitter: @MHpdemko
