Humana reports strong enrollment growth as earnings fall

Humana's enrollment growth was stronger than anticipated in the first quarter of 2014, with more than 1.1 million new members, a 9.4% increase led by a spike in the individual commercial sector spurred by the federal healthcare law.

But that enrollment growth didn't help net income for the Louisville, Ky.-based insurer: It plunged by 22.2% compared to the first quarter of 2013. Earnings fell to $368 million, or $2.35 a share in the quarter compared with $473 million, or $2.95 a share, in the same quarter the prior year.

The company reported 715,600 individual commercial members at the close of the quarter, a 55.3 % increase over the prior year. The company attributed that jump to sales of plans that comply with the requirements of the Patient Protection and Affordable Care Act both on and off the exchanges.

The exchanges brought Humana 700,000 applications for coverage during the open enrollment period that ran from Oct. 1 to March 31. Of those, nearly 430,000 were for plans that won't be effective until the second quarter of 2014, reflecting the late surge in enrollments.

Revenue for the first quarter was $11.7 billion, compared with $10.5 billion for the same period last year. But expenses grew at a slightly brisker pace, increasing from $9.7 billion to $11.0 billion.

That indicates that the additional customers Humana's adding to the roles may not be as profitable as the existing membership. The company's profit margin for the first quarter was 3.1%, down from 4.5% in the comparable period of 2013. Its medical loss ratio was 83%, up from 82.3% in the prior year.

Humana also reported robust growth in its Medicare business. Membership in both Medicare Advantage plans and Medicare prescription drug plans grew by double digits.

Earnings per share for the quarter of $2.35 were well ahead of analysts' consensus estimate of roughly $2. But Humana didn't raise its earnings projection for the full year, keeping guidance at $7.25 to $7.75 per share.

Initial reaction from analysts to the first quarter report was guardedly optimistic. "The good news is that cost trends from the core Medicare Advantage segments are running better than expects," analysts at Barclays wrote. "The bad news is that the company is seeing pressure in its individual book that is offsetting some of that favorability."

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