Humana, the Louisville, Ky.-based insurance giant, reported an expected 21.2% decline in net income in the third quarter, which ended Sept. 30, as investments in healthcare reform-related programs overshadowed the positive effect of additional members.
Those investments included not only insurance exchanges but state-based contracts to provide Medicaid benefits to people who are dual-eligibles or qualify for other assistance programs. The company also faced higher specialty drug costs related to Sovaldi, a new drug for hepatitis C with a price tag stretching into the high-five figures.
Revenue for the company, however, increased 18.6% in the third quarter as it booked higher membership in its retail segment, where it markets plans directly to consumers, and more Medicare Advantage members in its employer group segment.
Humana saw enrollment in its state-based Medicaid plans increase more than 250% in the quarter compared with the same period last year; membership in individual commercial plans increased more than 120%.
Among its core retail and employer group businesses, only its self-funded health plans saw a membership decline, with membership shrinking 4.2% year over year.
Across the company, Humana reported $290 million in consolidated net income for the third quarter on revenue of $12.2 billion compared with $368 million in net income on $10.3 billion in revenue during the same period in 2013.
The insurance market is getting more competitive, affecting pricing and the attrition of members, CEO Bruce Broussard said on an earnings call. The company is projecting 8% to 9% growth for 2015 in Medicare Advantage membership, where it generates the bulk of its revenue.
Humana was able to pick up additional Medicare Advantage growth this year when it entered markets that United Healthcare had exited, such as in Florida, UBS analyst A.J. Rice wrote in a note to clients. That allowed it to grow faster than its competitors, but its 2015 forecast suggests a return to a growth rate more in line with the market, he added.
Still, Humana is projecting higher earnings per share in 2015 from cost-cutting efforts, membership growth in its Medicare and individual plans, lower investment spending and share buybacks.
The insurer forecasted 2015 earnings per share of $8.50 to $9 compared to its guidance for 2014 of $7.40 to $7.60 in earnings per share.
Separately, Broussard also confirmed on the call that the company no longer plans to divest its pharmacy benefits management business, which generated $26 million in revenue during the third quarter, but grew about 52.9% year-over-year.
Follow Beth Kutscher on Twitter: @MHbkutscher