Health insurer Humana turned a hearty profit in the final quarter of 2014, but high expenses tied to pricey hepatitis C drugs and a severe flu season dragged down the potential for larger gains.
Humana recorded a $145 million profit in the fourth quarter, compared with a $30 million loss in the same quarter of 2013. However, that equated to a lower-than-expected $1.09 in earnings per share. And full-year profit declined almost 7%, from $1.2 billion in 2013 to a little more than $1.1 billion in 2014.
The decline in full-year earnings and the constrained fourth-quarter profit stemmed from several issues, executives said. Humana paid much more in income taxes in 2014 than the year before. The insurer also said new hepatitis C drugs and higher flu-related costs drove up the expense side of the balance sheet.
Hepatitis C drugs Sovaldi and Harvoni entered the market last year with $84,000 and $94,500 price tags for a full course of treatment, respectively, but the drugs have been in high demand. Humana and other insurers have tried to mitigate the drugs' costs by agreeing to discount deals with pharmaceutical companies. Humana said in January that it signed an exclusive deal with Gilead Sciences, maker of Sovaldi and Harvoni, to add the drugs to its preferred formulary.
Flu activity has been elevated across the country for the past 10 weeks, and the flu vaccine has not been as effective this year in treating the virus, according to the Centers for Disease Control and Prevention. More than 11,000 flu-related hospitalizations have occurred since October, the CDC said, which has driven up benefits costs for insurers such as Humana.
Humana also lost its Medicaid contract with Puerto Rico in 2013, which caught up with the insurer financially last year. Molina Healthcare is now the managed-care provider for the U.S. territory.
Those factors should not cause worry over Humana's financial situation, Justin Lake, an analyst at J.P. Morgan Securities, wrote to investors Wednesday. Humana's core business lines remained strong, which “should alleviate concerns around (the) slight miss,” Lake said.
No component is more important to Humana's business than Medicare. Medicare Advantage and Medicare prescription drug plans represented 72% of Humana's revenue in 2014. Humana's total Medicare membership at the end of 2014 was almost 3.1 million people, excluding drug plan members.
Humana closed the year with nearly 555,000 members enrolled in its plans sold on the exchanges created under the Patient Protection and Affordable Care Act. Humana sells exchange plans in 15 states. Most of those states rely on HHS to manage their marketplace, putting the premium subsidies at risk as the U.S. Supreme Court reviews whether the reform law allows the assistance in states that don't operate an exchange.
Executives reiterated their 2015 expectations to shareholders, saying total revenue this year would fall between $54.5 billion and $55 billion. That would be a 13% increase from the $48.5 billion in revenue it recorded in 2014. Per-share profit is projected to be $8.50 to $9.
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