Humana Says Higher Costs Will Push Down Earnings

Managed health-care firm Humana Inc. warned Thursday that higher medical costs will push its first-quarter earnings far below both analyst expectations and year-earlier levels.

The earnings warning is a sign that health insurers haven’t raised premiums fast enough to keep up with rising medical claims as the population ages, analysts said. That’s left them vulnerable as hospitals and doctors press for higher rates.

Humana, which provides health insurance to more than 6 million people, said it expects operating profit in the range of 20 cents to 24 cents a share for the latest quarter, compared with analyst expectations of 34 cents a share collected by First Call Corp. Humana earned $50 million, or 30 cents a share, in the year-earlier period.

The earnings will reflect $90 million in additional medical claims expenses, largely because Humana will have to pay considerably higher rates to Columbia/HCA Healthcare Corp. under a new contract signed last week. Columbia/HCA, the nation’s largest hospital operator, was ready to walk away from the contract covering Humana’s 1.3 million members in Florida without the higher fees it demanded.

Humana also said more patients than expected sought medical treatment and prescription drugs for flu and respiratory diseases during the quarter, boosting claims.

Louisville, Ky.-based Humana said it will look to set some of its premiums at a higher rate during the rest of this year. It also will focus marketing for its Medicare health-maintenance organizations in areas where its risk of rising costs is the smallest. It expects membership growth in its Medicare HMOs to be flat to negative this year.

Humana also is implementing a three-tier co-payment system for its drug benefits in the hopes of slowing the increase in pharmacy costs.

Humana expects to report its quarterly financial results May 13.

The earnings warning, plus a downgrade by an analyst at Merrill Lynch & Co., sent Humana’s stock into a nose dive on the New York Stock Exchange, falling $4 to close at $12.19.