Humana cuts forecast as prescription costs expand

From Bloomberg News

Humana Inc., the second-largest seller of Medicare drug plans, Wednesday followed rival WellPoint Inc. in cutting its 2008 forecast because of rising prescription costs.

Humana said expenses soared when it lowered patients’ fees for medicine in a bid to lure new customers into its Medicare prescription plans. Humana is racing to grab market share from UnitedHealth Group Inc., the largest seller of the U.S.-backed drug plans, analysts said.

Insurers are struggling to attract new members to boost earnings without letting medical costs outstrip premiums. Humana’s price cuts drew people in worse health than expected into its Medicare plans, the company said. In WellPoint’s case, members of employer-sponsored plans are rushing to get elective care in a cooling economy, analysts said.

Humana shares fell $6.50, or 14%, to $40.88.

Earnings will range from $4 to $4.25 a share, rather than the $5.35 to $5.55 forecast Feb. 4, Humana said. First-quarter earnings will be 44 cents to 46 cents a share, down from a forecast of 80 cents to 85 cents.

Louisville, Ky.-based Humana this year miscalculated how many elderly people with serious medical conditions would choose its Medicare drug plan. The mistake added $160 million to the company’s Medicare drug costs in the first two months of this year.