Health insurer Humana Inc. said Monday that its third-quarter net income fell 4 percent as more premium dollars from its members went to pay for medical claims, offsetting continued growth in its lucrative Medicare Advantage business.
But its earnings still beat analysts' expectations and the company raised its earnings forecast for the full year.
Humana also announced a deal aimed at solidifying its Medicare Advantage business, especially in Florida.
And the company said that a top executive being groomed as its next CEO will take over those daily management duties soon. Bruce D. Broussard, the company's president since last December, will double as chief executive officer effective this coming Jan. 1.
Michael B. McCallister, who guided the company's growth as CEO for 12 years, will become non-executive board chairman. McCallister's plans to retire as CEO were disclosed a year ago. He said the transition plan has progressed in line with expectations.
"Bruce has confirmed our board of directors' initial confidence in his ability to lead Humana successfully for many years to come," McCallister said in a conference call with industry analysts.
Louisville-based Humana said it has agreed to acquire Metropolitan Health Networks Inc. in a deal aimed at strengthening its Medicare Advantage business, a government-subsidized comprehensive health insurance for seniors.
Metropolitan Health coordinates medical care for Medicare Advantage and Medicaid recipients, primarily in the crucial Florida market. Under the agreement, Humana will pay $11.25 per share in cash to acquire Metropolitan Health's outstanding shares. That part of the deal is worth about $500 million. Humana said it will also assume Metropolitan Health's debt. Humana said that and transaction costs will boost the total value of the deal to about $850 million.
The transaction, subject to Metropolitan Health shareholder approval, is expected to close early next year.
In another deal, Humana said it has acquired Certify Data Systems, which specializes in health information exchange technology. Certify Data specializes in connecting health care providers so they can share patient health information in real time. Terms of that transaction were not disclosed.
In the conference call with industry analysts, Broussard said Humana plans to build about 15 primary and chronic care centers as part of its expansion efforts.
In its earnings report, Humana reported net income of $426 million, or $2.62 per share, in the third quarter. That's down from $445 million, or $2.67 per share, a year ago. Analysts polled by FactSet expected earnings of $2.05 per share.
Revenue rose to $9.65 billion from $9.3 billion a year ago. Analysts expected $9.88 billion.
Humana said it now expects to earn $7.25 to $7.35 per share in 2012, up from its previous estimate of $6.90 to $7.10 per share. Analysts had expected earnings of $7.12 per share for the year.
The company cited improvement in its medical claim reserves and higher enrollment in its stand-alone Medicare prescription drug plans for raising its full-year earnings estimate.
Looking ahead to 2013, Humana forecast earnings of $7.60 to $7.80 per share next year. But analysts had expected more — an average of $7.82 per share.
Its shares fell $1.22, or 1.6 percent, to $73.99 in morning trading Monday. Humana shares are still up almost 24 percent from a 52-week low of $59.92 in late July. They traded as high as $96.46 in mid-January.
The company was coming off disappointing second-quarter results caused by higher Medicare Advantage costs and increased health care use by its plan members. Broussard said the latest results show those issues have stabilized.
"We believe our improving operations and continued Medicare membership growth, together with our integrated care delivery system investments, position Humana well for a dynamic future," Broussard said.
Humana's third-quarter earnings, however, were dragged by the trend in which a higher percentage of premium dollars from its members are going to pay for medical claims in its retail and employer group segments.
Humana reported pretax income of $424 million in its key retail segment, down by $117 million from the year-ago period.
Its individual Medicare Advantage membership surpassed 1.9 million as of Sept. 30, up 18 percent from a year ago. Those plans offer privately run, government-subsidized comprehensive health insurance for seniors with extras likes vision or dental coverage in addition to basic Medicare coverage. Humana said its group Medicare Advantage membership reached 395,700, up 25 percent from a year ago.
Membership in its individual stand-alone Medicare prescription drug plans rose 19 percent to nearly 2.95 million as of Sept. 30. Humana's position in that market has benefited from teaming with Wal-Mart Stores Inc.
Pretax income in its health and well-being services segment totaled $148 million, compared to $83 million a year ago. The increase mainly reflected growth in Humana's pharmacy business.