Humana’s shares fell nearly 7 percent Wednesday as the Louisville-based insurer said that revenue fell 3 percent and that profit growth was impeded by costs of $78.5 million associated with the elimination of 2,700 jobs.
That’s despite the company recording a $442 million pretax turnaround in its Affordable Care Act-related business in the first nine months of the year.
Humana said in an earnings statement that its strong third quarter has prompted it to raise its profit projections for the year by 10 cents per share. While the company said results exceeded expectations, investors reacted with disappointment: Shortly before noon, shares had fallen more than $17, or 6.7 percent.
Third-quarter revenue, at just under $13.3 billion, was down 3 percent from the third quarter of 2016, despite higher Medicare Advantage membership. Operating expenses, at $12.4 billion, fell 2.5 percent.
Income from operations fell 9.6 percent, to $858 million, but net income rose nearly 11 percent, thanks primarily to lower income taxes, which, at $300 million, were down $152 million, or 33.6 percent. The company said its operations benefited from the temporary suspension this year of an ACA-related excise tax.
Earnings per share, at $3.44, were up 15.4 percent, but Humana said costs associated with the elimination of 2,700 jobs, or 5.7 percent of its workforce, reduced EPS by 54 cents, or $78.5 million.
The insurer said this week that it was cutting 1,300 jobs and that 1,150 had taken up an early retirement offer. While the job cuts become effective next year, when Humana ceases to participate in the ACA exchanges, the company did not specify what prompted the decision to cut positions, telling Insider via email only that the actions are “part of a series of measures to position the company for long-term success” and that the job cuts and layoffs are “being made across work groups and across geographies.”
The company said Wednesday that the number of customers it has in its Individual Commercial Segment, which includes the ACA business, was at 142,800, down 80 percent, or 583,400, from a year earlier as the company is exiting the ACA exchanges. Pretax income in that segment increased $24 million.
Humana and some other insurers have said that the health care expenses for the customers they’ve gained through the exchanges has far exceeded the health insurance premiums those customers are paying. Now that the company is exiting that business, its earnings reports are improving: For the first nine months of the year, Humana’s Individual Commercial Segment has generated pretax profits of $207 million. A year ago, that segment had incurred a $235 million pretax loss. That’s a turnaround of $442 million.
“The company continues to produce exceptional financial results that are significantly exceeding our initial 2017 earnings expectations, particularly in the Retail and Group and Specialty segments,” Chief Financial Officer Brian Kane said in the earnings statement.
The results have allowed the company to invest in product design and to fund “critical initiatives to advance our strategy that together will return us to meaningful individual Medicare Advantage membership growth in 2018,” he said.
Humana said that its retail segment, which includes the Medicare business, saw revenue climb 2 percent, thanks in part to a larger number of Medicare Advantage customers and higher per-customer premiums in parts of the business.
The company said that the number of customers in its group Medicare Advantage business rose 24 percent “primarily due to the addition of a large account in January.” The number of customers on Humana’s prescription drug plan, at 5.3 million, increased 8 percent, primarily “from growth in the company’s low-price Humana-Walmart plan.”
The retail segment’s operating costs fell, while pretax income rose to $610 million, up $2 million.
Humana said its group and specialty segment, which includes dental, vision and other benefits offered to groups and individuals, recorded revenue of $1.85 billion, up 1 percent from a year earlier, mainly because of higher per-member premiums. The insurer said its lost more than 160,000 customers in the segment in the last year.
The segment’s pretax income increased 151 percent, to $93 million, in part because of the temporary suspension of the ACA-related excise tax.
The insurer also said that revenue in its healthcare services segment, which includes pharmacy and home health services, fell 6 percent, to $6 billion. Pretax income fell by $57 million, to $240 million, as the segment struggled with higher costs and its chronic care management programs.
The insurer this week also said that it had reached an agreement to sell its long-term care insurance business to Texas-based Continental General Insurance Co. Humana said the sale would result in a net loss of $400 million, or $2.75 per share.
Humana this month sued the federal government for $600 million in Affordable Care Act-related funds because it asserts that the U.S. Department of Health and Human Services induced insurers to participate in the federal exchanges under false pretenses.