Humana expects to meet 2020 profit estimates as Medicare Advantage grows

(Reuters) - Humana Inc HUM.N reported better-than-expected quarterly earnings and hinted that it could match Wall Street profit targets for 2020 as its main business of selling government-backed Medicare Advantage health insurance plans flourishes.

Shares of the health insurer rose about 3% to $303.51 on Wednesday.

Medicare Advantage plans, which cater to Americans older than 65 and those with disabilities, account for about a third of overall Medicare beneficiaries.

Humana has benefited from growth in Medicare Advantage enrollment outpacing that of traditional Medicare fee-for-service plans, as people aging into the program choose the structure of managed care as well as its cap on out-of-pocket spending.

The government expects Medicare Advantage to continue to pick up a bigger share of customers, even as the overall program size is also growing due to a surge in the number of people becoming eligible.

Humana said it expects to add 270,000 to 330,000 more members to its Medicare Advantage plans for individuals in 2020, adding that this growth rate would likely be above the industry’s.

While the company did not provide an estimate for earnings next year, Chief Financial Officer Brian Kane said he expects current Wall Street consensus would be within the range the company is envisioning.

Analysts on average expect earnings of $18.71 next year, according to IBES data from Refinitiv.

“We expect this consensus number to approach the top end of the range that we will provide”, Kane said. The company typically gives the full-year forecast when it reports fourth-quarter results.

Still, like its larger rivals, Humana warned that the return of an industry-wide fee next year is a pain point.

The fee was put in place to help fund the implementation of former President Barack Obama’s Affordable Care Act, but suspended for 2017 and 2019.

Humana has already cut about 2,000 jobs and reduced hiring in an effort to protect profit ahead of return of the fee.

“Despite these productivity efforts, there are still members who will see an increase in premiums or reduction in benefits next year, given the magnitude of the (fee),” Chief Executive Officer Bruce Broussard said.

For 2019, Humana raised its adjusted earnings per share forecast to $17.75, above the average analyst estimate of $17.64.

In the third quarter, sales from the company’s retail unit, which includes Medicare Advantage, rose 16.7% to $14.09 billion.

Excluding items, it earned $5.03 per share, beating estimates of $4.58 per share.

Reporting by Saumya Sibi Joseph and Tamara Mathias in Bengaluru; Editing by Arun Koyyur and Shinjini Ganguli