Humana reported third-quarter net income of $450 million, up 43 percent from a year earlier, based on strong Medicare Advantage business and a stabilization of Affordable Care Act-related losses.
Third-quarter revenue, at $13.7 billion, increased 2.5 percent, in part because the company gained customers in its Medicare business.
The insurer also said that its benefits expenses declined because it was paying a smaller share of health care premiums on its customers’ health care. Of every dollar it collected in premiums in the third quarter, Humana spent 81.5 cents on health care for its customers, down from 83.9 cents in the third quarter of 2015.
In its retail segment, which includes the individual Medicare benefits, Humana reported pretax income of $644 million, about double the segment’s performance a year earlier. The company said most business lines in the segment showed improvements. Revenue rose 4 percent.
While the number of customers in the individual Medicare Advantage business rose 3 percent, to 2.8 million, the number of customers in the Group Medicare Advantage business fell 26 percent, to 353,900, “primarily due to the previously disclosed loss of a large profitable account,” the company said in its earnings release.
Humana gained customers for its standalone prescription drug plans and state-based contracts, but also lost a quarter of its customers in the individual commercial business, which includes customers the company has gained through the health exchanges that are a central part of the ACA, also known as Obamacare.
Because of the continued struggles with customers it has gained through the ACA, Humana has said that it will offer insurance to individual commercial customers next year in 11 states, down from 15 this year. As a result, Humana expects health insurance premiums from those customers to fall by two-thirds, or about $2.3 billion.
The insurer also said that its projected full-year losses associated with its individual commercial policies, which includes the ACA-compliant plans, did not change from its prior estimate. In the second quarter, Humana said it expected to lose about $337 million on those plans this year, or about $161 million more than it expected at the beginning of the year.
Humana and other insurers have said that the patients who have signed up through the ACA exchanges have been sicker than expected and that their health insurance premiums have not been enough to cover the patients’ medical costs, in part because younger, healthier Americans have declined to buy insurance.
For its group segment, which includes health insurance benefits for employers, Humana said pretax income fell to $12 million, down 69 percent from the third quarter of last year, because of rising costs related to operations and health care. Revenue fell 2 percent.
Humana said it lost nearly 700,000 customers in all businesses in the group segment, including about 230,000 in its wellness program.
Humana’s health care service segment reported pretax income of $288 million, up 1 percent, mainly because of higher revenue generated in the pharmacy solutions and home-based services businesses. Revenue rose 8 percent.
Humana said it saw prescription volume increase 6 percent compared with a year earlier, while 12 percent more Medicare Advantage customers signed up for the insurer’s chronic care program.
“We continue to meet or exceed our initial 2016 earnings expectations across our portfolio of businesses, with the exception of our individual commercial business,” President and CEO Bruce D. Broussard, said in the release.
Humana also said that, so far, it has incurred costs related to the proposed merger with Hartford, Conn.-based rival Aetna of $92 million. The companies have said that their proposed merger would allow them to serve more customers with better health care at a lower cost.
However, the U.S. Department of Justice has filed a lawsuit to stop the deal because regulators say it would decrease competition, lower the quality of care and increase prices, especially for older Americans. A trial in the matter is scheduled to begin Dec. 5.
Humana reiterated Friday that it would “vigorously defend the transaction” but “cannot predict when the DOJ litigation will be resolved.”
Humana’s shares were up 2.3 percent in early afternoon trading. The S.&P. 500 was up less than 0.4 percent.