The Economy

Medical Claims Dip Boosts Humana’s Q1 Results

Because of leap year, the health insurer also had to book $40 million for an extra day’s expenses.
Sarah JohnsonApril 30, 2012

A lower-than-expected number of medical claims by corporate buyers of Humana’s health-insurance policies sold to employers contributed to the company’s healthy numbers for the first quarter.

“Although we expect a gradual uptick in utilization at some point, we did not experience an increase in the first quarter,” says James Bloem, who has been CFO and treasurer of the insurance company for the past decade. “In fact, we saw lower inpatient utilization than we had expected.”

Indeed, the company had overestimated its need for reserves for medical claims on insurance policies sold to employers. The development amounted to 3 cents profit per share for Humana’s first-quarter results. Last year at the same time, the company realized a 31 cents per share of earnings benefit from its overestimation of reserves.

Humana reported $248 million in net income for the first quarter today, a 21.3% decrease in profit compared with the previous year’s quarter. It also raised its earnings guidance for the year from $7.55 per share to $7.75 per share.

Bloem defended the insurer against negative comparisons to last year’s figures by emphasizing during a conference call with analysts today that some of the company’s expenses that affected Q1 will not have a material effect on its full-year results. Among them was what he called an “extra” $40 million in expenses recorded during this past quarter’s extra day (because of the leap year), which means Humana saw an additional day of medical claims. The figure will wash out in the rest of the year’s results, according to Bloem.

Bloem added that the seasonality of Humana’s business contributed to why its latest results fell toward the low end of its previous guidance.