Humana says medical costs cut into second-quarter profit
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July 29 (Reuters) - Health insurer Humana Inc, which earlier this month agreed to be bought by Aetna Inc for $37 billion, on Wednesday reported a rise in a key medical cost metric that missed analyst expectations.
Humana's consolidated benefit ratio, or the ratio of its spending on medical claims versus premium revenue it takes in, was 85.2 percent compared with 83.1 percent a year ago.
Leerink Partners analyst Ana Gupte said in a research note that the ratio was 50 basis points worse than Wall Street consensus.
Investors closely watch this ratio as a sign of whether insurers, who have benefited from years of low medical use and claims, will be caught out by sudden shifts in demand.
Humana first said in early July that costs related to the rate of hospital admissions among Medicare customers were higher than it had anticipated. It cut its 2015 outlook by 8 percent and shares fell at that time.
On Wednesday, Humana said medical costs have not worsened since it issued that outlook earlier this month. It reiterated that it believes it has priced its 2016 premium rates to cover these costs, indicating that this key metric should improve.
Humana had missed analyst expectations several quarters in a row because of cost issues, contributing to investor skepticism about the Aetna deal.
The deal is also expected to face antitrust scrutiny as regulators weigh the impact of the combination on competition. Authorities are also expected to closely look at Anthem Inc's $54 billion purchase of Cigna Corp and require some asset sales.
The managed care sector is consolidating as insurers seek to cut costs and negotiate with doctors and hospitals over pricing.
Humana shares were off 0.5 percent at $183.59 in Wednesday morning trade. Aetna was off 2 cents at $112.29.
Excluding tax benefits from the sale of Concerta Inc, Humana earned $1.67 per share, compared with the average analyst estimate of $1.63 per share, according to Thomson Reuters I/B/E/S. On that basis, it had reported earnings of $2.19 per share in the year-ago quarter.
In early July, the company told analysts to expect earnings of $1.60 to $1.65 per share on an adjusted basis.
Net income rose to $431 million, or $2.85 per share, in the second quarter, from $344 million, or $2.19 per share, a year earlier.
The company reported revenue of $13.73 billion, which missed the average analyst estimate of $13.81 billion.
(Reporting by Caroline Humer in New York and Vidya L Nathan in Bengaluru; Editing by Anil D'Silva and Meredith Mazzilli)
