Humana Inc. and some other health insurers recovered some stock value Wednesday, a day after the sector took a beating from investors following Humana's second-quarter earnings report.
Humana, based in Louisville, Ky., said Monday after markets closed it was slashing its forecast for the year due to greater-than-expected costs from new Medicare Advantage members and growing health care use by both new and old members.
Medicare Advantage plans are subsidized, privately run versions of the federal government's Medicare health insurance for the elderly and disabled people, and Humana is the second-largest provider of these plans, behind UnitedHealth Group Inc.
Humana shares sank 13 percent, or $8.95, in Tuesday trading to close at $61.60. The stock reached a new 52-week low of $59.92 before rallying back above $60. Shares of Humana competitors WellPoint Inc. and Aetna Inc. also fell about 3 percent Tuesday. Aetna shares dropped even after it reported second-quarter earnings that beat analyst expectations and raised its 2012 earnings forecast.
Analysts say investors are nervous about the sector and especially about whether some of the companies made the right assumptions about prices and health care use when they set rates earlier in the year.
Leerink Swann analyst Jason Gurda also said in a research note the "outsized reaction" to Humana's report reflected poor sentiment for the sector and concern that bids for next year's Medicare Advantage contracts may be underpriced due to an incomplete understanding of use increases.
Humana shares rallied Wednesday afternoon to climb 4.5 percent, or $2.75, to $64.35, although the stock is still down 28 percent in the year to date. Aetna climbed 31 cents to $36.37, and WellPoint rose 2.2 percent, or $1.18, to $54.47. All three stocks outperformed the Standard & Poor's 500 index, which was nearly flat.