May 1, 2019 / 10:59 AM / a year ago

UPDATE 2-Humana warns 2020 earnings will be hit by industry fee, rebate policy

(Adds background, comments from company and analyst; updates share price)

By Tamara Mathias and Caroline Humer

May 1 (Reuters) - Humana Inc said on Wednesday it would not meet its earnings growth target for 2020 due to a $1.2 billion hit from an industry-wide fee and a proposal to overhaul rebates in health plans, sending its shares down as much as 5 percent.

Investors have been cautious about potential changes to healthcare policy, including Senator Bernie Sanders' plan to shift all Americans to public health insurance and the Trump administration's proposed rule that would require insurers to pass on drug discounts to individual Medicare patients.

The sector is also likely to be hit by the return of the industry-wide fee next year. It was put in place to help fund the implementation of former President Barack Obama's Affordable Care Act, but was suspended for 2017 and 2019.

Humana executives said they were prepared for changes to Medicare rebates in 2020, but noted that seniors nationwide would likely see reduced benefits and experience higher premiums because of it, and as a result of the return of the fee.

"While we do expect to grow earnings per share reasonably in 2020 off of our original $17.25 baseline midpoint, it will be below our long-term target of 11 percent to 15 percent (growth)," Chief Financial Officer Brian Kane said.

Humana said it expects to meet growth targets after 2020.

"I think initially there was negative reaction to the comments but in our view this actually provides additional clarity that the company actually does expect to grow EPS next year, which we think had been an even larger concern," Stephens analyst Scott Fidel said.

For the first quarter, the company posted adjusted earnings of $4.48 per share, beating estimates of $4.30, as sales rose and it paid out fewer claims than expected in its Medicare Advantage health plans aimed at people aged 65 and older and the disabled.

Humana said it expected to add 415,000 to 440,000 members in 2019 to its individual Medicare Advantage plans, which it sells directly to customers, up from its earlier forecast of 375,000 to 400,000.

Total revenue rose 13 percent to $16.12 billion, above estimates of $15.78 billion, according to IBES data from Refinitiv.

The company's shares had recovered some of their losses and were down 2.9 percent at $248 in afternoon trading. (Reporting by Tamara Mathias in Bengaluru and Caroline Humer in New York; Editing by Anil D'Silva and Sweta Singh)

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