July 31, 2019 / 11:05 AM / in a year

UPDATE 3-Humana raises 2019 profit forecast on back of second-quarter beat

* Benefits expense ratio of 84.4% beats est. 85.69%

* Sees 2019 adj. EPS of $17.60, from $17.25 to $17.50

* Ups FY membership growth target for individual Medicare Advantage plans

* Says will begin $1 bln accelerated share repurchase program (Adds details from conference call; updates shares)

By Tamara Mathias and Aakash B

July 31 - Health insurer Humana Inc raised its 2019 profit forecast on Wednesday and beat second-quarter earnings estimates, as it reined in costs and recorded higher revenue from its unit that sells Medicare Advantage health plans.

Shares rose as much as 6.7% to $302.44, before paring some gains to trade up about 4%.

Humana said it is seeing the highest membership growth in its government-backed Medicare Advantage plans for individuals in the last decade.

However, the company continues to expect a significant hit to profit from the return of an industry-wide fee next year.

The fee was instituted to help fund the implementation of Affordable Care Act, former President Barack Obama's signature healthcare law, but was suspended in 2017 and 2019.

Humana said it was lobbying Congress to repeal the fee as it believed millions of seniors would likely see a reduction in benefits and/or increased premiums because of it.

Although health insurers received a brief respite after the Trump administration ended plans that would have required them to pass on rebates to Medicare patients, they continue to face regulatory uncertainty ahead of the 2020 presidential election.

Despite the strong quarterly results, Humana did not alter its previous expectation of 2020 earnings growth coming in below its long-term target of 11% to 15%.

"Certainly, the second quarter outperformance helps us from a bid design perspective, but we still face meaningful headwinds for 2020," Chief Financial Officer Brian Kane said.

However, Kane noted that membership growth in Medicare Advantage plans lessened the expected impact in 2020 and would allow Humana to make additional strategic investments this year.

"To us, this suggests Humana can better manage through the 2020 health insurer industry fee headwinds," Jefferies analyst David Windley said.

The company raised its 2019 forecast for growth in individual members for Medicare Advantage plans to between 480,000 and 500,000, from 415,000 to 440,000 members.

Humana now expects 2019 adjusted earnings of $17.60 per share, from a prior range of $17.25 to $17.50.

Adjusted consolidated benefits expense ratio, the percentage of premiums spent on claims, was 84.4% in the quarter versus 84.3% last year. Eight analysts polled by Refinitiv IBES had estimated 85.69%. A lower ratio is better for health insurers.

Excluding items, Humana earned $6.05 per share, beating estimates of $5.31 per share.

Revenue rose 13.9% to $16.25 billion, above estimates of $15.93 billion.

The company said it would begin a $1 billion accelerated share repurchase program after the bell on Wednesday. (Reporting by Tamara Mathias and Aakash Jagadeesh Babu in Bengaluru; Editing by Shailesh Kuber)

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