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Health plans report gains but remain financially cautious

Companies continue to look for opportunities beyond insurance as a hedge against how health system reform might affect earnings.

By Bob Cook — Posted Nov. 19, 2012

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In the third quarter of 2012, five of the seven largest publicly traded insurers reported increased profits — the reverse of the second quarter, when five of seven recorded declines.

However, health plans weren’t looking at the turnaround as a sign they were on a path to great financial health. Instead, they cautioned investors that gains would be modest, if they occurred at all, because of regulations to come from the Affordable Care Act, and because of the time and money being spent to figure out the most profitable way to operate in the new environment the law creates.

Humana reported a per-share earnings decline of 4% in the third quarter compared with 2011. On Nov. 5, the day of its financial release, Humana emphasized the new deals it was undertaking to find new profit opportunities to replace money lost because of rules requiring that a minimum amount be spent on care, and rules limiting what Medicare Advantage plans can make.

The company announced an $850 million deal to buy Metropolitan Health Networks, a Boca Raton, Fla.-based company providing and coordinating care for 87,500 Medicare Advantage, Medicaid and other beneficiaries. The deal includes 35 primary care centers, which are integral to the coordination of that care. The companies said the deal would allow Metropolitan to expand its operations and allow Humana to “simplify and improve the overall health care experience for our members,” said Humana President Bruce Broussard.

Humana announced two other deals upon its earnings release. It paid an undisclosed sum to buy Virginia-based Certify Data Systems, which provides technology for health information networks. And Humana paid an undisclosed amount to acquire a noncontrolling interest in MCCI Holdings, which coordinates care for Medicare Advantage and Medicaid beneficiaries, primarily in Florida and Texas.

Humana wasn’t the only company announcing deals on its earning release day. UnitedHealth Group, which saw its revenue climb to more than $27 billion, said upon its earnings release that it had received regulatory approval in Brazil for its plan to acquire 90% of the country’s largest private health insurer, the 5 million-member Amil Participacoes. Terms of the deal were not disclosed. Aetna is among the other plans using international acquisitions as a way to expand profits in light of the ACA’s medical-loss-ratio requirement.

United’s boost was well ahead of the second-largest plan in revenue, WellPoint, which had revenues of about $16 billion.

Health Net, whose profits fell 69%, which mostly reflected a one-time gain in the third quarter of 2011, also announced a deal at earnings time, though it wasn’t a merger or acquisition. The company said it had settled issues with California over Medicaid pay, signed new contracts with the state and inked a deal creating a dual-eligible, Medicare-Medicaid pilot program.

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ADDITIONAL INFORMATION

Health plan earnings head back up

In the third quarter of 2012, five of the seven largest publicly traded health insurers saw their revenue and earnings go up — a reversal from the second quarter, when five of seven posted declines.

RevenueNet incomeEarnings per share
Plan3Q113Q12 (change)3Q113Q12 (change)3Q113Q12 (change)
Aetna$8,475$8,917 (5%)$490$499 (2%)$1.30$1.47 (13%)
Cigna$5,610$7,358 (31%)$183$466 (155%)$0.67$1.61 (140%)
Coventry$2,976$3,458 (16%)$123$105 (-14%)$0.83$0.78 (-6%)
Health Net$2,692$2,780 (3%)$62$18 (-71%)$0.71$0.22 (-69%)
Humana$9,301$9,651 (4%)$445$426 (-4%)$2.67$2.62 (-2%)
UnitedHealth Group$25,280$27,302 (8%)$1,271$1,557 (23%)$1.17$1.50 (28%)
WellPoint$15,398$15,353 (< 1%)$683$691 (1%)$1.90$2.15 (13%)

Source: Company filings with the Securities and Exchange Commission

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