(Corrects attribution in first, fourth paragraphs).

Nov. 2 (Bloomberg) -- Humana Inc.’s 65 percent rise in third-quarter profit explains the insurer’s opposition to legislation in the Congress to overhaul the U.S. health-care system, said Jim Manley, a spokesman for U.S. Senate Majority Leader Harry Reid.

Democratic lawmakers and the Louisville, Kentucky-based company clashed in September when Humana sent letters to seniors claiming health-care proposals would threaten their benefits in Medicare Advantage, the insurance program for seniors run by private companies. Bills in Congress would impose new restrictions on insurers and create a government-backed program to compete with private health plans.

Insurance reform is at the heart of efforts to change a health-care system that makes up one-sixth of the world’s largest economy. President Barack Obama wants to expand coverage and rein in rising costs. Obama and leaders in the Senate and House have criticized insurers as impediments to the overhaul.

“It’s no wonder why Humana has been misleading seniors about health insurance reform,” Manley said in a statement. “They saw their profits rise 65 percent last quarter and want to make sure the gravy train doesn’t end.”

Humana’s profit in the period a year ago was affected by one-time charges, said Tom Noland, a Humana spokesman.

Distressed Assets

“Last year’s number was understated by $0.40 per share due to the writedown of distressed assets and sales of distressed financial institution securities, neither of which recurred in 2009,” Noland said today in an e-mail.

A bidding error disclosed by the company resulted in unusually high medical expenses in their Prescription Drug Plan operating results for 2008, he said. The error was corrected in 2009.

“It’s also worth mentioned that Humana’s total after-tax net income margin was 2.2 percent in 2008,” Noland said.

Humana is the second-largest administrator of Medicare Advantage plans, which are a cost-cutting target for Democrats. The privately administered plans cost 14 percent more in 2009 than traditional Medicare, the government’s health program for the elderly, according to the Medicare Payment Advisory Commission, a nonpartisan group that advises Congress. Advantage plans provide some benefits not included in traditional Medicare.

GAO Report

A 2008 report by the Government Accountability Office found that insurers who administered Medicare Advantage spent less than they pledged to in 2005 and had profits of more than $1 billion.

The Senate bill would restructure and reduce payments to Medicare Advantage with bonus payments for quality, performance improvement and care coordination.

In a conference call today, Michael B. McCallister, Humana’s president and chief executive officer, said third- quarter earnings of $1.78 a share were “a significant improvement over the $1.09 per share earned last year in the third quarter.” The company’s net income rose to $301.5 million from $183 million in the period a year earlier, Humana said in a statement.

“Our government segment continued to perform well in the third quarter particularly in our Medicare business,” McAllister said.

Membership Growth

McCallister said he expected Medicare Advantage membership to increase by about 180,000 to 240,000 members in 2010.

Humana fell 57 cents, or 1.5 percent, to $37.01 at 4 p.m. in New York Stock Exchange composite trading. The company gained 25 percent in the past 12 months.

Humana was criticized by Democrats in September, when the Centers for Medicare and Medicaid Services told the company to stop mailings to seniors claiming they would lose their Medicare Advantage benefits under health reform. Senate Finance Committee Chairman Max Baucus, a Montana Democrat, accused the insurers of “scare tactics.”

Republicans retaliated by declaring they would block approval of administration nominees until the so-called gag order was lifted. Humana is based in the home state of the Republican leader, Senator Mitch McConnell of Kentucky, and is the fifth-largest employer in Louisville.

Humana chairman David Jones Jr. and foundations he controlled contributed about $1.6 million in donations to the McConnell Center for Political Leadership at the University of Louisville, according to a 2004 report by the Courier-Journal newspaper in that city. The insurer has been McConnell’s eighth- biggest donor since 2005, according to the Center for Responsive Politics.

To contact the reporter on this story: Nicole Gaouette in Washington at ngaouette@bloomberg.net.

Last Updated: November 2, 2009 20:57 EST