Feb. 4 (Bloomberg) -- Humana, the No. 2 provider of U.S.- funded health coverage, fell 3.5 percent in New York trading on investor concern the next president may cut subsidies that spurred a 57 percent fourth-quarter profit increase.

Net income rose to $243.2 million, or $1.43 a share, Louisville, Kentucky-based Humana said today in a statement. The result beat analysts' estimates by 11 cents, and the insurer raised its 2008 forecast.

Humana depends more than rivals such as WellPoint Inc. and Aetna Inc. on Medicare Advantage, a government program that pays insurers to provide health-care benefits to elderly and disabled people. Advantage generates about $10,000 in annual revenue per subscriber. Democrats in Congress have called for reducing payments to insurers, adding to pressure on the next president to do so.

``While Humana's results were solid, and the current administration will likely protect the Medicare Advantage program and rates through 2009, we fear discussion of rate reductions'' may hurt the company, said Christine Arnold, an analyst with Morgan Stanley in New York, in a note to clients today. She said she doesn't recommend the stock.

Humana fell $2.86 to $78.98 at 4:02 p.m. in New York Stock Exchange composite trading after earlier touching $76.30. Last year, Humana climbed 36 percent, the strongest performance in the six-member S&P 500 Managed Health Care Index, which posted a 16 percent gain.

Revenue Increased

Revenue increased 12 percent in the quarter to $6.34 billion. Fourth-quarter profit climbed because of higher enrollment in Medicare Advantage plans, lower medical expenses, and a lower-than-expected tax rate, the company said. The average estimate of 14 analysts surveyed by Bloomberg was $1.32 a share.

A year earlier, the company recorded net income of $155 million, or 92 cents a share.

The company said it expects 2008 profit of $5.35 to $5.55 a share, up from its Oct. 29 forecast of $5.30 to $5.50, because of lower taxes. Analysts had estimated $5.46. Medicare Advantage enrollment will increase by more than 200,000, generating at least $13 billion in premiums, about half the company's total revenue, for the full year, the company said.

Humana is one of hundreds of insurers that together will collect $86 billion in Advantage premiums in 2008. The government could save about $11.2 billion, or 13 percent, if it directly provided benefits to those policyholders, according to official estimates.

Too Generous?

Of the 9.1 million people in the Medicare Advantage program at year end, more than 1.14 million were Humana subscribers. The number of Humana Medicare Advantage enrollees grew in January to 1.24 million.

Democrats in Congress are trying to slash insurance company payments for Advantage, which they say were set too high by Congress in 2003. President George W. Bush has defended the program.

``The Medicare Advantage program was written by the Republicans to benefit insurance companies, not senior citizens,'' said Representative Pete Stark, the California Democrat who heads the House Ways and Means health subcommittee, in an e-mail today. Under existing rules ``it would be virtually impossible for Humana not to prosper.''

`Wild West'

State insurance regulators have criticized Humana and other insurers, saying they often mislead elderly people into signing up for plans that aren't right for them. Senator Ron Wyden, an Oregon Democrat, likened the Medicare Advantage marketplace to the lawless Wild West.

In the last five months, Humana has paid $1 million in fines to Oklahoma and Illinois for using unlicensed agents to sell Medicare Advantage.

Medicare Advantage members get extra benefits, including lower out-of-pocket costs and gym memberships, although they may have to switch doctors and pay copayments that are higher than regular Medicare.

In the fourth quarter, Humana reduced its medical costs, spending 80.3 percent of premium revenue on doctors and hospitals, down from 83.2 percent a year earlier. In the third quarter of 2007, Humana reported the ratio was 83.8 percent.

Analysts and investors in health insurance companies use the percentage of total premium revenue spent on medical care as an indicator of future profits. They see a rising percentage as a sign that profits may suffer until companies raise premiums.

The largest U.S. health insurer, UnitedHealth Group Inc., of Minnetonka, Minnesota, said on Jan. 22 that its medical costs for employer-sponsored health plans grew in the fourth quarter to 83.7 percent of premium revenue from 80 percent a year earlier. Indianapolis-based WellPoint, the second-biggest managed-care company, said Jan. 23 that its consolidated ratio for all plans rose to 82.9 percent from 81.8 percent a year ago.

For the full year 2007, Humana reported net income of $833.6 million and earnings per share of $4.91 on revenue of $25.3 billion.

To contact the reporter on this story: Avram Goldstein in Washington at agoldstein1@bloomberg.net.

Last Updated: February 4, 2008 16:31 EST