Insurers Pulled Down by Humana as Obamacare Bump Expected

U.S. health insurers were dragged down by Humana Inc.’s second-quarter earning results, which matched estimates while investors had higher expectations for a boost from Obamacare.

Insurers have gained new customers through Obamacare, which helped results from other companies including WellPoint Inc. (WLP), the second-biggest U.S. health insurer. WellPoint today raised its full-year forecast for earnings except certain items by 20 cents, to $8.60 or more per share, as the industry starts to see gains from customers buying new insurance plans through the Patient Protection and Affordable Care Act known as Obamacare.

Humana disappointed investors, though, as it reported higher-than-expected costs, including from a new $84,000-a-year treatment for the liver disease hepatitis C made by Gilead Sciences Inc.

That was enough to cause a fall by health insurance stocks, which often trade as a group, said Jeff Jonas, a portfolio manager with Gabelli & Co. “Insurers have reported very strong results, but expectations were high going in, so investors are focusing a little bit on the negative here and have been selling off,” Jonas said in an interview.

Humana (HUM) dropped 5.6 percent to $120.34 at the close in New York, the biggest single-day decline since February 2013. WellPoint fell less than 1 percent to $112.47. The Standard & Poor’s 500 Managed Care Index of major health insurers decreased 1.9 percent led by Humana’s decline.

The industry is adjusting to life under the 2010 health-care overhaul that levies fees on them and adds coverage requirements, and also offers subsidies to help people buy their products through new state- and U.S.-run marketplaces.

Obamacare Bet

WellPoint, based in Indianapolis, made the biggest commitment of any publicly traded insurer to the Obamacare markets, accounting for 769,000 of the law’s 8 million insurance enrollees. Investors have been watching to see if that wager pays off, which largely depends on how healthy the new customers are and whether their costs are sufficiently covered by premiums.

WellPoint’s profit, excluding one-time items, was $2.44 per share, 18 cents more than the average forecast of 22 analysts surveyed by Bloomberg.

‘Solid’ Results

“WellPoint’s second-quarter results look solid,” Chris Rigg, an analyst with Susquehanna Financial Group, said today in a note to clients. “The company’s revised 2014 guidance reflects stronger enrollment and continued cost controls.”

Humana also added new customers through Obamacare, though it struggled with costs. The Louisville, Kentucky-based insurer reported earnings per share today that matched analyst estimates and reaffirmed its 2014 profit forecast. Net income fell 18 percent to $344 million, or $2.19 per share.

Each insurer is selling insurance plans on Obamacare marketplaces in 14 states.

Along with the new markets, insurers have benefited from Obamacare’s expansion of who can qualify for the joint state-federal Medicaid program for the poor. WellPoint said it added 373,000 members through Medicaid and Humana gained 163,000.

Nationwide, more than 6 million people have received health coverage through Medicaid since the law’s expansion went into effect this year.

WellPoint said those buying Obamacare plans in the second quarter were younger than those who purchased coverage earlier in the year, an indication a late surge of enrollees could help profits. So far, the Obamacare customers don’t seem to be sicker and more costly than the company had anticipated.

WellPoint said net income for the second quarter was $731 million, or $2.56 a share, compared with $800 million, or $2.64 a share, a year earlier. Revenue rose 4.4 percent to $18.5 billion as it added 1.6 million new members this quarter compared to a year before.

To contact the reporter on this story: Shannon Pettypiece in New York at spettypiece@bloomberg.net

To contact the editors responsible for this story: Reg Gale at rgale5@bloomberg.net Drew Armstrong, Andrew Pollack

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