LOUISVILLE, Kentucky — Health insurer Humana Inc.'s second-quarter net income fell by 18 percent as investments in health care exchanges and state-based contracts along with higher specialty drug costs more than offset continued membership growth in its Medicare Advantage and prescription drug plans.
The company's results, released Wednesday, matched analysts' expectations, and it reaffirmed its 2014 earnings estimate of between $7.25 and $7.75 per share.
Humana said membership in its individual Medicare Advantage business reached 2.36 million as of June 30, up 16.4 percent from a year ago and 14.2 percent higher than at the end of 2013.
The Louisville, Kentucky-based company is among the nation's largest providers of Medicare Advantage plans, which are privately run versions of the government's Medicare program for elderly and disabled people.
Membership in Humana's individual stand-alone Medicare prescription drug plans totaled nearly 3.89 million at the end of June, up 20.5 percent from a year ago and 18.6 percent higher than at the end of 2013. Humana promotes its Medicare prescription drug offerings and other plans at Wal-Mart stores.
The company's individual commercial medical membership increased to 1.12 million as of June 30, up 134.5 percent from a year ago.
"Our second-quarter and year-to-date results show the effectiveness of our integrated care delivery model in driving robust membership growth in our Medicare, health care exchange and state-based Medicaid businesses," Humana President and CEO Bruce D. Broussard said.
Costs associated with a new and expensive treatment for hepatitis C helped drive up specialty drug costs.
Overall, Humana reported net income of $344 million, or $2.19 per share, in the three months ending June 30. That's down from $420 million, or $2.63 per share, in the same quarter a year ago.
The health insurer said revenue rose 18.4 percent to $12.22 billion from $10.32 billion in the same quarter a year earlier, and beat Wall Street forecasts. Analysts expected $11.93 billion, according to Zacks.
Humana said a slightly higher percentage of premium dollars from its members went to pay for medical claims in its retail segment during the quarter.
The company reported second-quarter pretax income of $329 million in the key retail segment, compared to $418 million a year ago.
Humana reported higher costs in the retail segments, including an industry-wide tax that is non-deductible along with spending for the health care exchanges and new state-based contracts and higher Medicare Advantage marketing costs.
Humana's employer group segment had pretax income of $89 million, compared to $134 million a year ago. The drop was due to higher costs and a higher percentage of premium dollars going for medical claims.
Pretax income in its health-care services segment reached $206 million, compared to $124 million a year ago, the company said. The growth was driven partly by increased profit from the company's pharmacy and home-based services businesses.
Humana shares have climbed $24.30, or 24 percent, to $127.52 since the beginning of the year, while the Standard & Poor's 500 index has increased 6.6 percent. The stock has risen $38.26, or 43 percent, in the last 12 months.