EARNINGS: MOST HMOS TO MEET MARKET EXPECTATIONS
Despite rising medical costs, several HMOs are expected toThis is part of the California Healthline Daily Edition, a summary of health policy coverage from major news organizations. Sign up for an email subscription.
"meet Wall Street's rather modest earnings expectations for the
third quarter," Wall Street Journal reports. A "recent round of
rate increases" should help HMOs reach Wall Street's profit
forecasts. News of better-than-expected earnings comes after
several months of disappointing forecasts, including
announcements by Aetna Inc., Cigna Corp. and United Healthcare
Corp. that their profits would be less than expected. These
announcements, according to the Journal, "persuaded analysts to
reduce their earnings expectations for the rest of this year and
next year."
SOME GOOD NEWS
Norwalk, CT-based Oxford Health Plans Inc., according to UBS
Securities Inc. analyst Christine Arnold, "should demonstrate
continued strong growth in earnings and revenue for the third
quarter." Specifically, Oxford should report third-quarter
income of 48 cents a share, up from 33 cents a share in 1996; and
"[p]remium revenue should be a robust 41%." Humana Inc. "should
report earnings of 27 cents a share," up from 22 cents a share in
1996, according to Morgan Stanley Dean Witter analyst Todd
Richter. In addition, Richter noted that the Louisville, KY-
based HMO "is obtaining price increases of between three percent
and five percent," and he said Humana's good results can be
attributed to the company's decision to pull out of several
"poorly performing markets." United Healthcare, according to
Arnold, should "report per-share earnings of 55 cents, compared
with 45 cents a year ago." The company, based in Minneapolis,
MN, implemented price increases of seven percent to nine percent
and should see a decline in its medical-loss ratio. Los Angeles-
based Foundation Health Systems should see earnings rise 8 cents
a share -- from 50 cents a share in the second quarter to 58
cents a share for its third quarter, Volpe Brown Whelan & Co.
analyst Edward Keaney said. WellPoint Health Networks Inc.
"should report net of 78 cents a share compared with 68 cents a
share a year earlier," according to Arnold. The Woodland Hills,
CA-based company saw its "total large group enrollment" increase
by 16% and its "California small-group membership" increase by
eight percent.
NOT ALL GOOD NEWS
Despite news that its earnings should increase to 99 cents a
share from 95 cents a share, Aetna "has dug itself into a deep
hole for 1998 because it failed to notice an uptick in its
medical costs before it priced about half of its January health-
plan renewals." The problem, Richter said, is in part a result
of problems the company is having in integrating U.S. Healthcare.
PacifiCare, "in the midst of a rebuilding year as it continues to
cope with the FHP International integration," should report net
per share earnings of 67 cents, down from $1.19 in 1996, Keaney
said.
THE MOST IMPORTANT QUARTER
According to Arnold, "the majority of the business being
renewed at this time of the year is probably small-group plans."
The Journal noted that the "more important January health-plan
renewals are composed mostly of large-group plans." "We should
not assume that because the companies are getting good third-
quarter, fourth-quarter pricing that those numbers will be
matched during the critical January renewal season," Arnold said
Dow Jones/(Hau, 10/27).