HMOs: Mixed First-Quarter Results Expected
Managed care companies will likely post "fairly strong" earnings for the first quarter of this year, mostly because of "rate boosts that were generally higher than those obtained in the year-earlier period," Dow Jones/Wall Street Journal reports. But some plans are just as likely to post declines. Companies were able to see profit margins improve as they offset medical cost increases of 3% to 4% by raising premiums 5% to 6%, according to Furman Selz Inc. analyst Robert Hoehn. Premium increases have cheered investors, "sending the shares" of some HMOs "up sharply from their levels at the start of the year." WellPoint Health Networks Inc.'s shares are up more than 60%, while PacifiCare Health System Inc. shares are up more than 40% and United HealthCare Corp.'s are up more than 35%. However, those health plans that had smaller premium increases "struggled to cover their costs." The "uptick in medical expenses," Hoehn noted, came from pharmaceutical companies such as Eli Lilly & Co. and Johnson & Johnson, which had "robust sales of relatively new drugs," especially their improved antipsychotics.
Analysts expect Aetna Inc. to post first-quarter net income of 82 cents a share, down from $1.14 during the same period last year. Hoehn said the Hartford, CT-based company "probably fell short" of getting rate boosts of 4%. Humana Inc. will likely report first-quarter net income of 30 cents per share, up from 24 cents last year. Hoehn said the "company has been maintaining a harder line on rate increases and has been focusing more efforts on improving customer service and physician support." But predictions for the first-quarter earnings for Oxford Health Plans Inc. are "anyone's guess." While First Call Corp. estimates an earnings loss of 62 cents a share, other estimates range from a per-share loss of 27 cents to $1.06. The Norwalk, CT-based HMO posted a loss of 42 cents per-share last year, but this year the "results won't be material unless there's more disastrous news," according to Eleanor Kerns, BT Alex. Brown Inc. analyst. Santa Ana, CA-based PacifiCare "obtained better-than-expected pricing on its health plans," but is still expected to post earnings of 73 cents a share, down "sharply" from last year's first-quarter figure of $1.12. "The likely driver of PacifiCare's earning in the quarter was an expected sequential drop" in the portion of premium revenue it had to pay out for medical costs, according to SBC Warburg Dillon Read & Co analyst James Lane.
Compared to earnings of 54 cents per-share a year ago, United HealthCare is expected to report earnings of 62 cents a share, according to First Call. The Minneapolis-based company also enrolled 13% more new members than in the same period a year ago and signed a 10-year contract with the American Association of Retired Persons to provide Medigap policies, according to Kerns. Woodland Hills, CA-based Wellpoint's first-quarter per-share earnings are expected to closely mirror those of last year, 83 cents and 82 cents respectively. According to Gary Frazier, a Bear, Stearns & Co. analyst, Wellpoint had "favorable enrollment trends during the January renewal period" in all different types of policies and is expected to counter medical costs with "rate boosts, improved health plan design, expanded medical-management programs and other efforts" (Hau, 4/20).