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Exchange business limits Humana's fourth-quarter profit

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Humana Inc.’s fourth-quarter 2015 net income plummeted 30% on losses in its individual commercial business offered through public health insurance exchanges, but the health insurer said Wednesday that it expects 2016 to be better.

The Louisville, Kentucky-based insurer, which plans to merge with Aetna Inc. in the second half of this year, reported net income of $101 million for the three months ended Dec. 31, down 30.3% from the same period the year before, Humana said in a statement.

Humana posted total fourth-quarter revenue of $13.36 billion, up 8.4% from the year-ago period, reflecting growth in its retail segment, which consists of Medicare and commercial fully insured health insurance benefits for individuals, according to the statement.

Premium revenue rose 10.9% to $12.96 billion from the prior year period, and the insurer’s total medical membership at the end of the quarter remained flat at 14.2 million, Humana said.

In the statement, Humana said high morbidity and utilization of medical care in the individual commercial business affected its results, and said the benefit ratio of the exchange products that comply with the Affordable Care Act “significantly exceeded” its pricing expectations “driven primarily by the ongoing impact of the transitional policies, special enrollment period exemptions associated with the program and government-mandated product designs that attract higher-utilizing members.”

The insurer, which raised prices and discontinued some products last year, said it continues to evaluate its participation in the exchanges for 2017.

“Humana faced challenges across a number of fronts in 2015,” Brian A. Kane, Humana’s senior vice president and chief financial officer, said in the statement. “However, the strength of our clinical model together with strong administrative cost discipline helped us not only manage these challenges in 2015, but together with targeted pricing and other operational actions, helped position us for meaningful margin improvement in our core individual Medicare Advantage business for 2016 as well as attractive growth in both revenues and EPS in 2017 and beyond.”

Humana’s net income for all of 2015 rose 11.2% to $1.28 billion compared with 2014.

Revenue for 2015 jumped 11.9% to $54.29 billion, and premium revenue climbed 14.0% to $52.41 billion.

Humana President and CEO Bruce D. Broussard also said the merger with Aetna remains on track to close in the second half of this year, and “we are pleased with progress to date” on the health insurers’ combination.