Medicare Prescription Drug Plans Affect Humana First Quarter Earnings

2008 and first quarter earning estimates have been toned down by Humana. There has been some concern about the effects of increasing health care costs on insurer profits. The 2008 earnings of Humana are expected to be in the range of $4 to $4.25 per share.

On February 4 the estimate was $5.35 to $5.55 per share. First quarter earnings of 44 to 46 cents per share are estimated down from the earlier estimate of 80 to 85 cents a share. The share price of Humana, meanwhile has decreased.

The reason for all this is issues with Medicare prescription drug plans according to Humana. The usage of medications with higher copayments has been overestimated. This overestimation meant that beneficiaries would have paid more out of the pocket than Medicare allows.

As a result Humana reduced the copays for those medications. This meant that Humana had to pay for a larger portion of the cost. According to Jim Murray, Humana CEO, “In hindsight, we should have assumed that members would likely change their behavior and substitute lower-tier drugs rather than lowering our copays.”