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CFOs notice the flu

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Unexpected winter flu claims costs at publicly traded health insurers could total more than $160 million, or about 7.6 percent of their combined net income for the fourth quarter of 2012.

Disability insurers and long-term care insurance (LTCI) carriers have not been talking about the flu in their earnings releases, but unusually bad flu seasons could lead to increases in the number of claims for short-term disability, long-term disability and even long-term care (LTC) services, as well as an increase in the need for acute medical care and an increase in the death rate.

Six large health insurers — Aetna Inc. (NYSE:AET); Centene Corp. (NYSE:CNC); Health Net Inc. (NYSE:HNT); Humana Inc. (NYSE:HUM); UnitedHealth Corp. (NYSE:UNH); and WellPoint Inc. (NYSE:WLP) — have reported a total of about $2.1 billion in net income for the quarter on about $70 billion in revenue.

At this point, four insurers — Centene, Humana, UnitedHealth and WellPoint — have reported a total of $156 million in flu costs over the typical level.

  • Humana: $75 million, for the December-January period.
  • UnitedHealth: $50 million, for the December-January period.
  • Centene: $15 million for December and about $10 million for January.
  • WellPoint: $6 million for December.
  • Aetna: Executives said the flu claim amount was noteworthy but offset by the reduction in medical utilization resulting from Superstorm Sandy.
  • Health Net: Executives did not talk about flu claims in that company’s earnings release or earnings call.

Another large, publicly traded health insurer, Cigna Corp. (NYSE:CI) is set to report its earnings Thursday.

The companies are recording some of the flu claims in 2012 and some in 2013, and that will soften the effects of the claims on results in any one quarter.

At several companies — Aetna, Centene, Humana and WellPoint — the company’s chief financial officer (CFO) spent time talking about flu costs during the company’s fourth-quarter earnings call with securities analysts and investors.

Executives at Centene spent a considerable amount of time talking about the flu today during their company’s call.

Centene is reporting a total of $4.6 million in net income for the latest quarter on $2.4 billion in revenue, compared with $29 million in net income on $1.5 billion in revenue for the fourth quarter of 2011. The company cited a high level of flu costs as one reason the company’s consolidated health benefit ratio increased to 91.3 percent in the fourth quarter of 2012, from 85.9 percent in the fourth quarter of 2011.

Health plan enrollment increased to 2.6 million, from 1.8 million.

Centene executives said they found that the 2012-2013 flu season began earlier than normal and was especially intense in Texas, the company’s largest market.

Officials at the U.S. Centers for Disease Control and Prevention (CDC) are suggesting that the flu season may have peaked in mid-January, but, so far, flu costs seem to have been about as elevated over year-ago levels in January 2013 as they were in December 2012, executives said.

“Depending on how this plays out for the full quarter, we could certainly see an impact of this in our first-quarter earnings,” William Scheffel, the Centene CFO said. 

So far, however, the effect does not seem to be big enough to affect the earnings projections the company has shared with investors and securities analysts, Scheffel said.

There are some signs that the flu season might have peaked earlier than usual, and that that could hold down first-quarter claims, executives said.

Clorox (NYSE:CLX) is an example of a company benefiting from the flu.

Executives at the bleach maker reported that this year’s severe cold and flu season led to strong sales of the company’s disinfecting products.

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