Humana Looks to (Medicare) Future

Fully insured employer group enrollment fell 6.1%, to 1.2 million, and revenue from those groups fell to about $1.2 billion, from $1.3 billion.

The decline in enrollment "primarily reflected the company's continued dedication to pricing discipline in a highly competitive environment for large group business partially offset by small group business membership gains," the company says in a comment about the results.

The percentage of Humana's fully insured group business in small group accounts, rather than large group accounts, increased to 56%, from 48% a year earlier, Humana says.

Humana is reporting a benefit ratio of 83.5% for the commercial group plans for the latest quarter, up from 82% for the third quarter of 2010. The company did not talk about possible exposure to federal minimum medical loss ratio rebate liabilities during the call or in the earnings announcement.

During the call, executives said commercial group medical costs have been increasing about 8% per year. This year, the increase seems to be just 5% to 6%. Humana is planning for costs to rise about 7% in 2012, Jim Murray, the chief operating officer, said.

"The small group business is growing very nicely for us," Murray said. "We don't see anything unusual about the pricing environment there."

But Humana does see "lots of mud wrestling" for midsize cases with 100 to 300 lives, Murray said.

Competitors are not generally pricing irrationally to win that business, but they are working hard to win the cases on a case-by-case basis, Murray said.

Humana executives devoted most of their time on the call to talking about the company's Medicare Advantage operations, noting that the operations are growing rapidly, earning solid quality ratings and having success with holding down utilization of health care services.

In the past, Humana had been trying to form a marketing alliance with Cigna Corp., Bloomfield, Conn. (NYSE:CI). Cigna executives raised questions about the future of the alliance earlier this month when they announced an agreement to acquire a major Medicare Advantage player, HealthSpring Inc., Nashville, Tenn. (NYSE:HS).

The effort to start the Cigna alliance has been slow, and "we haven't had any business coming out of it yet," according to Humana President Michael McCallister.

Part of the process of creating an alliance involves understanding the mechanisms that can be used to get out of the alliance, McCallister said.

But the Cigna-HealthSpring deal does send a message that Medicare Advantage plans will have opportunities to get at the enrollees in big employers' retiree health plans, McCallister said.

McCallister also talked briefly about Humana's Medicare supplement (Medigap) insurance operations.

Medigap plans simply fill in gaps in traditional Medicare Part A and Part B coverage, rather than replacing the traditional coverage altogether, as Medicare Advantage plans do.

Some policymakers in Washington say the lawmakers who are now trying to cut the federal budget deficit could reduce Medicare spending by limiting the ability of Medigap plans to pay traditional Medicare out-of-pocket costs.

McCallister said he is comfortable with the idea that changes in Medigap might be coming.

"I do think, from a policy perspective, that making changes to the Medigap world is the right thing to do," McCallister said.

He said he believes studies have demonstrated that Medigap plans may lead to increases in enrollees' total claims costs.

"I'm not concerned about changes, as long as they are fair and reasonable," McCallister said.