Humana Inc. (NYSE: HUM) announced today it will lose about 308,000 Medicare Part D prescription drug lives among auto-assigned dual-eligible recipients of Medicare and Medicaid in 2009 because its bid was higher than the government’s benchmark rate. No big deal, says equity analyst Carl McDonald of Oppenheimer, who writes that ”the members weren’t that profitable to begin with.” Investors agreed, pushing Humana’s shares up after the announcement. Humana shoots for an overall Part D and Medicare Advantage operating margin of about 5%.
McDonald’s research note on the Humana loss also gives an eye into some key considerations facing managed care plans when they bid on Part D business.
“The potential negative from this news is that it’s likely that pricing on HUM’s retail PDP product will also be up in 2009. This puts Humana at-risk of losing retail lives, which do earn a decent margin, and it also reduces the pool of seniors that can be converted to a full Medicare product.
“The loss of the dual eligible lives will make Humana’s [medical loss ratio] less seasonal than it has been, as duals tend to have a much worse MLR in the first quarter, and a better than average PDP MLR in the back half. As a result, HUM’s sequential earnings progression will be less back-end loaded.”
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