Humana, With Strong Run In Medicare, May Diversify

Medicare has been good for health insurer Humana Inc. (HUM), which now thinks it may have too much of a good thing.

Chief Executive Michael McCallister told analysts Monday the company, which derives a majority of its business from Medicare Advantage health plans, would like to diversify.

"We understand the implications of having so much business with our federal government," McCallister told Dow Jones Newswires later. "Politics do matter and it has implications to our business."

Humana, based in Louisville, Ky., has more than doubled its size the last few years as it focused on selling Medicare Advantage and Medicare prescription-drug plans. In reporting a 34% increase in second-quarter earnings, the company said strength in its Medicare business offset weaknesses in its smaller commercial segment.

The company did a good job taking advantage of the new Medicare market in recent years, "but in doing so we did expose ourselves to the vagaries of Washington more than we once did," McCallister said.

Of the $30 billion to $32 billion in revenue Humana expects to generate this year, the company forecasts at least $16 billion from Medicare Advantage plans, $2.4 billion from stand-alone Medicare drug plans and $7.5 billion from its commercial segment. The company also expects at least $3.5 billion from its military services business this year. (Humana is protesting a recent Department of Defense decision to award its Tricare military contract to a competitor.)

With a Democrat-controlled Congress and a Democratic president taking aim at federal payments to private insurers offering Medicare Advantage plans, Humana more than its major managed-care peers, is exposed to likely rate cuts.

Humana has been working in small ways on diversifying, buying various non-Medicare business, and a bigger move "is something we have to think about," McCallister said. The decisions "will be driven to a large extent by what does happen in Washington."

Turning to Washington policy makers' efforts to overhaul health coverage, McCallister called Democrats' proposals for a government health-plan option "the third rail" that would bring more government intervention and control of the health sector. As others in the industry have done, McCallister said a government option is unnecessary under industry-supported proposals for mandated, guaranteed coverage and would cause many to lose their private insurance.

-By Dinah Wisenberg Brin, Dow Jones Newswires

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