Humana shares jumped more than 4% on Wednesday after the insurer said that it gained more customers in the second quarter than at any time in the last decade.
The Louisville-based company also said it now expects to generate earnings per share this year of $17.97, up 21% from the prior year. The EPS figure also is about 7.2% higher than its projection from May.
The company said its strong quarterly results and outlook also would boost bonuses for the majority of its full- and part-time employees. As of Dec. 31, Humana employed 41,600, including 12,000 in Louisville.
Shares on Wednesday rose as high as $302.40, up nearly $18, or 6.3%. However, shares began to dip midafternoon Wednesday and closed at 296.75, still up 4.3% for the day. The Dow Jones Industrial Average, the Nasdaq and the S&P 500 all lost more than 1%.
CEO Bruce Broussard said in a news release that the company’s “strong results” in the second quarter reflected “our operating discipline and execution, investments in our integrated care delivery strategy, and our relentless focus on creating a simple and personalized healthcare experience for our members.”
Humana said it its second-quarter revenue rose 13.9%, to $16.2 billion, while operating expenses jumped 12.9%, to 15.1 billion.
Net income, at $940 million, rose 387%, but the numbers were skewed by the loss of the sale of its KMG America Corp. subsidiary and a higher tax bill. In the second quarter of last year, Humana incurred a loss of $790 million related to the KMG sale, which significantly lowered net income.
Humana said its adjusted pretax income in the second quarter was nearly $1.1 billion, up 32%.
The insurer also paid $301 million in income taxes in the second quarter, compared to a net gain of $174 million a year earlier.
Broussard said in an earnings call that the results will boost eligible employees’ compensation through the annual incentive program. The AIP, which the company implemented in 2018, has become a significant part of employee pay.
In 2017, median employee compensation was $57,385. That rose in the following year to $70,498, thanks primarily to the AIP, which was $10,125, a Humana spokeswoman told Insider.
The AIP target for eligible employees is 4% of the annual base salary, though the payout can change depending on company and individual performance. Payouts are tied to metrics including financial performance, membership growth and care quality.
Bonuses are paid in the year after results are generated.
Bonuses are rising in part because the company is gaining more customers than previously projected. Humana said that it expects to gain about 490,000 Medicare Advantage customers this year, about 15% more than it expected earlier this year.
Broussard said in the earnings call that employee bonuses are expected to be higher this year “not only (because of) above-target individual membership growth and earnings per share, but also a result of improved customer satisfaction.”
While Broussard said that he expects “reasonable growth in adjusted earnings per share in 2020,” he warned that the scheduled return of an Affordable Care Act-related health insurance fee.
The fee cost Humana about $916 million in 2016 and just over $1 billion in 2018. The fee was suspended for 2017, will be suspended again this year but is scheduled to return in 2020.
“We are making significant investments in 2019 to create sustainable customer value and lessen the impact of significant 2020 headwinds on member benefits and premiums in 2020,” Broussard said. “That being said, millions of seniors across the industry will likely see a reduction in benefits and/or increased premiums next year from the expiration of the health insurance fee moratorium.”