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Low Taxes and a Sale Boost Humana Profit

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LOUISVILLE, Ky. — Health insurer Humana Inc. posted a 57 percent surge in fourth-quarter earnings Monday from its growing government segment, a lower-than-expected income tax rate and a gain on the sale of a venture capital investment.

The Louisville-based company beat Wall Street projections for the three months ended Dec. 31 and also raised its profit outlook for 2008.

Net income for the fourth quarter grew to $243.2 million, or $1.43 per share, from $155 million, or 92 cents per share, a year ago. Analysts surveyed by Thomson Financial had expected profit of $1.32 per share on revenue of $6.22 billion.

Shares fell $1.98, or 2.4 percent, to $79.86 at the open of trade Monday.

For the full year, net income soared by 71 percent, to nearly $833.7 million.

Fourth-quarter revenue rose 12 percent to $6.34 billion, from $5.66 billion, with total premium and administrative services fees up 12 percent year-over-year driven by higher average Medicare Advantage membership. For the year, revenues rose 18 percent to $25.3 billion.

The company said its quarterly benefits ratio, or benefit expenses as a percent of premium revenue, totaled 80.3 percent _ 290 basis points lower than the 83.2 percent ratio in the 2006 period. Humana credited fewer expenses paid out in the government and commercial segments.

Pretax earnings in Humana's robust government segment totaled $304.6 million in the quarter, compared with $187.3 million a year ago, due to its growing Medicare Advantage business.

The company said its Medicare Advantage premiums rose 22 percent to $2.8 billion in the quarter compared to a year ago, primarily due to higher average membership.

Medicare Advantage membership was 1.14 million at the end of last year, up 14 percent from a year ago and essentially unchanged from the end of September 2007. The Medicare Advantage plans offer comprehensive health coverage.

Premiums from Humana's stand-alone Medicare prescription drug plans totaled $820.3 million in the fourth quarter, down 7 percent from a year ago, primarily the result of a 2 percent decline in average membership. Membership in the company's stand-alone Medicare prescription plans was down slightly at year's end from a year earlier.

For the year, pretax earnings for the company's government segment essentially doubled to $1.03 billion, compared with $513.8 million the previous year.

Humana said that premiums and administrative services fees from its military business increased by $30.6 million to $691 million in the fourth quarter. Humana provides health insurance for military families and retirees through its Tricare program.

Pretax earnings from Humana's commercial segment rose slightly to $54.4 million in the fourth quarter, compared with $53.9 million a year ago. Commercial segment medical membership grew by 167,800, or 5 percent, to 3.45 million at the end of 2007. Nearly 96,000 of the membership increase stemmed from an acquisition completed in the fourth quarter.

For the year, pretax earnings for the commercial segment totaled $261.8 million, up 5 percent from the previous year.

Looking ahead, the company raised its earnings per share outlook for fiscal 2008 to reflect a lower tax rate, now forecasting profit of $5.35 to $5.55 per share on revenue of $28 billion to $30 billion.

Wall Street has predicted profit of $5.46 per share on revenue of $28.44 billion.


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