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Humana sees lower profit due to spending on exchanges, Medicaid

(Reuters) - U.S. health insurer Humana Inc on Wednesday said it expected earnings to decline next year because of spending on the new health exchanges and on the Medicaid program for the poor.

Humana and its competitors began selling insurance plans to individuals on October 1 on state-based exchanges created under the national healthcare reform law. Those plans take effect in 2014.

The company also has managed care contracts with some states for their Medicaid health plans.

Humana said it expected 2014 earnings of $7.25 to $7.75 per share, including 50 cents to 90 cents in Medicaid and health exchange costs.

Analysts on average were expecting a profit of $8.69 per share for the year, according to Thomson Reuters I/B/E/S. It was not immediately clear if that consensus figure included any spending on those investments.

For 2013, the company said it still expected earnings of $8.65 to $8.75 per share.

Shares of Humana were down 3.2 percent at $90.99 in trading before the market opened.

"Although we expect shares to react negatively to the guidance, we find the outlook somewhat reassuring as it implies general stability in core operations/margins offset by semi-discretionary and transient upfront investment spending," Susquehanna Financial Group analyst Chris Rigg said in a research note.

Humana forecast 2014 revenue of at least $43 billion, in line with analysts' expectations.

Third-quarter net income at Humana fell to $368 million, or $2.31 per share, from $426 million, or $2.62 per share, a year earlier. The results beat analysts' expectations of $2.15 per share.

Revenue rose 7 percent to $10.32 billion from $9.65 billion a year earlier, but the company paid out more in claims and had higher operating costs.

MEDICARE ADVANTAGE

Goldman Sachs analyst Matthew Borsch said Humana's outlook for 2014 Medicare Advantage membership growth and profitability was more positive than those for UnitedHealth Group Inc and WellPoint Inc.

Private Medicare for older people, or Medicare Advantage, makes up the largest portion of Humana's revenue, accounting for $6.75 billion in the third quarter. The company had 2.04 million Medicare Advantage customers in its direct-to-consumer business and another 425,000 through its employer-based business.

Humana expects to add 260,000 to 305,000 Medicare Advantage customers in 2014.

The company had a total of 12.4 million medical members at the end of September.

State-based Medicaid services are its fastest-growing membership base. Humana added 30,000 new members from a year earlier for a total of 80,000.

(Reporting by Caroline Humer; Editing by Lisa Von Ahn)

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