By Anna Wilde Mathews And Dana Mattioli
The federal government's release of new data on health-insurer
payments under the Affordable Care Act is roiling the industry,
including potentially affecting the timing of any deal for Humana
Inc., as suitors pore over the detailed information disclosed late
Tuesday.
The possible purchasers of Humana are taking into account how
the payments would affect a potential tie-up and purchase price,
according to people with knowledge of the matter. Aetna Inc. and
Cigna Corp. have been sizing up Humana, which has privately offered
itself for sale.
Broadly, big insurers and their advisers are digesting the
numbers and what they mean for profits, say people familiar with
the matter, amid a merger tussle with various alliances under
consideration among the top five insurers by revenue. Some people
noted the data, the first such release under the law, doesn't yet
reflect a full picture.
Like some other insurers, Humana appears likely to receive
considerably less than it had expected--around $426 million
allotted for 2014, instead of about $628 million, according to Ana
Gupte of Leerink Partners LLC.
Ms. Gupte estimated that this amount would translate into an
approximately 7% dip in Humana's projected earnings per share for
2015. But she said the final impact isn't yet clear, and could be
less, because the government calculations released so far aren't
complete.
At issue are payments under government programs that are
supposed to smooth out the risk for insurers that enroll a lot of
less-healthy, expensive patients under the federal health law. The
law has three programs that can provide financial help for
insurers, largely funded by payments made by other insurers that
had less-costly enrollees.
Late Tuesday, the Obama administration released calculations of
payment amounts for 2014 for two of those programs. Until then,
insurers had penciled in estimates of potential receivables and
payables to complete their 2014 financial reporting. The third
program's results haven't yet emerged, leaving insurers with
remaining uncertainty. The federal report also notes its
calculations don't include adjustments that might come due to
factors including appeals.
Chris Rigg, an analyst at Susquehanna Financial Group, said it
would make sense for a potential acquirer to dig into the new
information regarding Humana. "You'd at least want to know what
level of earnings you paid for."
Humana isn't the only major insurer that appears on track to get
a different amount than it expected from the two programs disclosed
so far. Aetna, for instance, appears set to receive around $70
million less than it projected, according to Mr. Rigg. He also said
it appeared Cigna would be getting more than it estimated, though
the exact amount of the overshoot wasn't clear.
Aetna said in a statement that the first year of the health-law
programs was "a learning process." The insurer said it hadn't
booked any receivables for the third, so-far-not-quantified program
but now feels "it is logical to assume" that it might in fact get
some payments.
Though the health-law programs can create bumps for such big
companies, they matter far more for smaller insurers, particularly
startups focused on plans sold through the health-law marketplaces.
For some of those firms, the payouts may be a matter of
survival.
The issue is the latest sign of the challenges for an industry
that continues to face instability tied to the federal health law,
five years after its passage. Indeed, deal-making largely paused
over the past few years as health insurers digested the effects of
many of the law's biggest provisions, which hit in 2014. Most
recently, the law faced a Supreme Court challenge that could have
made many of its insurance exchanges largely dysfunctional--which
was only resolved in the Obama administration's favor last week,
removing one big question mark.
Write to Anna Wilde Mathews at anna.mathews@wsj.com and Dana
Mattioli at dana.mattioli@wsj.com
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