HUM Humana Inc

Humana Inc., which in July agreed to be acquired by rival Aetna Inc., said profit fell 30% in the fourth quarter as it set aside a reserve to account for losses expected on its 2016 Affordable Care Act business, but the firm gave guidance for the year sharply above Wall Street expectations.

"Humana faced challenges across a number of fronts in 2015," said Chief Financial Officer Brian Kane. But he said strength in its clinical model and administrative cost discipline, along with targeted pricing, helped position the company for "meaningful margin improvement" in its core individual Medicare Advantage business for the year.

For 2016, the health insurer expects adjusted earnings of $8.85 a share, compared with analysts' estimates for $8.73 a share, according to Thomson Reuters.

The Louisville, Ky., company struck a $34.1 billion merger deal with rival Aetna Inc. in July amid a flurry of consolidation in the health care space, fueled by a desire to diversify and cut costs amid a landscape changed by the Affordable Care Act. The tie up, if approved by regulators, will vault Aetna toward the top of the growing Medicare business.

Last month, Humana warned it would need to set aside a reserve at the end of 2015 to account for losses expected on its 2016 Affordable Care Act business.

For Humana, Medicare Advantage membership increased 13% to 2.8 million while commercial membership declined 12% to 899,100. The company said its commercial business continues to be challenged due to volatility related to the start of the health care exchange program created under the Affordable Care Act.

For 2016, Humana sees individual Medicare Advantage membership growth of 100,000 to 120,000.

Humana's consolidated medical-loss ratio, or the share of premiums paid out for members' health expenses, was 85.8%, up from 84.5% in the year-ago quarter.

Overall, the insurer reported a fourth-quarter profit of $101 million, or 67 cents a share, down from $145 million, or 94 cents a share, a year earlier. During the quarter, Humana recorded a so-called premium deficiency reserve of $176 million pretax, or 74 cents a share, related to some of its 2016 individual commercial policies.

Excluding costs stemming from the Aetna merger, among other items, quarterly earnings rose to $1.45 a share from $1.09 a year earlier. Revenue increased 8.4% to $13.36 billion.

Analysts had projected adjusted profit of $1.45 a share on $13.51 billion of revenue, according to Thomson Reuters.

Shares in the company, down 9.6% over the past three months, were inactive premarket.

Aetna last week reported its overall profit leapt 38% in the final quarter of the year, as a key measure of spending on medical costs—its medical-loss ratio—fell. The strong quarterly results were fueled largely by its government business, which includes Medicare and Medicaid. However, Aetna joined other health insurers to report losses on its 2015 Affordable Care Act business.

Humana's merger with Aetna is expected to close in the second half of 2016.

Write to Anne Steele at Anne.Steele@wsj.com

(END) Dow Jones Newswires

February 10, 2016 09:25 ET (14:25 GMT)

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