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Higher Premiums Boost PacifiCare Profits 2.7%

Health: The Santa Ana-based HMO said revenue rose 16%, but it was partly offset by rising medical costs.

August 03, 2000|From Bloomberg News

PacifiCare Health Systems Inc., the No. 1 operator of Medicare health maintenance organizations, said second-quarter profit rose 2.7% as medical costs partly undercut income from higher premiums.

Profit from operations rose to $70.8 million, or $2.01 a share, from $68.9 million, or $1.49, a year earlier. Revenue rose 16% to $2.85 billion from $2.46 billion.

PacifiCare, which covers about 1 million Medicare beneficiaries, said medical costs rose faster than payments under the federal health care program for the elderly. About 60% of the Santa Ana company's sales come from its Medicare HMO plans. Overall, PacifiCare had about 4 million customers when the quarter ended, an 11% increase.

Earnings beat the average estimate of $1.90 a share from analysts surveyed by First Call/Thomson Financial.

Part of the increase in per-share earnings came as PacifiCare bought back 400,000 shares of its stock for $23 million, resulting in 24% fewer outstanding shares than in the second quarter last year.

The company released results after U.S. markets closed. PacifiCare's shares rose $1.06 to $67.19 in Nasdaq trading. The stock has increased nearly 27% in value so far this year.

PacifiCare said it raised premiums 8% as its medical loss ratio--the percentage of premiums that pay for medical costs--rose to 85.8% from 85% a year earlier. The company said the ratio for its commercial plans rose to 82.9% from 81.4%, while the company had higher premiums and 15% growth in the number of customers in those plans.

The company said it added customers in California and gained 238,000 customers Feb. 1 when it acquired Dallas-based Harris Methodist Health Plan.

PacifiCare said June 14 that it would close managed-care health plans in Ohio and Kentucky to focus on its business in the western U.S. The closings affect 54,000 customers covered by commercial plans and 6,300 customers covered by Medicare.

In July, PacifiCare said it would end Medicare HMO coverage in 15 U.S. counties Jan. 1, affecting more than 26,600 enrollees, or less than 3% of its Medicare customers.

The company, which operates in nine states, said it expects to gain Medicare customers as competitors stop offering Medicare HMO coverage. While insurers say Medicare payments don't cover their cost of medical care, PacifiCare said it has enough customers to bargain with doctors for better prices.

In the recent quarter, net income totaled $69.2 million, or $1.96 a share, including an after-tax charge of $2.2 million, or 6 cents per share, for leaving markets in Ohio, and a gain of $600,000 from an after-tax restructuring credit.

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