Profit soars at health insurer

Michelle Swafford

Friday, April 29, 2005 | 11:10 a.m.

PacifiCare Health Systems Inc. announced Thursday a 28 percent profit increase in the first quarter, beating analysts' expectations.

The Cypress, Calif.-based insurer reported its net income increased to $85.7 million, or 89 cents per share, up from $67 million, or 71 cents per share, in the year-ago quarter.

Eleven analysts surveyed by Thomson Financial had expected PacifiCare to earn 88 cents per share in the first quarter.

Shares of PacifiCare were up $4.26 per share, or nearly 8 percent, to $58.36 in midmorning trading on the New York Stock Exchange.

First-quarter results include administrative costs of $5 million related to applications to be a Medicare Part D plan provider, which means PacifiCare would provide the prescription drug coverage for Medicare recipients in 2006 if its applications are approved by the federal government.

PacifiCare Chief Financial Officer Greg Scott said PacifiCare expects to spend about $50 million before taxes this year in Medicare Part D administration.

The company raised its full-year financial outlook to between $3.70 and $3.85 per share, up from $3.64 and $3.80 per share.

Revenue for the first quarter rose 16 percent to $3.44 billion.

PacifiCare attributed its financial strength to senior membership growth, the acquisition of American Medical Security Group in December and increased sales at its pharmacy benefit manager, Prescription Solutions, PacifiCare Chief Executive Howard Phanstiel said in a statement released Thursday.

Commercial membership rose 13 percent to 2.4 million members nationally, Phanstiel told analysts and investors Thursday afternoon.

In Nevada, PacifiCare's membership increased 30 percent to 43,852 people in the first quarter, said Mike Clark, vice president of sales for Nevada and Arizona. That does not include the approximately 5,000 members who were insured through American Medical or the people insured with Pacific Life's group health plans -- an acquisition PacifiCare completed Wednesday.

"We've had net growth in all of our segments," Clark said. "We released new individual plans and are averaging 300 members a month."

He said PacifiCare has seen an increase of between 900 and 1,000 new members in its small-group point-of-service plans.

PacifiCare expects 40 percent membership growth in Nevada, greater than the 25 percent initially projected, Clark said.

The average premium rate increase in Nevada was 11 percent before benefit changes, which includes increasing co-payments, coinsurance and deductibles to keep premiums lower.

The number of people PacifiCare insures on its private Medicare plan, Secure Horizons, and Medicare supplement and disease-management plans increased 5 percent to 757,900 people in the first quarter.

In the first quarter of this year Secure Horizons added more members than in all of last year, Phanstiel said.

In Nevada, the number of seniors insured on a Medicare plan backed by PacifiCare increased nearly 3 percent to 25,900 people.

In the coming months, PacifiCare plans to launch a new health maintenance organization that offers traditional co-payments for in-network doctor visits and eliminates the need for primary care doctor referrals to specialists.