By Bruce Schreiner
The Associated Press

LOUISVILLE - Humana Inc. shares fell nearly 7 percent Monday despite a more than twofold increase in first-quarter earnings.

The company reported net income of $67.8 million, or 41 cents per share, for the quarter ending March 31, up 117 percent from the same period a year ago.

Analyst Steve O'Neil said the stock decline likely reflected concerns that Humana might be vulnerable to aggressive pricing strategies by competitors.

"It's well known that premiums have gone up at a fairly good rate the last few years," O'Neil said. "So that there might be a period where business becomes more competitive is not a complete surprise."

Michael B. McCallister, Humana's president and chief executive officer, said some competitors are "clearly pricing for marketshare" but he will not let those pressures hurt his company's bottom line.

"We will not play the marketshare game and will continue to price our business for bottomline profitability," McCallister said.

Humana said its total medical membership rose to just over 7 million as of March 31, a nearly 6 percent increase from 6.6 million members a year ago. Its members are mainly spread across 19 states and Puerto Rico.

"We continue to expect 2004 revenue, earnings and cash flows to be the highest in Humana's history as a health benefits company."

The higher earnings were driven by a surge in income from the company's government business.

Pretax income from the government climbed to $63.6 million for the first quarter, compared to $10.1 million a year ago, Humana said.

The company attributed the increase to improved results in its TRICARE business, which provides health insurance for the military. It also reported growth in its MedicareAdvantage membership. TRICARE's membership of 1.8 million as of March 31 was slightly higher than a year ago.

Meanwhile, the company's Medicaid membership of 468,200 at the end of the quarter was down 5 percent from a year ago, it said.

Results from the company's commercial business were essentially flat compared to a year ago excluding special items. Those items reduced the commercial segment's pretax income by $17.8 million for the first quarter. Humana took a $13.5 million charge for abandoning outdated software and a $4.3 million writedown of building and equipment.

The company said the first quarter results included the extra day of medical claims expenses in February due to the leap year.

Revenues from premiums and administrative service fees charged to commercial members rose 6 percent to $1.7 billion for the most recent quarter, Humana said. Its business with the government generated $1.5 billion in premiums and administrative service fees, a 20 percent gain from a year ago.

The company has not changed its yearlong earnings outlook of between $1.60 and $1.65 per share.

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