Humana, Health Net Shares Drop After Contract Loss

Shares of Humana Inc. and Health Net Inc. tumbled Tuesday, a day after the Pentagon decided against renewing lucrative regional military health insurance contracts with both companies.

Humana's shares lost $2.31, or 7.6 percent, to close at $28.28 in Tuesday trading, while Health Net shares were off $2.07, or 14.7 percent, at $12.06.

Winners of the new multi-year contracts beginning in April 2010, Aetna Inc. and UnitedHealth Group Inc., didn't reap immediate benefits with investors Tuesday. Aetna's stock slipped 2 cents to end at $26.31, and UnitedHealth's shares fell 24 cents to $24.77.

The decline in Humana and Health Net shares came after the Defense Department announced Monday that it was awarding Tricare contracts worth tens of billions of dollars to Aetna and UnitedHealth after a more than year-long bidding process.

Tricare is the Defense Department's health care program for military members, retirees and their families.

Humana said Monday it could not yet forecast what impact, if any, the loss of the Tricare contract might have on its earnings for the year ending Dec. 31.

But Louisville-based Humana is currently under contract to handle Tricare's southern members through March 31, 2010. After that, Minnetonka, Minn.-based UnitedHealth will take over under a the new contract.

Hartford, Conn.-based Aetna won the contract for the northern U.S., and will provide health care and administrative services for about 2.8 million members of the military based in the 21 states in the region. Health Net, based in Woodland Hills, Calif., has that contract now.

Matt Perry, a managed care industry analyst with Wells Fargo Securities, said Tuesday in a note to investors that he was lowering his 2010 earnings-per-share projection for Humana to $5.62 from $5.81 and for Health Net to $1.62 from $2.10. Perry raised his 2010 EPS forecast for UnitedHealth by 5 cents to $3.05, and by 11 cents to $4 for Aetna.