HealthSpring predicts enrollment momentum in 2010

CEO Fritch sees no H1N1 impact, remains cautious about reform efforts

Email | Print By Erin Lawley

Herb Fritch

UPDATED 6:25 p.m. with closing stock price

As originally reported:

After reporting better-than-expected earnings for the third quarter, Medicare Advantage plan provider HealthSpring discussed on its earnings conference call a positive outlook for 2010, driven by continued growth in MA plan membership and prescription drug plan earnings.

Although open enrollment for new MA members doesn’t begin until Nov. 15, CEO Herb Fritch said the company is pleased with lead generation activities thus far, and he expects some of the enrollment momentum achieved year to date to carry forward into 2010.

“Some of it’s just momentum,” he said. “We think this poor economy and the insecurity people have about their investment portfolios and retirement portfolios helps our kinds of products.”

MA plan membership was up 19.4 percent in the third quarter compared to Q3 2008, contributing to the company’s 26 percent increase in premium revenue.

Membership in the company’s stand-alone prescription drug plan was up 11.6 percent in the third quarter, driving PDP premium revenue up 16.8 percent to $69 million.

The company’s stock (Ticker: HS) ended Thursday trading up more than 18 percent at $14.55 and gave up only about 1 percent after hours. Volume was heavy with 1.3 million shares changing hands versus a daily average of less than 400,000.

A potential negative factor for the fourth quarter, the seasonal flu, has had no impact on the company in the third quarter or the first month of Q4, Fritch said. The H1N1 virus has not had an impact either, though Fritch said media attention on the virus has driven participation in the company’s seasonal flu vaccine campaign.

Addressing health care reform efforts, Fritch said it’s still too early to talk about the specifics of how the various plans in Congress may impact the company.

He noted, however, that he is “disappointed that the current discussions in Congress are not focused on the root cause of rising costs in the health care system. Without creating a system that coordinates care and aligns incentives of providers and payers, health care costs will continue their march upward and cuts to entitlement programs such as Medicare will be nothing more than window dressing.”

Questioned further, Fritch said HealthSpring has modeled the House bill, which would bring MA payments into parity with fee-for-service rates. While it would affect each market differently, the company should “fare pretty well.”

However, Fritch thinks the Senate Finance Committee’s bill, which calls for MA payment reform using a competitive bidding process, is based on flawed methodology.

“The only good news is it’s implemented over such a long period of time, we’d hope it got changed before it’s fully implemented,” he said.