Look, all of these HMOs are just not as profitable as they appear to be. This write off by HUM is just par for the course. If earnings come in at the low end (.78) that is a 34% decline from the previously predicted earnings of $1.18. Next years predictions are worthless for any of these companies because more write offs will always be in the offing.
Remember UNH a few years back -- they took a write off that wiped out their previous 5 years of earnings! Their stock dropped from the high 60s to the low 30s. Remember Cigna - Aetna - Oxford the same, the same, the same.
With the insurance cycle turning against these companies HUM is just the canary in the coal mine. Sure things look great with premium increases of 15-16% a year. But those days are over.
Don't pay more than 10 times trailing earnings for HUM -- future earnings are just too unpredictable
Pricing power is definitely on the side of the carriers. I don't know where you guys get your info, but I am in this business and premiums are on the rise everywhere. Anyone who tries to cut into the market with low premiums can only do so at the expense of the physicians who will contract for less, but their numbers are steadily decreasing both in primary care and specialties, where in the latter it is even worse. We limit our practice, for instance, in the cases of Unicare and Pacificare to less than five percent of our practice combined. In Texas it is hard to find a specialist who honors Pacificare - the patients are finding nearly impossible and have to seek care out of network.
The HMO business is not growing anymore, and contracts are being re-written on different bases when they expire. The healthcare business belongs to those who get the right premiums to cover costs which are constantly rising with no market force to curtail them. Insurance companies who low ball take it on the chin - the latest being Cigna.
Humana will shine. They have done much to turn their unpopularity with docs around. Where once they were reviled they are now respected. Charges are a downpayment for future viability and enhanced shareholder and acquisition value.