Several health insurance stock stumbled Tuesday, a day after Humana Inc. cut its 2012 earnings forecast and became the latest managed care company to test investor nerve.
The Louisville, Ky., announced Monday after markets closed that it was slashing its forecast for the year due to greater-than-expected costs from new Medicare Advantage members and growing health care use by both new and old members.
Medicare Advantage plans are subsidized, privately run versions of the federal government's Medicare health insurance for the elderly and disabled people. Humana is the second-largest provider of Medicare Advantage plans, behind UnitedHealth Group Inc.
Humana said it now expects to earn between $6.90 and $7.10 per share in 2012, down from its previous estimate of $7.38 to $7.58 per share. The company's stock plunged about 12 percent, or $8.62, to $61.93 in Tuesday afternoon trading.
That put it on course for its largest one-day drop in more than three years, according to FactSet.
Shares of other big health insurers also fell deeper than the Standard & Poor's 500 index, which was down slightly. UnitedHealth dropped 3 percent, or $1.63, to $51.63; WellPoint Inc. also dropped more than 3 percent, or $1.80, to $53.42; and Cigna Corp. was down 71 cents to $40.66.
Even Aetna Inc. shares dropped 2 percent, or 78 cents, to $36.36, and that insurer reported on Tuesday second-quarter earnings that beat analyst expectations and raised its 2012 earnings forecast. UnitedHealth also raised its guidance earlier this month and reported quarterly results that beat expectations.
Managed care stocks also sank last week after WellPoint chopped its guidance and missed second-quarter expectations.
Analysts say the sector's choppy performance so far — Cigna has yet to report its results — is making some investors nervous. This is especially true as health care costs pick up, revenue growth from government-funded coverage like Medicaid and Medicare slows and state regulators pay more attention to premium hikes levied on consumers.
"In other words, costs are starting to accelerate, and its harder and harder to pass that through to customers," Morningstar analyst Matthew Coffina said.
Investors also are starting to worry about whether some insurers made the right assumptions about prices and health care use when they set rates earlier in the year, said Les Funtleyder, health care fund manager at Poliwogg, a private equity fund for small investors. Most insurers set their premiums, or coverage prices, at the start of the year and then have to wait another year if they need to adjust them.
"I think investors are extrapolating this fear to the rest of the group," he said.