Oct. 29 (Bloomberg) -- Humana Inc., the second-largest provider of U.S.-sponsored health plans, said earnings rose 90 percent, and raised its 2007 forecast after gaining customers for its most-profitable managed-care programs.

Humana jumped the most in more than three months in New York trading. Third-quarter net income climbed to $302.4 million, or $1.78 a share, from $159.2 million, or 95 cents, a year earlier, Louisville, Kentucky-based Humana said today. Profit excluding some items beat analysts' estimates, as did revenue.

Humana derives about two-thirds of its profit from U.S. Medicare-sponsored plans for the elderly, said Carl McDonald, an analyst with CIBC World Markets in New York. In the past year, Humana switched many of its 3.4 million Medicare drug plan members into the more-lucrative Advantage managed-care plans, which provide lower out-of-pocket costs and discounted drugs.

``They are really starting to see the benefits of their revenue growth as they're able to spread their fixed costs over a larger base than in prior quarters,'' McDonald said in a telephone interview. ``Some of this was already built in to the stock price, but they should still have a good day today.''

Stock Rises

Humana rose $4.85, or 6.4 percent, to $80.41 at 9:41 a.m. in New York Stock Exchange composite trading, reaching as high as $81.50. The company had climbed 37 percent this year through yesterday, leading the six-member S&P 500 Managed Health Care Index.

The profit, excluding items, beat the $1.49-a-share average of 16 analysts surveyed by Bloomberg. Revenue rose to $6.32 billion, surpassing analyst expectations of $6.11 billion.

The 90 percent gain in third-quarter net income compared with increases of 15 percent reported for UnitedHealth Group Inc., 7 percent for WellPoint Inc., and 4.3 percent for Aetna Inc.

Humana, in a statement today, raised its earnings forecast for the full year to $4.75 to $4.80 a share, up from a July 18 outlook of $4.40 to $4.50.

The revised target includes a one-time gain of 25 cents a share generated by its prescription drug plan for the elderly in the third quarter. Humana said the $69 million gain came partly from recording as income money it had set aside earlier, and didn't actually need, for obligations under U.S. drug plans.

Forecast

Humana gave its first view of 2008 earnings, forecasting $5.30 to $5.50 a share, compared with the $5.19 average estimate of analysts surveyed by Bloomberg. The company said enrollment in Advantage plans will rise by at least 200,000 next year, after an increase of about 130,000 this year.

Medicare will pay hundreds of insurers an aggregate $76.3 billion in health-plan premiums in 2007, about $9.2 billion more than the federal agency would pay for traditional coverage of the same patients, according to government estimates. If Congressional Democrats succeed in ending the disparity, the change may cut insurers' profits.

Medicare Advantage plans generate annual gross margins of about $1,650 per Humana beneficiary, more than 10 times as much as the profit from the company's drug plans for the elderly, McDonald said. Gross margin is revenue minus the cost of goods or services sold.

In the third quarter Humana's ratio of medical expenses to premiums from Medicare government health plans decreased to 81.3 percent from 84.1 percent a year earlier, helped by the government's catch-up drug-plan payments. In the second quarter, Humana reported the ratio was 83.4 percent. McDonald had estimated a third-quarter rate of 81.8 percent.

Profit Barometer

Analysts and investors in health insurance companies use the percentage of premium revenue spent on medical care as an indicator of future profits. When the ratio rises, medical inflation may crimp earnings and force premiums higher, while declines may suggest lower health inflation or that the company is collecting higher premiums.

Industry leader UnitedHealth Group Inc., of Minnetonka, Minnesota, said Oct. 18 that medical costs in its employer- sponsored plans grew to 81.6 percent of premium revenue in the second quarter from 79.3 percent a year earlier.

WellPoint, the second-biggest U.S. insurer, said last week that its ratio across all business lines rose to 81.8 percent of premium income from 81.3 percent a year ago. Aetna Inc., based in Hartford, Connecticut, said its medical expense ratio was 79.4 percent, down from 81.5 percent in the second quarter and up from 78.8 percent in the 2006 third quarter.

Consumer groups and members of Congress have criticized Humana and other insurers for misleading some elderly people into signing up for Medicare Advantage plans, and they support efforts to scale back payments.

Lobbying Effort

America's Health Insurance Plans, a trade group based in Washington, has urged Congress to leave the rates alone. Last week it brought 350 Advantage members to Capitol Hill from across the U.S. to urge lawmakers to back off.

``The company doesn't especially like having so much exposure to a single product, but the situation that Humana finds itself in is something of a high-class problem,'' McDonald said in a note to clients. ``It is primarily a function of the enormous success of its Medicare business in recent years.''

Humana also contracts with other government-sponsored programs, including state Medicaid programs and a Tricare plan for U.S. military retirees and dependents that covers the nation's southern region.

The company's medical plan head-count reached 11.3 million on Sept. 30, up from 11.1 million a year earlier. About 30 percent of that total comes from employer-sponsored health plans.

``They don't have a great commercial business, so you have to make the most of your Medicare business,'' said Matt Perry, an analyst with Wachovia Securities in New York. ``It's been very good for the past few years and continues to be good.''

To contact the reporter on this story: Avram Goldstein in Washington at agoldstein1@bloomberg.net .