DoD Extends Humana's TRICARE South Contract by One Year

Humana Inc. disclosed the news about its subsidiary in a 8-K form filed with the U.S. Securities & Exchange Commission.

Humana is still waiting for TRICARE Management Activity to announce how it intends to respond to a Oct. 28, 2009, decision by the U.S. Government Accountability Office. With that decision the GAO upheld Humana's protest of the award of the contract to another provider, Humana said.

Tom Noland, a spokesman for Humana, declined to comment beyond the company's regulatory filing.

In July, UnitedHealth Military & Veterans Services, a unit of UnitedHealth Group  and Aetna Government Health Plans, a unit of Aetna Inc. , each were awarded the five-year contracts for the south region and north region, respectively. They replaced Humana and Health Net Inc. , which holds the contract for the north region of TRICARE.

Humana and Health Net protested the contract awards -- expected to start on April 1, 2010 -- and the GAO upheld them (BestWire, Nov. 9, 2009).

Carl McDonald, an equity analyst with Oppenheimer & Co., wrote that Humana's contract was scheduled to expire on March 31, 2010.

However, given the timing for implementing the new contract it was thought the DoD would extend Humana's contract through Oct. 31, 2010, he wrote. The additional six months is a positive for Humana's earnings, McDonald wrote, estimating that each additional quarter Humana holds onto the contract adds 10 cents a share.

While the GAO's decision "does not change the ultimate outcome of the contract award, it could influence the ultimate decision of the DoD," he wrote.

Humana said it's evaluating the impact of the extension on its previously issued earnings guidance for 2010. It expects to update the guidance to reflect the extension and other developments, if any, when it releases year-end 2009 financial results on Feb. 1.

The value of the TRICARE south contract is $21.8 billion and includes $1.5 billion for management support and services (BestWire, July 14, 2009).

Attempts to speak with UnitedHealth weren't immediately successful.

Humana has been a contractor for the TRICARE program since 1996, providing health benefits and services to about 3 million active-duty and retired military personnel and their families in the 10-state south region.

Humana Health Plan Inc. currently has a Best's Financial Strength Rating of A- (Excellent).