Humana Penalized in Colorado

Business First reported that two of Humana Inc.’s (HUM - Analyst Report) divisions were fined about $0.3 million based on infringement of a number of state laws of Colorado between mid-2007 and mid-2009.

The Colorado Division of Insurance has pointed out multiple issues that led the regulators to reprimand Humana. The regulators criticized a couple of Humana units for misrepresentation of information in policy forms, which were later used for benefits coverage.

Not only did these units take longer-than-mandated time to pay claims, the insurers even failed to file rates used and the underwriting criterion for small groups. These faulty practices were further amplified by using flawed procedures for utilization review and for terminating coverage.

Hence, the regulators have charged Humana units with monetary penalty and also commanded them to undo the faulty practices and file the changes to the Division of Insurance.

Accordingly, the insurance regulators in Colorado have penalized Humana Insurance Co., an individual and small-group health insurer, of $184,000. Alongside, Humana Health Plan Inc., operating as a health maintenance organization, scored a penalty of $115,000.

While Humana has been growing strongly through improved performance in the Employer Group and Health and Well-Being Services business segments, the company benefited from the new rule of the health care reform, which led to an increase in the share repurchase authorization and Humana’s 2011 outlook.

However, the company’s expenses have already been weighing on the margins. Expenses surged 9.2% year over year to $8.67 billion in the first quarter this year, while the total expenses increased at a 4-year CAGR of 11.7%. Amid this, increased legal monetary penalties could further pressurize the company’s financial results in the upcoming quarters.

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