LOUISVILLE, Ky._Shares of Humana Inc. and Health Net Inc. tumbled Tuesday, a day after the Pentagon decided against renewing lucrative regional military health insurance contracts with both companies.

Humana's shares lost $2.31, or 7.6 percent, to close at $28.28 in Tuesday trading, while Health Net shares were off $2.07, or 14.7 percent, at $12.06.

Winners of the new multi-year contracts beginning in April 2010, Aetna Inc. and UnitedHealth Group Inc., didn't reap immediate benefits with investors Tuesday. Aetna's stock slipped 2 cents to end at $26.31, and UnitedHealth's shares fell 24 cents to $24.77.

The decline in Humana and Health Net shares came after the Defense Department announced Monday that it was awarding Tricare contracts worth tens of billions of dollars to Aetna and UnitedHealth after a more than year-long bidding process.

Tricare is the Defense Department's health care program for military members, retirees and their families.

Humana said Monday it could not yet forecast what impact, if any, the loss of the Tricare contract might have on its earnings for the year ending Dec. 31.

But Louisville-based Humana is currently under contract to handle Tricare's southern members through March 31, 2010. After that, Minnetonka, Minn.-based UnitedHealth will take over under a the new contract.

Hartford, Conn.-based Aetna won the contract for the northern U.S., and will provide health care and administrative services for about 2.8 million members of the military based in the 21 states in the region. Health Net, based in Woodland Hills, Calif., has that contract now.

Matt Perry, a managed care industry analyst with Wells Fargo Securities, said Tuesday in a note to investors that he was lowering his 2010 earnings-per-share projection for Humana to $5.62 from $5.81 and for Health Net to $1.62 from $2.10. Perry raised his 2010 EPS forecast for UnitedHealth by 5 cents to $3.05, and by 11 cents to $4 for Aetna.


Perry wrote that Tricare was a "small contributor" to Humana's earnings.

"We still prefer Humana shares because of the company's concentration in Medicare (which has less exposure to health care reform risks) and its attractive tangible book value," he said.

For Health Net, the loss of the Tricare contract was a "significant blow," he wrote, but said it might "free up management to pursue strategic alternatives now that uncertainty around the business has lifted."

He said the contract wins for UnitedHealth and Aetna are "a positive, but should contribute only modest amounts to EPS due to the large size of each company."

Goldman Sachs analyst Matthew Borsch wrote in a note to investors that the shakeup in Tricare contracts has "bigger implications for the losers than for the winners."

Borsch estimated the Tricare contract represents about 7 percent of Humana's 2009 earnings. He reduced his 2010 EPS projection for Humana by 30 cents to $5.70.

He estimated the Tricare contract represents over 30 percent of 2009 earnings for Health Net. He lowered his 2010 EPS forecast for Health Net by 45 cents to $1.55.

Both Health Net and Humana expressed disappointment with the Pentagon's decision and said they expected to get follow-up briefings from the Defense Department about the outcome.

"We will consider the information provided at the debriefing, and within two weeks following, we will determine whether we will accept or challenge the award decision," said Steven Tough, president of Health Net Federal Services, in a statement.

Dave Baker, president and CEO of Humana Military Healthcare Services, said in a statement Humana will "evaluate its strategic options with respect to the government's decision, including protesting the award, and will act expeditiously to best position Humana for continued success."