Humana Inc. : Humana Reports First Quarter 2012 Financial Results
04/30/2012| 06:05am US/Eastern
Recommend:
0
First quarter EPS of $1.49, exceeding prior guidance range
Full-year EPS raised to $7.55 to $7.75
First quarter consolidated revenues up 11 percent year-over-year
Medicare Advantage membership up 16 percent year to date
Stand-alone PDP membership up 12 percent year to date
Share repurchase authorization reset to $1 billion
Cash dividend to stockholders raised to $0.26 per share
Humana Inc. (NYSE: HUM) today reported diluted earnings per common share
(EPS) for the quarter ended March 31, 2012 (1Q12) of $1.49, compared to
$1.86 per share for the quarter ended March 31, 2011 (1Q11). The company
had previously anticipated earnings per share in the range of $1.35 to
$1.45 for 1Q12. Lower year-over-year earnings in the company's Retail
and Employer Group business segments were partially offset by higher
earnings in the company's Health and Well-Being Services business
segment. EPS for 1Q12 and 1Q11 were positively impacted by $0.03 per
share and $0.31 per share, respectively, as a result of favorable
development of prior-period medical claims reserves.
"Our compelling senior value proposition and favorable demographics have
made Humana one of the fastest growing Medicare Advantage and PDP
companies in the nation," said Michael B. McCallister, Humana's Chairman
of the Board and Chief Executive Officer. "This growth trajectory has
contributed solidly to our results for the first quarter and our
continued confidence in our projected results for the full year."
The company raised EPS guidance for the year ending December 31, 2012
(FY12) to a range of $7.55 to $7.75 versus its previous estimate of
$7.50 to $7.70. This increase in FY12 EPS guidance primarily reflects
favorable prior-period claims development in the first quarter.
Consolidated Highlights
Revenues - 1Q12 consolidated revenues were $10.22 billion, an
increase of 11 percent from $9.19 billion in 1Q11, with total premiums
and services revenue up 11 percent compared to the prior year's quarter.
The increase in consolidated revenues was primarily due to increases in
the Retail and Employer Group segments driven by increases in average
membership of the company's individual and group Medicare Advantage
plans.
Benefit expenses - The 1Q12 consolidated benefit ratio (benefit
expenses as a percent of premiums) of 85.4 percent increased from 83.8
percent for the prior year's quarter due primarily to a higher
year-over-year benefit ratio for the Retail and Employer Group Segments.
Operating costs - The consolidated operating cost ratio
(operating costs as a percent of total revenues less investment income)
of 13.7 percent for 1Q12 compares to 13.8 percent in 1Q11. This lower
year-over-year ratio primarily reflects improvement in this metric for
the Employer Group Segment partially offset by an increase in the Retail
Segment operating cost ratio.
Retail Segment Highlights
Pretax results:
Retail Segment pretax income of $115 million in 1Q12 decreased from
$217 million in 1Q11. This year-over-year decrease was primarily
driven by the combined impact of a 180 basis point increase in this
segment's benefit ratio together with a 40 basis point increase in the
Retail Segment's operating cost ratio.
Enrollment:
Individual Medicare Advantage membership was 1,883,800 at March 31,
2012, an increase of 243,500 members, or 15 percent from 1,640,300 at
December 31, 2011 due to a successful enrollment season associated
with the 2012 plan year. Membership increased by 289,000, or 18
percent, from 1,594,800 at March 31, 2011. Membership at March 31,
2012 included approximately 62,600 members added at the end of 1Q12
with the acquisition of Arcadian Management Services, Inc. (Arcadian).
As previously announced, the company expects to divest approximately
12,600 members acquired with Arcadian effective January 1, 2013 in
accordance with the company's agreement with the United States
Department of Justice.
Membership in the company's individual stand-alone Prescription Drug
Plans (PDPs) totaled 2,863,900 at March 31, 2012, an increase of
323,500, or 13 percent, from 2,540,400 at December 31, 2011.
Membership increased by 510,800, or 22 percent, from 2,353,100 at
March 31, 2011. This increase resulted primarily from growth in the
company's Humana-Walmart plan offering.
HumanaOne® medical membership increased to 442,000 at March 31,
2012, an increase of 8,400 or 2 percent, from 433,600 at December 31,
2011 and an increase of 59,100, or 15 percent, from 382,900 at March
31, 2011.
Membership in individual specialty products (a) of 847,900
at March 31, 2012 increased 8 percent from 782,500 at December 31,
2011 and increased 257,400, or 44 percent, from 590,500 at March 31,
2011. Both the sequential and year-over-year increases were primarily
driven by increased sales in dental offerings.
Premiums and services revenue:
1Q12 premiums and services revenue for the Retail Segment were $6.04
billion, an increase of 14 percent from $5.31 billion in 1Q11. The
increase was primarily the result of year-over-year membership growth
for individual Medicare Advantage plans.
1Q12 Medicare Advantage premiums per member per month declined to $924
from $947 in 1Q11 primarily driven by higher membership from the
quarter-end completion of the Arcadian acquisition and geographic
expansion into lower premium counties.
Benefit expenses:
The 1Q12 benefit ratio for the Retail Segment was 87.6 percent, an
increase of 180 basis points from 85.8 percent in 1Q11. The increase
was primarily driven by the planned increase associated with
positioning for Health Care Reform medical loss ratio requirements,
the seasonal impact of an extra day's claims from leap year in 1Q12
and a year-over-year increase in clinicians and other health care
quality expenditures given the company's continuing growth in
membership.
Retail Segment benefit expenses included the beneficial impact of
favorable prior-period medical claims reserve development of $33
million in 1Q12 and $40 million in 1Q11.
Operating costs:
The Retail Segment's operating cost ratio of 10.4 percent in 1Q12
increased 40 basis points from 10.0 percent in 1Q11 reflecting higher
year-over-year clinical, provider and technological infrastructure
spending and increased membership in the company's stand-alone PDP
products which carry a higher operating cost ratio than individual
Medicare Advantage products.
Employer Group Segment Highlights
Pretax results:
Employer Group Segment pretax income of $121 million in 1Q12 compares
to $139 million in 1Q11. This decrease was primarily due to a 290
basis point increase in this segment's benefit ratio partially offset
by a 200 basis point decline in the Employer Group Segment's operating
cost ratio.
Enrollment:
Group Medicare Advantage membership was 385,800 at March 31, 2012, an
increase of 67,600 members, or 21 percent, from 318,200 at December
31, 2011 primarily due to the January 2012 addition of a large group
Medicare Advantage account. Membership increased 77,200, or 25
percent, from 308,600 at March 31, 2011.
Group fully-insured commercial medical membership of 1,182,800 at
March 31, 2012, increased slightly from 1,180,200 at December 31, 2011
and 1,178,500 at March 31, 2011.
Group ASO commercial medical membership declined to 1,236,600 at March
31, 2012, a decrease of 55,700 or 4 percent, from 1,292,300 at
December 31, 2011 and a decrease of 82,700, or 6 percent, from
1,319,300 at March 31, 2011. This decline reflected a continuation of
pricing discipline in a highly competitive environment for self-funded
accounts.
Membership in Employer Group specialty products (a) of
6,849,300 at March 31, 2012 increased 5 percent from 6,532,600 at
December 31, 2011 and increased 212,500, or 3 percent, from 6,636,800
at March 31, 2011, as continued cross-selling of these products to
employer groups more than offset the loss of a large dental ASO
account.
Premiums and services revenue:
1Q12 premiums and services revenue for the Employer Group Segment were
$2.62 billion, an increase of 13 percent from $2.32 billion in 1Q11.
The increase was primarily the result of increased group Medicare
Advantage membership year over year.
Benefit expenses:
1Q12 benefit ratio for the Employer Group Segment was 81.6 percent, an
increase of 290 basis points from 78.7 percent in 1Q11. This increase
was primarily due to the change in impact of prior-period medical
claims reserve development, an increase in group Medicare Advantage
membership, and the seasonal impact of an extra day's claims from leap
year in 1Q12, partially offset by a reduction in prior-year premium
rebate estimates.
The Employer Group Segment's benefit expenses for 1Q12 included the
negative impact of $30 million in unfavorable prior-period medical
claims reserve development versus $41 million in favorable
prior-period medical claims reserve development in 1Q11. The
unfavorable prior-period reserve development experienced during 1Q12
resulted from various items, primarily the timing of certain claims
processing changes and a plan design change for one employer group
Medicare Advantage account. These same factors are not anticipated to
have a material impact on future results.
Operating costs:
The Employer Group Segment's operating cost ratio of 16.3 percent in
1Q12 decreased 200 basis points from 18.3 percent in 1Q11 reflecting
increased year-over-year membership in the company's group Medicare
Advantage products which generally carry a lower operating cost ratio
than the company's fully-insured commercial group products and
continued savings from operating cost reduction initiatives.
Health and Well-Being Services Segment
Highlights
Pretax results:
Health and Well-Being Services Segment pretax income of $132 million
in 1Q12 rose $35 million, or 36 percent, compared to $97 million in
1Q11 reflecting growth in the company's pharmacy solutions business,
including higher utilization of the company's RightSourceRx®
mail-order pharmacy by the company's members.
Script volume:
Script volumes for the Retail and Employer Group Segments' membership
increased to approximately 58 million in 1Q12, up 19 percent, versus
1Q11 scripts of approximately 49 million. The year-over-year increase
primarily reflects growth associated with higher average medical
membership for 1Q12 than in 1Q11.
Services revenue:
Services revenue of $3.31 billion in 1Q12 for the Health and
Well-Being Services Segment increased from $2.77 billion in 1Q11. This
increase was primarily driven by growth in the company's Medicare
Advantage membership and related member utilization of the company's
pharmacy benefit management servicesand RightSourceRx
mail-order pharmacy.
Operating costs:
The Health and Well-Being Services Segment's operating cost ratio of
95.4 percent in 1Q12 declined 40 basis points from 95.8 percent in
1Q11 reflecting scale efficiencies associated with growth in the
company's pharmacy solutions business.
Balance Sheet
At March 31, 2012, the company had cash, cash equivalents, and
investment securities of $13.25 billion, up 22 percent from $10.83
billion at December 31, 2011 primarily due to the early receipt of the
April CMS premium payment.
Parent company cash and investments of $225 million at March 31, 2012
decreased $269 million from $494 million at December 31, 2011,
primarily reflecting the acquisition of Arcadian, share repurchases,
and the payment of a cash dividend to stockholders during the quarter.
Days in claims payable were 50.1 at March 31, 2012, down 2.4 days from
52.5 at December 31, 2011. This reduction primarily reflects the
impact of the sequential increase in Medicare Advantage HMO
membership, for which a significant portion of the medical services
provided are covered by capitation payments versus the establishment
of medical claims reserves, combined with the payout of certain
risk-sharing settlements during 1Q12 that related to prior-year dates
of service.
Debt-to-total capitalization at March 31, 2012 was 16.4 percent, down
70 basis points compared to 17.1 percent at December 31, 2011
primarily driven by higher capitalization associated with first
quarter earnings.
Cash Flows from Operations
Cash flows provided by operations for 1Q12 totaled $2.35 billion
compared to cash flows provided by operations of $796 million in 1Q11.
The company also evaluates operating cash flows on a non-GAAP(c)
basis:
Net cash provided by operating activities
(in millions)
1Q12
Cash Flows
1Q11
Cash Flows
GAAP
$2,346
$796
Timing of premium payment from CMS (b)
(2,015)
-
Non-GAAP (c)
$331
$796
The year over year decrease in the non-GAAP(c) cash flows
from operations is due to the effect on cash flows of changes in working
capital accounts.
Share Repurchase Program and Cash Dividend
During 1Q12, the company repurchased 1,150,000 of its outstanding
shares at an average price per share of $86.95 in connection with a
share repurchase authorization for up to $1 billion approved by the
company's Board of Directors in April 2011. In April 2012, the
company's Board of Directors authorized a new share repurchase program
of up to $1 billion, replacing its previous share repurchase
authorization. Under this share repurchase authorization, shares could
be purchased from time to time at prevailing prices in the open
market, by block purchases, or in privately negotiated transactions.
The new share repurchase authorization expires June 30, 2014.
A cash dividend payment of approximately $41 million, or $0.25 per
share, for stockholders of record as of March 30, 2012, was paid on
April 27, 2012 as approved by the company's Board of Directors in
accordance with its quarterly cash dividend policy. In April 2012, the
company's Board of Directors increased the company's quarterly cash
dividend to $0.26 per share for stockholders of record as of June 29,
2012 payable on July 27, 2012.
Footnotes
(a)
The company provides a full range of insured specialty products
including dental, vision and other supplemental products. Members
included in these products may not be unique to each product since
members have the ability to enroll in multiple products. Other
supplemental benefits include life, disability, and fixed benefit
products including cancer and critical illness policies.
(b)
Generally, when the first day of a month falls on a weekend or
holiday, with the exception of January 1 (New Year's Day), the
company receives this payment at the end of the previous month.
Therefore 1Q12 included four monthly Medicare payments compared to
only three monthly Medicare payments in 1Q11.
(c)
The Company has included certain financial measures that are not in
accordance with Generally Accepted Accounting Principles (GAAP) in
its summary of financial results within this earnings press release.
The company believes that these non-GAAP measures, when presented in
conjunction with comparable GAAP measures, are useful to both
management and its investors in analyzing the company's ongoing
business and operating performance. Internally, management uses
these non-GAAP financial measures as indicators of business
performance, as well as for operational planning and decision making
purposes. Non-GAAP financial measures should be considered in
addition to, but not as a substitute for, or superior to, financial
measures prepared in accordance with GAAP.
Conference Call & Virtual Slide Presentation
Humana will host a conference call, as well as a virtual slide
presentation, at 9:00 a.m. eastern time today to discuss its financial
results for the quarter and the company's expectations for future
earnings. A live virtual presentation (audio with slides) may be
accessed via Humana's Investor Relations page at www.humana.com.
The company suggests web participants sign on at least 15 minutes in
advance of the call. The company also suggests web participants visit
the site well in advance of the call to run a system test and to
download any free software needed to view the presentation.
All parties interested in the audio-only portion of the conference call
are invited to dial 888-625-7430. No password is required. The company
suggests participants dial in at least ten minutes in advance of the
call. For those unable to participate in the live event, the virtual
presentation archive may be accessed via the Historical Webcasts &
Presentations section of the Investor Relations page at www.humana.com.
Cautionary Statement
This news release includes forward-looking statements within the meaning
of the Private Securities Litigation Reform Act of 1995. When used in
investor presentations, press releases, Securities and Exchange
Commission (SEC) filings, and in oral statements made by or with the
approval of one of Humana's executive officers, the words or phrases
like "expects," "anticipates," "intends," "likely will result,"
"estimates," "projects" or variations of such words and similar
expressions are intended to identify such forward-looking statements.
These forward-looking statements are not guarantees of future
performance and are subject to risks, uncertainties, and assumptions,
including, among other things, information set forth in the "Risk
Factors" section of the company's SEC filings, a summary of which
includes but is not limited to the following:
If Humana does not design and price its products properly and
competitively, if the premiums Humana charges are insufficient to
cover the cost of health care services delivered to its members, or if
its estimates of benefit expenses are inadequate, Humana's
profitability could be materially adversely affected. Humana estimates
the costs of its benefit expense payments, and designs and prices its
products accordingly, using actuarial methods and assumptions based
upon, among other relevant factors, claim payment patterns, medical
cost inflation, and historical developments such as claim inventory
levels and claim receipt patterns. These estimates, however, involve
extensive judgment, and have considerable inherent variability that is
extremely sensitive to payment patterns and medical cost trends.
If Humana fails to effectively implement its operational and strategic
initiatives, including its Medicare initiatives, the company's
business may be materially adversely affected, which is of particular
importance given the concentration of the company's revenues in the
Medicare business.
If Humana fails to properly maintain the integrity of its data, to
strategically implement new information systems, to protect Humana's
proprietary rights to its systems, or to defend against cyber-security
attacks, the company's business may be materially adversely affected.
Humana's business may be materially adversely impacted by CMS's
adoption of the new coding set for diagnoses.
Humana is involved in various legal actions and governmental and
internal investigations, including without limitation, an ongoing
internal investigation and litigation and government requests for
information related to certain aspects of its Florida subsidiary
operations, any of which, if resolved unfavorably to the company,
could result in substantial monetary damages. Increased litigation and
negative publicity could increase the company's cost of doing business.
As a government contractor, Humana is exposed to risks that may
materially adversely affect its business or its willingness or ability
to participate in government health care programs.
Recently enacted health insurance reform, including The Patient
Protection and Affordable Care Act and The Health Care and Education
Reconciliation Act of 2010, could have a material adverse effect on
Humana's results of operations, including restricting revenue,
enrollment and premium growth in certain products and market segments,
restricting the company's ability to expand into new markets,
increasing the company's medical and operating costs by, among other
things, requiring a minimum benefit ratio on insured products (and
particularly how the ratio may apply to Medicare plans), lowering the
company's Medicare payment rates and increasing the company's expenses
associated with a non-deductible federal premium tax and other
assessments; financial position, including the company's ability to
maintain the value of its goodwill; and cash flows. In addition, if
the new non-deductible federal premium tax and other assessments,
including a three-year commercial reinsurance fee, were imposed as
enacted, and if Humana is unable to adjust its business model to
address these new taxes and assessments, such as through the reduction
of the company's operating costs, there can be no assurance that the
non-deductible federal premium tax and other assessments would not
have a material adverse effect on the company's results of operations,
financial position, and cash flows.
Humana's business activities are subject to substantial government
regulation. New laws or regulations, or changes in existing laws or
regulations or their manner of application could increase the
company's cost of doing business and may adversely affect the
company's business, profitability and cash flows.
Any failure to manage administrative costs could hamper Humana's
profitability.
Any failure by Humana to manage acquisitions and other significant
transactions successfully may have a material adverse effect on its
results of operations, financial position, and cash flows.
If Humana fails to develop and maintain satisfactory relationships
with the providers of care to its members, the company's business may
be adversely affected.
Humana's pharmacy business is highly competitive and subjects it to
regulations in addition to those the company faces with its core
health benefits businesses.
Changes in the prescription drug industry pricing benchmarks may
adversely affect Humana's financial performance.
If Humana does not continue to earn and retain purchase discounts and
volume rebates from pharmaceutical manufacturers at current levels,
Humana's gross margins may decline.
Humana's ability to obtain funds from its subsidiaries is restricted
by state insurance regulations.
Downgrades in Humana's debt ratings, should they occur, may adversely
affect its business, results of operations, and financial condition.
Changes in economic conditions could adversely affect Humana's
business and results of operations.
The securities and credit markets may experience volatility and
disruption, which may adversely affect Humana's business.
Given the current economic climate, Humana's stock and the stock of
other companies in the insurance industry may be increasingly subject
to stock price and trading volume volatility.
In making forward-looking statements, Humana is not undertaking to
address or update them in future filings or communications regarding its
business or results. In light of these risks, uncertainties, and
assumptions, the forward-looking events discussed herein may or may not
occur. There also may be other risks that the company is unable to
predict at this time. Any of these risks and uncertainties may cause
actual results to differ materially from the results discussed in the
forward-looking statements.
Humana advises investors to read the following documents as filed by the
company with the SEC for further discussion both of the risks it faces
and its historical performance:
Form 10-K for the year ended December 31, 2011;
Form 8-Ks filed during 2012.
About Humana
Humana Inc., headquartered in Louisville, Kentucky, is a leading health
care company that offers a wide range of insurance products and health
and wellness services that incorporate an integrated approach to
lifelong well-being. By leveraging the strengths of its core businesses,
Humana believes it can better explore opportunities for existing and
emerging adjacencies in health care that can further enhance wellness
opportunities for the millions of people across the nation with whom the
company has relationships.
More information regarding Humana is available to investors via the
Investor Relations page of the company's web site at www.humana.com,
including copies of:
Annual reports to stockholders;
Securities and Exchange Commission filings;
Most recent investor conference presentations;
Quarterly earnings news releases;
Replays of most recent earnings release conference calls;
Calendar of events (including upcoming earnings conference call dates
and times, as well as planned interaction with research analysts and
institutional investors);
Corporate Governance information
Humana Inc. - Earnings Guidance Points as of April 30, 2012
(in accordance with Generally
Accepted Accounting Principles)
For the year ending December 31, 2012
Comments
(excludes impact of pending SeniorBridge
acquisition)
Diluted earnings per common share
Full year 2012: $7.55 to $7.75
Full year 2012 includes expected $0.05 per
(EPS)
share negative impact associated with
Second quarter 2012: $2.15 to $2.25
transaction and integration costs of Arcadian
Projections exclude the impact of future share
repurchases
Projections anticipate weighted average
shares outstanding of 166 million
Revenues
Consolidated revenues: $39.0 billion to $39.5 billion
Includes expected investment income in the
Total revenues:
range of $375 million to $395 million
Retail Segment: $24.5 billion to $25.0 billion
Employer Group Segment: $10.5 billion to $11.0 billion
Segment-level revenues include intersegment
Health and Well-Being Services Segment: $13.25 billion to $13.75
amounts that eliminate in consolidation
billion
Other Businesses: $2.50 billion to $2.75 billion
Ending medical membership versus
Retail Segment:
Retail Medicare Advantage includes
prior year end
Medicare Advantage: Up 255,000 to 265,000
approximately 63,000 members related to
Medicare stand-alone PDPs: Up 500,000 to 600,000
the Arcadian acquisition
HumanaOne: Up 35,000 to 45,000
Medicare Supplement: Up 30,000 to 40,000
Employer Group Segment:
Medicare Advantage: Up approximately 75,000
Commercial Fully Insured: Up 20,000 to 30,000
Commercial ASO: Down 40,000 to 50,000
Benefit ratios
Retail Segment: 83.5% to 84.5%
Benefit expenses as a percent of premiums
Employer Group Segment: 85.0% to 86.0%
Operating cost ratios
Consolidated: 14.25% to 14.75%
Consolidated operating costs as a percent of
Health & Well-Being Services Segment: 95.75% to 96.25%
total revenues excluding investment income
Consolidated depreciation and
$325 million to $345 million
Approximately $40 million is expected to be
amortization (cash flows)
included in benefits expense on the income
statement
Consolidated interest expense
Approximately $105 million
Detailed pretax results
Segment-level pretax results and margins
Retail Segment: $1.30 billion to $1.35 billion; 5.2% to 5.4% pretax
include the impact of net investment income
margin
Retail Segment margin expectation includes 20
basis points of negative impact associated
with transaction and integration costs of
Employer Group Segment: $125 million to $175 million; 1.3% to 1.5%
Arcadian
pretax margin
Health and Well-Being Services Segment: $425 million to $475 million;
3.0% to 3.5% pretax margin
Effective Tax Rate
Approximately 36.5%
Cash flows from operations
$1.8 billion to $2.0 billion
Capital expenditures
Approximately $350 million
Humana Inc.
Statistical Schedules
And
Supplementary Information
1Q12 Earnings Release
S-1
Humana Inc.
Statistical Schedules and Supplementary Information
1Q12 Earnings Release
Contents
Page
Description
S-3
Consolidated Statements of Income
S-4
1Q12 Segment Financial Information
S-5
1Q11 Segment Financial Information
S-6
Consolidated Balance Sheets
S-7
Consolidated Statements of Cash Flows
S-8
Key Income Statement Ratios and Segment Operating Results
S-9
Pharmacy Statistics
S-10
Membership Detail
S-11
Premiums and Services Revenue Detail
S-12
Medicare Summary
S-13
Investments
S-14-16
Benefits Payable
S-17
Footnotes
S-2
Humana Inc.
Consolidated Statements of Income
In millions, except per common share results
Three Months Ended March 31,
Dollar
Percentage
2012
2011
Change
Change
Revenues:
Premiums
$
9,775
$
8,767
$
1,008
11.5
%
Services
350
335
15
4.5
%
Investment income
94
89
5
5.6
%
Total revenues
10,219
9,191
1,028
11.2
%
Operating expenses:
Benefits
8,350
7,345
1,005
13.7
%
Operating costs
1,383
1,256
127
10.1
%
Depreciation and amortization
70
66
4
6.1
%
Total operating expenses
9,803
8,667
1,136
13.1
%
Income from operations
416
524
(108
)
-20.6
%
Interest expense
26
27
(1
)
-3.7
%
Income before income taxes
390
497
(107
)
-21.5
%
Provision for income taxes
142
182
(40
)
-22.0
%
Net income
$
248
$
315
$
(67
)
-21.3
%
Basic earnings per common share
$
1.51
$
1.88
$
(0.37
)
-19.7
%
Diluted earnings per common share
$
1.49
$
1.86
$
(0.37
)
-19.9
%
Shares used in computing basic earnings per common share (000's)
163,717
167,271
Shares used in computing diluted earnings per common share (000's)
Common stock, $0.16 2/3 par; 300,000,000 shares authorized;
194,119,768 issued at March 31, 2012
32
32
Capital in excess of par value
2,043
1,938
Retained earnings
7,032
6,825
Accumulated other comprehensive income
313
303
Treasury stock, at cost, 30,940,528 shares at March 31, 2012
(1,186
)
(1,035
)
Total stockholders' equity
8,234
8,063
$
171
2.1
%
Total liabilities and stockholders' equity
$
20,700
$
17,708
$
2,992
16.9
%
Debt-to-total capitalization ratio
16.4
%
17.1
%
S-6
Humana Inc.
Consolidated Statements of Cash Flows
Dollars in millions
Three Months Ended March 31,
Dollar
Percentage
2012
2011
Change
Change
Cash flows from operating activities
Net income
$
248
$
315
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization
78
76
Net realized capital gains
(4
)
(4
)
Stock-based compensation
40
30
(Benefit from) provision for deferred income taxes
(9
)
27
Changes in operating assets and liabilities excluding the effects
of acquisitions:
Receivables
(255
)
(260
)
Other assets
(138
)
(111
)
Benefits payable
284
471
Other liabilities
52
204
Unearned revenues
2,034
34
Other
16
14
Net cash provided by operating activities
2,346
796
$
1,550
194.7
%
Cash flows from investing activities
Acquisitions, net of cash acquired
(56
)
(5
)
Purchases of property and equipment
(86
)
(71
)
Purchases of investment securities
(714
)
(1,187
)
Proceeds from maturities of investment securities
424
418
Proceeds from sales of investment securities
242
154
Net cash used in investing activities
(190
)
(691
)
$
501
72.5
%
Cash flows from financing activities
Receipts (withdrawals) from contract deposits, net
298
183
Repayment of long-term debt
(36
)
-
Change in book overdraft
(12
)
(157
)
Common stock repurchases
(151
)
(89
)
Excess tax benefit from stock-based compensation
20
5
Dividends paid
(41
)
-
Proceeds from stock option exercises and other
45
36
Net cash provided by (used in) financing activities
123
(22
)
$
145
659.1
%
Increase in cash and cash equivalents
2,279
83
Cash and cash equivalents at beginning of period
1,377
1,673
Cash and cash equivalents at end of period
$
3,656
$
1,756
S-7
Humana Inc.
Key Income Statement Ratios and Segment Operating Results
Dollars in millions
Three Months Ended March 31,
Percentage
2012
2011
Difference
Change
Benefit ratio
Retail
87.6%
85.8%
1.8%
Employer Group
81.6%
78.7%
2.9%
Other Businesses
91.3%
90.1%
1.2%
Consolidated
85.4%
83.8%
1.6%
Operating cost ratio (C)
Retail
10.4%
10.0%
0.4%
Employer Group
16.3%
18.3%
-2.0%
Health and Well-Being Services
95.4%
95.8%
-0.4%
Other Businesses
9.4%
9.5%
-0.1%
Consolidated
13.7%
13.8%
-0.1%
Detail of pretax income
Retail
$115
$217
($102)
-47.0%
Employer Group
$121
$139
($18)
-12.9%
Health and Well-Being Services
$132
$97
$35
36.1%
Other Businesses
$17
$35
($18)
-51.4%
Consolidated
$390
$497
($107)
-21.5%
S-8
Humana Inc.
Pharmacy Metrics
Script volume in thousands
Three Months Ended March 31,
2012
2011
Difference
Generic Dispense Rate
Retail
Mail-Order
87.5%
85.6%
1.9%
90-Day Retail
85.7%
82.9%
2.8%
All Other
78.8%
76.8%
2.0%
Total
82.5%
80.0%
2.5%
Employer Group
Mail-order
72.0%
66.9%
5.1%
90-Day Retail
80.6%
75.9%
4.7%
All Other
71.9%
69.1%
2.8%
Total Employer Group
74.0%
70.2%
3.8%
Percentage
Difference
Change
Script volume
Retail
Mail-order
12,072
8,554
3,518
41.1%
90-Day Retail
12,363
9,874
2,489
25.2%
All Other
27,705
24,459
3,246
13.3%
Total Retail
52,140
42,887
9,253
21.6%
Employer Group
Mail-order
985
959
26
2.7%
90-Day Retail
1,492
1,297
195
15.0%
All Other
3,818
3,925
(107)
-2.7%
Total Employer Group
6,295
6,181
114
1.8%
Total Retail and Employer Group
58,435
49,068
9,367
19.1%
S-9
Humana Inc.
Membership Detail
In thousands
Ending
Average
1Q12
Ending
Year-over-year Change
Ending
Sequential Change
March 31, 2012
March 31, 2011
Amount
Percent
December 31, 2011
Amount
Percent
Medical Membership:
Retail
Medicare Advantage
1,883.8
1,838.1
1,594.8
289.0
18.1
%
1,640.3
243.5
14.8
%
Medicare stand-alone PDPs
2,863.9
2,844.8
2,353.1
510.8
21.7
%
2,540.4
323.5
12.7
%
Individual commercial
442.0
438.1
382.9
59.1
15.4
%
433.6
8.4
1.9
%
Medicare Supplement
67.3
66.5
49.9
17.4
34.9
%
59.6
7.7
12.9
%
Total Retail
5,257.0
5,187.5
4,380.7
876.3
20.0
%
4,673.9
583.1
12.5
%
Employer Group
Medicare Advantage
357.7
357.4
280.7
77.0
27.4
%
290.6
67.1
23.1
%
Medicare Advantage ASO
28.1
28.1
27.9
0.2
0.7
%
27.6
0.5
1.8
%
Medicare stand-alone PDPs
4.2
4.2
4.1
0.1
2.4
%
4.2
-
0.0
%
Fully-insured medical commercial
1,182.8
1,184.9
1,178.5
4.3
0.4
%
1,180.2
2.6
0.2
%
ASO commercial
1,236.6
1,239.2
1,319.3
(82.7
)
-6.3
%
1,292.3
(55.7
)
-4.3
%
Total Employer Group
2,809.4
2,813.8
2,810.5
(1.1
)
0.0
%
2,794.9
14.5
0.5
%
Other Businesses
Military Services
3,021.7
3,020.7
3,012.9
8.8
0.3
%
3,028.1
(6.4
)
-0.2
%
Medicaid and other
602.8
600.7
619.3
(16.5
)
-2.7
%
614.2
(11.4
)
-1.9
%
LI-NET (D)
76.7
75.2
98.5
(21.8
)
-22.1
%
73.5
3.2
4.4
%
Total Other Businesses
3,701.2
3,696.6
3,730.7
(29.5
)
-0.8
%
3,715.8
(14.6
)
-0.4
%
Total Medical Membership
11,767.6
11,697.9
10,921.9
845.7
7.7
%
11,184.6
583.0
5.2
%
Specialty Membership:
Retail
Dental - fully-insured
626.0
606.5
444.4
181.6
40.9
%
579.6
46.4
8.0
%
Vision
90.2
87.3
61.2
29.0
47.4
%
83.8
6.4
7.6
%
Other supplemental benefits (E)
131.7
127.3
84.9
46.8
55.1
%
119.1
12.6
10.6
%
Total Retail
847.9
821.1
590.5
257.4
43.6
%
782.5
65.4
8.4
%
Employer Group
Dental - fully-insured
2,386.2
2,390.7
2,252.5
133.7
5.9
%
2,283.9
102.3
4.5
%
Dental - ASO
852.4
853.2
1,229.8
(377.4
)
-30.7
%
869.9
(17.5
)
-2.0
%
Vision
2,418.3
2,422.8
2,194.1
224.2
10.2
%
2,329.6
88.7
3.8
%
Other supplemental benefits (E)
1,192.4
1,188.0
960.4
232.0
24.2
%
1,049.2
143.2
13.6
%
Total Employer Group
6,849.3
6,854.7
6,636.8
212.5
3.2
%
6,532.6
316.7
4.8
%
Total Specialty Membership
7,697.2
7,675.8
7,227.3
469.9
6.5
%
7,315.1
382.1
5.2
%
S-10
Humana Inc.
Premiums and Services Revenue Detail
Dollars in millions, except per member per month
Per Member per Month (F)
Three Months Ended March 31,
Three Months Ended March 31,
Dollar
Percentage
2012
2011
Change
Change
2012
2011
Premiums and Services Revenue
Retail:
Medicare Advantage
$
5,093
$
4,525
$
568
12.6
%
$
924
$
947
Medicare stand-alone PDPs
660
557
103
18.5
%
$
77
$
80
Individual commercial
211
177
34
19.2
%
$
161
$
157
Medicare Supplemental
33
24
9
37.5
%
$
165
$
163
Specialty
38
26
12
46.2
%
$
15
$
15
ASO & other services (B)
6
3
3
100.0
%
Total Retail
6,041
5,312
729
13.7
%
Employer Group:
Medicare Advantage
1,025
796
229
28.8
%
$
956
$
948
Medicare stand-alone PDPs
2
2
-
0.0
%
Fully-insured medical commercial
1,242
1,199
43
3.6
%
$
349
$
340
Specialty
260
230
30
13.0
%
$
14
$
14
ASO & other services (B)
93
96
(3
)
-3.1
%
Total Employer Group
2,622
2,323
299
12.9
%
Health and Well-Being Services:
Pharmacy solutions
2,933
2,457
476
19.4
%
Primary care services
281
255
26
10.2
%
Home care services
36
16
20
125.0
%
Integrated wellness services
57
45
12
26.7
%
Total Health and Well-Being Services
3,307
2,773
534
19.3
%
Other Businesses:
Military services (G)
906
942
(36
)
-3.8
%
$
174
$
176
LI-NET (D)
66
76
(10
)
-13.2
%
$
293
$
254
Medicaid and other (H)
257
235
22
9.4
%
$
140
$
125
Total Other Businesses
1,229
1,253
(24
)
-1.9
%
S-11
Humana Inc.
Medicare Summary
Premiums in millions
Membership in thousands
Per Member per Month (F)
Three Months Ended March 31,
Year-over-year Change
Three Months Ended March 31,
2012
2011
Amount
Percent
2012
2011
Premiums
Medicare Advantage
$
6,118
$
5,321
$
797
15.0
%
$
929
$
947
Medicare stand-alone PDPs
728
635
93
14.6
%
$
83
$
87
Total Medicare
$
6,846
$
5,956
$
890
14.9
%
Ending
Ending
Year-over-year Change
March 31, 2012
March 31, 2011
Amount
Percent
Fully-Insured Membership
Medicare Advantage
2,241.5
1,875.5
366.0
19.5
%
Medicare stand-alone PDPs
2,944.8
2,455.7
489.1
19.9
%
Total Medicare
5,186.3
4,331.2
855.1
19.7
%
S-12
Humana Inc.
Fair value
Investments
Dollars in millions
3/31/2012
12/31/2011
Investment Portfolio:
Cash & cash equivalents
$3,656
$1,377
Investment securities
7,889
7,743
Long-term investments
1,704
1,710
Total investment portfolio
$13,249
$10,830
Duration (I)
3.33
3.94
Average Credit Rating
AA-
AA-
Investment Portfolio Detail:
Cash and cash equivalents
$3,656
$1,377
U.S. Government and agency obligations
U.S. Treasury and agency obligations
550
725
U.S. Government residential mortgage-backed
1,725
1,751
U.S. Government commercial mortgage-backed
33
33
Total U.S. Government and agency obligations
2,308
2,509
Tax-exempt municipal securities
Pre-refunded
304
332
Insured
645
634
Other
1,928
1,874
Auction rate securities
15
16
Total tax-exempt municipal securities
2,892
2,856
Residential mortgage-backed
Prime residential mortgages
38
41
Alt-A residential mortgages
2
2
Sub-prime residential mortgages
1
1
Total residential mortgage-backed
41
44
Commercial mortgage-backed
437
381
Asset-backed securities
74
83
Corporate securities
Financial services
867
692
Other
2,974
2,888
Total corporate securities
3,841
3,580
Redeemable preferred stocks
-
-
Total investment portfolio
$13,249
$10,830
S-13
Humana Inc.
Detail of Benefits Payable Balance and Year-to-Date Changes
Dollars in millions
March 31,
March 31,
December 31,
2012
2011
2011
Detail of benefits payable
IBNR and other benefits payable (J)
$2,918
$2,770
$2,759
Unprocessed claim inventories (K)
376
482
280
Processed claim inventories (L)
262
226
209
Payable to pharmacy benefit administrator (M)
199
161
167
Benefits payable, excluding military services
3,755
3,639
3,415
Military services benefits payable (N)
353
301
339
Total Benefits Payable
$4,108
$3,940
$3,754
Three Months Ended
Three Months Ended
Year Ended
March 31, 2012
March 31, 2011
December 31, 2011
Year-to-date changes in benefits payable, excluding military
services (O)
Balances at January 1
$3,415
$3,214
$3,214
Acquisitions
70
29
Incurred related to:
Current year
7,650
6,731
25,821
Prior years (P)
(141)
(251)
(372)
Total incurred
7,509
6,480
25,449
Paid related to:
Current year
(4,793)
(3,878)
(22,729)
Prior years
(2,446)
(2,177)
(2,548)
Total paid
(7,239)
(6,055)
(25,277)
Balances at end of period
$3,755
$3,639
$3,415
Three Months Ended
Three Months Ended
Year Ended
March 31, 2012
March 31, 2011
December 31, 2011
Summary of Consolidated Benefit Expense:
Total benefit expense incurred, per above
$7,509
$6,480
$25,449
Military services benefit expense
813
826
3,247
Future policy benefit expense (Q)
28
39
127
Consolidated Benefit Expense
$8,350
$7,345
$28,823
S-14
Humana Inc.
Benefits Payable Statistics (R)
Receipt Cycle Time (S)
2012
2011
Change
Percentage
Change
1st Quarter Average
13.0
13.8
(0.8)
-5.8%
2nd Quarter Average
13.8
n/a
n/a
3rd Quarter Average
13.6
n/a
n/a
4th Quarter Average
14.0
n/a
n/a
Full Year Average
13.0
13.8
(0.8)
-5.8%
Unprocessed Claims Inventories
Date
Estimated Valuation
(millions)
Claim Item Counts
(000s)
Number of Days
on Hand
3/31/2010
$426
1,092
5.6
6/30/2010
$434
1,009
4.9
9/30/2010
$429
1,064
5.2
12/31/2010
$374
981
5.0
3/31/2011
$482
1,197
6.0
6/30/2011
$410
1,093
5.1
9/30/2011
$419
1,272
5.7
12/31/2011
$280
599
2.8
3/31/2012
$376
1,028
4.2
S-15
Humana Inc.
Benefits Payable Statistics (Continued) (R)
Days in Claims Payable (T)
Quarter Ended
Days in Claims
Payable (DCP)
Change Last 4
Quarters
Percentage
Change
3/31/2010
54.2
(0.4)
-0.7%
6/30/2010
57.0
0.9
1.6%
9/30/2010
57.8
1.6
2.8%
12/31/2010
53.5
(1.9)
-3.4%
3/31/2011
55.5
1.3
2.4%
6/30/2011
56.0
(1.0)
-1.8%
9/30/2011
54.2
(3.6)
-6.2%
12/31/2011
52.5
(1.0)
-1.9%
3/31/2012
50.1
(5.4)
-9.7%
Year-to-Date Change in Days in Claims Payable (U)
2012
2011
DCP - beginning of period
52.5
53.5
Components of change in DCP:
Change in unprocessed claims inventories
(0.4)
(2.3)
Change in processed claims inventories
0.6
1.4
Change in pharmacy payment cutoff
0.1
0.6
Change in capitation/Medicare HMO member growth
(2.5)
(0.7)
All other
(0.2)
-
DCP - end of period
50.1
52.5
S-16
Humana Inc.
Footnotes to Statistical Schedules and Supplementary Information
1Q12 Earnings Release
(A) The Medicaid and other category includes the company's Medicaid
business as well as the closed block of long-term care.
(B) The ASO and other category is primarily comprised of ASO fees
and other ancillary services fees.
(C) The operating cost ratio is defined as operating costs as a
percent of total revenues excluding investment income.
(D) LI-NET is the CMS Limited Income Newly Eligible Transition
program, operated by Humana, to provide Part D prescription drug
coverage for all uncovered Full Duals and SSI-only
beneficiaries on a retroactive basis and all uncovered LIS
eligible beneficiaries on a current basis.
(E) Other supplemental benefits include life, disability, and fixed
benefit products including cancer and critical illness policies.
(F) Computed based on average membership for the period (i.e.,
monthly ending membership during the period divided by the number of
months in the period).
(G) Military services revenues are generally not contracted on a
per-member basis.
(H) Includes premiums associated with Medicaid and the closed block
of long-term care as well as services revenue.
(I) Duration is the time-weighted average of the present value of
the fixed income portfolio cash flows.
(J) IBNR represents an estimate of benefit expenses payable for
claims incurred but not reported (IBNR) at the balance sheet date.
The level of IBNR is primarily impacted by membership
levels, benefit claim trends and the receipt cycle time, which
represents the length of time between when a claim is initially
incurred and when the claim form is received (i.e. a shorter time
span results in lower reserves for claims IBNR). Other benefits
payable includes amounts payable to providers under capitation
arrangements.
(K) Unprocessed claim inventories represent the estimated valuation
of claims received but not yet fully processed.
(L) Processed claim inventories represent the estimated valuation
of processed claims that are in the post-claim-adjudication
process, which consists of administrative functions such as audit
and check batching and handling.
(M) The balance due to the company's pharmacy benefit
administrator fluctuates as a result of the number of business
days in the last payment cycle of the month. Payment cycles are
every 8
days (8(th), 16(th), and 24th of month) and the last day of the
month.
(N) Military services benefits payable primarily consist of IBNR and
to a lesser extent risk share payables to the Department of Defense
and liabilities to subcontractors.
(O) The table excludes activity associated with military services
benefits payable because the federal government bears a substantial
portion of the risk associated with financing the cost of health
benefits. More specifically, the risk-sharing provisions of the
military services contracts with the federal government and with
subcontractors effectively limit profits and losses when actual claim
experience varies from the targeted claim amount negotiated
annually. As a result of these contract provisions, the impact of
changes in estimates for prior year military services benefits
payable are
substantially offset by the associated changes in estimates of
revenue from health care services reimbursements. As such, any
impact on the company's results of operations is reduced
substantially,
whether positive or negative.
(P) Amounts incurred related to prior years vary from previously
estimated liabilities as the claims ultimately are settled. Negative
amounts reported for incurred related to prior years result from
claims being ultimately settled for amounts less than originally
estimated (favorable development). There were no changes in the
approach used to determine the company's estimate of claim reserves
during the quarter.
(Q) Future policy benefit expense has a related liability classified
as a long-term liability on the balance sheet.
(R) Benefits reserves statistics represents fully-insured medical
claims data and excludes military services claims data and specialty
benefits.
(S) The receipt cycle time measures the average length of time
between when a claim was initially incurred and when the claim form
was received. Receipt cycle time data for the company's largest claim
processing platforms represent approximately 93% of the company's
fully-insured medical claims volume. Pharmacy and specialty claims,
including dental, vision and other supplemental benefits, are
excluded
from this measurement.
(T) A common metric for monitoring benefits payable levels relative
to the benefit expense is days in claims payable, or DCP, which
represents the benefits payable at the end of the period divided by
average benefit expenses per day in the quarterly period.
(U) DCP fluctuates due to a number of issues, the more significant
of which are detailed in this rollforward. Growth in certain product
lines can also impact DCP for the quarter since a provision for
claims would not have been recorded for members that had not yet
enrolled earlier in the quarter, yet those members would have a
provision and corresponding reserve recorded upon enrollment later
in the
quarter. This analysis excludes the impact of military services and
Medicare stand-alone PDPs upon DCP.
S-17
Humana Investor Relations Regina Nethery, 502-580-3644 Rnethery@humana.com or Humana
Corporate Communications Tom Noland, 502-580-3674 Tnoland@humana.com
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