Humana Reports Fourth Quarter and Full Year 2012 Financial Results; Reaffirms 2013 Financial Guidance
4Q12 EPS of $1.19; FY12 EPS of $7.47, both above management’s
expectations
FY13 EPS guidance of $7.60 to $7.80 reaffirmed
FY12 consolidated revenues grew 6 percent to over $39 billion
FY12 cash flows from operations of $1.9 billion
LOUISVILLE, Ky.--(BUSINESS WIRE)--
Humana Inc. (NYSE: HUM) today reported diluted earnings per common share
(EPS) for the quarter ended December 31, 2012 (4Q12) of $1.19, compared
to $1.20 per share for the quarter ended December 31, 2011 (4Q11).
Results for 4Q12 were relatively unchanged versus those for 4Q11, but
exceeded management’s previous expectations.
For the year ended December 31, 2012 (FY12) the company reported $7.47
in EPS compared to $8.46 for the year ended December 31, 2011 (FY11),
which was higher than management’s previous expectations for FY12 EPS in
the range of $7.25 to $7.35. FY12 consolidated results included $0.48
per share of benefit from favorable prior period medical claims reserve
development compared to $0.77 per share in FY11.
The company continues to anticipate EPS for the year ending December 31,
2013 (FY13) in the range of $7.60 to $7.80 as improving operating
results and modest accretion from the Metropolitan Health Networks, Inc.
(Metropolitan) acquisition that closed in late FY12 are expected to be
generally offset by slightly higher flu-related medical costs than
previously anticipated, as well as additional interest expense
associated with the company’s recent senior notes offering.
“The progress we made building our clinical capabilities in 2012
positions us strongly for success in 2014 and beyond,” said Bruce D.
Broussard, President and Chief Executive Officer of Humana. “For 2013,
we will continue to enhance our integrated care delivery model, which we
believe represents the future of health care delivery, as we forecast
another year of growth in revenues, earnings and Medicare membership.”
Consolidated Highlights
Revenues – 4Q12 consolidated revenues were $9.56 billion, an
increase of 6 percent from $9.06 billion in 4Q11, with total premiums
and services revenue up 5 percent compared to the prior year’s quarter.
The year-over-year increase in premiums and services revenue was
primarily driven by higher Retail and Employer Group segment revenues
resulting from higher average individual and group Medicare membership,
partially offset by the company’s new South Region TRICARE contract
being accounted for as self-funded versus fully-insured for the previous
contract. The new contract became effective on April 1, 2012.
FY12 consolidated revenues increased 6 percent to $39.13 billion from
$36.83 billion in FY11 with total premiums and services revenue also up
6 percent compared to the prior year period, as a result of similar
segment-level changes as those affecting the fourth quarter
year-over-year change.
Benefits expense – The 4Q12 consolidated benefit ratio (benefits
expense as a percent of premiums) of 83.7 percent increased by 190 basis
points from 81.8 percent for the prior year’s quarter due primarily to a
360 basis point increase in the Retail Segment benefit ratio, as
discussed more fully below.
The consolidated benefit ratio for FY12 of 83.7 percent increased by 160
basis points from the FY11 consolidated benefit ratio of 82.1 percent
also primarily due to a 290 basis point increase in the benefit ratio
for the Retail Segment.
Operating expenses – The consolidated operating cost ratio
(operating costs as a percent of total revenues less investment income)
of 17.5 percent for 4Q12 declined from 17.7 percent in 4Q11 primarily
due to substantial reductions in this operating metric for the Retail
and Employer Group Segments nearly offset by the impact of the
accounting for the company’s new South Region TRICARE contract in the
company’s Other Businesses.
The FY12 consolidated operating cost ratio of 15.1 percent increased 30
basis points from 14.8 percent for FY11 primarily due to the impact of
the new South Region TRICARE contract discussed above, partially offset
by lower year-over-year operating cost ratios for the Retail and
Employer Group Segments.
Strategic transaction update – On December 21, 2012, Humana
completed its previously disclosed acquisition of Metropolitan, a
Medical Services Organization that coordinates medical care for Medicare
Advantage and Medicaid beneficiaries, primarily in Florida.
Retail Segment Highlights
Pretax results:
Retail Segment pretax income of $256 million in 4Q12 compares to $326
million in 4Q11, a decline of $70 million. This decrease was primarily
due to a higher benefit ratio, partially offset by a lower operating
cost ratio.
For FY12, pretax earnings for the Retail Segment of $1.16 billion
decreased by $425 million from FY11 pretax earnings of $1.59 billion.
The full-year decrease reflects the same factors impacting the fourth
quarter year-over-year comparison. FY12 Retail Segment pretax results
included $110 million of benefit from favorable prior period medical
claims reserve development compared to $147 million in FY11.
Enrollment:
Individual Medicare Advantage membership was 1,927,600 at December 31,
2012, an increase of 287,300 members, or 18 percent from 1,640,300 at
December 31, 2011, primarily due to a successful enrollment season
associated with the 2012 plan year as well as age-in enrollment
throughout the year.
Effective March 31, 2012, the company added approximately 62,600
members from the acquisition of Arcadian Management Services, Inc.
(Arcadian). As previously announced, the company divested
approximately 12,600 members acquired with Arcadian effective January
1, 2013 in accordance with the company’s previously disclosed
agreement with the United States Department of Justice.
January 2013 individual Medicare Advantage membership approximated
2,011,000, up approximately 83,400 from December 31, 2012, reflecting
net membership additions in line with the company’s expectations for
the recently completed 2013 Annual Election Period (AEP) for Medicare
beneficiaries and the Arcadian-related membership divestitures
discussed above.
Membership in the company’s individual stand-alone Prescription Drug
Plans (PDPs) was 2,985,600 at December 31, 2012, up 445,200, or 18
percent compared to 2,540,400 at December 31, 2011. These increases
resulted primarily from higher gross sales primarily during the 2012
enrollment season, particularly for the company’s innovative
Humana-Walmart plan offering, supplemented by dual-eligible and age-in
enrollments throughout the year.
January 2013 individual stand-alone PDP membership grew to
approximately 3,113,000, an increase of approximately 127,400 from
December 31, 2012, in line with the company’s expectations for net
additions during the AEP.
HumanaOne® medical membership increased to 444,000 at December 31,
2012, an increase of 10,400, or 2 percent, from 433,600 at December
31, 2011.
Membership in individual specialty products(a) of 948,700
at December 31, 2012 increased 21 percent from 782,500 at December 31,
2011, driven primarily by increased membership in dental offerings.
Premiums and services revenue:
4Q12 premiums and services revenue for the Retail Segment was $6.11
billion, an increase of 15 percent from $5.31 billion in 4Q11. The
increase was primarily the result of 19 percent higher average
individual Medicare Advantage membership year over year.
Benefits expense:
The 4Q12 benefit ratio for the Retail Segment was 82.6 percent, an
increase of 360 basis points from 79.0 percent in 4Q11. The
year-over-year increase was primarily due to a higher Medicare
Advantage benefit ratio associated with new members and increased
outpatient utilization for both new and existing members.
Operating costs:
The Retail Segment’s operating cost ratio of 13.1 percent in 4Q12
decreased 160 basis points from 14.7 percent in 4Q11. The decrease was
primarily the result of cost efficiencies resulting from higher
average membership together with the company’s continued focus on
operating cost efficiencies.
Employer Group Segment Highlights
Pretax results:
Employer Group Segment pretax loss of $25 million in 4Q12 compares to
a pretax loss of $51 million in 4Q11, and reflects an improved
operating cost ratio partially offset by a year-over-year increase in
the benefit ratio for this segment.
For FY12, pretax earnings for the Employer Group Segment of $253
million increased by $11 million versus FY11 pretax earnings of $242
million with the same factors impacting fourth quarter results also
driving the year-over-year increase.
Enrollment:
Group Medicare Advantage membership was 398,500 at December 31, 2012,
an increase of 80,300 members, or 25 percent, from 318,200 at December
31, 2011 primarily due to the addition of a large retiree account
during FY12.
Group fully-insured commercial medical membership increased to
1,211,800 at December 31, 2012, an increase of 31,600, or 3 percent,
from 1,180,200 at December 31, 2011. This increase primarily reflected
small group business membership gains partially offset by lower
membership in large group accounts. Approximately 59 percent of group
fully-insured commercial medical membership was in small group
accounts at December 31, 2012 versus 56 percent at December 31, 2011.
Group administrative services only (ASO) commercial medical membership
declined to 1,237,700 at December 31, 2012, a decrease of 54,600, or 4
percent, from 1,292,300 at December 31, 2011. This decline reflected a
continuation of discipline in pricing services for self-funded
accounts amid a highly competitive environment.
Membership in Employer Group specialty products(a)
increased to 7,136,200 at December 31, 2012, an increase of 603,600,
or 9 percent, from 6,532,600 at December 31, 2011. This increase
primarily resulted from increased cross-sales of the company’s
specialty products to its medical membership and growth in stand-alone
specialty product sales.
Premiums and services revenue:
4Q12 premiums and services revenue for the Employer Group Segment were
$2.63 billion, up approximately 14 percent from $2.30 billion in 4Q11
primarily reflecting the impacts of higher average group Medicare
Advantage and commercial fully-insured membership.
Benefits expense:
4Q12 benefit ratio for the Employer Group Segment was 87.1 percent, an
increase of 70 basis points from 86.4 percent for 4Q11. The
year-over-year increase in the benefit ratio primarily reflected a
higher percentage of members in group Medicare Advantage plans (which
carry a higher benefit ratio than commercial fully-insured group
accounts).
Operating costs:
The Employer Group Segment’s operating cost ratio was 16.7 percent in
4Q12, a decline of 210 basis points from 18.8 percent in 4Q11,
primarily reflecting a higher percentage of members in group Medicare
Advantage plans (which carry a lower operating cost ratio than
commercial fully-insured group accounts) as well as cost savings
associated with operating cost reduction initiatives.
Health and Well-Being Services Segment
Highlights
Pretax results:
Health and Well-Being Services Segment pretax income of $75 million in
4Q12 declined $10 million from $85 million in 4Q11 primarily due to
transaction costs associated with the closings of the Metropolitan and
MCCI Holdings, LLC (MCCI) strategic transactions announced in November
2012.
For FY12, pretax earnings for the Health and Well-Being Services
Segment of $486 million increased by $133 million from FY11 pretax
earnings of $353 million, primarily from higher earnings in the
company’s RightSource® mail order operations.
Revenues:
Revenues of $3.26 billion in 4Q12 for the Health and Well-Being
Services Segment increased 13 percent from $2.90 billion in 4Q11. This
increase was primarily due to growth in the company’s pharmacy
solutions business.
Operating costs:
The Health and Well-Being Services Segment’s operating cost ratio of
96.8 percent in 4Q12 increased by 50 basis points from 96.3 percent in
4Q11, primarily due to costs associated with the 4Q12 closings of the
previously announced Metropolitan and MCCI strategic transactions.
Other Businesses Highlights
Pretax results:
Other Businesses incurred a pretax loss of $31 million in 4Q12 versus
pretax income of $1 million in 4Q11, primarily due to a reserve
strengthening for the company’s closed block of long-term-care
business in 4Q12
For FY12, a pretax loss for Other Businesses of $19 million compares
to pretax income of $84 million in FY11. This year-over-year decline
primarily reflected the combined effect of approximately $46 million
in benefits expense related to the settlement of previously disclosed
litigation involving Humana Military Healthcare Services, Inc., the
4Q12 adjustments to long-term-care reserves described above and the
change in profitability under the new South Region TRICARE contract
described below.
On April 1, 2012, the company’s new South Region TRICARE contract
became effective with the Department of Defense (DoD). The company’s
new contract is structured similar to self-funded products versus a
fully-insured structure for the company’s previous South Region
TRICARE contract with the DoD. This change resulted in significant
volatility in year-over-year comparisons for the company’s Other
Businesses.
Balance Sheet
At December 31, 2012, the company had cash, cash equivalents, and
investment securities of $11.15 billion, up approximately $320 million
from $10.83 billion at December 31, 2011 reflecting higher balances
associated with increased revenues for FY12 versus FY11.
In early December 2012, the company announced it had completed its
public offering of $1 billion of senior notes. A substantial portion
of the proceeds from that debt offering was used to complete the
Metropolitan transaction, including the retirement of Metropolitan’s
indebtedness and for related transaction fees and expenses, all in
late December 2012.
Parent company cash and short-term investments of $346 million at
December 31, 2012 decreased $176 million from $522 million at
September 30, 2012, primarily reflecting strategic transaction
activity and cash dividends to stockholders during 4Q12 partially
offset by the net proceeds from the issuance of debt. Cash and
short-term investments at the parent decreased $148 million year over
year from $494 million held at the parent at December 31, 2011 as
increased dividends from subsidiaries and net proceeds from the
issuance of debt during 4Q12 were more than offset by strategic
transaction activity, share repurchases and cash dividends to
stockholders.
Days in claims payable of 48.5 at December 31, 2012 decreased 3.1 days
from 51.6 days at September 30, 2012 primarily due to a decline in
processed and unprocessed claims on hand as well as certain provider
capitation payment settlements during 4Q12.
Debt-to-total capitalization at December 31, 2012 was 22.8 percent, up
710 basis points from 15.7 percent at September 30, 2012, and up 570
basis points from 17.1 percent at December 31, 2011 primarily driven
by the 4Q12 issuance of senior notes described above.
Cash Flows from Operations
Cash flows provided by operations for 4Q12 were $205 million compared to
cash flows used in operations of $1.80 billion in 4Q11. The company also
evaluates operating cash flows on a non-GAAP basis:
Net cash from operating activities
(in millions)
4Q12
Cash Flows
4Q11
Cash Flows
GAAP
$
205
($1,797)
Timing of premium payment from CMS (b)
-
1,796
Non-GAAP (c)
$
205
($1)
The year-over-year increase in the non-GAAP cash flows from operations
is due primarily to the effect on cash flows of changes in working
capital accounts.
FY12 cash flows from operations of $1.92 billion compared to $2.08
billion for FY11, primarily due to lower net income year over year.
Share Repurchase Program
During FY12, under the company’s current share repurchase
authorization and a previously approved share repurchase
authorization, the company executed share repurchases of approximately
$460 million, or approximately 6,252,900 of its outstanding shares, at
an average price of $73.66 per share.
As of February 4, 2013, approximately $640 million of the $1 billion
April 2012 share repurchase authorization remained, with an expiration
date of June 30, 2014.
Footnotes
(a) The company provides a full range of insured specialty products
including dental, vision and other supplemental health and financial
protection 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 on the last business day of the previous month.
Consequently, 4Q11 cash flows included two monthly Medicare payments
compared to three monthly Medicare payments during 4Q12.
(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, if
the company is unable to implement clinical initiatives to provide a
better health care experience for its members, lower costs and
appropriately document the risk profile of its members, or if its
estimates of benefits expense 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 because
they are extremely sensitive to changes in payment patterns and
medical cost trends.
If Humana fails to effectively implement its operational and strategic
initiatives, particularly its Medicare initiatives (given the
concentration of the company’s revenues in the Medicare business), the
company’s business may be materially adversely affected.
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 a new coding set for diagnoses.
Humana is involved in various legal actions and governmental and
internal investigations, any of which, if resolved unfavorably to the
company, could result in substantial monetary damages. Increased
litigation and negative publicity could also 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, including
aggregation, credibility thresholds, and its possible application to
prescription drug 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 operating 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 10-Qs for the quarters ended March 31, 2012, June 30, 2012 and
September 30, 2012 (as amended by the Form 10-Q/A filed on December 4,
2012);
Form 8-Ks filed during 2012 and 2013.
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 February 4, 2013
(in accordance with Generally Accepted
For the year ending December 31, 2013
Comments
Accounting Principles)
Diluted earnings per common share (EPS)
Full Year
$7.60 to $7.80
FY13 includes approximately $0.30 per share in
investment spending
First Quarter
$1.75 to $1.85
Revenues
Consolidated
$41.0 billion to $41.5 billion
Includes expected investment income in the range
of $365 million to $385 million for 2013
Retail Segment
$26.25 billion to $26.75 billion
Segment-level revenues include intersegment
Employer Group Segment
$11.0 billion to $11.5 billion
amounts that eliminate in consolidation
Health and Well-Being Services
Segment
$15.0 billion to $15.5 billion
Other Businesses
$1.8 billion to $2.1 billion
Ending medical membership versus prior
year end
Retail Segment
Up 100,000 to 120,000
Includes the January 1, 2013 disposition of
Medicare Advantage
12,600 Medicare Advantage members acquired in
the March 2012 Arcadian transaction in
accordance with the company’s previously
disclosed agreement with the United States
Department of Justice.
Medicare stand-alone PDPs
Up 135,000 to 175,000
HumanaOne
Down approximately 50,000
Medicare Supplement
Up 15,000 to 25,000
Employer Group Segment
Medicare Advantage
Up approximately 20,000
Commercial Fully-Insured
Flat to up 5,000
Commercial ASO
Down 25,000 to 45,000
Benefit ratios
Benefits expense as a percent of premiums
Retail Segment
84.5% to 85.0%
Employer Group Segment
85.0% to 86.0%
Operating cost ratios
Operating costs as a percent of total revenues
excluding investment income
Consolidated
15.0% to 15.5%
Health and Well-Being Services
Segment
95.5% to 96.0%
Consolidated depreciation and amortization
Certain D&A is included in benefits expense on
Income statement
$330 million to $350 million
the income statement but shown as a non-cash
Cash flows statement
$415 million to $435 million
item on the cash flows statement
Consolidated interest expense
$140 million to $145 million
Detailed pretax results
Segment-level pretax results and margins include
the impact of net investment income
Retail Segment
$1.29 billion to $1.33 billion;
approximately 5% pretax margin
Employer Group Segment
$105 million to $155 million;
1.0% to 1.2% pretax margin
Health and Well-Being Services
Segment
$500 million to $550 million;
3.0% to 3.5% pretax margin
Effective Tax Rate
Approximately 37%
Diluted shares
Approximately 161.5 million
Projections exclude the impact of future share
repurchases
Cash flows from operations
$1.8 billion to $2.0 billion
Capital expenditures
$425 million to $450 million
Humana Inc.
Statistical Schedules
And
Supplementary Information
4Q12 Earnings Release
S-1
Humana Inc.
Statistical Schedules and Supplementary Information
4Q12 Earnings Release
Contents
Page
Description
S-3-4
Consolidated Statements of Income
S-5-6
Quarterly Segment Financial Information
S-7-8
FY Segment Financial Information
S-9
Consolidated Balance Sheets
S-10-11
Consolidated Statements of Cash Flows
S-12
Key Income Statement Ratios and Segment Operating Results
S-13-14
Health and Well-Being Services Segment Metrics
S-15
Membership Detail
S-16-17
Premiums and Services Revenue Detail
S-18
Medicare Summary
S-19
Investments
S-20-22
Benefits Payable Detail and Statistics
S-23
Footnotes
S-2
Humana Inc.
Consolidated Statements of Income
In millions, except per common share results
Three Months Ended December 31,
Dollar
Percentage
2012
2011
Change
Change
Revenues:
Premiums
$
8,980
$
8,638
$
342
4.0
%
Services
475
325
150
46.2
%
Investment income
102
93
9
9.7
%
Total revenues
9,557
9,056
501
5.5
%
Operating expenses:
Benefits
7,516
7,062
454
6.4
%
Operating costs
1,655
1,585
70
4.4
%
Depreciation and amortization
77
69
8
11.6
%
Total operating expenses
9,248
8,716
532
6.1
%
Income from operations
309
340
(31
)
-9.1
%
Interest expense
27
27
0
0.0
%
Income before income taxes
282
313
(31
)
-9.9
%
Provision for income taxes
90
114
(24
)
-21.1
%
Net income
$
192
$
199
$
(7
)
-3.5
%
Basic earnings per common share
$
1.21
$
1.22
$
(0.01
)
-0.8
%
Diluted earnings per common share
$
1.19
$
1.20
$
(0.01
)
-0.8
%
Shares used in computing basic earnings per common share (000's)
158,764
163,238
Shares used in computing diluted earnings per common share (000's)
160,682
165,632
S-3
Humana Inc.
Consolidated Statements of Income
In millions, except per common share results
Twelve Months Ended December 31,
Dollar
Percentage
2012
2011
Change
Change
Revenues:
Premiums
$ 37,009
$ 35,106
$ 1,903
5.4%
Services
1,726
1,360
366
26.9%
Investment income
391
366
25
6.8%
Total revenues
39,126
36,832
2,294
6.2%
Operating expenses:
Benefits
30,985
28,823
2,162
7.5%
Operating costs
5,830
5,395
435
8.1%
Depreciation and amortization
295
270
25
9.3%
Total operating expenses
37,110
34,488
2,622
7.6%
Income from operations
2,016
2,344
(328)
-14.0%
Interest expense
105
109
(4)
-3.7%
Income before income taxes
1,911
2,235
(324)
-14.5%
Provision for income taxes
689
816
(127)
-15.6%
Net income
$ 1,222
$ 1,419
$ (197)
-13.9%
Basic earnings per common share
$ 7.56
$ 8.58
$ (1.02)
-11.9%
Diluted earnings per common share
$ 7.47
$ 8.46
$ (0.99)
-11.7%
Shares used in computing basic earnings per common share (000's)
161,484
165,413
Shares used in computing diluted earnings per common share (000's)
Common stock, $0.16 2/3 par; 300,000,000 shares authorized;
194,470,820 issued at December 31, 2012
32
32
Capital in excess of par value
2,101
1,938
Retained earnings
7,881
6,825
Accumulated other comprehensive income
386
303
Treasury stock, at cost, 36,138,955 shares at December 31, 2012
(1,553
)
(1,035
)
Total stockholders' equity
8,847
8,063
$
784
9.7
%
Total liabilities and stockholders' equity
$
19,979
$
17,708
$
2,271
12.8
%
Debt-to-total capitalization ratio
22.8
%
17.1
%
S-9
Humana Inc.
Consolidated Statements of Cash Flows
Dollars in millions
Three Months Ended December 31,
Dollar
Percentage
2012
2011
Change
Change
Cash flows from operating activities
Net income
$
192
$
199
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization
100
78
Net realized capital gains
(13
)
(4
)
Stock-based compensation
14
14
(Benefit from) provision for deferred income taxes
(74
)
10
Changes in operating assets and liabilities excluding the effects
of acquisitions:
Receivables
(84
)
2
Other assets
(17
)
22
Benefits payable
(172
)
(143
)
Other liabilities
179
(198
)
Unearned revenues
52
(1,794
)
Other
28
17
Net cash provided by (used in) operating activities
205
(1,797
)
$
2,002
111.4
%
Cash flows from investing activities
Acquisitions, net of cash acquired
(947
)
(212
)
Purchases of property and equipment
(106
)
(120
)
Purchases of investment securities
(1,055
)
(1,011
)
Proceeds from maturities of investment securities
386
494
Proceeds from sales of investment securities
510
634
Net cash used in investing activities
(1,212
)
(215
)
($997
)
-463.7
%
Cash flows from financing activities
Receipts (withdrawals) from contract deposits, net
(50
)
(603
)
Proceeds from issuance of senior notes, net
990
-
Change in book overdraft
47
7
Common stock repurchases
(5
)
-
Excess tax benefit from stock-based compensation
1
3
Dividends paid
(41
)
(41
)
Proceeds from stock option exercises and other
8
4
Net cash provided by (used in) financing activities
950
(630
)
$
1,580
250.8
%
Decrease in cash and cash equivalents
(57
)
(2,642
)
Cash and cash equivalents at beginning of period
1,363
4,019
Cash and cash equivalents at end of period
$
1,306
$
1,377
S-10
Humana Inc.
Consolidated Statements of Cash Flows
Dollars in millions
Twelve Months Ended December 31,
Dollar
Percentage
2012
2011
Change
Change
Cash flows from operating activities
Net income
$
1,222
$
1,419
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization
338
303
Net realized capital gains
(33
)
(11
)
Stock-based compensation
82
67
(Benefit from) provision for deferred income taxes
(80
)
22
Changes in operating assets and liabilities excluding the effects
of acquisitions:
Receivables
352
(75
)
Other assets
(253
)
(183
)
Benefits payable
(41
)
256
Other liabilities
300
194
Unearned revenues
(43
)
26
Other
79
61
Net cash provided by operating activities
1,923
2,079
($156
)
-7.5
%
Cash flows from investing activities
Acquisitions, net of cash acquired
(1,235
)
(226
)
Purchases of property and equipment
(410
)
(336
)
Purchases of investment securities
(3,221
)
(3,678
)
Proceeds from maturities of investment securities
1,497
1,623
Proceeds from sales of investment securities
1,404
1,259
Net cash used in investing activities
(1,965
)
(1,358
)
($607
)
-44.7
%
Cash flows from financing activities
Receipts (withdrawals) from contract deposits, net
(397
)
(378
)
Repayment of long-term debt
(36
)
-
Proceeds from issuance of senior notes, net
990
-
Change in book overdraft
18
(103
)
Common stock repurchases
(518
)
(541
)
Excess tax benefit from stock-based compensation
22
15
Dividends paid
(165
)
(82
)
Proceeds from stock option exercises and other
57
72
Net cash provided by (used) in financing activities
(29
)
(1,017
)
$
988
97.1
%
Decrease in cash and cash equivalents
(71
)
(296
)
Cash and cash equivalents at beginning of period
1,377
1,673
Cash and cash equivalents at end of period
$
1,306
$
1,377
S-11
Humana Inc.
Key Income Statement Ratios and Segment Operating Results
Dollars in millions
Three Months Ended December 31,
Twelve Months Ended December 31,
Percentage
Percentage
2012
2011
Difference
Change
2012
2011
Difference
Change
Benefit ratio
Retail
82.6
%
79.0
%
3.6
%
84.1
%
81.2
%
2.9
%
Employer Group
87.1
%
86.4
%
0.7
%
84.1
%
82.4
%
1.7
%
Other Businesses
104.1
%
91.9
%
12.2
%
94.7
%
91.4
%
3.3
%
Consolidated
83.7
%
81.8
%
1.9
%
83.7
%
82.1
%
1.6
%
Operating cost ratio (C)
Retail
13.1
%
14.7
%
-1.6
%
11.0
%
11.2
%
-0.2
%
Employer Group
16.7
%
18.8
%
-2.1
%
16.1
%
17.8
%
-1.7
%
Health and Well-Being Services
96.8
%
96.3
%
0.5
%
95.5
%
96.1
%
-0.6
%
Other Businesses
29.1
%
9.7
%
19.4
%
18.7
%
9.4
%
9.3
%
Consolidated
17.5
%
17.7
%
-0.2
%
15.1
%
14.8
%
0.3
%
Detail of pretax income (loss)
Retail
$
256
$
326
($70
)
-21.5
%
$
1,162
$
1,587
($425
)
-26.8
%
Employer Group
($25
)
($51
)
$
26
51.0
%
$
253
$
242
$
11
4.5
%
Health and Well-Being Services
$
75
$
85
($10
)
-11.8
%
$
486
$
353
$
133
37.7
%
Other Businesses
($31
)
$
1
($32
)
-3200.0
%
($19
)
$
84
($103
)
-122.6
%
Consolidated
$
282
$
313
($31
)
-9.9
%
$
1,911
$
2,235
($324
)
-14.5
%
S-12
Humana Inc.
Health and Well-Being Services Segment Metrics
Year Ended December 31,
2012
2011
Difference
Primary Care Providers:
Risk
Owned / JV
2,500
900
1,600
177.8
%
Contracted
2,900
2,900
-
0.0
%
Path-to-Risk
18,200
12,000
6,200
51.7
%
Other
84,900
76,400
8,500
11.1
%
Total
108,500
92,200
16,300
17.7
%
Care Management Clinicians:
Employed
3,300
2,300
1,000
43.5
%
Contracted
3,400
1,500
1,900
126.7
%
Total
6,700
3,800
2,900
76.3
%
Care Management Statistics:
Percentage of members with complex chronic conditions in Humana
Chronic Care Program
52.0
%
46.0
%
6.0
%
Percentage of high-risk discharges reviewed by Humana Transitions
Program
21.6
%
N/A
N/A
S-13
Humana Inc.
Health and Well-Being Services Segment Metrics (Continued)
Script volume in thousands
Three Months Ended December 31,
Year Ended December 31,
2012
2011
Difference
2012
2011
Difference
Pharmacy:
Generic Dispense Rate
Retail
85.9
%
81.8
%
4.1
%
84.5
%
80.9
%
3.6
%
Employer Group
78.1
%
71.8
%
6.3
%
76.3
%
71.0
%
5.3
%
Total
85.0
%
80.6
%
4.4
%
83.6
%
79.7
%
3.9
%
Mail-Order Penetration
Retail
22.2
%
22.0
%
0.2
%
23.0
%
20.9
%
2.1
%
Employer Group
14.6
%
15.3
%
-0.7
%
15.3
%
15.5
%
-0.2
%
Total
21.3
%
21.2
%
0.1
%
22.2
%
20.2
%
2.0
%
Percentage
Percentage
Difference
Change
Difference
Change
Script volume
Retail
54,100
46,500
7,600
16.3
%
211,600
181,300
30,300
16.7
%
Employer Group
7,200
6,300
900
14.3
%
26,600
25,000
1,600
6.4
%
Total
61,300
52,800
8,500
16.1
%
238,200
206,300
31,900
15.5
%
S-14
Humana Inc.
Membership Detail
In thousands
Ending
Average
Ending
Year-over-year Change
Ending
Sequential Change
December 31, 2012
4Q12
December 31, 2011
Amount
Percent
September 30, 2012
Amount
Percent
Medical Membership:
Retail
Medicare Advantage
1,927.6
1,921.8
1,640.3
287.3
17.5
%
1,911.8
15.8
0.8
%
Medicare stand-alone PDPs
2,985.6
2,973.5
2,540.4
445.2
17.5
%
2,947.2
38.4
1.3
%
Individual commercial
444.0
443.9
433.6
10.4
2.4
%
443.4
0.6
0.1
%
Medicare Supplement
77.4
76.6
59.6
17.8
29.9
%
75.2
2.2
2.9
%
Total Retail
5,434.6
5,415.8
4,673.9
760.7
16.3
%
5,377.6
57.0
1.1
%
Employer Group
Medicare Advantage
370.8
370.0
290.6
80.2
27.6
%
367.9
2.9
0.8
%
Medicare Advantage ASO
27.7
27.7
27.6
0.1
0.4
%
27.8
(0.1
)
-0.4
%
Medicare stand-alone PDPs
4.4
4.4
4.2
0.2
4.8
%
4.4
-
0.0
%
Fully-insured medical commercial
1,211.8
1,209.5
1,180.2
31.6
2.7
%
1,204.5
7.3
0.6
%
ASO commercial
1,237.7
1,235.0
1,292.3
(54.6
)
-4.2
%
1,231.1
6.6
0.5
%
Total Employer Group
2,852.4
2,846.6
2,794.9
57.5
2.1
%
2,835.7
16.7
0.6
%
Other Businesses
Military Services
3,123.9
3,127.7
3,028.1
95.8
3.2
%
3,124.6
(0.7
)
0.0
%
Medicaid and other
610.8
610.0
614.2
(3.4
)
-0.6
%
607.1
3.7
0.6
%
LI-NET (D)
67.1
70.6
73.5
(6.4
)
-8.7
%
73.9
(6.8
)
-9.2
%
Total Other Businesses
3,801.8
3,808.3
3,715.8
86.0
2.3
%
3,805.6
(3.8
)
-0.1
%
Total Medical Membership
12,088.8
12,070.7
11,184.6
904.2
8.1
%
12,018.9
69.9
0.6
%
Specialty Membership:
Retail
Dental - fully-insured
691.5
692.7
579.6
111.9
19.3
%
685.3
6.2
0.9
%
Vision
118.7
117.9
83.8
34.9
41.6
%
113.8
4.9
4.3
%
Other supplemental benefits (E)
138.5
139.4
119.1
19.4
16.3
%
141.7
(3.2
)
-2.3
%
Total Retail
948.7
950.0
782.5
166.2
21.2
%
940.8
7.9
0.8
%
Employer Group
Dental - fully-insured
2,446.4
2,441.8
2,283.9
162.5
7.1
%
2,431.0
15.4
0.6
%
Dental - ASO
868.3
866.5
869.9
(1.6
)
-0.2
%
863.1
5.2
0.6
%
Vision
2,525.0
2,523.0
2,329.6
195.4
8.4
%
2,515.5
9.5
0.4
%
Other supplemental benefits (E)
1,296.5
1,295.3
1,049.2
247.3
23.6
%
1,279.0
17.5
1.4
%
Total Employer Group
7,136.2
7,126.6
6,532.6
603.6
9.2
%
7,088.6
47.6
0.7
%
Total Specialty Membership
8,084.9
8,076.6
7,315.1
769.8
10.5
%
8,029.4
55.5
0.7
%
S-15
Humana Inc.
Premiums and Services Revenue Detail
Dollars in millions, except per member per month
Per Member per Month (F)
Three Months Ended December 31,
Three Months Ended December 31,
Dollar
Percentage
2012
2011
Change
Change
2012
2011
Premiums and Services Revenue
Retail:
Medicare Advantage
$
5,184
$
4,454
$
730
16.4
%
$
899
$
916
Medicare stand-alone PDPs
620
580
40
6.9
%
70
77
Individual commercial
216
205
11
5.4
%
162
159
Medicare Supplemental
39
28
11
39.3
%
170
160
Specialty
46
35
11
31.4
%
16
15
ASO & other services (B)
7
4
3
75.0
%
Total Retail
6,112
5,306
806
15.2
%
Employer Group:
Medicare Advantage
1,005
789
216
27.4
%
905
907
Medicare stand-alone PDPs
2
2
-
0.0
%
Fully-insured medical commercial
1,251
1,181
70
5.9
%
345
334
Specialty
277
237
40
16.9
%
15
14
ASO & other services (B)
96
91
5
5.5
%
Total Employer Group
2,631
2,300
331
14.4
%
Health and Well-Being Services:
Pharmacy solutions
2,832
2,550
282
11.1
%
Provider services
297
268
29
10.8
%
Home care services
67
29
38
131.0
%
Integrated wellness services
68
53
15
28.3
%
Total Health and Well-Being Services
3,264
2,900
364
12.6
%
Other Businesses:
Military services (G)
97
821
(724
)
-88.2
%
LI-NET (D)
63
57
6
10.5
%
297
257
Medicaid and other (H)
280
258
22
8.5
%
145
138
Total Other Businesses
$
440
$
1,136
$
(696
)
-61.3
%
S-16
Humana Inc.
Premiums and Services Revenue Detail
Dollars in millions, except per member per month
Per Member per Month (F)
Twelve Months Ended December 31,
Twelve Months Ended December 31,
Dollar
Percentage
2012
2011
Change
Change
2012
2011
Premiums and Services Revenue
Retail:
Medicare Advantage
$
20,788
$
18,100
$
2,688
14.9
%
$
917
$
939
Medicare stand-alone PDPs
2,587
2,317
270
11.7
%
74
80
Individual commercial
861
757
104
13.7
%
162
156
Medicare Supplemental
143
104
39
37.5
%
166
161
Specialty
171
124
47
37.9
%
16
15
ASO & other services (B)
26
16
10
62.5
%
Total Retail
24,576
21,418
3,158
14.7
%
Employer Group:
Medicare Advantage
4,064
3,152
912
28.9
%
932
923
Medicare stand-alone PDPs
8
8
-
0.0
%
Fully-insured medical commercial
4,996
4,782
214
4.5
%
348
338
Specialty
1,070
935
135
14.4
%
15
14
ASO & other services (B)
373
370
3
0.8
%
Total Employer Group
10,511
9,247
1,264
13.7
%
Health and Well-Being Services:
Pharmacy solutions
11,368
9,897
1,471
14.9
%
Provider services
1,181
1,065
116
10.9
%
Home care services
207
84
123
146.4
%
Integrated wellness services
232
187
45
24.1
%
Total Health and Well-Being Services
12,988
11,233
1,755
15.6
%
Other Businesses:
Military services (G)
1,288
3,690
(2,402
)
-65.1
%
LI-NET (D)
266
253
13
5.1
%
304
247
Medicaid and other (H)
1,075
969
106
10.9
%
143
129
Total Other Businesses
$
2,629
$
4,912
$
(2,283
)
-46.5
%
S-17
Humana Inc.
Medicare Summary
Premiums in millions
Membership in thousands
Per Member per Month (F)
Three Months Ended December 31,
Year-over-year Change
Three Months Ended December 31,
2012
2011
Amount
Percent
2012
2011
Premiums
Medicare Advantage
$
6,189
$
5,243
$
946
18.0
%
$
900
$
914
Medicare stand-alone PDPs
685
639
46
7.2
%
75
2
Total Medicare
$
6,874
$
5,882
$
992
16.9
%
Per Member per Month (F)
Twelve Months Ended December 31,
Year-over-year Change
Twelve Months Ended December 31,
2012
2011
Amount
Percent
2012
2011
Premiums
Medicare Advantage
$
24,852
$
21,252
$
3,600
16.9
%
$
919
$
937
Medicare stand-alone PDPs
2,861
2,578
283
11.0
%
80
86
Total Medicare
$
27,713
$
23,830
$
3,883
16.3
%
Ending
Ending
Year-over-year Change
December 31, 2012
December 31, 2011
Amount
Percent
Fully-Insured Membership
Medicare Advantage
2,298.4
1,930.9
367.5
19.0
%
Medicare stand-alone PDPs
3,057.1
2,618.1
439.0
16.8
%
Total Medicare
5,355.5
4,549.0
806.5
17.7
%
Member Mix
Ending
Ending
December 31
December 31
Retail Segment Detail
December 31, 2012
December 31, 2011
2012
2011
Medicare Advantage Membership
HMO
935.8
715.3
48.5
%
43.6
%
PPO
991.8
925.0
51.5
%
56.4
%
Total Individual Medicare
1,927.6
1,640.3
100.0
%
100.0
%
Medicare Advantage Membership
Risk
511.7
429.1
26.5
%
26.1
%
Path-to-Risk
363.9
199.4
18.9
%
12.2
%
Other
1,052.0
1,011.8
54.6
%
61.7
%
Total Individual Medicare
1,927.6
1,640.3
100.0
%
99.9
%
S-18
Humana Inc.
Fair value
Investments
Dollars in millions
12/31/2012
9/30/2012
12/31/2011
Investment Portfolio:
Cash & cash equivalents
$
1,306
$
1,363
$
1,377
Investment securities
8,001
8,058
7,743
Long-term investments
1,846
1,837
1,710
Total investment portfolio
$
11,153
$
11,258
$
10,830
Duration (I)
4.02
3.89
3.94
Average Credit Rating
AA-
AA-
AA-
Investment Portfolio Detail:
Cash and cash equivalents
$
1,306
$
1,363
$
1,377
U.S. Government and agency obligations
U.S. Treasury and agency obligations
618
563
725
U.S. Government residential mortgage-backed
1,569
1,908
1,751
U.S. Government commercial mortgage-backed
34
34
33
Total U.S. Government and agency obligations
2,221
2,505
2,509
Tax-exempt municipal securities
Pre-refunded
311
286
332
Insured
627
618
634
Other
2,120
1,961
1,874
Auction rate securities
13
13
16
Total tax-exempt municipal securities
3,071
2,878
2,856
Residential mortgage-backed
Prime residential mortgages
32
34
41
Alt-A residential mortgages
1
1
2
Sub-prime residential mortgages
1
1
1
Total residential mortgage-backed
34
36
44
Commercial mortgage-backed
659
658
381
Asset-backed securities
68
37
83
Corporate securities
Financial services
864
853
692
Other
2,930
2,928
2,888
Total corporate securities
3,794
3,781
3,580
Total investment portfolio
$
11,153
$
11,258
$
10,830
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Humana Inc.
Detail of Benefits Payable Balance and Year-to-Date Changes
Dollars in millions
December 31,
September 30,
December 31,
2012
2012
2011
Detail of benefits payable
IBNR and other benefits payable (J)
$
3,158
$
3,097
$
2,759
Unprocessed claim inventories (K)
302
380
280
Processed claim inventories (L)
230
339
209
Payable to pharmacy benefit administrator (M)
85
127
167
Benefits payable, excluding military services
3,775
3,943
3,415
Military services benefits payable (N)
4
15
339
Total Benefits Payable
$
3,779
$
3,958
$
3,754
Twelve Months Ended
Nine Months Ended
Year Ended
December 31, 2012
September 30, 2012
December 31, 2011
Year-to-date changes in benefits payable,
excluding military services (O)
Balances at January 1
$
3,415
$
3,415
$
3,214
Acquisitions
66
73
29
Incurred related to:
Current year
30,198
22,708
25,834
Prior years (P)
(257
)
(235
)
(372
)
Total incurred
29,941
22,473
25,462
Paid related to:
Current year
(26,738
)
(19,193
)
(22,742
)
Prior years
(2,909
)
(2,825
)
(2,548
)
Total paid
(29,647
)
(22,018
)
(25,290
)
Balances at end of period
$
3,775
$
3,943
$
3,415
Twelve Months Ended
Nine Months Ended
Year Ended
December 31, 2012
September 30, 2012
December 31, 2011
Summary of Consolidated Benefit Expense:
Total benefit expense incurred, per above
$
29,941
$
22,473
$
25,462
Military services benefit expense
908
908
3,247
Future policy benefit expense (Q)
136
88
114
Consolidated Benefit Expense
$
30,985
$
23,469
$
28,823
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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
13.7
13.8
(0.1
)
-0.7
%
3rd Quarter Average
13.0
13.6
(0.6
)
-4.4
%
4th Quarter Average
12.8
14.0
(1.2
)
-8.6
%
Full Year Average
13.1
13.8
(0.7
)
-5.1
%
Unprocessed Claims Inventories
Date
Estimated Valuation
(millions)
Claim Item
Counts (000s)
Number of Days
on Hand
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
6/30/2012
$
310
1,077
4.2
9/30/2012
$
380
1,440
5.7
12/31/2012
$
302
1,061
4.1
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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
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
%
6/30/2012
51.0
(5.0
)
-8.9
%
9/30/2012
51.6
(2.6
)
-4.8
%
12/31/2012
48.5
(4.0
)
-7.6
%
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
(0.1
)
(2.3
)
Change in processed claims inventories
0.3
1.4
Change in pharmacy payment cutoff
(0.1
)
0.6
Change in capitation/provider settlements
(4.3
)
(0.7
)
All other
0.2
DCP - end of period
48.5
52.5
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Humana Inc.
Footnotes to Statistical Schedules and Supplementary Information
4Q12 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 benefits expense 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 operating 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 medical 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
94% 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 benefits expense per day in the
quarterly period.
(U) DCP fluctuates due to a number of issues, the more significant
of which are detailed in this roll forward. 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
medical claims reserve recorded upon enrollment later in the
quarter. This analysis excludes the impact of military services and
Medicare stand-alone PDPs upon DCP.
Press Release $HUM Humana Inc.
LOUISVILLE, Ky.--(BUSINESS WIRE)-- Humana Inc. (NYSE: HUM) today reported diluted earnings per common share (EPS) for the quarter ended December 31, 2012 (4Q12) of $1.19, compared to $1.20 per share for the quarter ended December 31, 2011 (4Q11). Results for 4Q12 were relatively unchanged versus those for 4Q11, but exceeded management’s previous expectations.
For the year ended December 31, 2012 (FY12) the company reported $7.47 in EPS compared to $8.46 for the year ended December 31, 2011 (FY11), which was higher than management’s previous expectations for FY12 EPS in the range of $7.25 to $7.35. FY12 consolidated results included $0.48 per share of benefit from favorable prior period medical claims reserve development compared to $0.77 per share in FY11.
The company continues to anticipate EPS for the year ending December 31, 2013 (FY13) in the range of $7.60 to $7.80 as improving operating results and modest accretion from the Metropolitan Health Networks, Inc. (Metropolitan) acquisition that closed in late FY12 are expected to be generally offset by slightly higher flu-related medical costs than previously anticipated, as well as additional interest expense associated with the company’s recent senior notes offering.
“The progress we made building our clinical capabilities in 2012 positions us strongly for success in 2014 and beyond,” said Bruce D. Broussard, President and Chief Executive Officer of Humana. “For 2013, we will continue to enhance our integrated care delivery model, which we believe represents the future of health care delivery, as we forecast another year of growth in revenues, earnings and Medicare membership.”
Consolidated Highlights
Revenues – 4Q12 consolidated revenues were $9.56 billion, an increase of 6 percent from $9.06 billion in 4Q11, with total premiums and services revenue up 5 percent compared to the prior year’s quarter. The year-over-year increase in premiums and services revenue was primarily driven by higher Retail and Employer Group segment revenues resulting from higher average individual and group Medicare membership, partially offset by the company’s new South Region TRICARE contract being accounted for as self-funded versus fully-insured for the previous contract. The new contract became effective on April 1, 2012.
FY12 consolidated revenues increased 6 percent to $39.13 billion from $36.83 billion in FY11 with total premiums and services revenue also up 6 percent compared to the prior year period, as a result of similar segment-level changes as those affecting the fourth quarter year-over-year change.
Benefits expense – The 4Q12 consolidated benefit ratio (benefits expense as a percent of premiums) of 83.7 percent increased by 190 basis points from 81.8 percent for the prior year’s quarter due primarily to a 360 basis point increase in the Retail Segment benefit ratio, as discussed more fully below.
The consolidated benefit ratio for FY12 of 83.7 percent increased by 160 basis points from the FY11 consolidated benefit ratio of 82.1 percent also primarily due to a 290 basis point increase in the benefit ratio for the Retail Segment.
Operating expenses – The consolidated operating cost ratio (operating costs as a percent of total revenues less investment income) of 17.5 percent for 4Q12 declined from 17.7 percent in 4Q11 primarily due to substantial reductions in this operating metric for the Retail and Employer Group Segments nearly offset by the impact of the accounting for the company’s new South Region TRICARE contract in the company’s Other Businesses.
The FY12 consolidated operating cost ratio of 15.1 percent increased 30 basis points from 14.8 percent for FY11 primarily due to the impact of the new South Region TRICARE contract discussed above, partially offset by lower year-over-year operating cost ratios for the Retail and Employer Group Segments.
Strategic transaction update – On December 21, 2012, Humana completed its previously disclosed acquisition of Metropolitan, a Medical Services Organization that coordinates medical care for Medicare Advantage and Medicaid beneficiaries, primarily in Florida.
Retail Segment Highlights
Pretax results:
Enrollment:
Premiums and services revenue:
Benefits expense:
Operating costs:
Employer Group Segment Highlights
Pretax results:
Enrollment:
Premiums and services revenue:
Benefits expense:
Operating costs:
Health and Well-Being Services Segment Highlights
Pretax results:
Revenues:
Operating costs:
Other Businesses Highlights
Pretax results:
Balance Sheet
Cash Flows from Operations
Cash flows provided by operations for 4Q12 were $205 million compared to cash flows used in operations of $1.80 billion in 4Q11. The company also evaluates operating cash flows on a non-GAAP basis:
(in millions)
Cash Flows
Cash Flows
Non-GAAP (c)
The year-over-year increase in the non-GAAP cash flows from operations is due primarily to the effect on cash flows of changes in working capital accounts.
FY12 cash flows from operations of $1.92 billion compared to $2.08 billion for FY11, primarily due to lower net income year over year.
Share Repurchase Program
Footnotes
(a) The company provides a full range of insured specialty products including dental, vision and other supplemental health and financial protection 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 on the last business day of the previous month. Consequently, 4Q11 cash flows included two monthly Medicare payments compared to three monthly Medicare payments during 4Q12.
(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:
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:
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:
Humana Inc. – Earnings Guidance Points as of February 4, 2013
(in accordance with Generally Accepted
Consolidated
Health and Well-Being Services
Commercial Fully-Insured
95.5% to 96.0%
Segment
Humana Inc.
Statistical Schedules
And
Supplementary Information
4Q12 Earnings Release
S-1
Humana Inc.
Statistical Schedules and Supplementary Information
4Q12 Earnings Release
Contents
Page
Description
S-2
S-3
S-4
S-5
S-6
S-7
S-8
Common stock, $0.16 2/3 par; 300,000,000 shares authorized; 194,470,820 issued at December 31, 2012
S-9
provided by (used in) operating activities:
Changes in operating assets and liabilities excluding the effects of acquisitions:
S-10
provided by operating activities:
Changes in operating assets and liabilities excluding the effects of acquisitions:
S-11
S-12
Percentage of members with complex chronic conditions in Humana Chronic Care Program
Percentage of high-risk discharges reviewed by Humana Transitions Program
S-13
S-14
Average
4Q12
S-15
S-16
S-17
2011
2011
S-18
AA-
AA-
AA-
S-19
S-20
Estimated Valuation
(millions)
Claim Item
Counts (000s)
Number of Days
on Hand
S-21
Days in Claims
Payable (DCP)
Change Last 4
Quarters
Percentage
Change
S-22
Footnotes to Statistical Schedules and Supplementary Information
4Q12 Earnings Release
(I) Duration is the time-weighted average of the present value of the fixed income portfolio cash flows.
(J) IBNR represents an estimate of benefits expense payable for claims incurred but not reported (IBNR) at the balance sheet date. The level of IBNR is primarily impacted by
(L) Processed claim inventories represent the estimated valuation of processed claims that are in the post-claim-adjudication process, which consists of operating functions such
S-23
Humana Inc.
Investor Relations:
Regina Nethery, 502-580-3644
Rnethery@humana.com
or
Corporate Communications:
Tom Noland, 502-580-3674
Tnoland@humana.com
http://www.humana.com
Source: Humana Inc.