Humana Inc. Reports Financial Results for First Quarter 2004
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LOUISVILLE, Ky., April 26 /PRNewswire-FirstCall/ -- Humana Inc. (NYSE: HUM) today reported earnings per diluted share of $0.41 for the first quarter ended March 31, 2004 ("1Q04") compared to $0.19 per diluted share for the first quarter ended March 31, 2003 ("1Q03"), an increase of 116 percent. Net income of $67,830,000 for 1Q04 increased 117 percent from net income of $31,230,000 in 1Q03. Pretax margin of 3.1 percent for 1Q04 increased 150 basis points from the 1.6 percent pretax margin in 1Q03.
"Our results this quarter represent continued progress across a number of key operational fronts," said Michael B. McCallister, Humana's president and chief executive officer. "We continue to expect 2004 revenue, earnings and cash flows to be the highest in Humana's history as a health benefits company."
The increase in year-over-year results for 1Q04 was driven by improved profits in the company's Government segment accompanied by increased earnings in its Commercial segment.
Consolidated results for 1Q03 included:
* The writedown of building and equipment of $17,233,000 ($10,529,000 net
of income tax benefit, or $0.07 per diluted share) and
* Software abandonment charges of $13,527,000 ($8,265,000 net of income
tax benefit, or $0.05 per diluted share).
The net impact of these items reduced pretax income for 1Q03 by $30,760,000 ($18,794,000 net of income tax benefit, or $0.12 per diluted share).
Segment Results
Commercial segment pretax income increased to $39,086,000 in 1Q04 from $37,239,000 in 1Q03. Commercial segment pretax margin of 2.2 percent in 1Q04 was unchanged from 1Q03.
Commercial segment pretax results for 1Q04 included the negative impact of an additional day of medical claims expense due to the leap year. The segment's results for 1Q03 included software abandonment charges of $13,527,000 and the writedown of building and equipment of $4,325,000. The net impact of these items reduced Commercial segment pretax income for 1Q03 by $17,852,000. Excluding these items from both 1Q04 and 1Q03, operating results for the Commercial segment in 1Q04 were essentially equivalent to those for the prior year.
Government segment pretax income of $63,687,000 in 1Q04 compares to 1Q03 Government segment pretax income of $10,163,000. Pretax margin for the Government segment increased to 4.2 percent in 1Q04 from 0.8 percent in 1Q03, a 340 basis point increase.
Government segment pretax results for 1Q04 included the negative impact of an additional day of medical claims expense due to the leap year, and for 1Q03 included the writedown of building and equipment of $12,908,000.
Operating results for the Government segment increased year-over-year during 1Q04 primarily due to improved results in the company's TRICARE business unit combined with growth in MedicareAdvantage (formerly Medicare+Choice) membership.
Revenues and Membership
Consolidated revenues for 1Q04 totaled $3,286,949,000, compared to $2,931,716,000 in 1Q03, a 12 percent increase.
Medical membership as of March 31, 2004 totaled 7,015,000, an increase of 6 percent over the 6,625,200 medical members as of March 31, 2003.
Commercial segment premiums and administrative services fees rose 6 percent to $1,744,787,000 in 1Q04 compared to $1,645,146,000 in 1Q03.
Commercial segment medical membership was 3,295,600 as of March 31, 2004, an increase of 230,400 members, or 8 percent from December 31, 2003 and 292,200 members, or 10 percent from March 31, 2003. Per member premiums for the Commercial segment fully insured medical business, net of benefit changes, increased in the range of 7 to 9 percent during 1Q04 compared to 1Q03.
Government segment premiums and administrative services fees for 1Q04 totaled $1,512,631,000, or 20 percent higher than the related 1Q03 premiums and administrative services fees of $1,258,939,000.
MedicareAdvantage membership totaled 333,200 at March 31, 2004, an increase of 4,600 members from December 31, 2003 and an increase of 6,100 members, or 2 percent from March 31, 2003. Per member premiums for the MedicareAdvantage business, net of benefit changes, increased in the range of 8 to 10 percent during 1Q04 compared to 1Q03.
TRICARE's insured membership totaled 1,860,100 at March 31, 2004, versus comparable membership at December 31, 2003 of 1,849,700. TRICARE ASO membership was 1,057,900 at March 31, 2004, essentially unchanged from December 31, 2003 membership of 1,057,200.
TRICARE 1Q04 premium revenues and administrative services fees increased year over year by 37 percent due primarily to an increase in the base contract monthly revenue which became effective in July 2003.
Medicaid membership of 468,200 at March 31, 2004 declined by 5 percent from March 31, 2003. Membership in Puerto Rico accounts for approximately 84 percent of the company's Medicaid business. Per member premiums for the Medicaid business, net of benefit changes, increased in the range of 5 to 7 percent during 1Q04 versus 1Q03.
Medical and SG&A Expenses
The company's 1Q04 medical expense ratio (medical expenses as a percent of premiums) of 84.4 percent increased 100 basis points compared to the 1Q03 medical expense ratio of 83.4 percent.
The selling, general and administrative ("SG&A") expense ratio (SG&A expenses as a percent of premiums plus administrative services fees) for 1Q04 of 14.4 percent decreased by 160 basis points from the 1Q03 SG&A ratio of 16.0 percent.
SG&A expenses for 1Q03 included the writedown of building and equipment of $17,233,000 which resulted in an increase to the 1Q03 SG&A ratio of 60 basis points.
Cash Flows from Operations
Cash flows used in operations for 1Q04 of $40,055,000 included the negative impact of $211,899,000 from the timing of the receipt of the premium payment from the Centers for Medicare and Medicaid Services ("CMS"). Cash flows used in operations for 1Q03 of $108,230,000 included the negative impact of $205,755,000 related to the timing of the receipt of the premium payment from CMS.
The fixed monthly MedicareAdvantage premium payment from CMS is due to Humana on the first day of each month. However, if the first of the month falls on a weekend or a holiday, the company receives that payment on the last business day of the prior month, often resulting in a significant impact on cash flows from operations.
Non-GAAP Financial Measures
The following is a reconciliation of the most directly comparable
financial measures prepared in accordance with accounting principles generally
accepted in the United States, or GAAP, to certain non-GAAP financial measures
used by the company for 1Q04 and 1Q03.
1Q04 1Q03
(in thousands)
GAAP operating cash flows $(40,055) $(108,230)
Timing of premium payment 211,899 205,755
receipt from CMS
Non-GAAP operating cash flows (1) $171,844 $97,525
(1) Management believes the difference in timing of this cash event between periods may be so significant as to distort a particular period's trend in operating cash flows. Management believes that meaningful analysis of our financial performance requires an understanding of the factors underlying that performance and our judgments about the relevance of a factor to normal operating results. In some cases, large factors or events may obscure short-term patterns and long-term trends. When reviewing and analyzing our cash flow position, management apportions the CMS premium payment in each month. To do otherwise would distort a meaningful analysis of our cash flow. Decisions such as management's forecast or business plans regarding cash flow, therefore, use this non-GAAP financial measure.
Share Repurchase Program
In July 2003, the company announced that its Board of Directors authorized the use of up to $100 million for the repurchase of its common shares, exclusive of shares repurchased in connection with employee stock plans.
During 1Q04, the company acquired 686,000 of its common shares for an aggregate price of $13,969,000, or an average cost of $20.36 per share. As of April 23, 2004 the company had approximately $81,300,000 remaining on its outstanding repurchase authorization.
Guidance
The company offers the GAAP guidance detailed below for the investor community. This guidance includes the company's Ochsner Health Plan of Louisiana ("Ochsner Health Plan") acquisition effective April 1, 2004.
For the Quarter Ending June 30, 2004
* Earnings per diluted share of $0.37 to $0.39.
For the Year Ending December 31, 2004
* Earnings per diluted share of between $1.60 and $1.65.
* Consolidated revenues of approximately $13 billion.
* Commercial segment pretax income of approximately $140 million.
* Organic growth in Commercial segment medical membership of
approximately 6 to 8 percent for fully insured and ASO products
combined. (Growth in ASO accounts is expected to be somewhat offset by
attrition in fully insured business.)
* Growth in per member premiums, net of benefit changes, in the range of
7.5 to 9.5 percent for Commercial segment fully insured medical
business.
* Increases in per member Commercial segment fully insured medical costs
in the range of 8.5 to 10.5 percent.
* Commercial segment SG&A ratio of between 15.5 and 16.5 percent.
* MedicareAdvantage membership of between 370,000 and 390,000 by year
end.
* Growth in per member premiums, net of benefit changes, in the range of
9 to 11 percent for MedicareAdvantage business.
* Increases in per member MedicareAdvantage medical costs in the range of
9 to 11 percent.
* TRICARE premiums and administrative services fees of approximately $2
billion.
* Pretax margin for the company's TRICARE business in the range of 2 to
4 percent.
* Government segment SG&A ratio of between 11 and 12 percent.
* An effective tax rate of approximately 34 percent.
* Cash flows from operating activities of $475 million to $525 million.
* Capital expenditures of approximately $100 million.
Conference Call
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 earnings guidance.
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 approximately ten minutes in advance of the call.
A live virtual presentation (audio with slides) will be available and may be accessed via Humana's Investor Relations page at www.humana.com . The company suggests web participants sign on approximately 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.
For those unable to participate in the live event, the virtual presentation archive will be available in the Presentations section of the Investor Relations page at www.humana.com , approximately two hours following the live web cast. An audio recording of the conference call will also be available in the Audio Archives located on the Investor Relations page at www.humana.com approximately two hours after the live call.
This news release contains forward-looking statements. The forward- looking statements made in the news release are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements may be significantly impacted by certain risks and uncertainties described in the following document, as filed by Humana with the Securities and Exchange Commission:
* Form 10-K for the year ended December 31, 2003.
Humana Inc., headquartered in Louisville, Kentucky, is one of the nation's largest publicly traded health benefits companies, with approximately 7 million medical members located primarily in 19 states and Puerto Rico. Humana offers coordinated health insurance coverage and related services - through traditional and Internet-based plans - to employer groups, government- sponsored plans, and individuals.
More information regarding Humana is available via the Internet at www.humana.com , including copies of:
* Annual report to stockholders;
* Securities and Exchange Commission filings;
* Most recent investor conference presentation;
* Quarterly earnings press releases;
* Audio archive of most recent earnings release conference call;
* Calendar of events (includes upcoming earnings conference call dates,
times, and access number, as well as planned participation in investor
conferences);
* Corporate Governance Information.
Humana Inc.
In thousands
March 31, Percent
Ending Medical 2004 2003 Difference Change
Membership
Commercial:
Fully insured 2,298.6 2,348.8 (50.2) (2.1)
ASO 997.0 654.6 342.4 52.3
Total Commercial 3,295.6 3,003.4 292.2 9.7
Government:
MedicareAdvantage 333.2 327.1 6.1 1.9
Medicaid 468.2 491.4 (23.2) (4.7)
TRICARE 1,860.1 1,752.5 107.6 6.1
TRICARE ASO 1,057.9 1,050.8 7.1 0.7
Total Government 3,719.4 3,621.8 97.6 2.7
Total ending
medical membership 7,015.0 6,625.2 389.8 5.9
Ending Specialty March 31, Percent
Membership 2004 2003 Difference Change
Commercial:
Dental-fully insured 781.6 741.7 39.9 5.4
Dental-ASO 408.2 367.9 40.3 11.0
Total Dental 1,189.8 1,109.6 80.2 7.2
Group life 495.7 519.0 (23.3) (4.5)
Short-term disability 17.7 21.5 (3.8) (17.7)
Total ending
specialty
membership 1,703.2 1,650.1 53.1 3.2
Three months ended
March 31,
Premiums 2004 2003
Commercial:
Fully insured
medical $1,617,120 $1,536,953
Specialty 85,971 78,603
Total Commercial 1,703,091 1,615,556
Government:
MedicareAdvantage 706,318 635,842
Medicaid 120,779 121,230
TRICARE 648,993 470,321
Total Government 1,476,090 1,227,393
Total premiums $3,179,181 $2,842,949
Three months ended
March 31,
Administrative services fees 2004 2003
Commercial $41,696 $29,590
Government 36,541 31,546
Total Administrative services fees $78,237 $61,136
Humana Inc.
Dollars in thousands, except per share results
Three months ended
March 31,
Consolidated Statements of Income 2004 2003(a)
Revenues:
Premiums $3,179,181 $2,842,949
Administrative services fees 78,237 61,136
Investment income 27,454 25,817
Other income 2,077 1,814
Total revenues 3,286,949 2,931,716
Operating expenses:
Medical 2,683,516 2,371,434
Selling, general and administrative 469,629 464,278
Depreciation 23,923 40,736
Other intangible amortization 2,389 3,931
Total operating expenses 3,179,457 2,880,379
Income from operations 107,492 51,337
Interest expense 4,719 3,935
Income before income taxes 102,773 47,402
Provision for income taxes 34,943 16,172
Net income $67,830 $31,230
Basic earnings per common share $0.42 $0.20
Diluted earnings per common share $0.41 $0.19
Shares used in computing basic
earnings per common share (000's) 161,966 157,739
Shares used in computing diluted
earnings per common share (000's) 164,357 161,406
Operating Results by Segment
Commercial pretax income $39,086 $37,239
Government pretax income 63,687 10,163
Consolidated pretax income $102,773 $47,402
Key Ratios
Medical expense ratio
Commercial 83.5% 81.3%
Government 85.4% 86.2%
Total 84.4% 83.4%
Selling, general, and administrative
expense ratio
Commercial 16.4% 17.0%
Government 12.1% 14.6%
Total 14.4% 16.0%
(a) Refer to the Summary of Unusual Items and Charges of these
statistical pages within this press release for Detail of unusual
items and charges included in these results of operations.
Humana Inc.
Dollars in thousands, except per share results
Summary of Unusual Items and Charges
For the three months ended March 31, 2003
Pretax Impact After-tax Diluted
Commercial Government Consolidated Impact EPS Impact
Selling,
general, and
administrative
expense:
Write-down
of building
and
equipment ($4,325) ($12,908) ($17,233) ($10,529) ($0.07)
Depreciation:
Software
abandonment
charges (13,527) - (13,527) (8,265) (0.05)
Total 1Q03
unusual
items
and
charges ($17,852) ($12,908) ($30,760) ($18,794) ($0.12)
Impact of
unusual items
and charges
on the SG&A
expense ratio 0.26% 1.03% 0.59%
Humana Inc.
Dollars in thousands, except per share results
March 31, December 31,
Consolidated Balance Sheets 2004 2003
Assets
Current assets:
Cash and cash equivalents $417,647 $931,404
Investment securities 2,115,784 1,676,642
Receivables, net:
Premiums 511,931 452,404
Administrative services fees 16,627 13,583
Other 306,831 247,298
Total current assets 3,368,820 3,321,331
Property and equipment, net 397,212 416,472
Other assets:
Long-term investment securities 311,409 319,167
Goodwill 776,874 776,874
Other 421,430 459,479
Total other assets 1,509,713 1,555,520
Total assets $5,275,745 $5,293,323
Liabilities and Stockholders' Equity
Current liabilities:
Medical and other expenses payable $1,396,784 $1,272,156
Trade accounts payable and accrued expenses 422,568 440,340
Book overdraft 210,437 219,054
Unearned premium revenues 131,372 333,071
Total current liabilities 2,161,161 2,264,621
Long-term debt 646,897 642,638
Other long-term liabilities 558,741 550,115
Total liabilities 3,366,799 3,457,374
Commitments and contingencies
Stockholders' equity:
Preferred stock, $1 par;
10,000,000 shares authorized;
none issued - -
Common stock, $0.16 2/3 par;
300,000,000 shares authorized;
174,559,254 shares issued at
March 31, 2004 29,093 28,984
Capital in excess of par value 986,369 974,975
Retained earnings 1,017,641 949,811
Accumulated other comprehensive income 24,641 16,909
Unearned stock compensation (78) (754)
Treasury stock, at cost, 12,739,251
shares at March 31, 2004 (148,720) (133,976)
Total stockholders' equity 1,908,946 1,835,949
Total liabilities and stockholders' equity $5,275,745 $5,293,323
Debt to total capitalization ratio 25.3% 25.9%
Humana Inc.
Dollars in thousands
Three months ended
March 31,
Consolidated Statements of Cash Flows 2004 2003
Cash flows from operating activities
Net income $67,830 $31,230
Adjustments to reconcile net income to net
Cash used in operating activities:
Building and equipment writedown - 17,233
Depreciation and amortization 26,312 44,667
Provision for deferred income taxes 12,223 3,646
Changes in operating assets and liabilities:
Receivables (20,546) (25,349)
Other assets (15,472) 20,008
Medical and other expenses payable 124,628 83,912
Other liabilities (32,431) (66,539)
Unearned revenues (201,699) (218,153)
Other (900) 1,115
Net cash used in operating activities (40,055) (108,230)
Cash flows from investing activities
Purchases of property and equipment (22,732) (22,096)
Proceeds from sales of property and equipment 19,385 462
Purchases of investment securities (1,491,272) (1,545,241)
Proceeds from maturities of
investment securities 246,845 196,923
Proceeds from sales of investment securities 786,868 1,320,246
Net cash used in investing activities (460,906) (49,706)
Cash flows from financing activities
Change in book overdraft (8,617) (10,303)
Common stock repurchases (12,836) (20,817)
Proceeds from stock option exercises and other 8,657 351
Net cash used in financing activities (12,796) (30,769)
Decrease in cash and cash equivalents (513,757) (188,705)
Cash and cash equivalents at beginning
of period 931,404 721,357
Cash and cash equivalents at end of period $417,647 $532,652
Humana Inc.
Percentage of Ending Membership Under Capitation Arrangements
Commercial Segment
Fully Insured ASO Total Segment
March 31, 2004
Capitated HMO hospital system based A 4.5 % - 3.2 %
Capitated HMO physician group based A 3.4 % - 2.4 %
Risk-sharing B 2.1 % - 1.5 %
All other membership 90.0 % 100.0% 92.9 %
Total 100.0 % 100.0% 100.0 %
March 31, 2003
Capitated HMO hospital system based A 6.3 % - 4.9 %
Capitated HMO physician group based A 3.2 % - 2.5 %
Risk-sharing B 3.1 % - 2.4 %
All other membership 87.4 % 100.0% 90.2 %
Total 100.0 % 100.0% 100.0 %
A - In a limited number of circumstances, we contract with hospitals and
physicians to accept financial risk for a defined set of HMO
membership. In transferring this risk, we prepay these providers a
monthly fixed-fee per member to coordinate substantially all of the
medical care for their capitated HMO membership, including some health
benefit administrative functions and claims processing. For these
capitated HMO arrangements, we generally agree to reimbursement rates
that target a medical expense ratio ranging from 82% to 89%. Providers
participating in hospital-based capitated HMO arrangements generally
receive a monthly payment for all of the services within their system
for their HMO membership. Providers participating in physician-based
capitated HMO arrangements generally have subcontracted specialist
physicians and are responsible for reimbursing such hospitals and
physicians for services rendered to their HMO membership.
B - In some circumstances, we contract with physicians under risk-sharing
arrangements whereby physicians have assumed some level of risk for
all or a portion of the medical costs of their HMO membership.
Although these arrangements do include capitation payments for
services rendered, we process substantially all of the claims under
these arrangements.
Government Segment
Consol.
Medicare TRICARE Total Total
Advantage Medicaid TRICARE ASO Segment Medical
March 31, 2004
Capitated HMO
hospital system
based A 11.8 % 3.3 % - - 1.5 % 2.3 %
Capitated HMO
physician group
based A 1.3 % 43.9 % - - 5.6 % 4.1 %
Risk-sharing B 53.9 % 45.5 % - - 10.6 % 6.3 %
All other
membership 33.0 % 7.3 % 100.0 % 100.0 % 82.3 % 87.3 %
Total 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % 100.0 %
March 31, 2003
Capitated HMO
hospital system
based A 12.9 % 2.5 % - - 1.5 % 3.0 %
Capitated HMO
physician group
based A 2.0 % 56.2 % - - 7.8 % 5.4 %
Risk-sharing B 47.8 % 33.9 % - - 8.9 % 6.0 %
All other
membership 37.3 % 7.4 % 100.0 % 100.0 % 81.8 % 85.6 %
Total 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % 100.0 %
A - In a limited number of circumstances, we contract with hospitals and
physicians to accept financial risk for a defined set of HMO
membership. In transferring this risk, we prepay these providers a
monthly fixed-fee per member to coordinate substantially all of the
medical care for their capitated HMO membership, including some health
benefit administrative functions and claims processing. For these
capitated HMO arrangements, we generally agree to reimbursement rates
that target a medical expense ratio ranging from 82% to 89%. Providers
participating in hospital-based capitated HMO arrangements generally
receive a monthly payment for all of the services within their system
for their HMO membership. Providers participating in physician-based
capitated HMO arrangements generally have subcontracted specialist
physicians and are responsible for reimbursing such hospitals and
physicians for services rendered to their HMO membership.
B - In some circumstances, we contract with physicians under risk-sharing
arrangements whereby physicians have assumed some level of risk for
all or a portion of the medical costs of their HMO membership.
Although these arrangements do include capitation payments for
services rendered, we process substantially all of the claims under
these arrangements.
Humana Inc.
Dollars in thousands
Medical Claim Reserves - Details and Statistics
Change in medical and other expenses payable:
The change in medical and other expenses payable is summarized as follows:
For the Three For the Twelve
Months Ended Months Ended
March 31, 2004 December 31, 2003
Balances at January 1 $1,272,156 $1,142,131
Incurred related to:
Current year 2,730,815 9,955,491
Prior years - non-TRICARE (1) (48,988) (33,432)
Prior years - TRICARE (2) 1,689 (42,638)
Total incurred 2,683,516 9,879,421
Paid related to:
Current year (1,641,375) (8,710,393)
Prior years (917,513) (1,039,003)
Total paid (2,558,888) (9,749,396)
Balances at end of period $1,396,784 $1,272,156
The impact of any change in "incurred related to prior years" claims
may be offset as we re-establish the "incurred related to current year".
Our reserving practice is to consistently recognize the actuarial best
estimate of our ultimate liability for our claims within a level of
confidence required to meet actuarial standards. Thus, only when the
release of a prior year reserve is not offset with the same level of
conservatism in estimating the current year reserve will the redundancy
reduce medical expense. We have consistently applied this methodology in
determining our best estimate for unpaid claims liability in each period.
(1) The $15.6 million increase in non-TRICARE favorable development from
$33.4 million to $49.0 million related primarily to better than
expected utilization in the latter half of 2003 for our Medicare line
of business.
(2) Changes in estimates of TRICARE incurred claims for prior years
recognized during 2003 resulted primarily from utilization levels
developing favorably from the levels originally estimated for the
second half of 2002. As a result of substantial risk-sharing
provisions with the Department of Defense and with subcontractors,
any resulting impact on operations from the change in estimates of
incurred related to prior years is substantially reduced, whether
positive or negative.
Humana Inc.
Dollars in thousands
Medical Claim Reserves - Details and Statistics
Medical and Other Expenses Payable Detail:
March 31, December 31,
2004 2003
A IBNR and other medical expenses payable $853,228 $767,712
B TRICARE IBNR 290,579 267,146
C TRICARE other medical expenses payable 16,502 37,849
D Unprocessed claim inventories 94,800 109,700
E Processed claim inventories 81,705 74,262
F Payable to pharmacy benefit administrator 59,970 15,487
Total medical and other expenses payable $1,396,784 $1,272,156
A IBNR represents an estimate of medical expenses payable for claims
incurred but not reported (IBNR) at the balance sheet date. The level
of IBNR is primarily impacted by membership levels, medical 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).
B TRICARE IBNR has increased primarily due to an increase in claim
inventories at our third party claim administrator for claims not
submitted electronically.
C TRICARE other medical expense payable may include liabilities to
subcontractors and/or risk share payables to the Department of Defense.
The level of these balances may fluctuate from period to period due to
the timing of payment (cutoff) and whether or not the balances are
payables or receivables (receivables from the Department of Defense are
classified as "receivables" in our balance sheet).
D Unprocessed claim inventories represent the estimated valuation of
claims received but not yet fully processed. TRICARE claim inventories
are not included in this amount as an independent third party
administrator processes all TRICARE medical claims on our behalf.
Reserves for TRICARE claims inventory are included in TRICARE IBNR.
E 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.
F The balance due to our pharmacy benefit administrator fluctuates due to
bi-weekly payments and the month-end cutoff.
Receipt Cycle Time:
Due to increasing electronic connectivity and other efficiencies gained by
our providers with regards to the claim submission process, the average
length of time between when a claim was initially incurred and when the
claim form was received has generally shortened over the past several
years. Below is a summary:
Average # of Days from Incurred Date to Receipt Date (1)
2004 2003 Change % Change
1st Quarter Average 17.4 17.1 0.3 1.8%
2nd Quarter Average - 16.7 N/A N/A
3rd Quarter Average - 16.6 N/A N/A
4th Quarter Average - 16.6 N/A N/A
Full Year Average 17.4 16.7 0.7 4.2%
(1) Receipt cycle time data for our 3 largest claim processing platforms
representing approximately 90% of our claims volume.
Humana Inc.
Medical Claim Reserves - Details and Statistics
Unprocessed Claim Inventories:
The estimated valuation and number of claims on hand that are yet to be
processed are as follows:
Estimated Number
Valuation Claim Item of Days
Date (000) Counts On Hand
3/31/2002 $121,000 559,600 5.2
6/30/2002 $110,300 513,100 4.8
9/30/2002 $108,800 496,200 4.8
12/31/2002 $92,300 424,200 4.5
3/31/2003 $99,000 421,700 4.4
6/30/2003 $92,100 446,600 4.7
9/30/2003 $106,800 528,400 5.8
12/31/2003 $109,700 443,000 4.9
3/31/2004 $94,800 400,900 3.9
Days in Claims Payable (Quarterly):
A common metric for monitoring medical claim reserve levels relative to
the medical claim expenses is days in claims payable, or DCP, which
represents the medical claim liabilities at the end of the period divided
by average medical expenses per day in the quarterly period. Since we have
some providers under capitation payment arrangements (which do not require
a medical claim IBNR reserve), we have also summarized this metric
excluding capitation expenses.
Days DCP
in Claims Annual % Excluding Annual %
Quarter Ended Payable (DCP) Change Change Capitation Change Change
3/31/2002 47.2 (2.3) -4.6% 56.2 (3.4) -5.7%
6/30/2002 46.8 (3.1) -6.2% 55.3 (4.7) -7.8%
9/30/2002 46.6 (2.5) -5.1% 55.3 (3.9) -6.6%
12/31/2002 45.2 (2.2) -4.6% 53.3 (3.8) -6.7%
3/31/2003 46.5 (0.7) -1.5% 54.7 (1.5) -2.7%
6/30/2003 47.9 1.1 2.4% 56.2 0.9 1.6%
9/30/2003 47.2 0.6 1.3% 54.5 (0.8) -1.4%
12/31/2003 46.2 1.0 2.2% 53.2 (0.1) -0.2%
3/31/2004 47.4 0.9 1.9% 54.3 (0.4) -0.7%
This metric fluctuates due to all of the issues reviewed above, including
the change in the receipt cycle time, the change in medical claim
inventories, the change in TRICARE liability balances, and the timing of
our bi-weekly payment to our pharmacy benefits administrator. An annual
recap follows:
2004 2003
4th quarter-prior year 46.2 45.2
Impact of change in claim receipt cycle time 1.3 (0.5)
Impact of change in unprocessed claim inventories (0.5) 0.6
Impact of change in processed claim inventories 0.3 (1.1)
Impact of changing TRICARE reserve balances (1.7) 2.0
Impact of change in pharmacy payment cutoff 1.5 (1.0)
All other 0.3 1.0
Year to date-current year 47.4 46.2
SOURCE Humana Inc.