Humana Inc. Reports First Quarter 2007 Financial Results; 2007 EPS Guidance Raised
View Press Release in PDF format
LOUISVILLE, Ky., Apr 30, 2007 (BUSINESS WIRE) -- Humana Inc. (NYSE: HUM):-- 1Q07 EPS of $0.42, above company's previous expectations
-- 2007 EPS outlook raised to $4.10 to $4.25
-- Commercial operations performing ahead of expectations
-- Medicare operations on target
-- Medicare Advantage enrollment increased 50 percent year over year
Humana Inc. (NYSE: HUM) today reported $0.42 in diluted earnings per common share (EPS) for the quarter ended March 31, 2007 (1Q07), above the company's previous guidance for 1Q07 EPS of $0.35 to $0.40. The company earned $0.50 per share for the quarter ended March 31, 2006 (1Q06), including a $0.19 per share benefit from the sale of a venture capital investment. Excluding the venture capital gain, the significant year-over-year increase in quarterly earnings resulted primarily from higher operating earnings in the company's Commercial Segment.
Humana now estimates EPS for the year ending December 31, 2007 (FY07E) will be in the range of $4.10 to $4.25 versus $2.90 for the year ended December 31, 2006 (FY06), a growth rate of 41 to 47 percent.
"We were well prepared in the first quarter to execute successfully on another year's Medicare open enrollment while simultaneously improving Commercial results," said Michael B. McCallister, Humana's president and chief executive officer. "Based on our first quarter results, we feel comfortable raising our 2007 EPS guidance to a range that represents an increase of more than 40 percent over our record-breaking 2006 results."
Revenues - 1Q07 consolidated revenues rose 32 percent to $6.20 billion from $4.70 billion in 1Q06, with total premium and administrative services fees up 33 percent compared to the prior year's quarter primarily driven by higher average Medicare membership than in 1Q06.
Investment income of $73.5 million in 1Q07 compared to $98.9 million for 1Q06. The change in investment income resulted from the $51.7 million venture capital gain in 1Q06 that did not recur in 1Q07, partially offset by the ongoing investment income derived from higher average invested balances in 1Q07. Higher invested balances have resulted primarily from the company's substantial growth in operations.
Other revenue of $30.9 million for 1Q07 compares favorably to $5.3 million for 1Q06. The increase was primarily driven by higher specialty product revenue associated with RightSource(SM), the company's mail order pharmacy.
Medical costs - The company's consolidated medical expense ratio (medical expenses as a percent of premium revenue or MER) of 86.8 percent in 1Q07 was 310 basis points higher than the 1Q06 MER of 83.7 percent due to an expected increase in the Government Segment MER outweighing significant improvement in that for the Commercial Segment.
Selling, general, & administrative (SG&A) expenses - The company's consolidated SG&A expense ratio (SG&A expenses as a percent of premiums plus administrative services fees) decreased 260 basis points to 13.5 percent for 1Q07 from 16.1 percent in 1Q06. The year-over-year decline was primarily the result of administrative cost leverage associated with increased revenues from higher average medical membership.
Government Segment Results Summary
Pretax results:
-- Government Segment pretax earnings were $17.9 million in 1Q07 compared to $21.6 million in 1Q06. As expected, this primarily reflects the higher first quarter MER associated with higher average Medicare membership with Part D benefits partially offset by administrative cost leverage and increasing investment income primarily derived from higher average invested balances.
Enrollment:
-- Medicare Advantage membership grew to 1,113,400 at March 31, 2007, an increase of 372,200, or 50 percent, from March 31, 2006 and 110,800, or 11 percent, from December 31, 2006. The company's expanded participation in various Medicare products and markets combined with the company's increased sales and marketing efforts for these programs led to the higher membership level both year over year and sequentially. Medicare Advantage membership for April 2007 approximates 1,137,000, the result of strong sales results during the final two weeks of the open enrollment season for Medicare Advantage.
-- Membership in the company's stand-alone PDPs totaled 3,473,700 at March 31, 2007 compared to 1,959,000 at March 31, 2006.
-- As expected, TRICARE membership of 2,878,400 at March 31, 2007 was essentially unchanged from both March 31, 2006 and December 31, 2006.
-- Medicaid membership of 559,400 at March 31, 2007 increased 132,400 from March 31, 2006 due primarily to the award of a new Puerto Rico regional ASO contract during the fourth quarter of 2006, partially offset by eligible Puerto Rico Medicaid members choosing to move into the Medicare Advantage program.
Premiums and administrative services fees:
-- Medicare Advantage premiums of $2.74 billion in 1Q07 increased 59 percent compared to $1.72 billion in 1Q06, primarily the result of the expanded geography across which Medicare Advantage products were offered together with higher enrollment in geographies where these products were offered in 2006. Medicare Advantage premiums per member increased less than 1 percent year over year during 1Q07, reflecting the shift in membership mix to a higher percentage of lower premium Private Fee-for-Service products.
-- TRICARE premiums and administrative services fees during 1Q07 increased to $741.5 million compared to $611.9 million in 1Q06.
Medical Expenses:
-- The Government Segment MER increased 370 basis points to 89.3 percent in 1Q07 compared to 85.6 percent in the prior year's quarter. This anticipated change in the MER for the Government Segment included the combined effect of the seasonally higher first quarter MER associated with Part D benefits together with approximately twice the average stand-alone PDP membership for 1Q07 versus 1Q06.
SG&A Expenses:
-- The Government Segment's SG&A expense ratio for 1Q07 of 10.8 percent was 300 basis points lower than that for 1Q06 of 13.8 percent primarily driven by the expense leverage provided by revenues associated with higher average medical membership for this segment.
Commercial Segment Results Summary
Pretax results:
-- Commercial Segment pretax earnings were $94.4 million in 1Q07 compared to $109.6 million in 1Q06. Investment income for this segment in 1Q06 included a pretax gain of $45.3 million associated with the sale of a venture capital investment that did not recur in 1Q07. Commercial Segment operating earnings in 1Q07 continue to reflect the company's commitment to underwriting discipline and strategic growth in select lines of business.
Enrollment:
-- Commercial Segment medical membership of 3,257,500 at March 31, 2007 was essentially unchanged from March 31, 2006 and declined 26,300, or less than 1 percent, from December 31, 2006.
-- Membership in the company's Smart plans and other consumer offerings increased year over year by 56,300 or 14 percent to 471,300 at March 31, 2007. Medical members in these products comprise approximately 15 percent of Commercial medical membership at March 31, 2007 compared to 13 percent at March 31, 2006.
Premiums and administrative services fees:
-- Premiums and administrative services fees for the Commercial Segment decreased 3 percent to $1.58 billion in 1Q07 compared to $1.62 billion in the prior year's quarter, as an increase in administrative services fees resulting from a 10 percent increase in ASO membership was more than offset by lower premiums due to a year-over-year decline in at-risk enrollment.
-- Commercial Segment medical premiums for fully insured groups increased approximately 5 percent on a per-member basis during 1Q07 compared to 1Q06.
Medical Expenses:
-- In 1Q07, the Commercial Segment MER of 79.4 percent was 70 basis points lower than the 1Q06 MER of 80.1 percent, primarily reflecting improving medical cost utilization trends and the company's continued commitment to underwriting discipline.
SG&A Expenses:
-- The Commercial Segment SG&A expense ratio of 20.9 percent for 1Q07 compares to 20.4 percent in 1Q06, primarily the result of lower average fully-insured medical enrollment and an increase in the percentage of Commercial medical membership related to ASO.
Balance Sheet
-- Cash and cash equivalents of $3.69 billion increased $1.95 billion or 112 percent sequentially primarily due to the early receipt of the April Medicare premium from the Centers for Medicare and Medicaid Services (CMS) and an increase in non-GAAP operating cash flows(a) during 1Q07.
-- Unearned revenues of $1.33 billion increased significantly from the December 31, 2006 balance of $155.3 million also due to the timing of the receipt of Medicare premiums from CMS.
-- Debt-to-total capitalization at March 31, 2007 was 29.6 percent, up 20 basis points from December 31, 2006 due primarily to 1Q07 borrowings against the company's credit facility.
-- The company's working capital at March 31, 2007 included approximately $787.0 million in net Part D risk-share payables to CMS associated with the company's Medicare Advantage and stand-alone PDP offerings. Approximately 94 percent of this liability relates to Part D plan offerings for the year ended December 31, 2006.
-- Days in claims payable rose 1.8 days on a sequential basis to 62.0 days at March 31, 2007 from 60.2 days at December 31, 2006. The sequential increase in this metric is primarily due to the timing of the company's payment to its pharmacy benefit administrator together with higher TRICARE reserve balances.
Cash Flows from Operations
Cash flows provided by operations for 1Q07 of $1.57 billion compared to cash provided by operations of $1.01 billion in 1Q06. The company also evaluates operating cash flows on a non-GAAP basis(a)(b).
Cash flows from operations ($ in millions) 1Q07 1Q06 ---------------------------------------------------------------------- GAAP cash flows provided by operations $1,574.5 $1,008.0 ---------------------------------------------------------------------- Timing of premium payment from CMS(a) (1,129.8) (774.7) ---------------------------------------------------------------------- Non-GAAP cash flows provided by operations(a)(b) $444.7 $233.3 ----------------------------------------------------------------------
Non-GAAP cash flows provided by operations rose to $444.7 million(a)(b) in 1Q07 from $233.3 million(a)(b) in 1Q06 driven by growth in the company's Medicare operations.
Footnotes
(a) When reviewing and analyzing Humana's operating cash flows, company management applies the CMS premium payment in each month to match the corresponding disbursements. To do otherwise distorts meaningful analysis of the company's operating cash flow. Therefore, decisions such as management's forecasting and business plans regarding cash flow use this non-GAAP financial measure.
(b) The company has included certain financial measures that are not in accordance with GAAP within this news 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 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.
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. For those unable to participate in the live event, the virtual presentation archive will be available in the Historical Webcasts & Presentations section of the Investor Relations page at www.humana.com.
Cautionary Statement
This news release contains statements and earnings guidance points that are forward-looking. The forward-looking items herein are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking items may be significantly impacted by certain risks and uncertainties described in the company's Form 10-K for the year ended December 31, 2006, as filed with the Securities and Exchange Commission.
About Humana
Humana Inc., headquartered in Louisville, Kentucky, is one of the nation's largest publicly traded health benefits companies, with approximately 11.3 million medical members. Humana offers a diversified portfolio of health insurance products and related services - through traditional and consumer-choice plans - to employer groups, government-sponsored plans, and individuals.
Over its 46-year history, Humana has consistently seized opportunities to meet changing customer needs. Today, the company is a leader in consumer engagement, providing guidance that leads to lower costs and a better health plan experience throughout its diversified customer portfolio.
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;
-- Replay of most recent earnings release conference calls;
-- Calendar of events (includes upcoming earnings conference call dates and times, as well as planned interaction with research analysts and institutional investors);
-- Corporate Governance information.
Humana Inc.
GAAP Guidance
Points as of For the year ending
April 30, 2007 December 31, 2007 Comments
--------------- ----------------------------- ------------------------
Diluted FY07: $4.10 to $4.25 2007 growth rate of 41%
earnings per 2Q07: $1.15 to $1.20 to 47%
common share
--------------- ----------------------------- ------------------------
Revenues Consolidated revenues: $24
billion to $26 billion;
Medicare Advantage: $10.5
billion to $12.0 billion;
Medicare stand-alone PDPs:
$3.0 billion to $3.5
billion;
TRICARE: $2.7 billion to $3.0
billion;
Commercial: $6.0 billion to
$7.0 billion
--------------- ----------------------------- ------------------------
Ending medical Medicare Advantage: 1,150,000
membership to 1,180,000;
Medicare stand-alone PDPs:
approximately 3.5 million;
TRICARE: No material change
from prior year;
Medicaid: Down approximately
10,000;
Commercial: Up approximately Commercial represents
50,000 to 75,000 from prior combined ASO and fully
year insured medical
membership
--------------- ----------------------------- ------------------------
Medical costs Total Medicare products After the reset of the
(Medicare Advantage and benefits on January 1
stand-alone PDP combined) each year, progression
MER in the range of 82% to through the Part D
84%; benefit stages results
in a sequential
quarterly improvement
in the Medicare MER.
Commercial fully insured 2007 secular Commercial
groups: Medical cost trends medical cost trend
in the range of 4.5% to components as follows:
5.5%; premium yields in line inpatient hospital
with medical cost trends utilization - flat to 1
percent; inpatient and
outpatient hospital
rates - mid to upper
single digits;
outpatient hospital
utilization - low to
mid single digits;
physician - mid single
digits; and pharmacy -
low double digits.
--------------- ----------------------------- ------------------------
Selling, Consolidated SG&A expense
general & ratio of 13% to 14%
administrative
expenses
--------------- ----------------------------- ------------------------
Investment Investment income of $290 2007 is not forecast to
income and million to $300 million; include any material
interest Interest expense of gains from venture
expense approximately $70 million; capital investments due
Net investment income by to fewer such
segment: investments now held by
the company
Approximately 60%
Government;
Approximately 40%
Commercial
--------------- ----------------------------- ------------------------
Pretax results Total Medicare products
(Medicare Advantage and
stand-alone PDP combined):
4% to 5% pretax margin;
TRICARE: Approximately 3% to
4% pretax margin;
Commercial Segment: $210
million to $230 million
including no material
benefit from venture capital
gains
--------------- ----------------------------- ------------------------
Cash flows from $1.1 billion to $1.6 billion Includes accrual for
operations estimated Part D risk
share payable for 2007
in the range of zero to
$400 million
--------------- ----------------------------- ------------------------
Capital Approximately $200 million
expenditures
--------------- ----------------------------- ------------------------
Effective tax Approximately 36% to 37%
rate
--------------- ----------------------------- ------------------------
Shares used in Approximately 171 million
computing EPS
--------------- ----------------------------- ------------------------
S-1
Humana Inc.
Statistical Schedules
And
Supplementary Information
1Q07 Earnings Release
S-2
Humana Inc.
Statistical Schedules and Supplementary Information
1Q07 Earnings Release
Contents
Page Description
----------------------------------------------------------------------
S-3 1st Quarter Consolidated Statements of Income
S-4 Consolidated Balance Sheets
S-5 1st Quarter Consolidated Statements of Cash Flows
S-6 Key Income Statement Ratios and Segment Operating Results
S-7 Membership Detail
S-8 1st Quarter Premiums and Administrative Services Fees Detail
S-9 Percentage of Ending Membership under Capitation
Arrangements
S-10 Detail of Medical and Other Expenses Payable Balance and
Year-to-Date Changes
S-11-12 Medical Claims Reserves Statistics
S-13 Footnotes
S-3
Humana Inc.
1st Quarter Consolidated Statements of Income
In thousands, except per common share results
----------------------
Three Months Ended
March 31,
----------------------
Dollar Percentage
2007 2006 Change Change
---------------------- ---------------------
Revenues:
Premiums $6,004,563 $4,521,486 $1,483,077 32.8%
Administrative services
fees 95,864 78,678 17,186 21.8%
Investment income 73,527 98,902 (25,375) -25.7%
Other revenue 30,859 5,299 25,560 482.4%
---------------------- -----------
Total revenues 6,204,813 4,704,365 1,500,448 31.9%
---------------------- -----------
Operating expenses:
Medical 5,214,000 3,783,926 1,430,074 37.8%
Selling, general and
administrative 820,610 740,886 79,724 10.8%
Depreciation 35,509 29,852 5,657 19.0%
Other intangible
amortization 4,555 5,054 (499) -9.9%
---------------------- -----------
Total operating
expenses 6,074,674 4,559,718 1,514,956 33.2%
---------------------- -----------
Income from operations 130,139 144,647 (14,508) -10.0%
Interest expense 17,918 13,439 4,479 33.3%
---------------------- -----------
Income before income taxes 112,221 131,208 (18,987) -14.5%
Provision for income taxes 40,980 47,493 (6,513) -13.7%
---------------------- -----------
Net income $71,241 $83,715 ($12,474) -14.9%
====================== ===========
Basic earnings per common
share $0.43 $0.51 ($0.08) -15.7%
Diluted earnings per
common share $0.42 $0.50 ($0.08) -16.0%
Shares used in computing
basic earnings per common
share 165,813 163,116
Shares used in computing
diluted earnings per
common share 168,956 167,325
S-4
Humana Inc.
Consolidated Balance Sheets
Dollars in thousands, except share amounts
------------------
March 31, December 31, Sequential Change
------------------
2007 2006 Dollar Percent
------------------------ ------------------
Assets
Current assets:
Cash and cash equivalents $3,694,059 $1,740,304
Investment securities 3,154,920 3,192,273
Receivables, net:
Premiums 826,314 667,657
Administrative
services fees 10,806 13,284
Securities lending
collateral 1,049,195 627,990
Other 1,135,298 1,091,465
------------------------
Total current assets 9,870,592 7,332,973 $2,537,619 34.6%
Property and equipment 571,405 545,004
Other assets:
Long-term investment
securities 380,138 414,877
Goodwill 1,331,418 1,310,631
Other 552,572 524,011
------------------------
Total other assets 2,264,128 2,249,519
------------------------
Total assets $12,706,125 $10,127,496 $2,578,629 25.5%
========================
Liabilities and
Stockholders' Equity
Current liabilities:
Medical and other expenses
payable $2,886,214 $2,488,261
Trade accounts payable and
accrued expenses 1,977,465 1,626,658
Book overdraft 284,572 293,605
Securities lending payable 1,049,195 627,990
Unearned revenues 1,330,325 155,298
------------------------
Total current
liabilities 7,527,771 5,191,812 $2,335,959 45.0%
Long-term debt 1,329,334 1,269,100
Other long-term liabilities 689,493 612,698
------------------------
Total liabilities 9,546,598 7,073,610 $2,472,988 35.0%
------------------------
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; 184,476,052
issued at March 31, 2007 30,746 30,491
Capital in excess of par
value 1,393,582 1,357,077
Retained earnings 1,980,339 1,909,098
Accumulated other
comprehensive loss (8,378) (13,205)
Treasury stock, at cost,
16,439,060 shares at
March 31, 2007 (236,762) (229,575)
------------------------
Total stockholders'
equity 3,159,527 3,053,886 $105,641 3.5%
------------------------
Total liabilities and
stockholders' equity $12,706,125 $10,127,496 $2,578,629 25.5%
========================
Debt-to-total
capitalization ratio 29.6% 29.4%
S-5
Humana Inc.
1st Quarter Consolidated Statements of Cash Flows
Dollars in thousands
----------------------
Three Months Ended
March 31,
----------------------
Dollar Percentage
2007 2006 Change Change
---------------------- -------------------
Cash flows from operating
activities
Net income $71,241 $83,715
Adjustments to reconcile
net income to net cash
provided by operating
activities:
Depreciation and
amortization 40,064 34,906
Stock-based
compensation 9,802 6,580
Benefit for deferred
income taxes (6,111) (3,705)
Changes in operating
assets and liabilities
excluding the effects
of acquisitions:
Receivables (156,179) (46,061)
Other assets (18,945) (185,250)
Medical and other
expenses payable 397,953 259,807
Other liabilities 58,652 114,752
Unearned revenues 1,175,027 800,189
Other 2,977 (56,960)
----------------------
Net cash provided by
operating activities 1,574,481 1,007,973 $566,508 56.2%
----------------------
Cash flows from investing
activities
Acquisitions, net of cash
acquired (26,781) (113)
Purchases of property and
equipment (70,744) (45,261)
Proceeds from sales of
property and equipment 4,070 2,138
Purchases of investment
securities (965,051)(1,663,658)
Proceeds from maturities
of investment securities 557,485 910,108
Proceeds from sales of
investment securities 481,911 559,830
Change in securities
lending collateral (421,205) (202,712)
----------------------
Net cash used in investing
activities (440,315) (439,668) ($647) -0.1%
----------------------
Cash flows from financing
activities
Receipts from CMS contract
deposits 843,637 494,194
Withdrawals from CMS
contract deposits (515,705) (273,444)
Borrowings under credit
agreement 310,000 100,000
Repayments under credit
agreement (250,000) -
Change in book overdraft (9,033) (4,418)
Change in securities
lending payable 421,205 202,712
Common stock repurchases (7,187) (105)
Tax benefit from stock-
based compensation 9,128 8,404
Proceeds from stock option
exercises and other 17,544 15,741
----------------------
Net cash provided by
financing activities 819,589 543,084 $276,505 50.9%
----------------------
Increase in cash and cash
equivalents 1,953,755 1,111,389
Cash and cash equivalents at
beginning of period 1,740,304 732,016
----------------------
Cash and cash equivalents at
end of period $3,694,059 $1,843,405
======================
S-6
Humana Inc.
Key Income Statement Ratios and Segment Operating Results
Dollars in thousands
------------------
Three Months Ended
March 31,
------------------
Percentage
2007 2006 Difference Change
------------------ --------------------
Medical expense ratio
Government Segment 89.3% 85.6% 3.7%
Commercial Segment 79.4% 80.1% -0.7%
Consolidated 86.8% 83.7% 3.1%
Selling, general, and
administrative expense ratio
Government Segment 10.8% 13.8% -3.0%
Commercial Segment 20.9% 20.4% 0.5%
Consolidated 13.5% 16.1% -2.6%
Detail of Pretax Income
Government Segment $17,865 $21,572 ($3,707) -17.2%
Commercial Segment 94,356 109,636 (15,280) -13.9%
------------------ ----------
Consolidated $112,221 $131,208 ($18,987) -14.5%
================== ==========
Detail of Pretax Margins
Government Segment 0.4% 0.7% -0.3%
Commercial Segment 5.8% 6.4% -0.6%
Consolidated 1.8% 2.8% -1.0%
S-7
Humana Inc.
Membership Detail
In thousands
-----------
Ending Ending
March 31, Average - March 31,
2007 1Q07 2006
---------------------------------
Medical Membership:
Government Segment:
Medicare Advantage - HMO 462.1 461.4 443.7
Medicare Advantage - PPO 64.6 63.9 35.4
Medicare Advantage - PFFS 586.7 574.6 262.1
---------------------------------
Total Medicare Advantage 1,113.4 1,099.9 741.2
---------------------------------
Medicare - PDP - Standard 2,146.2 2,151.9 1,289.2
Medicare - PDP - Enhanced 1,084.0 1,090.7 421.0
Medicare - PDP - Complete 243.5 250.2 248.8
---------------------------------
Total Medicare stand-alone PDPs 3,473.7 3,492.8 1,959.0
---------------------------------
Total Medicare 4,587.1 4,592.7 2,700.2
---------------------------------
TRICARE insured 1,712.9 1,718.0 1,724.7
TRICARE ASO 1,165.5 1,168.3 1,149.3
---------------------------------
Total TRICARE 2,878.4 2,886.3 2,874.0
---------------------------------
Medicaid insured 384.0 387.4 427.0
Medicaid ASO 175.4 178.2 -
---------------------------------
Total Medicaid 559.4 565.6 427.0
---------------------------------
Total Government Segment 8,024.9 8,044.6 6,001.2
---------------------------------
Commercial Segment:
Fully insured medical:
Group 1,528.6 1,531.8 1,695.1
Individual 192.1 187.9 163.1
Medicare supplement 7.4 7.5 6.0
---------------------------------
Total fully insured medical 1,728.1 1,727.2 1,864.2
ASO 1,529.4 1,533.0 1,395.2
---------------------------------
Total Commercial Segment 3,257.5 3,260.2 3,259.4
---------------------------------
Total medical membership 11,282.4 11,304.8 9,260.6
=================================
Specialty Membership (all Commercial
Segment)
-------------------------------------
Dental - fully insured 980.5 984.2 950.6
Dental - ASO 503.7 499.2 494.7
---------------------------------
Total dental 1,484.2 1,483.4 1,445.3
Group life 437.9 437.3 421.3
Short-term disability 13.1 13.4 15.7
---------------------------------
Total specialty membership 1,935.2 1,934.1 1,882.3
=================================
--------------- --------------
Year-over-year Sequential
Change Ending Change
--------------- --------------
Dec. 31,
Amount Percent 2006 Amount Percent
--------------- --------- --------------
Medical Membership:
Government Segment:
Medicare Advantage - HMO 18.4 4.1% 457.9 4.2 0.9%
Medicare Advantage - PPO 29.2 82.5% 71.7 (7.1) -9.9%
Medicare Advantage - PFFS 324.6 123.8% 473.0 113.7 24.0%
-------- --------- -------
Total Medicare
Advantage 372.2 50.2% 1,002.6 110.8 11.1%
-------- --------- -------
Medicare - PDP - Standard 857.0 66.5% 2,097.2 49.0 2.3%
Medicare - PDP - Enhanced 663.0 157.5% 1,025.4 58.6 5.7%
Medicare - PDP - Complete (5.3) -2.1% 414.0 (170.5) -41.2%
-------- --------- -------
Total Medicare stand-
alone PDPs 1,514.7 77.3% 3,536.6 (62.9) -1.8%
-------- --------- -------
Total Medicare 1,886.9 69.9% 4,539.2 47.9 1.1%
-------- --------- -------
TRICARE insured (11.8) -0.7% 1,716.4 (3.5) -0.2%
TRICARE ASO 16.2 1.4% 1,163.6 1.9 0.2%
-------- --------- -------
Total TRICARE 4.4 0.2% 2,880.0 (1.6) -0.1%
-------- --------- -------
Medicaid insured (43.0) -10.1% 390.7 (6.7) -1.7%
Medicaid ASO 175.4 100.0% 178.4 (3.0) -1.7%
-------- --------- -------
Total Medicaid 132.4 31.0% 569.1 (9.7) -1.7%
-------- --------- -------
Total Government Segment 2,023.7 33.7% 7,988.3 36.6 0.5%
-------- --------- -------
Commercial Segment:
Fully insured medical:
Group (166.5) -9.8% 1,563.9 (35.3) -2.3%
Individual 29.0 17.8% 182.6 9.5 5.2%
Medicare supplement 1.4 23.3% 7.7 (0.3) -3.9%
-------- --------- -------
Total fully insured medical (136.1) -7.3% 1,754.2 (26.1) -1.5%
ASO 134.2 9.6% 1,529.6 (0.2) 0.0%
-------- --------- -------
Total Commercial Segment (1.9) -0.1% 3,283.8 (26.3) -0.8%
-------- --------- -------
Total medical membership 2,021.8 21.8% 11,272.1 10.3 0.1%
======== ========= =======
Specialty Membership (all
Commercial Segment)
-----------------------------
Dental - fully insured 29.9 3.1% 959.8 20.7 2.2%
Dental - ASO 9.0 1.8% 492.2 11.5 2.3%
-------- --------- -------
Total dental 38.9 2.7% 1,452.0 32.2 2.2%
Group life 16.6 3.9% 436.8 1.1 0.3%
Short-term disability (2.6) -16.6% 14.0 (0.9) -6.4%
-------- --------- -------
Total specialty membership 52.9 2.8% 1,902.8 32.4 1.7%
======== ========= =======
S-8
Humana Inc.
1st Quarter Premiums and Administrative Services Fees Detail
Dollars in thousands, except per member per month
---------------------------------
Three Months Ended March 31,
---------------------------------
2007 2006
---------------------------------
Premium revenues
Government Segment:
Medicare Advantage $2,742,711 $1,720,843
Medicare stand-alone PDPs 906,426 515,157
---------------------------------
Total Medicare 3,649,137 2,236,000
TRICARE insured (B) 727,215 600,754
Medicaid insured 129,325 129,467
---------------------------------
Total Government Segment premiums 4,505,677 2,966,221
---------------------------------
Commercial Segment:
Fully insured medical 1,390,805 1,453,932
Specialty 108,081 101,333
---------------------------------
Total Commercial Segment premiums 1,498,886 1,555,265
---------------------------------
Total premium revenues $6,004,563 $4,521,486
=================================
Administrative services fees
TRICARE ASO (B) $14,294 $11,191
Medicaid ASO 2,096 -
---------------------------------
Total Government Segment 16,390 11,191
Commercial Segment 79,474 67,487
---------------------------------
Total administrative services fees $95,864 $78,678
=================================
Per Member per
Month(A)
Three Months
Ended March
31,
--------------
Dollar Percentage
Change Change 2007 2006
--------------------- --------------
Premium revenues
Government Segment:
Medicare Advantage $1,021,868 59.4% $831 $830
Medicare stand-alone PDPs $391,269 76.0% $87 $99
-----------
Total Medicare 1,413,137 63.2%
TRICARE insured (B) 126,461 21.1% $141 $116
Medicaid insured (142) -0.1% $111 $99
-----------
Total Government Segment
premiums 1,539,456 51.9%
-----------
Commercial Segment:
Fully insured medical (63,127) -4.3% $268 $259
Specialty 6,748 6.7% $22 $21
-----------
Total Commercial Segment
premiums (56,379) -3.6%
-----------
Total premium revenues $1,483,077 32.8%
===========
Administrative services fees
TRICARE ASO (B) $3,103 27.7% $4 $3
Medicaid ASO 2,096 100.0% $4 -
-----------
Total Government Segment 5,199 46.5%
Commercial Segment 11,987 17.8% $13 $12
-----------
Total administrative services
fees $17,186 21.8%
===========
S-9
Humana Inc.
Percentage of Ending Membership under Capitation Arrangements
-------------------------------------------
Government Segment
-------------------------------------------
Medicare
stand- Total
Medicare alone Govt.
March 31, 2007 Advantage PDPs TRICARE Medicaid Segment
----------------------------------------------------------------------
Capitated HMO hospital
system based(C) 2.5% - - - 0.4%
Capitated HMO physician
group based(C) 2.1% - - 25.9% 2.1%
Risk-sharing(D) 25.5% - - 42.3% 6.5%
All other membership 69.9% 100.0% 100.0% 31.8% 91.0%
-------------------------------------------
Total medical
membership 100.0% 100.0% 100.0% 100.0% 100.0%
===========================================
March 31, 2006
---------------------------
Capitated HMO hospital
system based(C) 4.5% - - - 0.6%
Capitated HMO physician
group based(C) 3.2% - - 35.5% 2.9%
Risk-sharing(D) 31.9% - - 59.6% 8.2%
All other membership 60.4% 100.0% 100.0% 4.9% 88.3%
-------------------------------------------
Total medical
membership 100.0% 100.0% 100.0% 100.0% 100.0%
===========================================
-----------------------------
Commercial Segment
-----------------------------
Total Total
Fully Comm. Medical
March 31, 2007 insured ASO Segment Membership
----------------------------------------------------------------------
Capitated HMO hospital system
based(C) 1.5% - 0.8% 0.5%
Capitated HMO physician group
based(C) 1.5% - 0.8% 1.7%
Risk-sharing(D) 1.6% - 0.8% 4.9%
All other membership 95.4% 100.0% 97.6% 92.9%
----------------------------------------
Total medical membership 100.0% 100.0% 100.0% 100.0%
========================================
March 31, 2006
------------------------------
Capitated HMO hospital system
based(C) 2.0% - 1.1% 0.8%
Capitated HMO physician group
based(C) 1.8% - 1.0% 2.2%
Risk-sharing(D) 2.3% - 1.3% 5.8%
All other membership 93.9% 100.0% 96.6% 91.2%
----------------------------------------
Total medical membership 100.0% 100.0% 100.0% 100.0%
========================================
S-10
Humana Inc.
Detail of Medical and Other Expenses Payable Balance and Year-to-Date
Changes
Dollars in thousands
--------------
March 31, March 31, December 31,
2007 2006 2006
-----------------------------------------
Detail of medical and other
expenses payable
IBNR and other medical
expenses payable(E) $1,869,209 $1,313,806 $1,686,051
TRICARE IBNR(F) 361,786 346,774 318,583
TRICARE other medical
expenses payable(G) 97,994 90,073 94,699
Unprocessed claim
inventories(H) 222,300 185,300 218,400
Processed claim
inventories(I) 135,241 83,945 115,424
Payable to pharmacy benefit
administrator(J) 199,684 149,591 55,104
-----------------------------------------
Total medical and other
expenses payable $2,886,214 $2,169,489 $2,488,261
=========================================
--------------
Three Months Three Months
Ended Ended Year Ended
March 31, March 31, December 31,
2007 2006 2006
-----------------------------------------
Year-to-date changes in
medical and other expenses
payable
Balances at January 1 $2,488,261 $1,909,682 $1,909,682
Acquisitions - - 21,198
Incurred related to:
Current year (K) 5,370,722 3,968,602 17,696,654
Prior years - non-
TRICARE(K) (148,777) (125,469) (178,998)
Prior years - TRICARE(L) (7,945) (59,207) (96,452)
-----------------------------------------
Total incurred 5,214,000 3,783,926 17,421,204
-----------------------------------------
Paid related to:
Current year (3,800,981) (2,644,110) (15,532,079)
Prior years (1,015,066) (880,009) (1,331,744)
-----------------------------------------
Total paid (4,816,047) (3,524,119) (16,863,823)
-----------------------------------------
Balances at end of period $2,886,214 $2,169,489 $2,488,261
=========================================
S-11
Humana Inc.
Medical Claims Reserves Statistics
Receipt Cycle Time(M)
Percentage
2007 2006 Change Change
---------------------------------------------------
1st Quarter Average 15.6 16.1 (0.5) -3.1%
2nd Quarter Average - 15.8 N/A N/A
3rd Quarter Average - 16.0 N/A N/A
4th Quarter Average - 15.8 N/A N/A
-----------------------------------------
Full Year Average 15.6 15.9 (0.3) -1.9%
=========================================
Unprocessed Claims Inventories
Estimated Number of
Valuation Claim Item Days on
Date (000's) Counts Hand
----------------------------------------------------------------------
3/31/2005 $111,200 393,200 3.6
6/30/2005 $119,500 443,600 4.0
9/30/2005 $136,700 512,800 4.7
12/31/2005 $148,200 498,400 4.6
3/31/2006 $185,300 683,900 5.6
6/30/2006 $193,700 702,000 4.8
9/30/2006 $187,900 623,900 5.4
12/31/2006 $218,400 757,700 6.1
------------------------------------------------------------
3/31/2007 $222,300 747,200 5.5
------------------------------------------------------------
S-12
Humana Inc.
Medical Claims Reserves Statistics (Continued)
Days in Claims Payable (N)
Days in
Claim DCP
Payable Annual Percentage Excluding Annual Percentage
Quarter Ended (DCP) Change Change Capitation Change Change
----------------------------------------------------------------------
3/31/2005 50.5 3.1 6.5% 56.1 1.8 3.3%
6/30/2005 52.8 5.4 11.4% 58.6 4.5 8.3%
9/30/2005 54.0 2.2 4.2% 60.8 1.7 2.9%
12/31/2005 60.3 10.8 21.8% 66.6 11.8 21.5%
3/31/2006 59.1 8.6 17.0% 65.5 9.4 16.8%
6/30/2006 59.5 6.7 12.7% 65.5 6.9 11.8%
9/30/2006 61.2 7.2 13.3% 67.1 6.3 10.4%
12/31/2006 60.2 (0.1) -0.2% 66.5 (0.1) -0.2%
----------------------------------------------------------------------
3/31/2007 62.0 2.9 4.9% 67.8 2.3 3.5%
----------------------------------------------------------------------
Year-to-Date Change in Days in
Claims Payable (O) (P)
2007 2006
---------------------
DCP - 4th quarter of
prior year 60.2 60.3
Components of year-to-date
change in DCP:
Change in claims receipt
cycle time (0.7) (1.6)
Change in unprocessed
claims inventories 0.1 1.7
Change in processed claims
inventories 0.4 0.8
Change in TRICARE reserve
balances 1.0 (2.1)
Change in pharmacy payment
cutoff 1.2 (1.3)
Change in provider payables
under risk arrangements 0.2 1.9
All other (0.4) 0.5
---------------------
DCP - current quarter 62.0 60.2
=====================
S-13
Humana Inc.
Footnotes to Statistical Schedules and Supplementary Information
1Q07 Earnings Release
Footnote
--------
(A) 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).
(B) TRICARE revenues are not contracted on a per member basis.
(C) In a limited number of circumstances, the company contracts
with hospitals and physicians to accept financial risk for a
defined set of HMO membership. In transferring this risk, the
company prepays 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, the company generally
agrees to reimbursement rates that target a medical expense
ratio. 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
physicians and hospitals for services rendered to their HMO
membership.
(D) In some circumstances, the company contracts 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, the company processes substantially all of the
claims under these arrangements.
(E) 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). Other medical expenses payable includes amounts
payable to providers under capitation arrangements.
(F) TRICARE IBNR primarily fluctuates due to medical expense
inflation and changes in the utilization of benefits.
(G) TRICARE other medical expenses 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 the company's balance sheet).
(H) 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 the company's behalf. Reserves for
TRICARE unprocessed claims inventory are included in TRICARE
IBNR.
(I) 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.
(J) 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 10 days (10th & 20th of month) and the last
day of the month.
(K) 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 our estimate of
claim reserves during the quarter.
(L) Changes in estimates of TRICARE incurred claims for prior
years result primarily from claim costs and utilization
levels developing favorably from the levels originally
estimated for the second half of the prior year. 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.
(M) 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 our
largest claim processing platforms represents approximately
75% of the company's fully insured claims volume. Pharmacy
claims are excluded from this measurement.
(N) A common metric for monitoring medical claim reserve levels
relative to the medical claims expense 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 the
company has some providers under capitation payment
arrangements (which do not require a medical claim IBNR
reserve), the company has also summarized this metric
excluding capitation expense. In addition, this calculation
excludes the impact of the company's stand-alone PDP
business.
(O) Excludes the impact of Medicare stand-alone PDPs.
(P) DCP fluctuates due to a number of issues, the more significant
of which are detailed in the rollforward of DCP from the
fourth quarter of the prior year. Growth in certain product
lines can also impact DCP for the quarter since a provision
for claims would not have been recorded for members that had
not yet enrolled earlier in the quarter, yet those members
would have a provision and corresponding reserve recorded
upon enrollment later in the quarter.
SOURCE: Humana Inc.
Humana Inc. Investor Relations: Regina Nethery, 502-580-3644 Rnethery@humana.com or Corporate Communications: Tom Noland, 502-580-3674 Tnoland@humana.com