Humana Reports First Quarter 2003 Results
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LOUISVILLE, Ky., Apr 28, 2003 /PRNewswire-FirstCall via COMTEX/ -- Humana Inc. (NYSE: HUM) today reported results for the first quarter ended March 31, 2003 and comparative amounts for the quarter ended March 31, 2002 as follows:
1Q03 1Q02 1Q03
GAAP(1) GAAP(1) Adjusted(2)
Earnings per diluted share $ .19 $ .28 $ .31
Net income
(in thousands) $ 31,230 $ 46,770 $ 50,024
Pretax margin 1.6% 2.5% 2.7%
(See "Footnote Definitions" section of this press release.)
Driven by improved adjusted earnings in the company's Commercial segment, first quarter 2003 adjusted earnings per diluted share of $.31 increased 11 percent compared to the same period in the prior year. Adjusted net income for the first quarter improved 7 percent compared to that for the same period in the prior year. The adjusted pretax margin of 2.7 percent increased 20 basis points from the first quarter of 2002.
"Our adjusted Commercial segment pretax earnings for the first quarter exceeded those for all of 2002. We believe this is a clear demonstration of our growing ability to improve Commercial profitability," said Michael B. McCallister, chief executive officer. "Humana's innovative products and rigorous operating discipline, supported by streamlining of administrative expenses, should result in a substantial improvement in our Commercial segment results for 2003. Our Government segment profitability complemented the Commercial segment improvement in the quarter."
Restructuring Charge
During the first quarter of 2003, the company recorded the following items that were not reflective of the run-rate operations of the company. These adjustments, which are reflected in the restructuring charge line in the Statement of Income, were described initially in the company's press release, dated December 5, 2002, and again in the company's Form 10-K for the year ended December 31, 2002. Management believes this restructuring charge should be excluded to properly reflect the run-rate operations of the company and to provide better comparability to prior year results.
Earnings per
(in thousands, Pretax After-tax diluted share
except per share amounts) Impact Impact Impact
Building and equipment
writedown $ (17,233) $ (10,529) $ (.07)
Software abandonment (13,527) (8,265) (.05)
Total restructuring
charge $ (30,760) $ (18,794) $ (.12)
(See "Footnote Definitions" section of this press release.)
Segment Results
Pretax results and margins for the company's business segments for the quarters ended March 31, 2003 and 2002 were as follows:
Pretax income
(in thousands) 1Q03 1Q02 1Q03
GAAP(1) GAAP(1) Adjusted(2)
Commercial segment $37,239 $26,095 $55,091
Government segment $10,163 $42,684 $23,071
Consolidated $47,402 $68,779 $78,162
(See "Footnote Definitions" section of this press release.)
Pretax margins 1Q03 1Q02 1Q03
GAAP(1) GAAP(1) Adjusted(2)
Commercial segment 2.2% 1.8% 3.3%
Government segment 0.8% 3.4% 1.8%
Consolidated 1.6% 2.5% 2.7%
(See "Footnote Definitions" section of this press release.)
Revenues and Membership
Consolidated revenues and membership for the quarters ended March 31, 2003 and 2002 were as follows:
Consolidated
(in thousands) 1Q03 1Q02
GAAP(1) GAAP(1)
First quarter - total revenues $2,931,716 $2,732,582
Ending medical membership 6,625.2 6,534.9
(See "Footnote Definitions" section of this press release.)
Commercial segment premiums and administrative services fees and membership for the quarters ended March 31, 2003 and 2002 were as follows:
Commercial Segment
(in thousands) 1Q03 1Q02
GAAP(1) GAAP(1)
Premiums $1,615,556 $1,425,988
Administrative services fees $ 29,590 $ 25,147
Total premiums and administrative
services fees $1,645,146 $1,451,135
Ending medical membership 3,003.4 2,954.2
(See "Footnote Definitions" section of this press release.)
Commercial segment medical membership grew by 2 percent from March 31, 2002 to March 31, 2003. Commercial premium yields were within the 13 to 15 percent range for first quarter of 2003. These factors contributed to a year-over-year increase in total premiums and administrative services fees for the Commercial segment of 13 percent for the first quarter 2003.
Government segment premiums and administrative services fees and membership for the first quarter ended March 31, 2003 were as follows:
Government Segment
(in thousands) 1Q03 1Q02
GAAP(1) GAAP(1)
Premiums $1,227,393 $1,215,824
Administrative services fees $ 31,546 $ 39,866
Total premiums and administrative
services fees $1,258,939 $1,255,690
Ending medical membership 3,621.8 3,580.7
(See "Footnote Definitions" section of this press release.)
Government segment premiums and administrative services fees were essentially unchanged year-over-year for the first quarter of 2003.
Medicare+Choice membership totaled 327,100 at March 31, 2003, a decline of 36,600 members year over year. Medicare+Choice premium yields for the first quarter were within the 4 to 6 percent range.
TRICARE's insured membership totaled 1,752,500 at March 31, 2003, approximately 1 percent higher than the March 31, 2002 level. TRICARE ASO membership was 1,050,800 at the end of the first quarter of 2003, up approximately 5 percent year over year. TRICARE premium revenues and administrative services fees increased year-over-year by 6 percent during the first quarter of 2003. These increases in TRICARE revenues primarily are attributable to Congressionally legislated benefit changes, an increase in eligible beneficiaries, and a decrease in the use of military treatment facilities.
Medicaid membership of 491,400 at March 31, 2003 grew by approximately 3 percent from March 31, 2002. Approximately 85 percent of the company's Medicaid membership is in Puerto Rico.
Medical and SG&A Expenses
The company's medical expense ratio (medical expenses as a percent of premiums) and selling, general and administrative ("SG&A") expense ratio (SG&A expenses as a percent of premiums and administrative services fees) for the quarters ended March 31, 2003 and 2002 were as follows:
1Q03 1Q02
Medical expense ratio - GAAP(1) 83.4% 83.1%
SG&A expense ratio - GAAP(1) 15.4% 16.1%
(See "Footnote Definitions" section of this press release.)
Cash flows from operations
Cash flows provided by (used in) operations for the quarters ended March 31, 2003 and 2002 were as follows:
(in thousands) 1Q03 1Q02
GAAP(1) $ (108,230) $ (140,137)
Normalized(3) $ 97,525 $ 76,491
(See "Footnote Definitions" section of this press release.)
Share Repurchase Program
In July 2002, the company announced a $100 million share repurchase program. As of March 31, 2003, 8.6 million shares had been repurchased for an aggregate purchase price of $94.9 million, an average price of $10.98 per share.
Guidance
The company offered the following earnings guidance points for the investor community:
For the Full Year 2003: Projected
Earnings per diluted share - GAAP(1) $1.25 - $1.31
Earnings per diluted share - Adjusted(2) $1.37 - $1.43
Consolidated revenues - GAAP(1) Over $12 billion
Commercial segment pretax income - GAAP(1) At least $102 million
Commercial segment pretax income - Adjusted(2) At least $120 million
Commercial segment medical membership
(fully insured and ASO combined) Organic growth of 2 - 4%
Commercial premium yields 13 - 15%
Commercial medical cost trends 12 - 14%
Commercial segment SG&A
expense ratio - GAAP(1) 16.3 - 16.5%
Medicare+Choice membership 310,000 to 320,000 by year end
Medicare+Choice premium yields 4 - 6%
Medicare+Choice medical cost trends 4 - 6%
Government segment SG&A expense ratio - GAAP(1) Flat year over year
TRICARE pretax margin 2 - 3%
Cash flows from operations -
GAAP(1) and Normalized(3) $340 million to $360 million
Capital expenditures Approximately $105 million
Effective tax rate 36%
For the Second Quarter of 2003: Projected
Earnings per diluted share - GAAP(1) $.28 - $.29
(See "Footnote Definitions" section of this press release.)
Footnote Definitions
1 - Generally Accepted Accounting Principles ("GAAP")
2 - Adjusted results exclude from GAAP results the impact of the
restructuring charge recorded during the first quarter of 2003.
The statistics pages at the end of this press release provide a
reconciliation of GAAP to adjusted results for the first quarter of
2003. The detail of the adjustments also is described in the
"Restructuring Charge" section of this press release.
3 - Normalized cash flows from operations give effect to the usual
adjustment for the timing of the receipt of the Medicare+Choice
premium payment from the Centers for Medicare and Medicaid Services
("CMS"). The fixed monthly payment from CMS is payable 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
early, often resulting in a significant impact on cash flows from
operations. The statistics pages at the end of this press release
provide a reconciliation of GAAP to normalized cash flows from
operations.
Conference Call
Humana will host a conference call, as well as a virtual slide presentation, at 9:00 a.m. EDT 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 this 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 Humana's Form 10-K for the year ended December 31, 2002, as filed with the Securities and Exchange Commission.
Humana Inc., headquartered in Louisville, Kentucky, is one of the nation's largest publicly traded health benefits companies, with approximately 6.6 million medical members located primarily in 18 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 on-line:
* Copies of annual reports to stockholders;
* Copies of Securities and Exchange Commission filings;
* Copy of most recent investor presentation;
* Copies of quarterly earnings press releases;
* Audio archive of the most recent earnings release conference call;
* Calendar of events (includes upcoming earnings conference call dates,
related conference call access number, and planned participation in
investor conferences).
Humana Inc.
In thousands
March 31, Percent
Ending Medical Membership 2003 2002 Difference Change
Commercial:
Fully insured 2,348.8 2,332.4 16.4 0.7
ASO 654.6 621.8 32.8 5.3
Total Commercial 3,003.4 2,954.2 49.2 1.7
Government:
Medicare+Choice 327.1 363.7 (36.6) (10.1)
Medicaid 491.4 476.8 14.6 3.1
TRICARE 1,752.5 1,742.3 10.2 0.6
TRICARE ASO 1,050.8 997.9 52.9 5.3
Total Government 3,621.8 3,580.7 41.1 1.1
Total ending medical membership 6,625.2 6,534.9 90.3 1.4
March 31, Percent
Ending Specialty Membership 2003 2002 Difference Change
Commercial:
Dental-fully insured 741.7 786.8 (45.1) (5.7)
Dental-ASO 367.9 306.5 61.4 20.0
Total Dental 1,109.6 1,093.3 16.3 1.5
Group life 519.0 542.1 (23.1) (4.3)
Short-term disability 21.5 23.9 (2.4) (10.0)
Total ending specialty membership 1,650.1 1,659.3 (9.2) (0.6)
Three months ended
March 31,
Premiums 2003 2002
Commercial:
Fully insured medical $1,536,953 $1,343,261
Specialty 78,603 82,727
Total Commercial 1,615,556 1,425,988
Government:
Medicare+Choice 635,842 672,186
Medicaid 121,230 111,253
TRICARE 470,321 432,385
Total Government 1,227,393 1,215,824
Total premiums $2,842,949 $2,641,812
Three months ended
March 31,
Administrative services fees 2003 2002
Commercial $29,590 $25,147
Government 31,546 39,866
Total Administrative services fees $61,136 $65,013
Humana Inc.
Dollars in thousands, except per share results
Three months ended
Adjusted
March 31, Restructuring March 31, March 31,
Consolidated Statements of 2003 Charge 2003 2002
Income
Revenues:
Premiums $2,842,949 $ -- $2,842,949 $2,641,812
Administrative services
fees 61,136 -- 61,136 65,013
Investment income 25,817 -- 25,817 24,308
Other income 1,814 -- 1,814 1,449
Total revenues 2,931,716 -- 2,931,716 2,732,582
Operating expenses:
Medical 2,371,434 -- 2,371,434 2,194,539
Selling, general and
administrative 447,045 -- 447,045 435,064
Depreciation 27,209 -- 27,209 25,865
Other intangible
amortization 3,931 -- 3,931 3,931
Restructuring charge 30,760 (30,760) -- --
Total operating expenses 2,880,379 (30,760) 2,849,619 2,659,399
Income from operations 51,337 30,760 82,097 73,183
Interest expense 3,935 -- 3,935 4,404
Income before income taxes 47,402 30,760 78,162 68,779
Provision for income taxes 16,172 11,966 28,138 22,009
Net income $31,230 $18,794 $50,024 $46,770
Basic earnings per common
share $0.20 $0.12 $0.32 $0.28
Diluted earnings per common
share $0.19 $0.12 $0.31 $0.28
Shares used in basic earnings
per common share computation
(000) 157,739 157,739 157,739 164,255
Shares used in diluted
earnings per common share
computation (000) 161,406 161,406 161,406 167,704
Key Ratios
Medical expense ratio
Commercial 81.3% -- 81.3% 81.9%
Government 86.2% -- 86.2% 84.5%
Total 83.4% -- 83.4% 83.1%
Selling, general, and
administrative expense ratio
Commercial 16.8% -- 16.8% 17.6%
Government 13.6% -- 13.6% 14.3%
Total 15.4% -- 15.4% 16.1%
Humana Inc.
Dollars in thousands, except per share results
Three months ended
Adjusted
March 31, Restructuring March 31, March 31,
Operating Results by Segment 2003 Charge 2003 2002
Commercial:
Income before income taxes $37,239 $17,852 $55,091 $26,095
Interest expense 3,063 -- 3,063 3,059
Depreciation and amortization 19,228 -- 19,228 17,167
Commercial EBITDA* 59,530 17,852 77,382 46,321
Government:
Income before income taxes 10,163 12,908 23,071 42,684
Interest expense 872 -- 872 1,345
Depreciation and amortization 11,912 -- 11,912 12,629
Government EBITDA* 22,947 12,908 35,855 56,658
Consolidated:
Income before income taxes 47,402 30,760 78,162 68,779
Interest expense 3,935 -- 3,935 4,404
Depreciation and amortization 31,140 -- 31,140 29,796
Consolidated EBITDA* $82,477 $30,760 $113,237 $102,979
* EBITDA represents earnings (including investment and other income)
before interest expense, income taxes, depreciation and amortization.
EBITDA is not a measure under accounting principles generally accepted
in the United States and may not be similar to EBITDA measures of other
companies. EBITDA also is a measure commonly used by analysts,
investors, and other interested parties in the health care industry. We
believe EBITDA is an important indicator of the cash content of the
Company's operating income, and as such the quality of net income.
Humana Inc.
Dollars in thousands, except per share results
March 31, December 31,
Consolidated Balance Sheets 2003 2002
Assets
Current assets:
Cash and cash equivalents $532,652 $721,357
Investment securities 1,411,356 1,405,833
Receivables, net:
Premiums 472,972 348,562
Administrative services fees 55,726 68,316
Other 258,481 250,857
Total current assets 2,731,187 2,794,925
Property and equipment, net 423,465 459,842
Other assets:
Long-term investment securities 312,517 288,724
Goodwill 776,874 776,874
Other 185,144 279,665
Total other assets 1,274,535 1,345,263
Total assets $4,429,187 $4,600,030
Liabilities and Stockholders' Equity
Current liabilities:
Medical and other expenses payable $1,226,043 $1,142,131
Trade accounts payable and accrued
expenses 512,723 552,689
Book overdraft 84,579 94,882
Unearned premium revenues 117,604 335,757
Short-term debt 265,000 265,000
Total current liabilities 2,205,949 2,390,459
Long-term debt 334,328 339,913
Other long-term liabilities 268,131 263,184
Total liabilities 2,808,408 2,993,556
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;
171,371,759 shares issued at March
31, 2003 and 171,334,893
shares issued at December 31, 2002 28,562 28,556
Capital in excess of par value 931,460 931,089
Retained earnings 752,107 720,877
Accumulated other comprehensive
income 23,257 22,455
Unearned restricted stock
compensation (3,961) (6,516)
Treasury stock, at cost, 10,584,719
shares at March 31, 2003 and
8,362,537 shares at December 31,
2002 (110,646) (89,987)
Total stockholders' equity 1,620,779 1,606,474
Total liabilities and stockholders'
equity $4,429,187 $4,600,030
Debt to total capitalization ratio 27.0% 27.4%
Humana Inc.
Dollars in thousands
Three months ended
March 31,
Consolidated Statements of Cash Flows 2003 2002
Cash flows from operating activities
Net income $31,230 $46,770
Adjustments to reconcile net income
to net cash provided by operating
activities:
Non-cash restructuring charge 30,760 --
Depreciation and amortization 31,140 29,796
Provision for deferred income taxes 3,646 12,880
Changes in operating assets and
liabilities excluding effects of
acquisitions and divestitures:
Receivables (48,553) (45,810)
Other assets 5,685 (2,398)
Medical and other expenses payable 83,912 63,977
Other liabilities (29,012) (10,804)
Unearned premium revenues (218,153) (237,758)
Other 1,115 3,210
Net cash used in operating activities (108,230) (140,137)
Timing of Medicare+Choice premium
payment from CMS 205,755 216,628
Normalized net cash provided by
operating activities 97,525 76,491
Cash flows from investing activities
Purchases of property and equipment, net (21,634) (31,256)
Purchases of marketable securities (1,545,241) (425,135)
Proceeds from maturities of
marketable securities 196,923 115,954
Proceeds from sales of marketable
securities 1,320,246 303,896
Net cash used in investing
activities (49,706) (36,541)
Cash flows from financing activities
Debt issue costs (153) (559)
Change in book overdraft (10,303) 10,673
Common stock repurchases (20,817) -
Other 504 1,026
Net cash (used in) provided by
financing activities (30,769) 11,140
Decrease in cash and cash
equivalents (188,705) (165,538)
Cash and cash equivalents at
beginning of period 721,357 651,420
Cash and cash equivalents at end of
period $532,652 $485,882
Humana Inc.
Percentage of Ending Membership Under Capitation Arrangements
Commercial Segment Government Segment
Fully Total Medicare+
Insured ASO Segment Choice Medicaid
March 31, 2003
Capitated HMO
hospital system
based (A) 6.3% -- 4.9% 12.9% 2.5%
Capitated HMO
physician group
based (A) 3.2% -- 2.5% 2.0% 56.2%
Risk-sharing (B) 3.1% -- 2.4% 47.8% 33.9%
All other membership 87.4% 100.0% 90.2% 37.3% 7.4%
Total 100.0% 100.0% 100.0% 100.0% 100.0%
March 31, 2002
Capitated HMO
hospital system
based (A) 6.7% -- 5.3% 13.3% 2.2%
Capitated HMO
physician group
based (A) 4.1% -- 3.2% 4.1% 57.6%
Risk-sharing (B) 3.2% -- 2.5% 45.7% 34.3%
All other membership 86.0% 100.0% 89.0% 36.9% 5.9%
Total 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 directly with hospitals and
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.
Percentage of Ending Membership Under Capitation Arrangements
Government Segment Consol.
TRICARE Total Total
TRICARE ASO Segment Medical
March 31, 2003
Capitated HMO
hospital system
based (A) -- -- 1.5% 3.0%
Capitated HMO
physician group
based (A) -- -- 7.8% 5.4%
Risk-sharing (B) -- -- 8.9% 6.0%
All other membership 100.0% 100.0% 81.8% 85.6%
Total 100.0% 100.0% 100.0% 100.0%
March 31, 2002
Capitated HMO
hospital system
based (A) -- -- 1.6% 3.3%
Capitated HMO
physician group
based (A) -- -- 8.1% 5.9%
Risk-sharing (B) -- -- 9.2% 6.2%
All other membership 100.0% 100.0% 81.1% 84.6%
Total 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 directly with hospitals and
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.
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, December 31,
2003 2002
Balances at January 1 $1,142,131 $1,086,386
Incurred related to:
Current year 2,425,464 9,125,915
Prior years - TRICARE (18,890) 25,685 (1)
Prior years - non-TRICARE
(2) (35,140) (13,404)
Total incurred 2,371,434 9,138,196
Paid related to:
Current year (1,403,792) (8,002,610)
Prior years (883,730) (1,079,841)
Total paid (2,287,522) (9,082,451)
Balances at end of period $1,226,043 $1,142,131
(1) Changes in estimates of medical expenses payable for TRICARE may
result from issues that entitle us to additional revenues derived from
change orders or the bid price adjustment process, which was the case
with substantially all of the unfavorable development for prior
periods recognized during 2002.
(2) Changes in estimates of non-TRICARE incurred claims for prior years
recognized during 2003 and 2002 related primarily to our commercial
lines of business. The impact of any reduction of "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 believe
we have consistently applied this methodology in determining our best
estimate for unpaid claims liability in each period.
Humana Inc.
Dollars in thousands
Medical Claim Reserves - Details and Statistics
Medical and Other Expenses Payable Detail:
March 31, December 31,
2003 2002
A IBNR and other medical expenses payable $ 703,910 $ 650,606
B TRICARE IBNR 232,249 212,826
C TRICARE other medical expenses payable 30,055 37,793
D Unprocessed claim inventories 99,000 92,300
E Processed claim inventories 118,300 105,422
F Payable to pharmacy benefit administrator 42,529 43,184
Total medical and other expenses payable $ 1,226,043 $ 1,142,131
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)
2003 2002 Change % Change
1st Quarter Average 17.1 19.0 (1.9) -10.0%
2nd Quarter Average -- 18.1 n/a n/a
3rd Quarter Average -- 17.3 n/a n/a
4th Quarter Average -- 16.9 n/a n/a
Full Year Average 17.1 17.8 (0.7) -3.9%
(1) Receipt cycle time data for our 2 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
12/31/2001 $125,400 518,100 5.0
03/31/2002 $121,000 559,600 5.2
06/30/2002 $110,300 513,100 4.8
09/30/2002 $108,800 496,200 4.8
12/31/2002 $92,300 424,200 4.1
03/31/2003 $99,000 421,700 4.0
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
12/31/2001 47.4 (3.9) -7.6% 57.1 (4.4) -7.2%
03/31/2002 47.2 (2.3) -4.6% 56.2 (3.4) -5.7%
06/30/2002 46.8 (3.1) -6.2% 55.3 (4.7) -7.8%
09/30/2002 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%
03/31/2003 46.5 (0.7) -1.5% 54.7 (1.5) -2.7%
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:
2003 2002
4th quarter-prior year 45.2 47.4
Impact of change in claim receipt
cycle time 0.3 (2.6)
Impact of change in unprocessed
claim inventories 0.3 (1.3)
Impact of changing TRICARE
reserve balances 0.7 0.3
Impact of change in pharmacy
payment cutoff -- 0.7
All other -- 0.7
Year to date-current year 46.5 45.2
SOURCE Humana Inc.
Regina Nethery, Humana Investor Relations, +1-502-580-3644, Rnethery@humana.com, or Tom Noland, Humana Corporate Communications, +1-502-580-3674, Tnoland@humana.com /Company News On-Call: http://www.prnewswire.com/gh/cnoc/comp/423125.html /Photo: NewsCom: http://www.newscom.com/cgi-bin/prnh/20030425/HUMANALOGO AP Archive: http://photoarchive.ap.org PRN Photo Desk, 888-776-6555 or 212-782-2840