Humana Reports First Quarter Financial Results
Humana Reports First Quarter Financial Results
April 28, 2008 at 6:02 AM EDT
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- 1Q08 diluted earnings per common share of $0.47
- Revenues and net income up 12 percent over prior year's quarter
- Medicare Advantage net membership gains effective through April 2008 of 153,000
- PDP benefit expense for 1Q08 and full year 2008 estimates in line with March 12, 2008 guidance
- Commercial Segment benefit expense ratio improves 260 basis points versus prior year
- Improvement in claims cycle time impacts days in claims payable and operating cash flow
LOUISVILLE, Ky.--(BUSINESS WIRE)--April 28, 2008--Humana Inc. (NYSE: HUM) today reported financial results for the quarter ended March 31, 2008 (1Q08) including diluted earnings per common share (EPS) of $0.47, ahead of management's previous guidance for EPS of $0.44 to $0.46, primarily due to a lower-than-anticipated effective tax rate. The company earned $0.42 per share for the quarter ended March 31, 2007 (1Q07).
The company also announced that it had raised its EPS projection for the year ending December 31, 2008 to a range of $4.10 to $4.35 to reflect a lower diluted share count and effective tax rate for the full year.
"Our Medicare Advantage and Commercial progress was particularly strong in the first quarter," said Michael B. McCallister, the company's president and chief executive officer. "Our first quarter earnings, and our success in achieving targeted Medicare Advantage membership gains year to date, give us confidence that we'll continue to see solid improvement in all non-Prescription Drug Plan (PDP) lines of business through 2008 and beyond. We expect to return our stand-alone PDPs to profitability in 2009."
Revenues - 1Q08 consolidated revenues rose 12 percent to $6.96 billion from $6.20 billion in 1Q07, with total premium and administrative services fees also up 12 percent compared to the prior year's quarter. This year-over-year increase was primarily driven by higher average Medicare Advantage membership in 1Q08 versus 1Q07.
Benefit expenses - The 1Q08 consolidated benefits ratio (benefit expenses as a percent of premium revenues) of 86.7 percent was 10 basis points lower than the 1Q07 benefit ratio of 86.8 percent, the combined result of a 70 basis point increase in the Government Segment benefits ratio and a 260 basis point decline in the Commercial Segment benefits ratio.
Selling, general, & administrative (SG&A) expenses - The 1Q08 consolidated SG&A expense ratio (SG&A expenses as a percent of premiums, administrative services fees and other revenue) increased 40 basis points to 13.8 percent for 1Q08 from 13.4 percent in 1Q07. The year-over-year increase was primarily the result of the acquisition of two specialty products companies in the fourth quarter of 2007.
Government Segment Results
Pretax results:
- As expected, the Government Segment experienced a pretax loss
of $3.2 million in 1Q08 compared to pretax income of $17.9
million in 1Q07. The year-over-year decline in operating
performance primarily reflected approximately $100 million in
incremental expense for 1Q08 associated with the company's
stand-alone PDPs, as described in the company's news release
on March 12, 2008. Also as expected, that incremental expense
was substantially offset by improved operating performance in
the company's Medicare Advantage and military services
businesses.
Enrollment:
- Medicare Advantage membership grew to 1,267,700 at March 31, 2008, an increase of 154,300, or 14 percent, from March 31, 2007 and up 124,700, or 11 percent versus December 31, 2007. Approximately 45 percent of the net Medicare Advantage membership increase year over year was in the company's Medicare Advantage PPO products.
- Membership in the company's stand-alone PDPs totaled 3,150,200 at March 31, 2008 compared to 3,473,700 at March 31, 2007 and 3,442,000 at December 31, 2007.
- April 2008 membership in the company's Medicare Advantage plans approximated 1,296,000.
- April 2008 Medicare stand-alone PDP membership approximated
3,130,000.
Premiums and administrative services fees:
- Medicare Advantage premiums of $3.17 billion in 1Q08 increased 15 percent compared to $2.74 billion in 1Q07, primarily the result of a 14 percent increase in average membership.
- Medicare stand-alone PDP premiums of $875.0 million in 1Q08 decreased 3 percent compared to $906.4 million in 1Q07, primarily the result of a 10 percent decline in average membership versus that for 1Q07.
- Military services premiums and administrative services fees
during 1Q08 increased $89.7 million to $831.2 million compared
to $741.5 million in 1Q07.
Benefit Expenses:
- The Government Segment benefits ratio increased 70 basis
points to 90.0 percent in 1Q08 compared to 89.3 percent in the
prior year's quarter. Improved operating performance year over
year in the company's Medicare Advantage and military services
businesses was more than offset by the combined effect of
significantly higher stand-alone PDP claims, the extra day for
leap year, and a minimal impact from the 1Q08 flu season.
SG&A Expenses:
- The Government Segment's SG&A expense ratio for 1Q08 of 10.7
percent was 10 basis points lower than that for 1Q07 of 10.8
percent and declined 300 basis points from the fourth quarter
of 2007. The declines were primarily driven by leverage
associated with higher average Medicare Advantage membership.
The sequential decline also reflects lower marketing and other
administrative expenses associated with the Medicare selling
season for 2008 enrollment which began during 4Q07.
Commercial Segment Results
Pretax results:
- Commercial Segment pretax earnings were $127.2 million in 1Q08
compared to $94.4 million in 1Q07. Commercial Segment
operating earnings in 1Q07 continue to reflect the company's
commitment to underwriting discipline, strategic growth in
select medical lines of business, and expanded specialty
product offerings.
Enrollment:
- Commercial Segment medical membership grew 201,200 members to 3,458,700 at March 31, 2008, an increase of 6 percent from March 31, 2007 and essentially unchanged from December 31, 2007. Approximately 95,900 of the year-over-year increase in medical members related to members acquired via an acquisition completed during 4Q07 (primarily ASO members).
- Membership in strategic areas of commercial growth rose organically as follows during 1Q08 compared to 1Q07: Individual product membership increased 42 percent, Smart plans and other consumer offerings membership grew 27 percent, and Small Group business membership was up 4 percent.
- Membership in Commercial Segment specialty products(a) at
March 31, 2008 rose to 6,916,200 compared to 1,935,200 at
March 31, 2007, primarily driven by the addition of membership
from two specialty-product companies acquired during 4Q07.
Premiums and administrative services fees:
- Premiums and administrative services fees for the Commercial Segment increased 14 percent to $1.80 billion in 1Q08 compared to $1.58 billion in the prior year's quarter, primarily due to the acquisition of two specialty products companies in 4Q07 and growth in strategic lines of business.
- Commercial Segment medical premiums for fully-insured groups
increased approximately 2 percent on a per-member basis during
1Q08 compared to 1Q07 reflecting a shift in the mix of fully
insured group business from the prior year's quarter.
Benefit Expenses:
- In 1Q08, the Commercial Segment benefits ratio of 76.8 percent
was 260 basis points lower than the 1Q07 benefits ratio of
79.4 percent, primarily reflecting the acquisition of two
specialty products companies in 4Q07, continued underwriting
discipline and growth in strategic lines of business,
partially offset by the extra day for leap year.
SG&A Expenses:
- The Commercial Segment SG&A expense ratio of 22.3 percent for
1Q08 compares to 20.6 percent in 1Q07, primarily the combined
result of a significant year-over-year increase in specialty
businesses (including the acquisition of two specialty
products companies in 4Q07) together with higher average
Individual product membership. Average Individual product
membership rose 40 percent versus the prior year's quarter.
Balance Sheet
- Cash and cash equivalents declined $352.2 million or 17 percent from December 31, 2007 primarily due to the purchase of investments, the repayment of borrowings, and common stock repurchases during 1Q08.
- Debt-to-total capitalization at March 31, 2008 was 28.3 percent, down 120 basis points from December 31, 2007.
- Days in claims payable of 56.9 at March 31, 2008 reflect a decline of 3.3 days from 60.2 at December 31, 2007, primarily driven by:
- An increase in Medicare Advantage Private Fee-for-Service claims administered internally in lieu of outsourced to a Medicare fiscal intermediary where claims processing cycles are elongated. (Reduced days in claims payable approximately 1.7 days.)
- The impact of benefit levels resetting on January 1 for the Part D component of the company's Medicare Advantage products. This results in benefit expenses increasing sequentially while the corresponding benefits payable generally is unchanged, thus lowering the calculated days in claims payable. (Reduced days in claims payable approximately 1.5 days.)
- A sequential increase in the percentage of Medicare Advantage membership in PPO products. Network providers generally submit claims faster than non-network providers, shortening the claims receipt cycle time and allowing for reduced claims processing time overall. (Reduced days in claims payable approximately 0.6 of a day.)
- Other factors detailed in the statistical supplement to
this release increased days in claims payable by
approximately 0.5 of a day.
Share Repurchase Program
On February 22, 2008, the company announced that its Board of Directors had authorized the use of up to $150 million for a share repurchase program. As of April 25, 2008, the company had repurchased approximately 1.5 million of its outstanding shares at an average price per share of $45.18.
Cash Flows from Operations
Cash flows provided by operations for 1Q08 of $4.4 million compared to cash flows provided by operations of $1.57 billion in 1Q07 primarily reflecting the timing of premium payments from CMS as well as improvements in claims processing cycle times and timing-related changes in other working capital accounts. The company also evaluates operating cash flows on a non-GAAP basis(b).
---------------------------------------------------------------------- Cash flows from operations ($ in millions) 1Q08 1Q07 -------------------------------------------------- --------- --------- GAAP cash flows provided by operations $4.4 $1,574.5 -------------------------------------------------- --------- --------- Timing of premium payment from CMS(b) -- (1,129.8) -------------------------------------------------- --------- --------- Non-GAAP cash flows provided by operations(b) $4.4 $444.7 ----------------------------------------------------------------------
Non-GAAP cash flows provided by operations declined to $4.4 million(b) in 1Q08 from $444.7 million(b) in 1Q07 driven primarily by improvements in claims processing cycle times and timing-related changes in other working capital accounts.
Footnotes
(a) The Commercial Segment provides a full range of insured specialty products including dental, vision and other supplemental products. Members included in these products may not be unique to each product since members have the ability to enroll in multiple products. Other supplemental benefits include life, disability, and fixed-benefit products including cancer and critical illness policies.
(b) The company believes that the non-GAAP measures included in this release, 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 may be accessed via 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 following company documents, as filed with the Securities and Exchange Commission:
- Form 10-K for the year ended December 31, 2007;
- Form 8-Ks filed during 2008.
About Humana
Humana Inc., headquartered in Louisville, Kentucky, is one of the nation's largest publicly traded health and supplemental benefits companies, with approximately 11.4 million medical members. Humana is a full-service benefits solutions company, offering a wide array of health and supplemental benefit plans for employer groups, government programs and individuals.
Over its 47-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;
- Replays of most recent earnings release conference calls;
- Calendar of events (including upcoming earnings conference call dates and times, as well as planned interaction with research analysts and institutional investors);
- Corporate Governance information.
Humana Inc. - Earnings Guidance Points as of April 28, 2008 (in accordance For the year ending December 31, 2008 Comments with Generally (excludes pending acquisitions Accepted announced during 1Q08) Accounting Principles) --------------- -------------------------------------- --------------- Diluted Full year 2008: $4.10 to $4.35 earnings per common share Second quarter 2008: $1.15 to $1.20 --------------- -------------------------------------- --------------- Revenues Consolidated revenues: $28 billion to $30 billion Premiums and ASO fees: Medicare Advantage: $13 billion to $14 billion; Medicare stand-alone PDPs: Approximately $3.3 billion; Military services: $3.2 billion to $3.4 billion; Commercial Segment: $7.5 billion to $7.8 billion Consolidated investment income: $345 million to $365 million Consolidated other revenue: $200 million to $225 million --------------- -------------------------------------- --------------- Ending medical Medicare Advantage: Up 200,000 to membership 250,000 from prior year (fully-insured and ASO Medicare stand-alone PDPs: 3.05 combined) million to 3.10 million Military services: No material change from prior year Medicaid: No material change from prior year Commercial: Up approximately 90,000 to 120,000 from prior year --------------- -------------------------------------- --------------- Benefit Medicare products: benefits ratio in Medicare expenses the range of 85% to 86% Advantage and stand-alone PDP combined Commercial fully-insured groups: Same-store net benefit expense trends and premium yields of 6% to 7% (2% to 3% including the impact of changes in the company's business mix) Secular Commercial benefit Secular trends expense trend components as exclude the follows: inpatient hospital impact of utilization - flat to 1 percent; benefit buy- inpatient and outpatient downs hospital rates - mid to upper single digits; outpatient hospital utilization - low to mid single digits; physician - mid single digits; and pharmacy - mid to upper single digits. --------------- -------------------------------------- --------------- Selling, 13.5% to 14% SG&A expenses general & as a percent administrative of premiums, expense ratio administrative costs, and other revenue --------------- -------------------------------------- --------------- Depreciation & $225 million to $235 million amortization --------------- -------------------------------------- --------------- Interest $70 million to $75 million expense --------------- -------------------------------------- --------------- Government Medicare products: approximately 3% Medicare Segment Advantage and operating stand-alone margins PDP combined Military services: 2.5% to 3.5% --------------- -------------------------------------- --------------- Commercial $280 million to $300 million Segment pretax earnings --------------- -------------------------------------- --------------- Cash flows from $1.0 billion to $1.2 billion operations --------------- -------------------------------------- --------------- Capital Approximately $275 million expenditures --------------- -------------------------------------- --------------- Effective tax 35.0% to 35.5% rate --------------- -------------------------------------- --------------- Shares used in Approximately 170 million computing full-year EPS --------------- -------------------------------------- ---------------Humana Inc. Statistical Schedules And Supplementary Information 1Q08 Earnings Release S-1Humana Inc. Statistical Schedules and Supplementary Information 1Q08 Earnings Release Contents Page Description ------- ------------------------------------------------------------- S-3 Consolidated Statements of Income S-4 Consolidated Balance Sheets S-5 Consolidated Statements of Cash Flows S-6 Key Income Statement Ratios and Segment Operating Results S-7 Membership Detail S-8 Premiums and Administrative Services Fees Detail S-9 Percentage of Ending Membership under Capitation Arrangements S-10-12 Benefits Payable S-13 Footnotes S-2Humana Inc. Consolidated Statements of Income In thousands, except per common share results --------------------- Three Months Ended March 31, --------------------- Dollar Percentage 2008 2007 Change Change ---------- ---------- --------- ---------- Revenues: Premiums $6,712,601 $6,004,563 $708,038 11.8% Administrative services fees 111,979 95,864 16,115 16.8% Investment income 89,959 73,527 16,432 22.3% Other revenue 45,165 30,859 14,306 46.4% ---------- ---------- --------- Total revenues 6,959,704 6,204,813 754,891 12.2% ---------- ---------- --------- Operating expenses: Benefits 5,818,034 5,214,000 604,034 11.6% Selling, general and administrative 950,445 820,610 129,835 15.8% Depreciation 42,957 35,509 7,448 21.0% Other intangible amortization 8,001 4,555 3,446 75.7% ---------- ---------- --------- Total operating expenses 6,819,437 6,074,674 744,763 12.3% ---------- ---------- --------- Income from operations 140,267 130,139 10,128 7.8% Interest expense 16,339 17,918 (1,579) -8.8% ---------- ---------- --------- Income before income taxes 123,928 112,221 11,707 10.4% Provision for income taxes 43,758 40,980 2,778 6.8% ---------- ---------- --------- Net income $80,170 $71,241 $8,929 12.5% ========== ========== ========= Basic earnings per common share $0.48 $0.43 $0.05 11.6% Diluted earnings per common share $0.47 $0.42 $0.05 11.9% Shares used in computing basic earnings per common share 168,190 165,813 Shares used in computing diluted earnings per common share 170,602 168,956 S-3Humana Inc. Consolidated Balance Sheets Dollars in thousands, except share amounts ------------------ March 31, December 31, Sequential Change ------------------ 2008 2007 Dollar Percent ------------ ------------ ---------- ------- Assets Current assets: Cash and cash equivalents $1,688,287 $2,040,453 Investment securities 3,954,830 3,635,317 Receivables, net: Premiums 747,806 592,761 Administrative services fees 11,517 12,780 Securities lending collateral 973,925 1,337,049 Other 1,233,910 1,114,486 ------------ ------------ Total current assets 8,610,275 8,732,846 ($122,571) -1.4% Property and equipment, net 636,935 637,241 Other assets: Long-term investment securities 963,106 1,015,050 Goodwill 1,683,604 1,663,939 Other 868,108 829,998 ------------ ------------ Total other assets 3,514,818 3,508,987 ------------ ------------ Total assets $12,762,028 $12,879,074 ($117,046) -0.9% ============ ============ Liabilities and Stockholders' Equity Current liabilities: Benefits payable $2,885,371 $2,696,833 Trade accounts payable and accrued expenses 1,356,405 1,268,963 Book overdraft 291,246 269,226 Securities lending payable 973,925 1,337,049 Unearned revenues 227,492 219,780 ------------ ------------ Total current liabilities 5,734,439 5,791,851 ($57,412) -1.0% Long-term debt 1,601,335 1,687,823 Future policy benefits payable 968,719 980,686 Other long-term liabilities 405,061 389,777 ------------ ------------ Total liabilities 8,709,554 8,850,137 ($140,583) -1.6% ------------ ------------ 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; 187,618,225 issued at March 31, 2008 31,165 31,123 Capital in excess of par value 1,527,979 1,497,998 Retained earnings 2,822,952 2,742,782 Accumulated other comprehensive income 7,312 14,021 Treasury stock, at cost, 18,405,909 shares at March 31, 2008 (336,934) (256,987) ------------ ------------ Total stockholders' equity 4,052,474 4,028,937 $23,537 0.6% ------------ ------------ Total liabilities and stockholders' equity $12,762,028 $12,879,074 ($117,046) -0.9% ============ ============ Debt-to-total capitalization ratio 28.3% 29.5% S-4Humana Inc. Consolidated Statements of Cash Flows Dollars in thousands ----------------------- Three Months Ended March 31, ----------------------- Dollar Percentage 2008 2007 Change Change ----------- ----------- ------------ ---------- Cash flows from operating activities Net income $80,170 $71,241 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 50,958 40,064 Stock-based compensation 13,916 9,802 Provision (benefit) for deferred income taxes 7,811 (6,111) Changes in operating assets and liabilities excluding the effects of acquisitions: Receivables (153,782) (156,179) Other assets (82,823) (18,945) Benefits payable 188,538 394,068 Other liabilities (101,074) 62,537 Unearned revenues 7,712 1,175,027 Other (6,987) 2,977 ----------- ----------- Net cash provided by operating activities 4,439 1,574,481 ($1,570,042) -99.7% ----------- ----------- Cash flows from investing activities Acquisitions, net of cash acquired (3,838) (26,781) Purchases of property and equipment (47,087) (70,744) Proceeds from sales of property and equipment - 4,070 Purchases of investment securities (1,662,567) (965,051) Proceeds from maturities of investment securities 171,978 557,485 Proceeds from sales of investment securities 1,259,766 481,911 Change in securities lending collateral 363,124 (421,205) ----------- ----------- Net cash provided by (used in) investing activities 81,376 (440,315) $521,691 118.5% ----------- ----------- Cash flows from financing activities Receipts from CMS contract deposits 598,292 843,637 Withdrawals from CMS contract deposits (506,061) (515,705) Borrowings under credit agreement 250,000 310,000 Repayments under credit agreement (375,000) (250,000) Change in book overdraft 22,020 (9,033) Change in securities lending payable (363,124) 421,205 Common stock repurchases (79,947) (7,187) Tax benefit from stock-based compensation 9,177 9,128 Proceeds from stock option exercises and other 6,662 17,544 ----------- ----------- Net cash (used in) provided by financing activities (437,981) 819,589 ($1,257,570) -153.4% ----------- ----------- (Decrease)/increase in cash and cash equivalents (352,166) 1,953,755 Cash and cash equivalents at beginning of period 2,040,453 1,740,304 ----------- ----------- Cash and cash equivalents at end of period $1,688,287 $3,694,059 =========== =========== S-5Humana Inc. Key Income Statement Ratios and Segment Operating Results Dollars in thousands -------------------- Three Months Ended March 31, -------------------- Percentage 2008 2007 Difference Change ---------- --------- ---------- ---------- Benefits ratio Government Segment 90.0% 89.3% 0.7% Commercial Segment 76.8% 79.4% -2.6% Consolidated 86.7% 86.8% -0.1% Selling, general, and administrative expense ratio (A) Government Segment 10.7% 10.8% -0.1% Commercial Segment 22.3% 20.6% 1.7% Consolidated 13.8% 13.4% 0.4% Detail of pretax (loss) income Government Segment ($3,237) $17,865 ($21,102) -118.1% Commercial Segment 127,165 94,356 32,809 34.8% ---------- --------- ---------- Consolidated $123,928 $112,221 $11,707 10.4% ========== ========= ========== Detail of pretax margins Government Segment (0.1)% 0.4% -0.5% Commercial Segment 6.7% 5.8% 0.9% Consolidated 1.8% 1.8% 0.0% S-6Humana Inc. Membership Detail In thousands Ending Ending March 31, 2008 Average - 1Q08 March 31, 2007 -------------- -------------- -------------- Medical Membership: Government Segment: Medicare Advantage - HMO 465.6 464.9 462.1 Medicare Advantage - PPO 134.0 124.8 64.6 Medicare Advantage - PFFS 668.1 659.1 586.7 -------------- -------------- -------------- Total Medicare Advantage 1,267.7 1,248.8 1,113.4 -------------- -------------- -------------- Medicare - PDP - Standard 1,584.5 1,597.7 2,146.2 Medicare - PDP - Enhanced 1,394.9 1,387.1 1,084.0 Medicare - PDP - Complete 170.8 173.6 243.5 -------------- -------------- -------------- Total Medicare stand-alone PDPs 3,150.2 3,158.4 3,473.7 -------------- -------------- -------------- Total Medicare 4,417.9 4,407.2 4,587.1 -------------- -------------- -------------- Military services insured 1,728.1 1,731.2 1,712.9 Military services ASO 1,193.0 1,175.8 1,165.5 -------------- -------------- -------------- Total military services 2,921.1 2,907.0 2,878.4 -------------- -------------- -------------- Medicaid insured 384.2 383.5 384.0 Medicaid ASO 175.4 175.7 175.4 -------------- -------------- -------------- Total Medicaid 559.6 559.2 559.4 -------------- -------------- -------------- Total Government Segment 7,898.6 7,873.4 8,024.9 -------------- -------------- -------------- Commercial Segment: Fully-insured medical: Group 1,572.9 1,572.7 1,528.6 Individual 272.9 262.5 192.1 Medicare supplement 15.2 15.2 7.4 -------------- -------------- -------------- Total fully-insured medical 1,861.0 1,850.4 1,728.1 ASO 1,597.7 1,597.5 1,529.4 -------------- -------------- -------------- Total Commercial Segment 3,458.7 3,447.9 3,257.5 -------------- -------------- -------------- Total medical membership 11,357.3 11,321.3 11,282.4 ============== ============== ============== -------------- Specialty Membership -------------- Dental - fully- insured 2,632.8 2,624.8 980.5 Dental - ASO 1,084.1 1,083.7 503.7 -------------- -------------- -------------- Total dental 3,716.9 3,708.5 1,484.2 Vision 2,301.0 2,289.9 - Other supplemental benefits (B) 898.3 900.0 451.0 -------------- -------------- -------------- Total specialty membership 6,916.2 6,898.4 1,935.2 ============== ============== ============== ---------------- --------------- Year-over-year Sequential Change Change ---------------- --------------- Ending December 31, Amount Percent 2007 Amount Percent -------- ------- ------------ ------- ------- Medical Membership: Government Segment: Medicare Advantage - HMO 3.5 0.8% 453.1 12.5 2.8% Medicare Advantage - PPO 69.4 107.4% 74.1 59.9 80.8% Medicare Advantage - PFFS 81.4 13.9% 615.8 52.3 8.5% -------- ------------ ------- Total Medicare Advantage 154.3 13.9% 1,143.0 124.7 10.9% -------- ------------ ------- Medicare - PDP - Standard (561.7) -26.2% 2,131.9 (547.4) -25.7% Medicare - PDP - Enhanced 310.9 28.7% 1,091.5 303.4 27.8% Medicare - PDP - Complete (72.7) -29.9% 218.6 (47.8) -21.9% -------- ------------ ------- Total Medicare stand-alone PDPs (323.5) -9.3% 3,442.0 (291.8) -8.5% -------- ------------ ------- Total Medicare (169.2) -3.7% 4,585.0 (167.1) -3.6% -------- ------------ ------- Military services insured 15.2 0.9% 1,719.1 9.0 0.5% Military services ASO 27.5 2.4% 1,146.8 46.2 4.0% -------- ------------ ------- Total military services 42.7 1.5% 2,865.9 55.2 1.9% -------- ------------ ------- Medicaid insured 0.2 0.1% 384.4 (0.2) -0.1% Medicaid ASO 0.0 0.0% 180.6 (5.2) -2.9% -------- ------------ ------- Total Medicaid 0.2 0.0% 565.0 (5.4) -1.0% -------- ------------ ------- Total Government Segment (126.3) -1.6% 8,015.9 (117.3) -1.5% -------- ------------ ------- Commercial Segment: Fully-insured medical: Group 44.3 2.9% 1,547.0 25.9 1.7% Individual 80.8 42.1% 246.9 26.0 10.5% Medicare supplement 7.8 105.4% 14.7 0.5 3.4% -------- ------------ ------- Total fully-insured medical 132.9 7.7% 1,808.6 52.4 2.9% ASO 68.3 4.5% 1,643.0 (45.3) -2.8% -------- ------------ ------- Total Commercial Segment 201.2 6.2% 3,451.6 7.1 0.2% -------- ------------ ------- Total medical membership 74.9 0.7% 11,467.5 (110.2) -1.0% ======== ============ ======= Specialty Membership Dental - fully- insured 1,652.3 168.5% 2,649.3 (16.5) -0.6% Dental - ASO 580.4 115.2% 990.5 93.6 9.4% -------- ------------ ------- Total dental 2,232.7 150.4% 3,639.8 77.1 2.1% Vision 2,301.0 100.0% 2,272.8 28.2 1.2% Other supplemental benefits (B) 447.3 99.2% 871.2 27.1 3.1% -------- ------------ ------- Total specialty membership 4,981.0 257.4% 6,783.8 132.4 2.0% ======== ============ ======= S-7Humana Inc. Premiums and Administrative Services Fees Detail Dollars in thousands, except per member per month --------------------- Three Months Ended March 31, --------------------- Dollar Percentage 2008 2007 Change Change ---------- ---------- -------------------- Premium revenues Government Segment: Medicare Advantage $3,167,717 $2,742,711 $425,006 15.5% Medicare stand-alone PDPs 874,999 906,426 (31,427) -3.5% ---------- ---------- --------- Total Medicare 4,042,716 3,649,137 393,579 10.8% Military services insured (D) 810,659 727,215 83,444 11.5% Medicaid insured 143,680 129,325 14,355 11.1% ---------- ---------- --------- Total Government Segment premiums 4,997,055 4,505,677 491,378 10.9% ---------- ---------- --------- Commercial Segment: Fully-insured medical 1,481,486 1,390,805 90,681 6.5% Specialty 234,060 108,081 125,979 116.6% ---------- ---------- --------- Total Commercial Segment premiums 1,715,546 1,498,886 216,660 14.5% ---------- ---------- --------- Total premium revenues $6,712,601 $6,004,563 $708,038 11.8% ========== ========== ========= Administrative services fees Military services ASO (D) $20,524 $14,294 $6,230 43.6% Medicaid ASO 2,182 2,096 86 4.1% Commercial Segment 89,273 79,474 9,799 12.3% ---------- ---------- --------- Total administrative services fees $111,979 $95,864 $16,115 16.8% ========== ========== ========= ----------------------------- Per Member per Month (C) Three Months Ended March 31, ----------------------------- 2008 2007 ----------------------------- Premium revenues Government Segment: Medicare Advantage $846 $831 Medicare stand-alone PDPs $92 $87 Total Medicare Military services insured (D) $156 $141 Medicaid insured $125 $111 Total Government Segment premiums Commercial Segment: Fully-insured medical $267 $268 Specialty $12 $22 Total Commercial Segment premiums Total premium revenues Administrative services fees Military services ASO (D) $6 $4 Medicaid ASO $4 $4 Commercial Segment $11 $13 Total administrative services fees S-8Humana Inc. Percentage of Ending Membership under Capitation Arrangements --------------------------------------------------- Government Segment --------------------------------------------------- Medicare Medicare stand-alone Military Total Govt. March 31, 2008 Advantage PDPs Services Medicaid Segment ----------------- ---------------------------------------------------- Capitated HMO hospital system based (E) 2.1% - - - 0.3% Capitated HMO physician group based (E) 1.8% - - 26.8% 2.2% Risk-sharing (F) 21.8% - - 41.2% 6.4% All other membership 74.3% 100.0% 100.0% 32.0% 91.1% ---------------------------------------------------- Total medical membership 100.0% 100.0% 100.0% 100.0% 100.0% ==================================================== March 31, 2007 ----------------- Capitated HMO hospital system based (E) 2.5% - - - 0.4% Capitated HMO physician group based (E) 2.1% - - 25.9% 2.1% Risk-sharing (F) 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% ==================================================== -------------------------------- Commercial Segment -------------------------------- Total Total Comm. Medical March 31, 2008 Fully-insured ASO Segment Membership -------------------------- ------------------------------------------- Capitated HMO hospital system based (E) 1.3% - 0.7% 0.5% Capitated HMO physician group based (E) 1.4% - 0.8% 1.8% Risk-sharing (F) 1.4% - 0.8% 4.7% All other membership 95.9% 100.0% 97.7% 93.0% ------------------------------------------- Total medical membership 100.0% 100.0% 100.0% 100.0% =========================================== March 31, 2007 -------------------------- Capitated HMO hospital system based (E) 1.5% - 0.8% 0.5% Capitated HMO physician group based (E) 1.5% - 0.8% 1.7% Risk-sharing (F) 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% =========================================== S-9Humana Inc. Detail of Benefits Payable Balance and Year-to-Date Changes Dollars in thousands March 31, March 31, December 31, 2008 2007 2007 ----------- ------------------------ Detail of benefits payable IBNR and other benefits payable (G) $1,997,213 $1,787,470 $1,918,460 Unprocessed claim inventories (H) 212,000 222,300 213,400 Processed claim inventories (I) 118,132 124,687 91,938 Payable to pharmacy benefit administrator (J) 185,219 199,684 131,663 ----------- ------------------------ Benefits payable, excluding military services 2,512,564 2,334,141 2,355,461 Military services IBNR (K) 281,208 361,786 265,178 Other military services benefits payable (L) 91,599 108,548 76,194 ----------- ------------------------ Military services benefits payable 372,807 470,334 341,372 ----------- ------------------------ Total Benefits Payable $2,885,371 $2,804,475 $2,696,833 =========== ======================== Three Three Months Months Ended Ended Year Ended March 31, March 31, December 31, 2008 2007 2007 ----------- ------------------------ Year-to-date changes in benefits payable, excluding military services (M) Balances at January 1 $2,355,461 $1,979,733 $1,979,733 Acquisitions - - 41,030 Incurred related to: Current year 5,291,021 4,710,114 18,015,246 Prior years (N) (195,874) (148,776) (242,922) ----------- ------------------------ Total incurred 5,095,147 4,561,338 17,772,324 ----------- ------------------------ Paid related to: Current year (3,584,478) (3,430,622) (16,012,828) Prior years (1,353,566) (776,308) (1,424,798) ----------- ------------------------ Total paid (4,938,044) (4,206,930) (17,437,626) ----------- ------------------------ Balances at end of period $2,512,564 $2,334,141 $2,355,461 =========== ======================== Three Three Months Months Ended Ended Year Ended March 31, March 31, December 31, 2008 2007 2007 ----------- ------------------------ Summary of Consolidated Benefits Expense: Total benefits expense incurred, per above $5,095,147 $4,561,338 $17,772,324 Military services benefits 715,100 648,777 2,481,815 Future policy benefit expense (O) 7,787 3,885 16,392 ----------- ------------------------ Consolidated Benefits Expense 5,818,034 5,214,000 20,270,531 =========== ======================== S-10Humana Inc. Benefits Payable Statistics (P) Receipt Cycle Time (Q) Percentage 2008 2007 Change Change ----------------------------------------------- 1st Quarter Average 15.1 15.6 (0.5) -3.2% 2nd Quarter Average - 15.6 N/A N/A 3rd Quarter Average - 15.9 N/A N/A 4th Quarter Average - 15.1 N/A N/A ------------------------------------ Full Year Average 15.1 15.6 (0.5) -3.2% ==================================== Unprocessed Claims Inventories Estimated Valuation Claim Item Number of Date (000s) Counts Days on Hand ----------------------------------------------------------- 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 6/30/2007 $211,300 751,600 4.9 9/30/2007 $224,000 819,100 6.1 12/31/2007 $213,400 683,500 5.0 ----------------------------------------------------------- 3/31/2008 $212,000 673,000 4.4 ----------------------------------------------------------- S-11Humana Inc. Benefits Payable Statistics (Continued) (P) Days in Claims Payable (R) Days in Claim Change DCP Change Quarter Payable Last 4 Percentage Excluding Last 4 Percentage Ended (DCP) Quarters Change Capitation Quarters Change ----------- ------- -------- ---------- ---------- -------- ---------- 3/31/2006 53.5 11.4 27.2% 60.5 12.5 26.1% 6/30/2006 55.8 9.7 21.0% 62.0 9.6 18.3% 9/30/2006 57.5 7.2 14.2% 64.3 5.5 9.4% 12/31/2006 56.3 6.0 11.9% 64.0 7.4 13.1% 3/31/2007 59.3 5.8 10.8% 66.0 5.5 9.1% 6/30/2007 60.0 4.2 7.5% 68.5 6.5 10.5% 9/30/2007 61.8 4.3 7.5% 70.2 5.9 9.2% 12/31/2007 60.2 3.9 6.9% 68.3 4.3 6.7% ----------- ------- -------- ---------- ---------- -------- ---------- 3/31/2008 56.9 (2.4) -4.0% 63.3 (2.7) -4.1% ----------- ------- -------- ---------- ---------- -------- ---------- Year-to-Date Change in Days in Claims Payable (S) 1Q08 1Q07 FY07 ---------- ---------- -------- DCP - beginning of period 60.2 56.3 56.3 Components of change in DCP: Internal versus outsourced claims processing cycle times (1.7) 0.9 (0.2) Increase in the Part D component of MAPD expense (1.5) (1.3) (0.5) Increase in Medicare PPO business (0.6) 0.2 0.2 Change in unprocessed claims inventories (0.6) 0.1 (0.1) Change in processed claims inventories 0.5 0.4 (0.1) Change in pharmacy payment cutoff (0.3) 1.2 0.3 Change in provider payables under risk arrangements 0.4 0.3 3.4 All other 0.5 1.2 0.9 ---------- ---------- -------- DCP - end of period 56.9 59.3 60.2 ========== ========== ======== S-12Humana Inc. Footnotes to Statistical Schedules and Supplementary Information 1Q08 Earnings Release Footnotes ---------------------------------------------------------------------- (A) The selling, general and administrative (SG&A) expense ratio is defined as SG&A expenses as a percent of premiums, administrative services fees and other revenue. (B) Other supplemental benefits include life, disability, and fixed benefit products including cancer and critical illness policies. (C) 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). (D) Military services revenues are not contracted on a per-member basis. (E) 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 benefit 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. (F) 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 benefit expenses 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. (G) IBNR represents an estimate of benefit expenses payable for claims incurred but not reported (IBNR) at the balance sheet date. The level of IBNR is primarily impacted by membership levels, benefit claim trends and the receipt cycle time, which represents the length of time between when a claim is initially incurred and when the claim form is received (i.e. a shorter time span results in lower reserves for claims IBNR). Other benefits payable includes amounts payable to providers under capitation arrangements. (H) Unprocessed claim inventories represent the estimated valuation of claims received but not yet fully processed. (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) Military services IBNR primarily fluctuates due to benefit expense inflation and changes in the utilization of benefits. Amount includes unprocessed inventories as an independent third party administrator processes all military services benefit claims on the company's behalf. (L) Other military benefits 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). (M) The table excludes activity associated with military services benefits payable, because the federal government bears a substantial portion of the risk associated with financing the cost of health benefits. More specifically, the risk-sharing provisions of the military services contracts with the federal government and with subcontractors effectively limit profits and losses when actual claim experience varies from the targeted claim amount negotiated annually. As a result of these contract provisions, the impact of changes in estimates for prior year military services benefits payable are substantially offset by the associated changes in estimates of revenue from health care services reimbursements. As such, any impact on our results of operations is reduced substantially, whether positive or negative. (N) 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. (O) Future policy benefit expense has a related liability classified as a long-term liability on the balance sheet. (P) Medical claims reserves statistics represents fully insured medical claims data and excludes military services claims data and specialty benefits. (Q) 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 represent 80% to 85% of the company's fully insured claims volume. Pharmacy and specialty claims, including dental, vision and other supplemental benefits, are excluded from this measurement. (R) A common metric for monitoring benefits payable levels relative to the benefit expense is days in claims payable, or DCP, which represents the benefits payable at the end of the period divided by average benefit expenses per day in the quarterly period. Since the company has some providers under capitation payment arrangements (which do not require a benefits payable IBNR reserve), the company has also summarized this metric excluding capitation expense. In addition, this calculation excludes the impact of the company's military services and stand-alone PDP business. (S) DCP fluctuates due to a number of issues, the more significant of which are detailed in this rollforward. Growth in certain product lines can also impact DCP for the quarter since a provision for claims would not have been recorded for members that had not yet enrolled earlier in the quarter, yet those members would have a provision and corresponding reserve recorded upon enrollment later in the quarter. This analysis excludes the impact of military services and Medicare stand-alone PDPs upon DCP. S-13MULTIMEDIA AVAILABLE:
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Humana Inc.
Investor Relations
Regina Nethery, 502-580-3644
Rnethery@humana.com
or
Corporate Communications
Tom Noland, 502-580-3674
Tnoland@humana.comSOURCE: Humana Inc.