Humana Reports Second Quarter Financial Results; Increases Projected 2008 EPS; Provides Updates on Acquisition and Share Repurchase Activity
Humana Reports Second Quarter Financial Results; Increases Projected 2008 EPS; Provides Updates on Acquisition and Share Repurchase Activity
August 4, 2008 at 6:01 AM EDT
View Press Release in PDF format
- $1.24 EPS for second quarter ahead of management's expectations
- Full year 2008 EPS now projected in the range of $4.30 to $4.40
- Signed definitive agreement to acquire Cariten Healthcare
- Share repurchase authorization increased to $250 million
LOUISVILLE, Ky.--(BUSINESS WIRE)--Aug. 4, 2008--Humana Inc. (NYSE: HUM) today reported financial results for the quarter ended June 30, 2008 (2Q08) including diluted earnings per common share (EPS) of $1.24 compared to $1.28 per share for the quarter ended June 30, 2007 (2Q07). The 2Q08 results were ahead of management's previous guidance for EPS of $1.15 to $1.20, primarily due to better-than-anticipated financial results for the company's stand-alone Medicare Prescription Drug Plan (PDP) offerings.
For the six months ended June 30, 2008 (1H08) the company reported $1.71 in EPS compared to $1.70 for the six months ended June 30, 2007 (1H07). The company's Commercial Segment operating performance improved year-over-year while improved operating performance in the Government Segment's Medicare Advantage business was more than offset by the previously announced PDP operating shortfall.
"We had a good quarter across all our lines of business and with our PDP issue playing out better than expected, we've raised EPS guidance for the year and are well positioned for a strong 2009," said Michael B. McCallister, Humana's president and chief executive officer of Humana.
In light of the better-than-anticipated second quarter results, the company now anticipates achieving EPS for the year ending December 31, 2008 (FY08) in the range of $4.30 to $4.40, up from its previous guidance of $4.10 to $4.35.
Revenues - 2Q08 consolidated revenues rose 14 percent to $7.35 billion from $6.43 billion in 2Q07, with total premium and administrative services fees also up 14 percent compared to the prior year's quarter. This year-over-year increase was primarily driven by higher average membership in 2Q08 versus 2Q07 for the company's Medicare Advantage, Commercial medical and specialty products as well as higher premium yields for the company's Medicare Advantage products.
1H08 consolidated revenues rose 13 percent to $14.31 billion from $12.63 billion in 1H07 with total premium and administrative services fees up 13 percent compared to the prior year's period, also driven primarily by similar increases in average enrollment and premium yields as those affecting the year-over-year comparisons for 2Q08.
Benefit expenses - The 2Q08 consolidated benefits ratio (benefit expenses as a percent of premium revenues) was higher than that for the prior year's quarter, as expected. The 2Q08 consolidated benefits ratio of 85.0 percent compares to 83.4 percent in 2Q07. This year-over-year increase was primarily driven by a 200 basis point increase in the Government Segment benefits ratio associated with higher PDP claim expenses.
The consolidated benefits ratio for 1H08 of 85.8 percent was 70 basis points higher than the 1H07 consolidated benefits ratio of 85.1 percent with a 140 basis points increase in this year-to-date metric for the Government Segment outpacing the 110 basis point improvement year to date in the benefits ratio for the Commercial Segment.
Selling, general, & administrative (SG&A) expenses - The 2Q08 consolidated SG&A expense ratio (SG&A expenses as a percent of premiums, administrative services fees and other revenue) declined 40 basis points to 12.6 percent for 2Q08 from 13.0 percent in 2Q07. The year-over-year improvement reflects the combined result of declines in the SG&A expense ratio for both of the company's business segments.
The SG&A expense ratio for 1H08 of 13.2 percent was unchanged from that for 1H07 of 13.2 percent as a 70 basis point increase in this metric for the Commercial Segment was essentially offset by a 30 basis point improvement in the SG&A expense ratio for the Government Segment.
Government Segment Results
Pretax results:
- Primarily as a result of less favorable 2008 PDP operating results, 2Q08 Government Segment pretax earnings were lower than 2Q07, with pretax income of $249.4 million in 2Q08 compared to $288.8 million in 2Q07. The year-over-year decline in operating performance was partially offset by improved operating performance in the company's Medicare Advantage business.
- For 1H08, pretax earnings for the Government Segment of $246.2 million declined by 20 percent versus 1H07 pretax earnings for the segment of $306.7 million, also primarily reflecting the less favorable performance year over year in the company's stand-alone PDP business, partially offset by improved Medicare Advantage performance.
Enrollment:
- Medicare Advantage membership grew to 1,345,000 at June 30, 2008, an increase of 211,300 members, or 19 percent from June 30, 2007, up 77,300, or 6 percent versus March 31, 2008, and 202,000 members, or 18 percent year to date. Net Medicare Advantage membership gains for 2Q08 include 40,700 members from acquisitions completed during the quarter.
- Membership in the company's stand-alone PDPs totaled 3,105,200 at June 30, 2008 compared to 3,440,100 at June 30, 2007 and 3,150,200 at March 31, 2008.
- Military services membership at June 30, 2008 of 2,943,800 was up approximately 3 percent from June 30, 2007 and essentially unchanged from March 31, 2008.
Premiums and administrative services fees:
- Medicare Advantage premiums of $3.49 billion in 2Q08 increased 25 percent compared to $2.80 billion in 2Q07, primarily the combined result of a 17 percent increase in average membership and higher per member premium revenues.
- Medicare stand-alone PDP premiums of $905.1 million in 2Q08 decreased 14 percent compared to $1.05 billion in 2Q07, primarily the result of a 10 percent decline in average membership versus that for 2Q07.
- Military services premiums and administrative services fees during 2Q08 increased $83.8 million to $824.4 million compared to $740.6 million in 2Q07.
Benefit Expenses:
SG&A Expenses:
- The Government Segment's SG&A expense ratio for 2Q08 of 9.5 percent was 50 basis points lower than that for 2Q07 of 10.0 percent and improved 120 basis points from the first quarter of 2008. The improvements were primarily driven by leverage associated with higher average Medicare Advantage membership and increased Medicare premium yields. The sequential improvement also reflects lower marketing and other administrative expenses associated with the Medicare selling season for 2008 enrollment which concluded during the first quarter of 2008.
Commercial Segment Results
Pretax results:
- Commercial Segment pretax earnings increased 49 percent year over year, to $75.6 million in 2Q08 compared to $50.8 million in 2Q07. This favorable performance was produced by continued strength in the company's areas of strategic Commercial focus - individual, small-group, ASO and consumer plans - as well as overall underwriting discipline and growth from specialty-product acquisitions in the fourth quarter of 2007.
- The segment's 40 percent increase in pretax earnings for 1H08 ($202.7 million versus $145.2 million in 1H07) was also primarily attributable to the factors outlined above.
Enrollment:
- Commercial Segment medical membership grew 279,800 members to 3,558,500 at June 30, 2008, an increase of 9 percent from the June 30, 2007 medical membership for the segment of 3,278,700 and up 3 percent year to date. On an organic basis, Commercial Segment medical membership grew 120,800 members, or 4 percent year-over-year and 43,800 members, or 1 percent year to date.
- Organic medical membership growth in strategic commercial lines of business for 2Q08 compared to 2Q07 were as follows: HumanaOne membership increased 45 percent, Smart plans and other consumer offerings membership grew 23 percent, Small Group business membership increased 13 percent and ASO membership was essentially unchanged.
- Membership in Commercial Segment specialty products(a) at June 30, 2008 rose to 6,744,400 compared to 1,930,000 at June 30, 2007, primarily driven by the addition of membership from two specialty-product companies acquired during the fourth quarter of 2007. Specialty membership was essentially unchanged from December 31, 2007.
Premiums and administrative services fees:
- Premiums and administrative services fees for the Commercial Segment increased 17 percent to $1.85 billion in 2Q08 compared to $1.59 billion in the prior year's quarter, primarily due to revenues associated with acquired companies 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 2Q08 compared to 2Q07 reflecting a shift in the mix of fully-insured group business from the prior year's quarter to include less groups with higher-than-average premiums.
Benefit Expenses:
- The Commercial Segment benefits ratio for 1H08 improved 110 basis points year over year, primarily reflecting the impact of specialty product acquisitions, together with continued underwriting discipline. In 2Q08, the benefits ratio of 81.0 percent was 30 basis points higher than the 2Q07 benefits ratio of 80.7 percent, primarily due to the 2Q07 benefits ratio including a modest impact of favorable prior period development related to 1Q07 medical claims estimates. The first two quarters of 2008 more precisely reflect the sequential claims patterns for the company's growing book of high-deductible health plans.
SG&A Expenses:
- The Commercial Segment SG&A expense ratio of 21.5 percent for 2Q08 compares to 21.8 percent in 2Q07, primarily driven by leverage associated with an 8 percent increase in average Commercial medical membership as well as higher specialty product membership acquired via transactions that closed in the fourth quarter of 2007.
Balance Sheet
- Cash and cash equivalents of $1.17 billion at June 30, 2008 declined $513.6 million from March 31, 2008 primarily due to the completion of two acquisitions, ordinary course cash transfers into investment securities, and share repurchases during 2Q08.
- Parent company cash and investments decreased to $171.5 million at June 30, 2008 from $535.7 million at December 31, 2007. In addition to the completion of two acquisitions and share repurchases during 1H08, the parent company received dividends from operating subsidiaries of $296.0 million versus $377.0 million in 1H07, primarily attributable to lower-than-anticipated dividends from entities operating stand-alone PDPs.
- Net premiums receivable at June 30, 2008 of $987.1 million were up $239.3 million from March 31, 2008 primarily due to an increase in certain Medicare premiums receivable. The company collected the related $257.4 million balance outstanding on that receivable at June 30, 2008 in July 2008.
- Days in claims payable of 57.2 at June 30, 2008 reflect an increase of 0.3 days from 56.9 at March 31, 2008.
- Debt-to-total capitalization at June 30, 2008 was 28.0 percent, down 30 basis points from 28.3 percent at March 31, 2008. During 2Q08 the company completed an aggregate offering of $750 million of senior notes, the net proceeds of which were used to repay all outstanding borrowings against the company's $1.00 billion bank credit agreement.
Cash Flows from Operations
Cash flows provided by operations for 2Q08 of $104.0 million compared to cash flows provided by operations of $477.3 million in 2Q07 primarily reflecting changes in working capital accounts. Net premiums receivable at June 30, 2008 of $987.1 million were up $239.3 million from March 31, 2008 primarily due to an increase in certain Medicare premiums receivable. The company collected the related $257.4 million balance outstanding on that receivable at June 30, 2008 in July 2008.
The company also evaluates operating cash flows on a non-GAAP basis(b).
Cash flows from operations ($ in millions) 2Q08 2Q07 1H08 1H07 ----------------------------- ------- -------- ------- ----------- GAAP cash flows provided by operations $ 104.0 $ 477.3 $ 108.5 $ 2,051.7 ----------------------------- ------- -------- ------- ----------- Timing of premium payment from CMS(b) -- (45.6) -- (1,175.3) ----------------------------- ------- -------- ------- ----------- Non-GAAP cash flows provided by operations(b) $ 104.0 $ 431.7 $ 108.5 $ 876.4 ----------------------------- ------- -------- ------- -----------
Non-GAAP cash flows provided by operations declined to $104.0 million(b) in 2Q08 from $431.7 million(b) in 2Q07 also driven primarily by the changes in working capital accounts described above.
Acquisition Activity
The company also announced today that it had signed a definitive agreement to purchase PHP Companies, Inc. (d/b/a Cariten Healthcare) (Cariten), from Knoxville, Tennessee-based Covenant Health for cash consideration of approximately $245 million. The transaction is anticipated to close during the fourth quarter of 2008 and is not anticipated to materially affect Humana's earnings guidance for the FY08.
During 2Q08 the company also announced its intent to acquire Metcare Health Plans, Inc. (Metcare) in Florida and completed its acquisitions of the SecureHorizons Medicare Advantage HMO business in Las Vegas, Nevada and OSF Health Plans in Illinois.
Share Repurchase Program
In February 2008, the company's Board of Directors authorized the use of up to $150 million for share repurchases. As of August 1, 2008, the company had repurchased approximately 2.1 million of its outstanding shares at an average price per share of $44.19 and had approximately $57.2 million remaining on the February 2008 authorization.
The company also announced today that its Board of Directors had increased the company's share repurchase authorization for use of up to $250 million for this program, excluding the $92.8 million used year to date in connection with the February 2008 authorization. These discretionary repurchases may be made from time to time in the open market or in privately negotiated transactions. The program has an end date of December 31, 2009.
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 10-Q for the quarter ended March 31, 2008;
-- 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 11.5 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 August 4, 2008
----------------------------------------------------------------------
(in accordance with For the year ending Comments
Generally Accepted December 31, 2008
Accounting Principles) (Excludes pending
acquisitions of Metcare
and Cariten)
-------------------------- --------------------------- ---------------
Diluted earnings per Full year 2008: $4.30 to Excludes impact
common share $4.40 of future
share
repurchases
Third quarter 2008: $1.45
to $1.50
-------------------------- --------------------------- ---------------
Revenues Consolidated revenues: $28
billion to $30 billion
Premiums and ASO fees:
Medicare Advantage: $13
billion to $14 billion;
Medicare stand-alone
PDPs: Approximately
$3.4 billion;
Military services: $3.3
billion to $3.5
billion;
Commercial Segment:
Approximately $7.5
billion
Consolidated investment
income: $345 million to
$355 million
Consolidated other revenue:
$190 million to $200
million
-------------------------- --------------------------- ---------------
Ending medical membership Medicare Advantage: Up Includes 40,700
(fully-insured and ASO approximately 240,000 from Medicare
combined) prior year Advantage
members
acquired via
acquisitions
completed year
to date
Medicare stand-alone PDPs:
Down approximately 370,000
from prior year
Military services: No
material change from prior
year
Medicaid: Down
approximately 180,000 from
prior year
Commercial: Up Includes 63,000
approximately 150,000 from Commercial
prior year members
acquired via
acquisitions
completed year
to date
-------------------------- --------------------------- ---------------
Benefit expenses Medicare products: benefits Medicare
ratio in the range of Advantage and
85.0% to 85.5% 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 Secular trends
benefit expense trend exclude the
components as follows: impact of
inpatient hospital benefit buy-
utilization - flat to 1 downs
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 -
mid to upper single
digits.
-------------------------- --------------------------- ---------------
Selling, general & 13.5% to 14% SG&A expenses
administrative expense as a percent
ratio of premiums,
administrative
services fees,
and other
revenue
-------------------------- --------------------------- ---------------
Depreciation & $215 million to $220
amortization million
-------------------------- --------------------------- ---------------
Interest expense $70 million to $75 million
-------------------------- --------------------------- ---------------
Government Segment Medicare products: Medicare
operating margins Approximately 3.5% Advantage and
stand-alone
PDP combined
Military services: 2.5% to
3.0%
-------------------------- --------------------------- ---------------
Commercial Segment pretax $280 million to $300
earnings million
-------------------------- --------------------------- ---------------
Cash flows from operations $1.0 billion to $1.2
billion
-------------------------- --------------------------- ---------------
Capital expenditures Approximately $275 million
-------------------------- --------------------------- ---------------
Effective tax rate 35.0% to 35.5%
-------------------------- --------------------------- ---------------
Shares used in computing Approximately 169 million Excludes impact
full-year EPS of future
share
repurchases
Humana Inc.
Statistical Schedules
And
Supplementary Information
2Q08 Earnings Release
S-1
Humana Inc.
Statistical Schedules and Supplementary Information
2Q08 Earnings Release
Contents
Page Description
------- -------------------------------------------------------------
S-3-4 Consolidated Statements of Income
S-5 Consolidated Balance Sheets
S-6-7 Consolidated Statements of Cash Flows
S-8 Key Income Statement Ratios and Segment Operating Results
S-9 Membership Detail
S-10-11 Premiums and Administrative Services Fees Detail
S-12 Percentage of Ending Membership under Capitation Arrangements
S-13-15 Benefits Payable
S-16 Footnotes
S-2
Humana Inc.
Consolidated Statements of Income
In thousands, except per common share results
Three Months Ended
June 30,
---------------------
Dollar Percentage
2008 2007 Change Change
---------- ---------- --------------------
Revenues:
Premiums $7,106,752 $6,223,250 $883,502 14.2%
Administrative services
fees 112,964 97,093 15,871 16.3%
Investment income 80,821 72,052 8,769 12.2%
Other revenue 50,325 34,402 15,923 46.3%
---------- ---------- ---------
Total revenues 7,350,862 6,426,797 924,065 14.4%
---------- ---------- ---------
Operating expenses:
Benefits 6,038,482 5,190,418 848,064 16.3%
Selling, general and
administrative 916,041 826,459 89,582 10.8%
Depreciation 44,141 48,820 (4,679) -9.6%
Other intangible
amortization 9,317 5,444 3,873 71.1%
---------- ---------- ---------
Total operating
expenses 7,007,981 6,071,141 936,840 15.4%
---------- ---------- ---------
Income from operations 342,881 355,656 (12,775) -3.6%
Interest expense 17,867 16,066 1,801 11.2%
---------- ---------- ---------
Income before income taxes 325,014 339,590 (14,576) -4.3%
Provision for income taxes 115,118 122,744 (7,626) -6.2%
---------- ---------- ---------
Net income $ 209,896 $ 216,846 ($6,950) -3.2%
========== ========== =========
Basic earnings per common
share $ 1.26 $ 1.30 ($0.04) -3.1%
Diluted earnings per common
share $ 1.24 $ 1.28 ($0.04) -3.1%
Shares used in computing
basic earnings per common
share 167,146 166,614
Shares used in computing
diluted earnings per
common share 168,997 169,596
S-3
Humana Inc.
Consolidated Statements of Income
In thousands, except per common share results
Six Months Ended
June 30,
-----------------------
Dollar Percentage
2008 2007 Change Change
----------- ----------- ----------------------
Revenues:
Premiums $13,819,353 $12,227,813 $1,591,540 13.0%
Administrative
services fees 224,943 192,957 31,986 16.6%
Investment income 170,780 145,579 25,201 17.3%
Other revenue 95,490 65,261 30,229 46.3%
----------- ----------- -----------
Total revenues 14,310,566 12,631,610 1,678,956 13.3%
----------- ----------- -----------
Operating expenses:
Benefits 11,856,516 10,404,418 1,452,098 14.0%
Selling, general and
administrative 1,866,486 1,647,069 219,417 13.3%
Depreciation 87,098 84,329 2,769 3.3%
Other intangible
amortization 17,318 9,999 7,319 73.2%
----------- ----------- -----------
Total operating
expenses 13,827,418 12,145,815 1,681,603 13.8%
----------- ----------- -----------
Income from operations 483,148 485,795 (2,647) -0.5%
Interest expense 34,206 33,984 222 0.7%
----------- ----------- -----------
Income before income
taxes 448,942 451,811 (2,869) -0.6%
Provision for income
taxes 158,876 163,724 (4,848) -3.0%
----------- ----------- -----------
Net income $ 290,066 $ 288,087 $ 1,979 0.7%
=========== =========== ===========
Basic earnings per
common share $ 1.73 $ 1.73 $ 0.00 0.0%
Diluted earnings per
common share $ 1.71 $ 1.70 $ 0.01 0.6%
Shares used in
computing basic
earnings per common
share 167,668 166,213
Shares used in
computing diluted
earnings per common
share 169,799 169,276
S-4
Humana Inc.
Consolidated Balance Sheets
Dollars in thousands, except share amounts
June 30, March 31, December 31,
2008 2008 2007
------------ -------------------------
Assets
Current assets:
Cash and cash equivalents $ 1,174,642 $ 1,688,287 $ 2,040,453
Investment securities 4,195,562 3,954,830 3,635,317
Receivables, net:
Premiums 987,074 747,806 592,761
Administrative services
fees 12,644 11,517 12,780
Securities lending
collateral 800,326 973,925 1,337,049
Other 1,290,295 1,233,910 1,114,486
------------ -------------------------
Total current assets 8,460,543 8,610,275 8,732,846
Property and equipment, net 655,431 636,935 637,241
Other assets:
Long-term investment
securities 989,253 963,106 1,015,050
Goodwill 1,817,460 1,683,604 1,663,939
Other 1,017,296 868,108 829,998
------------ -------------------------
Total other assets 3,824,009 3,514,818 3,508,987
------------ -------------------------
Total assets $12,939,983 $12,762,028 $12,879,074
============ =========================
Liabilities and Stockholders'
Equity
Current liabilities:
Benefits payable $ 3,105,691 $ 2,885,371 $ 2,696,833
Trade accounts payable and
accrued expenses 1,350,924 1,356,405 1,268,963
Book overdraft 297,965 291,246 269,226
Securities lending payable 800,326 973,925 1,337,049
Unearned revenues 210,770 227,492 219,780
------------ -------------------------
Total current
liabilities 5,765,676 5,734,439 5,791,851
Long-term debt 1,635,098 1,601,335 1,687,823
Future policy benefits payable 980,257 968,719 980,686
Other long-term liabilities 355,224 405,061 389,777
------------ -------------------------
Total liabilities 8,736,255 8,709,554 8,850,137
------------ -------------------------
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; 187,648,393
issued at June 30, 2008 31,275 31,165 31,123
Capital in excess of par
value 1,542,378 1,527,979 1,497,998
Retained earnings 3,032,848 2,822,952 2,742,782
Accumulated other
comprehensive (loss)
income (51,125) 7,312 14,021
Treasury stock, at cost,
18,755,909 shares at June
30, 2008 (351,648) (336,934) (256,987)
------------ -------------------------
Total stockholders'
equity 4,203,728 4,052,474 4,028,937
------------ -------------------------
Total liabilities and
stockholders' equity $12,939,983 $12,762,028 $12,879,074
============ =========================
Debt-to-total capitalization
ratio 28.0% 28.3% 29.5%
Sequential Change
-------------------
Dollar Percent
-------------------
Assets
Current assets:
Cash and cash equivalents
Investment securities
Receivables, net:
Premiums
Administrative services fees
Securities lending collateral
Other
Total current assets ($149,732) -1.7%
Property and equipment, net
Other assets:
Long-term investment securities
Goodwill
Other
Total other assets
Total assets $ 177,955 1.4%
Liabilities and Stockholders' Equity
Current liabilities:
Benefits payable
Trade accounts payable and accrued expenses
Book overdraft
Securities lending payable
Unearned revenues
Total current liabilities $ 31,237 0.5%
Long-term debt
Future policy benefits payable
Other long-term liabilities
Total liabilities $ 26,701 0.3%
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; 187,648,393 issued at June 30,
2008
Capital in excess of par value
Retained earnings
Accumulated other comprehensive (loss) income
Treasury stock, at cost, 18,755,909 shares at
June 30, 2008
Total stockholders' equity $ 151,254 3.7%
Total liabilities and stockholders' equity $ 177,955 1.4%
Debt-to-total capitalization ratio
S-5
Humana Inc.
Consolidated Statements of Cash Flows
Dollars in thousands
Three Months Ended
June 30,
------------------------
Dollar Percentage
2008 2007 Change Change
------------ ----------- ----------------------
Cash flows from
operating activities
Net income $ 209,896 $ 216,846
Adjustments to
reconcile net
income to net cash
provided by
operating
activities:
Depreciation and
amortization 53,458 54,264
(Gain) loss on
sale of
investment
securities, net (8,585) 1,587
Stock-based
compensation 13,249 10,462
Provision
(benefit) for
deferred income
taxes 2,761 (17,900)
Changes in
operating
assets and
liabilities
excluding the
effects of
acquisitions:
Receivables (229,603) 139,567
Other assets (112,388) (107,522)
Benefits
payable 192,924 62,814
Other
liabilities (3,401) 80,889
Unearned
revenues (20,169) 24,692
Other 5,881 11,567
------------ -----------
Net cash provided by
operating activities 104,023 477,266 ($373,243) -78.2%
------------ -----------
Cash flows from
investing activities
Acquisitions, net
of cash acquired (262,255) (224)
Purchases of
property and
equipment (64,960) (43,973)
Proceeds from sales
of property and
equipment 2 2
Purchases of
investment
securities (1,861,577) (908,244)
Proceeds from
maturities of
investment
securities 102,369 212,471
Proceeds from sales
of investment
securities 1,389,636 444,692
Change in
securities lending
collateral 173,599 (296,870)
------------ -----------
Net cash used in
investing activities (523,186) (592,146) $ 68,960 11.6%
------------ -----------
Cash flows from
financing activities
Receipts from CMS
contract deposits 590,538 639,722
Withdrawals from
CMS contract
deposits (573,184) (708,277)
Borrowings under
credit agreement 175,000 400,000
Repayments under
credit agreement (850,000) (510,000)
Proceeds from
issuance of senior
notes 749,247 -
Debt issue costs (5,480) -
Change in book
overdraft 6,719 5,074
Change in
securities lending
payable (173,599) 296,870
Common stock
repurchases (14,714) (16)
Excess tax benefit
from stock-based
compensation 167 5,426
Proceeds from stock
option exercises
and other 824 12,791
------------ -----------
Net cash (used in)
provided by financing
activities (94,482) 141,590 ($236,072) -166.7%
------------ -----------
(Decrease)/increase in
cash and cash
equivalents (513,645) 26,710
Cash and cash
equivalents at
beginning of period 1,688,287 3,694,059
------------ -----------
Cash and cash
equivalents at end of
period $ 1,174,642 $3,720,769
============ ===========
S-6
Humana Inc.
Consolidated Statements of Cash Flows
Dollars in thousands
Six Months Ended
June 30,
-------------------------
2008 2007
------------ ------------
Cash flows from operating activities
Net income $ 290,066 $ 288,087
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation and amortization 104,416 94,328
Gain on sale of investment
securities, net (18,849) (85)
Stock-based compensation 27,165 20,264
Provision (benefit) for deferred
income taxes 10,572 (24,011)
Changes in operating assets and
liabilities excluding the effects of
acquisitions:
Receivables (383,385) (16,612)
Other assets (195,211) (126,467)
Benefits payable 381,462 456,882
Other liabilities (104,475) 143,426
Unearned revenues (12,457) 1,199,719
Other 9,158 16,216
------------ ------------
Net cash provided by operating activities 108,462 2,051,747
------------ ------------
Cash flows from investing activities
Acquisitions, net of cash acquired (266,093) (27,005)
Purchases of property and equipment (112,047) (114,717)
Proceeds from sales of property and
equipment 2 4,072
Purchases of investment securities (3,524,144) (1,873,295)
Proceeds from maturities of investment
securities 274,347 769,956
Proceeds from sales of investment
securities 2,649,402 926,603
Change in securities lending collateral 536,723 (718,075)
------------ ------------
Net cash used in investing activities (441,810) (1,032,461)
------------ ------------
Cash flows from financing activities
Receipts from CMS contract deposits 1,188,830 1,483,359
Withdrawals from CMS contract deposits (1,079,245) (1,223,982)
Borrowings under credit agreement 425,000 710,000
Repayments under credit agreement (1,225,000) (760,000)
Proceeds from issuance of senior notes 749,247 -
Debt issue costs (5,480) -
Change in book overdraft 28,739 (3,959)
Change in securities lending payable (536,723) 718,075
Common stock repurchases (94,661) (7,203)
Excess tax benefit from stock-based
compensation 9,344 14,554
Proceeds from stock option exercises and
other 7,486 30,335
------------ ------------
Net cash (used in) provided by financing
activities (532,463) 961,179
------------ ------------
(Decrease)/increase in cash and cash
equivalents (865,811) 1,980,465
Cash and cash equivalents at beginning of
period 2,040,453 1,740,304
------------ ------------
Cash and cash equivalents at end of period $ 1,174,642 $ 3,720,769
============ ============
Dollar Percentage
Change Change
------------------------
Cash flows from operating activities
Net income
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization
Gain on sale of investment securities,
net
Stock-based compensation
Provision (benefit) for deferred income
taxes
Changes in operating assets and
liabilities excluding the effects of
acquisitions:
Receivables
Other assets
Benefits payable
Other liabilities
Unearned revenues
Other
Net cash provided by operating activities ($1,943,285) -94.7%
Cash flows from investing activities
Acquisitions, net of cash acquired
Purchases of property and equipment
Proceeds from sales of property and
equipment
Purchases of investment securities
Proceeds from maturities of investment
securities
Proceeds from sales of investment
securities
Change in securities lending collateral
Net cash used in investing activities $ 590,651 57.2%
Cash flows from financing activities
Receipts from CMS contract deposits
Withdrawals from CMS contract deposits
Borrowings under credit agreement
Repayments under credit agreement
Proceeds from issuance of senior notes
Debt issue costs
Change in book overdraft
Change in securities lending payable
Common stock repurchases
Excess tax benefit from stock-based
compensation
Proceeds from stock option exercises and
other
Net cash (used in) provided by financing
activities ($1,493,642) -155.4%
(Decrease)/increase in cash and cash
equivalents
Cash and cash equivalents at beginning of
period
Cash and cash equivalents at end of period
S-7
Humana Inc.
Key Income Statement Ratios and Segment Operating Results
Dollars in thousands
Three Months Ended
June 30,
-------------------
Percentage
2008 2007 Difference Change
--------- --------- ---------------------
Benefits ratio
Government Segment 86.3% 84.3% 2.0%
Commercial Segment 81.0% 80.7% 0.3%
Consolidated 85.0% 83.4% 1.6%
Selling, general, and
administrative expense
ratio (A)
Government Segment 9.5% 10.0% -0.5%
Commercial Segment 21.5% 21.8% -0.3%
Consolidated 12.6% 13.0% -0.4%
Detail of pretax income
Government Segment $249,449 $288,790 ($39,341) -13.6%
Commercial Segment 75,565 50,800 24,765 48.8%
--------- --------- ----------
Consolidated $325,014 $339,590 ($14,576) -4.3%
========= ========= ==========
Detail of pretax margins
Government Segment 4.6% 6.0% -1.4%
Commercial Segment 3.9% 3.1% 0.8%
Consolidated 4.4% 5.3% -0.9%
Six Months Ended
June 30,
-------------------
Percentage
2008 2007 Difference Change
--------- --------- ---------------------
Benefits ratio
Government Segment 88.1% 86.7% 1.4%
Commercial Segment 79.0% 80.1% -1.1%
Consolidated 85.8% 85.1% 0.7%
Selling, general, and
administrative expense
ratio (A)
Government Segment 10.1% 10.4% -0.3%
Commercial Segment 21.9% 21.2% 0.7%
Consolidated 13.2% 13.2% 0.0%
Detail of pretax income
Government Segment $246,212 $306,655 ($60,443) -19.7%
Commercial Segment 202,730 145,156 57,574 39.7%
--------- --------- ----------
Consolidated $448,942 $451,811 ($2,869) -0.6%
========= ========= ==========
Detail of pretax margins
Government Segment 2.4% 3.3% -0.9%
Commercial Segment 5.3% 4.4% 0.9%
Consolidated 3.1% 3.6% -0.5%
S-8
Humana Inc.
Membership Detail
In thousands
Ending Ending
June 30, 2008 Average - 2Q08 June 30, 2007
------------- ----------------------------
Medical Membership:
Government Segment:
Medicare Advantage -
HMO 494.0 485.2 452.4
Medicare Advantage -
PPO 163.5 156.6 66.9
Medicare Advantage -
PFFS 687.5 685.5 614.4
------------- ----------------------------
Total Medicare
Advantage 1,345.0 1,327.3 1,133.7
------------- ----------------------------
Medicare - PDP -
Standard 1,531.6 1,542.4 2,131.0
Medicare - PDP -
Enhanced 1,409.4 1,401.8 1,075.9
Medicare - PDP -
Complete 164.2 165.8 233.2
------------- ----------------------------
Total Medicare
stand-alone PDPs 3,105.2 3,110.0 3,440.1
------------- ----------------------------
Total Medicare 4,450.2 4,437.3 4,573.8
------------- ----------------------------
Military services
insured 1,737.6 1,734.2 1,717.6
Military services ASO 1,206.2 1,203.4 1,150.6
------------- ----------------------------
Total military
services 2,943.8 2,937.6 2,868.2
------------- ----------------------------
Medicaid insured 387.7 385.1 384.9
Medicaid ASO 173.8 174.6 182.7
------------- ----------------------------
Total Medicaid 561.5 559.7 567.6
------------- ----------------------------
Total Government
Segment 7,955.5 7,934.6 8,009.6
------------- ----------------------------
Commercial Segment:
Fully-insured medical:
Group 1,623.3 1,605.9 1,533.0
Individual 297.2 289.4 205.0
Medicare supplement 16.1 15.7 8.3
------------- ----------------------------
Total fully-insured
medical 1,936.6 1,911.0 1,746.3
ASO 1,621.9 1,612.7 1,532.4
------------- ----------------------------
Total Commercial
Segment 3,558.5 3,523.7 3,278.7
------------- ----------------------------
Total medical membership 11,514.0 11,458.3 11,288.3
============= ============================
Specialty Membership
Dental - fully-insured 2,612.2 2,618.8 978.1
Dental - ASO 1,074.0 1,078.8 499.9
------------- ----------------------------
Total dental 3,686.2 3,697.6 1,478.0
Vision 2,160.9 2,251.1 -
Other supplemental
benefits(B) 897.3 898.5 452.0
------------- ----------------------------
Total specialty membership 6,744.4 6,847.2 1,930.0
============= ============================
Year-over-year Change Sequential Change
--------------------- -----------------
Ending
March 31,
Amount Percent 2008 Amount Percent
--------------------- --------- -----------------
Medical Membership:
Government Segment:
Medicare
Advantage - HMO 41.6 9.2% 465.6 28.4 6.1%
Medicare
Advantage - PPO 96.6 144.4% 134.0 29.5 22.0%
Medicare
Advantage - PFFS 73.1 11.9% 668.1 19.4 2.9%
------------- --------- ---------
Total Medicare
Advantage 211.3 18.6% 1,267.7 77.3 6.1%
------------- --------- ---------
Medicare - PDP -
Standard (599.4) -28.1% 1,584.5 (52.9) -3.3%
Medicare - PDP -
Enhanced 333.5 31.0% 1,394.9 14.5 1.0%
Medicare - PDP -
Complete (69.0) -29.6% 170.8 (6.6) -3.9%
------------- --------- ---------
Total Medicare
stand-alone
PDPs (334.9) -9.7% 3,150.2 (45.0) -1.4%
------------- --------- ---------
Total
Medicare (123.6) -2.7% 4,417.9 32.3 0.7%
------------- --------- ---------
Military services
insured 20.0 1.2% 1,728.1 9.5 0.5%
Military services
ASO 55.6 4.8% 1,193.0 13.2 1.1%
------------- --------- ---------
Total military
services 75.6 2.6% 2,921.1 22.7 0.8%
------------- --------- ---------
Medicaid insured 2.8 0.7% 384.2 3.5 0.9%
Medicaid ASO (8.9) -4.9% 175.4 (1.6) -0.9%
------------- --------- ---------
Total Medicaid (6.1) -1.1% 559.6 1.9 0.3%
------------- --------- ---------
Total Government
Segment (54.1) -0.7% 7,898.6 56.9 0.7%
------------- --------- ---------
Commercial Segment:
Fully-insured
medical:
Group 90.3 5.9% 1,572.9 50.4 3.2%
Individual 92.2 45.0% 272.9 24.3 8.9%
Medicare
supplement 7.8 94.0% 15.2 0.9 5.9%
------------- --------- ---------
Total fully-
insured medical 190.3 10.9% 1,861.0 75.6 4.1%
ASO 89.5 5.8% 1,597.7 24.2 1.5%
------------- --------- ---------
Total Commercial
Segment 279.8 8.5% 3,458.7 99.8 2.9%
------------- --------- ---------
Total medical
membership 225.7 2.0% 11,357.3 156.7 1.4%
============= ========= =========
Specialty Membership
Dental - fully-
insured 1,634.1 167.1% 2,632.8 (20.6) -0.8%
Dental - ASO 574.1 114.8% 1,084.1 (10.1) -0.9%
------------- --------- ---------
Total dental 2,208.2 149.4% 3,716.9 (30.7) -0.8%
Vision 2,160.9 100.0% 2,301.0 (140.1) -6.1%
Other
supplemental
benefits(B) 445.3 98.5% 898.3 (1.0) -0.1%
------------- --------- ---------
Total specialty
membership 4,814.4 249.5% 6,916.2 (171.8) -2.5%
============= ========= =========
S-9
Humana Inc.
Premiums and Administrative Services Fees Detail
Dollars in thousands, except per member per month
Per
Member
per
Month(C)
Three
Months
Three Months Ended Ended
June 30, June 30,
--------------------- ---------
Dollar Percentage
2008 2007 Change Change 2008 2007
---------- ---------- --------------------- ---------
Premium revenues
Government
Segment:
Medicare
Advantage $3,491,824 $2,804,438 $ 687,386 24.5% $877 $825
Medicare
stand-alone
PDPs 905,071 1,051,259 (146,188) -13.9% $ 97 $102
---------- ---------- ----------
Total
Medicare 4,396,895 3,855,697 541,198 14.0%
Military
services
insured(D) 806,976 725,040 81,936 11.3% $155 $141
Medicaid
insured 141,976 132,486 9,490 7.2% $123 $115
---------- ---------- ----------
Total
Government
Segment
premiums 5,345,847 4,713,223 632,624 13.4%
---------- ---------- ----------
Commercial
Segment:
Fully-insured
medical 1,526,026 1,402,082 123,944 8.8% $266 $269
Specialty 234,879 107,945 126,934 117.6% $ 13 $ 22
---------- ---------- ----------
Total
Commercial
Segment
premiums 1,760,905 1,510,027 250,878 16.6%
---------- ---------- ----------
Total premium
revenues $7,106,752 $6,223,250 $ 883,502 14.2%
========== ========== ==========
Administrative
services fees
Military
services
ASO(D) $ 17,403 $ 15,535 $ 1,868 12.0% $ 5 $ 4
Medicaid ASO 2,053 2,136 (83) -3.9% $ 4 $ 4
Commercial
Segment 93,508 79,422 14,086 17.7% $ 12 $ 13
---------- ---------- ----------
Total
administrative
services fees $ 112,964 $ 97,093 $ 15,871 16.3%
========== ========== ==========
S-10
Humana Inc.
Premiums and Administrative Services Fees Detail
Dollars in thousands, except per member per month
Six Months Ended
June 30,
-----------------------
Dollar Percentage
2008 2007 Change Change
----------- ----------- ----------------------
Premium revenues
Government Segment:
Medicare Advantage $ 6,659,541 $ 5,547,149 $1,112,392 20.1%
Medicare stand-
alone PDPs 1,780,070 1,957,685 (177,615) -9.1%
----------- ----------- -----------
Total Medicare 8,439,611 7,504,834 934,777 12.5%
Military services
insured(D) 1,617,635 1,452,255 165,380 11.4%
Medicaid insured 285,656 261,811 23,845 9.1%
----------- ----------- -----------
Total Government
Segment premiums 10,342,902 9,218,900 1,124,002 12.2%
----------- ----------- -----------
Commercial Segment:
Fully-insured
medical 3,007,512 2,792,887 214,625 7.7%
Specialty 468,939 216,026 252,913 117.1%
----------- ----------- -----------
Total Commercial
Segment premiums 3,476,451 3,008,913 467,538 15.5%
----------- ----------- -----------
Total premium revenues $13,819,353 $12,227,813 $1,591,540 13.0%
=========== =========== ===========
Administrative
services fees
Military services
ASO(D) $ 37,927 $ 29,829 $ 8,098 27.1%
Medicaid ASO 4,235 4,232 3 0.1%
Commercial Segment 182,781 158,896 23,885 15.0%
----------- ----------- -----------
Total administrative
services fees $ 224,943 $ 192,957 $ 31,986 16.6%
=========== =========== ===========
Per Member per Month(C)
Six Months Ended
June 30,
-----------------------
2008 2007
-----------------------
Premium revenues
Government Segment:
Medicare Advantage $ 862 $ 828
Medicare stand-alone PDPs $ 95 $ 94
Total Medicare
Military services insured(D) $ 156 $ 141
Medicaid insured $ 124 $ 113
Total Government Segment premiums
Commercial Segment:
Fully-insured medical $ 267 $ 269
Specialty $ 13 $ 22
Total Commercial Segment premiums
Total premium revenues
Administrative services fees
Military services ASO(D) $ 5 $ 4
Medicaid ASO $ 4 $ 4
Commercial Segment $ 11 $ 13
Total administrative services fees
S-11
Humana Inc.
Percentage of Ending Membership under Capitation Arrangements
Government Segment
---------------------------------------------------
Medicare
Medicare stand-alone Military Total Govt.
June 30, 2008 Advantage PDPs Services Medicaid Segment
----------------- ---------------------------------------------------
Capitated HMO
hospital system
based(E) 1.9% - - - 0.3%
Capitated HMO
physician group
based(E) 3.7% - - 26.8% 2.5%
Risk-sharing(F) 20.4% - - 41.7% 6.4%
All other
membership 74.0% 100.0% 100.0% 31.5% 90.8%
----------------------------------------------------
Total medical
membership 100.0% 100.0% 100.0% 100.0% 100.0%
====================================================
June 30, 2007
-----------------
Capitated HMO
hospital system
based(E) 2.5% - - - 0.3%
Capitated HMO
physician group
based(E) 2.0% - - 26.0% 2.1%
Risk-sharing(F) 24.3% - - 41.4% 6.4%
All other
membership 71.2% 100.0% 100.0% 32.6% 91.2%
----------------------------------------------------
Total medical
membership 100.0% 100.0% 100.0% 100.0% 100.0%
====================================================
Commercial Segment
--------------------------------
Total
Total Comm. Medical
June 30, 2008 Fully-insured ASO Segment Membership
-------------------------- -------------------------------------------
Capitated HMO hospital
system based(E) 1.3% - 0.7% 0.4%
Capitated HMO physician
group based(E) 1.4% - 0.8% 2.0%
Risk-sharing(F) 1.3% - 0.7% 4.7%
All other membership 96.0% 100.0% 97.8% 92.9%
-------------------------------------------
Total medical
membership 100.0% 100.0% 100.0% 100.0%
===========================================
June 30, 2007
--------------------------
Capitated HMO hospital
system based(E) 1.4% - 0.8% 0.5%
Capitated HMO physician
group based(E) 1.5% - 0.8% 1.8%
Risk-sharing(F) 1.5% - 0.8% 4.8%
All other membership 95.6% 100.0% 97.6% 92.9%
-------------------------------------------
Total medical
membership 100.0% 100.0% 100.0% 100.0%
===========================================
S-12
Humana Inc.
Detail of Benefits Payable Balance and Year-to-Date Changes
Dollars in thousands
June 30, March 31, December 31,
2008 2008 2007
------------- -------------------------------
Detail of benefits
payable
IBNR and other
benefits payable(G) $ 2,196,494 $ 1,997,213 $ 1,918,460
Unprocessed claim
inventories(H) 228,700 212,000 213,400
Processed claim
inventories(I) 127,707 118,132 91,938
Payable to pharmacy
benefit
administrator(J) 141,984 185,219 131,663
------------- -------------------------------
Benefits payable,
excluding
military services 2,694,885 2,512,564 2,355,461
Military services
IBNR(K) 320,172 281,208 265,178
Other military
services benefits
payable(L) 90,634 91,599 76,194
------------- -------------------------------
Military services
benefits payable 410,806 372,807 341,372
------------- -------------------------------
Total Benefits Payable $ 3,105,691 $ 2,885,371 $ 2,696,833
============= ===============================
Six Months Six Months
Ended Ended Year Ended
June 30, 2008 June 30, 2007 December 31, 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 27,396 - 41,030
Incurred related to:
Current year 10,628,582 9,284,684 18,015,246
Prior years(N) (221,485) (156,032) (242,922)
------------- -------------------------------
Total incurred 10,407,097 9,128,652 17,772,324
------------- -------------------------------
Paid related to:
Current year (8,602,235) (7,281,526) (16,012,828)
Prior years (1,492,834) (1,388,603) (1,424,798)
------------- -------------------------------
Total paid (10,095,069) (8,670,129) (17,437,626)
------------- -------------------------------
Balances at end of
period $ 2,694,885 $ 2,438,256 $ 2,355,461
============= ===============================
Six Months Six Months
Ended Ended Year Ended
June 30, 2008 June 30, 2007 December 31, 2007
------------- -------------------------------
Summary of Consolidated
Benefits Expense:
Total benefits
expense incurred,
per above $ 10,407,097 $ 9,128,652 $ 17,772,324
Military services
benefits 1,429,657 1,266,763 2,481,815
Future policy benefit
expense(O) 19,762 9,003 16,392
------------- -------------------------------
Consolidated
Benefits Expense $ 11,856,516 $ 10,404,418 $ 20,270,531
============= ===============================
S-13
Humana 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 15.0 15.6 (0.6) -3.8%
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
-----------------------------------------------------------
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
-----------------------------------------------------------
6/30/2008 $ 228,700 742,800 4.6
-----------------------------------------------------------
S-14
Humana Inc.
Benefits Payable Statistics (Continued)(P)
Days in Claims Payable(R)
Change DCP
Days in Claim Last 4 Percentage Excluding
Quarter Ended Payable (DCP) Quarters Change Capitation
---------------------------------------------------------------------
6/30/2006 55.8 9.7 21.0% 62.0
9/30/2006 57.5 7.2 14.2% 64.3
12/31/2006 56.3 6.0 11.9% 64.0
3/31/2007 59.3 5.8 10.8% 66.0
6/30/2007 60.0 4.2 7.5% 68.5
9/30/2007 61.8 4.3 7.5% 70.2
12/31/2007 60.2 3.9 6.9% 68.3
3/31/2008 56.9 (2.4) -4.0% 63.3
---------------------------------------------------------------------
6/30/2008 57.2 (2.8) -4.7% 63.3
---------------------------------------------------------------------
Days in Claims Payable(R)
Change
Last 4 Percentage
Quarter Ended Quarters Change
----------------------------------------------------------------------
6/30/2006 9.6 18.3%
9/30/2006 5.5 9.4%
12/31/2006 7.4 13.1%
3/31/2007 5.5 9.1%
6/30/2007 6.5 10.5%
9/30/2007 5.9 9.2%
12/31/2007 4.3 6.7%
3/31/2008 (2.7) -4.1%
----------------------------------------------------------------------
6/30/2008 (5.2) -7.6%
----------------------------------------------------------------------
Year-to-Date Change in Days in Claims Payable(S)
1H08 FY07
----- -----
DCP - beginning of period 60.2 56.3
Components of change in DCP:
Internal versus outsourced claims processing cycle
times (2.6) (0.2)
Increase in the Part D component of MAPD expense (1.9) (0.5)
Increase in Medicare PPO business (1.1) 0.2
Change in unprocessed claims inventories (0.5) (0.1)
Change in processed claims inventories 0.7 (0.1)
Change in pharmacy payment cutoff (0.4) 0.3
Change in provider payables under risk arrangements 2.9 3.4
All other (0.1) 0.9
----- -----
DCP - end of period 57.2 60.2
===== =====
S-15
Humana Inc.
Footnotes to Statistical Schedules and Supplementary Information
2Q08 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) Benefits 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.
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CONTACT:
Humana Inc.
Investor Relations
Regina Nethery, 502-580-3644
Rnethery@humana.com
or
Corporate Communications
Tom Noland, 502-580-3674
Tnoland@humana.com
SOURCE: Humana Inc.