Humana Reports Third Quarter Financial Results, Provides 2009 Financial Guidance, Comments on Capital and Liquidity
View Press Release in PDF format
-- 2009 earnings per share projected in range of $5.90 to $6.10
-- Business operating results and cash flows in line with
management's expectations
-- 3Q08 EPS of $1.09 included $0.40 in realized losses from
distressed securities
-- 3Q08 cash flows from operations of over $575 million
-- Strong capital position and ample liquidity levels expected to
continue
LOUISVILLE, Ky.--(BUSINESS WIRE)--Oct. 27, 2008--Humana Inc. (NYSE: HUM) today reported diluted earnings per common share (EPS) for the quarter ended September 30, 2008 (3Q08) of $1.09 compared to $1.78 per share for the quarter ended September 30, 2007 (3Q07). The 3Q08 results included $0.40 per share in realized losses primarily associated with other-than-temporary impairments in the company's investment and securities lending portfolios as well as sales of distressed financial institution securities during 3Q08. Excluding the $0.40 in realized losses, non-GAAP 3Q08 EPS of $1.49(a)(e) was at the upper end of the company's prior guidance of $1.45 to $1.50 per share.
Looking ahead to the year ending December 31, 2009 (FY09), the company anticipates a significant increase in earnings over that for the year ending December 31, 2008 (FY08) with EPS projected for FY09 to be in the range of $5.90 to $6.10.
"Our operating results came in as expected during the third quarter and, more importantly, we're forecasting good EPS growth in 2009," said Michael B. McCallister, Humana's president and chief executive officer. "As we previously disclosed, a relatively small portion of our investments were in financial institutions that are now in distress. However, that did not impact our operational progress and our financial position remains strong."
The company has updated its expectations for 2008 EPS as follows:
Fourth Quarter 2008 Full Year 2008
----------------------------------------------------------------------
Previous guidance range midpoint $1.17 $4.35
----------------------------------------------------------------------
3Q08 realized investment losses:
----------------------------------------------------------------------
Lehman Brothers and AIG
securities(b) n/a (0.27)
----------------------------------------------------------------------
Agency preferred shares
including Fannie Mae and
Freddie Mac(c) n/a (0.01)
----------------------------------------------------------------------
Other n/a (0.12)
----------------------------------------------------------------------
Lower net investment income (0.10) (0.10)
----------------------------------------------------------------------
Revised guidance range midpoint $1.07 $3.85
----------------------------------------------------------------------
Current guidance range $1.00 to $1.10 $3.80 to $3.90
----------------------------------------------------------------------
Consolidated Highlights for 3Q08
Revenues - 3Q08 consolidated revenues rose 13 percent to $7.15 billion from $6.32 billion in 3Q07, with total premium and administrative services fees up 15 percent compared to the prior year's quarter, primarily driven by higher average membership in 3Q08 versus 3Q07 for the company's Medicare Advantage, Commercial medical and specialty products.
Consolidated revenues for 3Q08 include a net realized investment loss of $16.8 million in 3Q08 versus net realized investment income of $82.4 million in 3Q07. The year-over-year decline resulted from realized losses associated with other-than-temporary investment impairments and sales of distressed financial institution securities during 3Q08, as follows:
(In millions)
Government Segment $51.9
Commercial Segment 56.4
----------
Consolidated $108.3
==========
Benefit expenses - The 3Q08 consolidated benefits ratio (benefit expenses as a percent of premium revenues) was higher than that for the prior year's quarter, as expected. The 3Q08 consolidated benefits ratio of 83.1 percent compares to 81.3 percent in 3Q07. This year-over-year increase was primarily driven by a 270 basis point increase in the Government Segment benefits ratio associated with higher PDP claim expenses.
Selling, general, & administrative (SG&A) expenses - The 3Q08 consolidated SG&A expense ratio (SG&A expenses as a percent of premiums, administrative services fees and other revenue) of 13.7 percent for 3Q08 compares to 13.3 percent in 3Q07. The 40 basis-point year-over-year increase was driven by a higher SG&A expense ratio for the Commercial Segment associated with a higher mix of members in specialty and individual medical products than in the prior year.
Investment and Securities Lending Portfolios
At September 30, 2008, the company had cash, cash equivalents, and debt and equity securities in its investment portfolio of $6.46 billion, up 2 percent from $6.36 billion at June 30, 2008. Additionally, the company held securities as collateral in connection with the company's securities lending program of $488.4 million at September 30, 2008 compared to $800.3 million at June 30, 2008.
The company regularly evaluates its investment securities for impairment. For the purpose of determining gross realized gains and losses, the cost of investment securities is based upon specific identification. In analyzing individual securities for other-than-temporary impairments, the company considers factors affecting the issuer, factors affecting the industry the issuer operates within, and general debt and equity market trends. The company also considers the length of time an investment's fair value has been below its carrying value, the severity of the decline, the near-term prospects for recovery to cost, and the company's intent and ability to hold the investment until maturity or market recovery is realized.
As of September 30, 2008, approximately 1.3 percent of the assets in the company's investment portfolio and approximately 5.1 percent of the securities held as collateral in connection with its securities lending program were deemed to have been impaired on an other-than-temporary basis, with the related losses realized as a component of 3Q08 net income.
Government Segment Results
Pretax results:
-- Government segment pretax income decreased to $271.7 million
in 3Q08 from $416.3 million in 3Q07 as the improved operating
performance in the company's Medicare Advantage business was
more than offset by the combined effect of the previously
announced lower 2008 PDP operating results and net realized
investment losses during 3Q08.
Enrollment:
-- Medicare Advantage membership grew to 1,368,000 at September
30, 2008, an increase of 230,000 members, or 20 percent from
September 30, 2007, up 23,000, or 2 percent versus June 30,
2008, and 225,000 members, or 20 percent year to date. The
increased net Medicare Advantage membership includes 7,300
members from acquisitions during 3Q08 and 48,000 such members
acquired year to date.
-- Membership in the company's stand-alone PDPs totaled 3,089,000
at September 30, 2008 compared to 3,459,700 at September 30,
2007 and 3,105,200 at June 30, 2008.
-- Military services membership at September 30, 2008 of
2,953,900 was up approximately 3 percent from September 30,
2007 and essentially unchanged from June 30, 2008.
Premiums and administrative services fees:
-- Medicare Advantage premiums of $3.50 billion in 3Q08 increased
24 percent compared to $2.83 billion in 3Q07, primarily the
combined result of a 19 percent increase in average membership
and higher per member premium revenues.
-- Medicare stand-alone PDP premiums of $782.9 million in 3Q08
decreased 12 percent compared to $890.4 million in 3Q07,
primarily the result of a 10 percent decline in average
membership versus that for 3Q07.
-- Military services premiums and administrative services fees
during 3Q08 increased $58.8 million to $790.6 million compared
to $731.8 million in 3Q07.
Benefit Expenses:
-- The Government Segment benefits ratio increased 270 basis
points to 84.1 percent in 3Q08 compared to 81.4 percent in the
prior year's quarter. As previously noted, improved operating
performance year over year in the company's Medicare Advantage
business was more than offset by an increase in the
stand-alone PDP benefits ratio.
SG&A Expenses:
-- The Government Segment's SG&A expense ratio for 3Q08 of 10.2
percent was unchanged from that of 3Q07 and increased 70 basis
points from the second quarter of 2008 as the company prepared
for marketing of its 2009 Medicare plans on October 1, 2008.
Commercial Segment Results
Pretax results:
-- Commercial Segment pretax earnings decreased 82 percent year
over year, to $11.2 million in 3Q08 compared to $62.2 million
in 3Q07. The net decline primarily reflects the effect of
$56.4 million in net realized investment losses during 3Q08
associated with other-than-temporary investment write-downs
and sales of securities from distressed financial institutions
which more than offset the impact of improved operating
results.
Enrollment:
-- Commercial Segment medical membership grew 254,900 members to
3,554,000 at September 30, 2008, an increase of 8 percent from
the September 30, 2007 medical membership for the segment of
3,299,100 and up 3 percent year to date. On an organic basis,
Commercial Segment medical membership grew 191,800 members, or
6 percent year-over-year and 39,300 members, or 1 percent year
to date.
-- Organic medical membership growth in strategic commercial
lines of business for 3Q08 compared to 3Q07 were as follows:
HumanaOne membership increased 42 percent, Smart plans and
other consumer offerings membership grew 20 percent, Small
Group business membership increased 4 percent and ASO
membership grew 4 percent.
-- Membership in Commercial Segment specialty products(d) at
September 30, 2008 rose to 6,727,400 compared to 1,930,100 at
September 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 $1.88 billion in 3Q08 compared
to $1.61 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 3 percent on a per-member basis during
3Q08 compared to 3Q07 reflecting a shift in the mix of
fully-insured group business from the prior year's quarter to
include fewer groups with higher-than-average premiums.
Benefit Expenses:
-- The Commercial Segment benefits ratio for 3Q08 of 80.2 percent
was 80 basis points lower than the 3Q07 benefits ratio of 81.0
percent, primarily due to a higher mix of individual and small
group membership as a percent of the fully insured book and
higher specialty product membership compared to the prior
year's quarter, together with continued underwriting
discipline.
SG&A Expenses:
-- The Commercial Segment SG&A expense ratio of 23.0 percent for
3Q08 compares to 21.8 percent in 3Q07, primarily driven by the
higher administrative costs per member associated with small
group, individual, administrative services only and specialty
membership.
Cash Flows from Operations
Cash flows provided by operations for 3Q08 of $577.3 million compared to cash flows used in operations of $637.7 million in 3Q07 primarily reflecting changes in working capital accounts associated with the timing of the receipt of certain premiums from Medicare, impacting both premiums receivable and unearned revenues.
The company also evaluates operating cash flows on a non-GAAP basis(a)(f).
Cash flows from operations ($ in millions) 3Q08 3Q07 YTD08 YTD07 ---------------------------------------------------------------------- GAAP cash flows provided by operations $577.3 ($637.7) $685.7 $1,414.1 ---------------------------------------------------------------------- Timing of premium payment from CMS(a)(f) -- 1,175.3 -- -- ---------------------------------------------------------------------- Non-GAAP cash flows provided by operations(a)(f) $577.3 $537.6 $685.7 $1,414.1 ----------------------------------------------------------------------
Non-GAAP cash flows provided by operations increased to $577.3 million(a)(f) in 3Q08 from $537.6 million(a)(f) in 3Q07 also driven primarily by the changes in working capital accounts described above.
Capital and Liquidity
The company believes both the parent company (Humana Inc.) and its operating subsidiaries have ample capital and liquidity to meet all financial regulatory requirements and to satisfy their respective obligations.
Because premium revenues are generally collected in advance of medical claim payments by a period of up to several months, the company's business produces positive cash flows during periods of increasing enrollment. In addition, to support its liquidity needs the parent company has available a 5-year, $1.0 billion unsecured revolving credit agreement which expires in July 2011. As of September 30, 2008 there were no borrowings outstanding under this credit agreement. During the fourth quarter of 2008, the company expects to draw approximately $250 million under the revolving credit agreement in order to complete its pending acquisition of Cariten Healthcare (announced August 4, 2008).
The company has various issuances of senior notes. As of September 30, 2008, the senior notes outstanding aggregated approximately $1.55 billion, with the first senior notes due to mature in June 2016. Upon issuance of each of the senior notes, the company had entered into interest-rate swap agreements to exchange the fixed interest rate under these senior notes for variable interest rates based on LIBOR. Based primarily on conditions in the credit markets, on October 7, 2008, the company terminated each of the swap agreements outstanding associated with its senior notes, resulting in an anticipated weighted-average fixed coupon rate on the company's senior notes of 6.28 percent versus a weighted average fixed rate on the senior notes of 6.94 percent and the then-current floating rate of 6.59 percent. In exchange for terminating its rights under the various interest-rate swaps, the company received $108.3 million in cash from its counterparties, which resulted in an offsetting adjustment to the related debt obligations.
Certain of the company's subsidiaries operate in states that regulate the payment of dividends, loans, or other cash transfers to the parent company, and require minimum levels of equity as well as limit the investments to approved securities. The amount of dividends that may be paid to the parent company by these subsidiaries, without prior approval by state regulatory authorities, is limited based on the entity's level of statutory income and statutory capital and surplus. Although the minimum required levels of equity are largely based on premium volume, product mix, and the quality of the assets held, minimum requirements can vary significantly at the state level.
As of June 30, 2008, the company had aggregate statutory capital and surplus of $3.0 billion in its state-regulated subsidiaries, $1.1 billion above the aggregate $1.9 billion in applicable statutory requirements which would trigger any regulatory action by the respective states. The company anticipates at least maintaining the current excess subsidiary capital levels when statutory filings for 3Q08 are completed in November 2008, primarily driven by subsidiary operating earnings exceeding realized investment losses during 3Q08.
Acquisition Activity
During 3Q08, the company completed its acquisition of Metcare Health Plans, Inc. in Florida. On August 4, 2008, the company announced its intent to acquire PHP Companies, Inc. (d/b/a Cariten Healthcare), from Knoxville, Tennessee-based Covenant Health for cash consideration of approximately $245 million. The transaction has received all required regulatory approvals and is scheduled to close in the fourth quarter of 2008.
Share Repurchase Program
On July 28, 2008, the company's Board of Directors increased its 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 Board of Director's prior authorization in February 2008. 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. The company has not yet repurchased shares under the July 2008 authorization.
Footnotes
(a) 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.
(b) Investments were disclosed by the company in its Form 8-K filed with the Securities and Exchange Commission on September 15, 2008.
(c) Investments were disclosed by the company during its second quarter 2008 earnings conference call held August 4, 2008.
(d) 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.
(e) Realized investment losses for the 2008 third quarter which are excluded for this non-GAAP measure result from portfolio valuations associated with current financial market conditions and primarily do not relate to the underwriting or servicing of the company's products.
(f) When reviewing and analyzing Humana's operating cash flows, company management applies the CMS premium payment in each month to match the corresponding disbursements. To do otherwise distorts meaningful analysis of the company's operating cash flow. Therefore, decisions such as management's forecasting and business plans regarding cash flow use this non-GAAP financial measure.
Conference Call & Virtual Slide Presentation
Humana will host a conference call, as well as a virtual slide presentation, at 7:00 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 quarters ended March 31, 2008 and June 30,
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 October 27, 2008
(in accordance For the year ending For the year Comments
with Generally December 31, 2008 ending December
Accepted (assumes a 4Q08 31, 2009
Accounting close for the (assumes a 4Q08
Principles) pending acquisition close for the
of Cariten pending
Healthcare) acquisition of
Cariten
Healthcare)
----------------------------------------------------------------------
Diluted Full year 2008: Full year 2009: Excludes impact
earnings per $3.80 to $3.90 $5.90 to $6.10 of future
common share share
Fourth quarter 2008: repurchases
$1.00 to $1.10
----------------------------------------------------------------------
Revenues Consolidated Consolidated
revenues: revenues: $30
Approximately $29 billion to $32
billion billion
Premiums and ASO Premiums and ASO
fees: fees:
Medicare Medicare
Advantage: $13.5 Advantage:
billion to $14 $15 billion
billion; to $16
billion;
Medicare stand- Medicare
alone PDPs: stand-alone
Approximately PDPs: $2.6
$3.4 billion; billion to
$2.9 billion;
Military Military
services: $3.2 services:
billion to $3.3 $3.5 billion
billion; to $3.6
billion;
Commercial Commercial
Segment: Segment:
Approximately Approximately
$7.5 billion $8.0 billion
to $8.2
billion
Consolidated Consolidated
investment income: investment
$225 million to income: $370
$235 million million to $385
million
Consolidated Consolidated
other revenue: other revenue:
Approximately $240 million to
$200 million $260 million
----------------------------------------------------------------------
Ending medical Medicare Advantage: Medicare FY08 includes
membership Up approximately Advantage: Up 94,700
(fully-insured 300,000 from prior 25,000 to 75,000 Medicare
and ASO year from prior year Advantage
combined) members from
2008
acquisitions
Medicare stand-alone Medicare stand-
PDPs: Down alone PDPs: Down
approximately 650,000 to
350,000 from prior 750,000 from
year prior year
Military services: Military
No material change services: No
from prior year material change
from prior year
Medicaid: Down Medicaid: Down Acquisition of
approximately approximately Cariten
87,000 from prior 93,000 from Healthcare
year prior year includes
approximately
93,000 members
from a
Medicaid
contract that
terminates on
December 31,
2008
Commercial: Up Commercial: No FY08 includes
approximately material change 136,600
190,000 from prior from prior year Commercial
year members from
2008
acquisitions
----------------------------------------------------------------------
Benefit Medicare Advantage & Medicare
expenses stand-alone PDP Advantage &
combined: benefits stand-alone PDP
ratio in the range combined:
of 85.0% to 85.5% benefits ratio
in the range of
83.5% to 84.5%
Commercial fully- Commercial fully-
insured groups: insured groups:
Same-store net Same-store net
benefit expense benefit
trends and expense
premium yields trends and
of 6% to 7% premium
(2.5% to 3.5% yields: no
including the significant
impact of change from
changes in the prior year
company's
business mix)
Secular Secular Secular trends
Commercial Commercial exclude the
benefit expense benefit impact of
trend components expense trend benefit buy-
as follows: components: downs
inpatient no
hospital significant
utilization - change from
flat to 1 prior year
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, 13.5% to 14% 13% to 14% SG&A expenses
general & as a percent
administrative of premiums,
expense ratio administrative
services fees,
and other
revenue
----------------------------------------------------------------------
Depreciation & $215 million to $220 $240 million to
amortization million $260 million
----------------------------------------------------------------------
Interest $80 million to $85 $110 million to
expense million $115 million
----------------------------------------------------------------------
Government Medicare Advantage & Medicare Line-of-
Segment stand-alone PDP Advantage & business-level
operating combined: stand-alone PDP results
margins Approximately 3.5% combined: exclude the
Approximately 5% impact of
investment
income and
interest
expense
Military services: Military
2.5% to 3.0% services: 2.5%
to 3.0%
----------------------------------------------------------------------
Commercial $210 million to $215 $300 million to Segment-level
Segment pretax million $320 million results
earnings include the
impact of
investment
income and
interest
expense
FY08 includes
$56.4 million
from realized
investment
losses
associated
with
distressed
financial
institutions
in 3Q08 and an
estimated $13
million impact
from lower net
investment
income in the
fourth quarter
of 2008 than
previously
anticipated
----------------------------------------------------------------------
Cash flows from $1.0 billion to $1.2 $1.2 billion to
operations billion $1.4 billion
----------------------------------------------------------------------
Capital Approximately $260 Approximately
expenditures million $260 million
----------------------------------------------------------------------
Effective tax 35.0% to 35.5% 35% to 36%
rate
----------------------------------------------------------------------
Shares used in Approximately 169 Approximately 170 Excludes impact
computing million million of future
full-year EPS share
repurchases
----------------------------------------------------------------------
Humana Inc.
Statistical Schedules
And
Supplementary Information
3Q08 Earnings Release
Humana Inc.
Statistical Schedules and Supplementary Information
3Q08 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
Percentage of Ending Membership under Capitation
S-12 Arrangements
S-13-15 Benefits Payable
S-16 Investments
S-17 Footnotes
Humana Inc.
Consolidated Statements of Income
In thousands, except per common share results
Three Months Ended
September 30,
----------------------
Dollar Percentage
2008 2007 Change Change
----------- ---------- ---------- ----------
Revenues:
Premiums $6,991,569 $6,092,841 $898,728 14.8%
Administrative
services fees 114,401 101,531 12,870 12.7%
Investment (loss)
income (16,773) 82,362 (99,135) -120.4%
Other revenue 58,973 42,850 16,123 37.6%
----------- ---------- ----------
Total revenues 7,148,170 6,319,584 828,586 13.1%
----------- ---------- ----------
Operating expenses:
Benefits 5,810,613 4,953,862 856,751 17.3%
Selling, general and
administrative 979,223 829,023 150,200 18.1%
Depreciation 46,371 37,771 8,600 22.8%
Other intangible
amortization 9,755 4,479 5,276 117.8%
----------- ---------- ----------
Total operating
expenses 6,845,962 5,825,135 1,020,827 17.5%
----------- ---------- ----------
Income from operations 302,208 494,449 (192,241) -38.9%
Interest expense 19,348 15,947 3,401 21.3%
----------- ---------- ----------
Income before income
taxes 282,860 478,502 (195,642) -40.9%
Provision for income
taxes 99,852 176,124 (76,272) -43.3%
----------- ---------- ----------
Net income $183,008 $302,378 ($119,370) -39.5%
=========== ========== ==========
Basic earnings per common
share $1.10 $1.81 ($0.71) -39.2%
Diluted earnings per
common share $1.09 $1.78 ($0.69) -38.8%
Shares used in computing
basic earnings per
common share 166,647 167,188
Shares used in computing
diluted earnings per
common share 168,578 170,051
Humana Inc.
Consolidated Statements of Income
In thousands, except per common share results
Nine Months Ended
September 30,
-----------------------
Dollar Percentage
2008 2007 Change Change
----------- ----------- ----------- ----------
Revenues:
Premiums $20,810,922 $18,320,654 $2,490,268 13.6%
Administrative
services fees 339,344 294,488 44,856 15.2%
Investment income 154,007 227,941 (73,934) -32.4%
Other revenue 154,463 108,111 46,352 42.9%
----------- ----------- -----------
Total revenues 21,458,736 18,951,194 2,507,542 13.2%
----------- ----------- -----------
Operating expenses:
Benefits 17,667,129 15,358,280 2,308,849 15.0%
Selling, general and
administrative 2,845,709 2,476,092 369,617 14.9%
Depreciation 133,469 122,100 11,369 9.3%
Other intangible
amortization 27,073 14,478 12,595 87.0%
----------- ----------- -----------
Total operating
expenses 20,673,380 17,970,950 2,702,430 15.0%
----------- ----------- -----------
Income from operations 785,356 980,244 (194,888) -19.9%
Interest expense 53,554 49,931 3,623 7.3%
----------- ----------- -----------
Income before income
taxes 731,802 930,313 (198,511) -21.3%
Provision for income
taxes 258,728 339,848 (81,120) -23.9%
----------- ----------- -----------
Net income $473,074 $590,465 ($117,391) -19.9%
=========== =========== ===========
Basic earnings per
common share $2.83 $3.55 ($0.72) -20.3%
Diluted earnings per
common share $2.79 $3.48 ($0.69) -19.8%
Shares used in
computing basic
earnings per common
share 167,328 166,538
Shares used in
computing diluted
earnings per common
share 169,392 169,535
Humana Inc.
Consolidated Balance Sheets
Dollars in thousands, except share amounts
September 30, June 30, December 31,
2008 2008 2007
---------------------------------------
Assets
Current assets:
Cash and cash equivalents $1,542,900 $1,174,642 $2,040,453
Investment securities 3,982,564 4,195,562 3,635,317
Receivables, net:
Premiums 697,497 987,074 592,761
Administrative services
fees 12,156 12,644 12,780
Securities lending
collateral 488,431 800,326 1,337,049
Other 1,476,439 1,290,295 1,114,486
---------------------------------------
Total current assets 8,199,987 8,460,543 8,732,846
Property and equipment, net 677,882 655,431 637,241
Other assets:
Long-term investment
securities 930,450 989,253 1,015,050
Goodwill 1,823,280 1,817,460 1,663,939
Other 932,271 1,017,296 829,998
---------------------------------------
Total other assets 3,686,001 3,824,009 3,508,987
---------------------------------------
Total assets $12,563,870 $12,939,983 $12,879,074
=======================================
Liabilities and Stockholders'
Equity
Current liabilities:
Benefits payable $3,068,587 $3,105,691 $2,696,833
Trade accounts payable and
accrued expenses 1,240,631 1,350,924 1,268,963
Book overdraft 257,680 297,965 269,226
Securities lending payable 535,531 800,326 1,337,049
Unearned revenues 220,509 210,770 219,780
---------------------------------------
Total current
liabilities 5,322,938 5,765,676 5,791,851
Long-term debt 1,668,233 1,635,098 1,687,823
Future policy benefits payable 988,672 980,257 980,686
Other long-term liabilities 313,495 355,224 389,777
---------------------------------------
Total liabilities 8,293,338 8,736,255 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;
187,733,811 issued at
September 30, 2008 31,289 31,275 31,123
Capital in excess of par
value 1,558,625 1,542,378 1,497,998
Retained earnings 3,215,856 3,032,848 2,742,782
Accumulated other
comprehensive (loss)
income (172,484) (51,125) 14,021
Treasury stock, at cost,
19,022,596 shares at
September 30, 2008 (362,754) (351,648) (256,987)
---------------------------------------
Total stockholders'
equity 4,270,532 4,203,728 4,028,937
---------------------------------------
Total liabilities and
stockholders' equity $12,563,870 $12,939,983 $12,879,074
=======================================
Debt-to-total capitalization
ratio 28.1% 28.0% 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 ($260,556) -3.1%
Property and equipment, net
Other assets:
Long-term investment securities
Goodwill
Other
Total other assets
Total assets ($376,113) -2.9%
Liabilities and Stockholders' Equity
Current liabilities:
Benefits payable
Trade accounts payable and accrued expenses
Book overdraft
Securities lending payable
Unearned revenues
Total current liabilities ($442,738) -7.7%
Long-term debt
Future policy benefits payable
Other long-term liabilities
Total liabilities ($442,917) -5.1%
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;
187,733,811 issued at September 30, 2008
Capital in excess of par value
Retained earnings
Accumulated other comprehensive (loss) income
Treasury stock, at cost, 19,022,596 shares at
September 30, 2008
Total stockholders' equity $66,804 1.6%
Total liabilities and stockholders' equity ($376,113) -2.9%
Debt-to-total capitalization ratio
Humana Inc.
Consolidated Statements of Cash Flows
Dollars in thousands
Three Months Ended
September 30,
-----------------------
Dollar Percentage
2008 2007 Change Change
----------------------- ----------------------
Cash flows from
operating activities
Net income $183,008 $302,378
Adjustments to
reconcile net
income to net cash
provided by (used
in) operating
activities:
Depreciation and
amortization 56,126 42,250
Loss (gain) on
sale of
investment
securities, net 92,285 (2,387)
Stock-based
compensation 14,670 10,604
Benefit for
deferred income
taxes (31,983) (9,168)
Changes in
operating assets
and liabilities
excluding the
effects of
acquisitions:
Receivables 290,065 (245)
Other assets 28,280 69,395
Benefits
payable (43,830) (76,826)
Other
liabilities (19,893) 204,741
Unearned
revenues 3,359 (1,177,937)
Other 5,188 (458)
-----------------------
Net cash provided by
(used in) operating
activities 577,275 (637,653) $1,214,928 190.5%
-----------------------
Cash flows from
investing activities
Acquisitions, net of
cash acquired 3,746 (501)
Purchases of
property and
equipment (67,500) (41,339)
Proceeds from sales
of property and
equipment - 11,862
Purchases of
investment
securities (1,557,997) (758,695)
Proceeds from
maturities of
investment
securities 144,216 321,304
Proceeds from sales
of investment
securities 1,462,238 328,275
Change in securities
lending collateral 264,795 515,476
-----------------------
Net cash provided by
investing activities 249,498 376,382 ($126,884) -33.7%
-----------------------
Cash flows from
financing activities
Receipts from CMS
contract deposits 585,551 464,703
Withdrawals from CMS
contract deposits (728,707) (885,541)
Borrowings under
credit agreement - 475,000
Repayments under
credit agreement - (400,000)
Debt issue costs (1,182) -
Change in book
overdraft (40,285) (36,290)
Change in securities
lending payable (264,795) (515,476)
Common stock
repurchases (11,106) (6,814)
Excess tax benefit
from stock-based
compensation 450 12,272
Proceeds from stock
option exercises
and other 1,559 18,318
-----------------------
Net cash used in
financing activities (458,515) (873,828) $415,313 47.5%
-----------------------
Increase/(decrease) in
cash and cash
equivalents 368,258 (1,135,099)
Cash and cash
equivalents at
beginning of period 1,174,642 3,720,769
-----------------------
Cash and cash
equivalents at end of
period $1,542,900 $2,585,670
=======================
Humana Inc.
Consolidated Statements of Cash Flows
Dollars in thousands
Nine Months Ended
September 30,
-----------------------
Dollar Percentage
2008 2007 Change Change
----------------------- -----------------------
Cash flows from
operating activities
Net income $473,074 $590,465
Adjustments to
reconcile net
income to net cash
provided by
operating
activities:
Depreciation and
amortization 160,542 136,578
Loss (gain) on
sale of
investment
securities, net 73,436 (2,472)
Stock-based
compensation 41,835 30,868
Benefit for
deferred income
taxes (21,411) (33,179)
Changes in
operating
assets and
liabilities
excluding the
effects of
acquisitions:
Receivables (93,320) (16,857)
Other assets (166,931) (57,072)
Benefits
payable 337,632 380,056
Other
liabilities (124,368) 348,167
Unearned
revenues (9,098) 21,782
Other 14,346 15,758
-----------------------
Net cash provided by
operating activities 685,737 1,414,094 ($728,357) -51.5%
-----------------------
Cash flows from
investing activities
Acquisitions, net
of cash acquired (262,347) (27,506)
Purchases of
property and
equipment (179,547) (156,056)
Proceeds from sales
of property and
equipment 2 15,934
Purchases of
investment
securities (5,082,141) (2,631,990)
Proceeds from
maturities of
investment
securities 418,563 1,091,260
Proceeds from sales
of investment
securities 4,111,640 1,254,878
Change in
securities lending
collateral 801,518 (202,599)
-----------------------
Net cash used in
investing activities (192,312) (656,079) $463,767 70.7%
-----------------------
Cash flows from
financing activities
Receipts from CMS
contract deposits 1,774,381 1,948,062
Withdrawals from
CMS contract
deposits (1,807,952) (2,109,523)
Borrowings under
credit agreement 425,000 1,185,000
Repayments under
credit agreement (1,225,000) (1,160,000)
Proceeds from
issuance of senior
notes 749,247 -
Debt issue costs (6,662) -
Change in book
overdraft (11,546) (40,249)
Change in
securities lending
payable (801,518) 202,599
Common stock
repurchases (105,767) (14,017)
Excess tax benefit
from stock-based
compensation 9,794 26,826
Proceeds from stock
option exercises
and other 9,045 48,653
-----------------------
Net cash (used in)
provided by financing
activities (990,978) 87,351 ($1,078,329) -1234.5%
-----------------------
(Decrease)/increase in
cash and cash
equivalents (497,553) 845,366
Cash and cash
equivalents at
beginning of period 2,040,453 1,740,304
-----------------------
Cash and cash
equivalents at end of
period $1,542,900 $2,585,670
=======================
Humana Inc.
Key Income Statement Ratios and Segment Operating Results
Dollars in thousands
Three Months Ended
September 30,
------------------
Percentage
2008 2007 Difference Change
------------------ ---------------------
Benefits ratio
Government Segment 84.1% 81.4% 2.7%
Commercial Segment 80.2% 81.0% -0.8%
Consolidated 83.1% 81.3% 1.8%
Selling, general, and
administrative expense ratio
(A)
Government Segment 10.2% 10.2% 0.0%
Commercial Segment 23.0% 21.8% 1.2%
Consolidated 13.7% 13.3% 0.4%
Detail of pretax income
Government Segment $271,701 $416,299 ($144,598) -34.7%
Commercial Segment 11,159 62,203 (51,044) -82.1%
------------------ ----------
Consolidated $282,860 $478,502 ($195,642) -40.9%
================== ==========
Detail of pretax margins
Government Segment 5.2% 9.0% -3.8%
Commercial Segment 0.6% 3.7% -3.1%
Consolidated 4.0% 7.6% -3.6%
Nine Months Ended
September 30,
-----------------
Percentage
2008 2007 Difference Change
----------------- ---------------------
Benefits ratio
Government Segment 86.8% 85.0% 1.8%
Commercial Segment 79.4% 80.4% -1.0%
Consolidated 84.9% 83.8% 1.1%
Selling, general, and
administrative expense ratio
(A)
Government Segment 10.1% 10.3% -0.2%
Commercial Segment 22.3% 21.4% 0.9%
Consolidated 13.4% 13.2% 0.2%
Detail of pretax income
Government Segment $517,913 $722,954 ($205,041) -28.4%
Commercial Segment 213,889 207,359 6,530 3.1%
----------------- ----------
Consolidated $731,802 $930,313 ($198,511) -21.3%
================= ==========
Detail of pretax margins
Government Segment 3.3% 5.2% -1.9%
Commercial Segment 3.7% 4.2% -0.5%
Consolidated 3.4% 4.9% -1.5%
Humana Inc.
Membership Detail
In thousands
Ending Ending
September Average September
30, 2008 3Q08 30, 2007
-----------------------------
Medical Membership:
Government Segment:
Medicare Advantage - HMO 502.3 497.3 451.7
Medicare Advantage - PPO 171.0 168.7 71.1
Medicare Advantage - PFFS 694.7 692.6 615.2
-----------------------------
Total Medicare Advantage 1,368.0 1,358.6 1,138.0
-----------------------------
Medicare - PDP - Standard 1,495.7 1,507.3 2,148.9
Medicare - PDP - Enhanced 1,433.8 1,425.8 1,085.1
Medicare - PDP - Complete 159.5 161.1 225.7
-----------------------------
Total Medicare stand-alone PDPs 3,089.0 3,094.2 3,459.7
-----------------------------
Total Medicare 4,457.0 4,452.8 4,597.7
-----------------------------
Military services insured 1,734.4 1,732.6 1,720.4
Military services ASO 1,219.5 1,215.1 1,137.0
-----------------------------
Total military services 2,953.9 2,947.7 2,857.4
-----------------------------
Medicaid insured 385.1 387.2 383.8
Medicaid ASO 177.3 178.8 182.8
-----------------------------
Total Medicaid 562.4 566.0 566.6
-----------------------------
Total Government Segment 7,973.3 7,966.5 8,021.7
-----------------------------
Commercial Segment:
Fully-insured medical:
Group 1,596.0 1,601.9 1,530.2
Individual 316.8 311.1 223.7
Medicare supplement 18.4 17.6 11.3
-----------------------------
Total fully-insured medical 1,931.2 1,930.6 1,765.2
ASO 1,622.8 1,622.3 1,533.9
-----------------------------
Total Commercial Segment 3,554.0 3,552.9 3,299.1
-----------------------------
Total medical membership 11,527.3 11,519.4 11,320.8
=============================
Specialty Membership
Dental - fully-insured 2,578.6 2,587.5 974.7
Dental - ASO 1,062.7 1,069.7 499.3
-----------------------------
Total dental 3,641.3 3,657.2 1,474.0
Vision 2,188.9 2,181.9 -
Other supplemental benefits (B) 897.2 900.1 456.1
-----------------------------
Total specialty membership 6,727.4 6,739.2 1,930.1
=============================
Year-over-year Sequential
Change Ending Change
--------------- --------------
June 30,
Amount Percent 2008 Amount Percent
--------------- -------- --------------
Medical Membership:
Government Segment:
Medicare Advantage - HMO 50.6 11.2% 494.0 8.3 1.7%
Medicare Advantage - PPO 99.9 140.5% 163.5 7.5 4.6%
Medicare Advantage - PFFS 79.5 12.9% 687.5 7.2 1.0%
------- -------- ------
Total Medicare
Advantage 230.0 20.2% 1,345.0 23.0 1.7%
------- -------- ------
Medicare - PDP - Standard (653.2) -30.4% 1,531.6 (35.9) -2.3%
Medicare - PDP - Enhanced 348.7 32.1% 1,409.4 24.4 1.7%
Medicare - PDP - Complete (66.2) -29.3% 164.2 (4.7) -2.9%
------- -------- ------
Total Medicare stand-
alone PDPs (370.7) -10.7% 3,105.2 (16.2) -0.5%
------- -------- ------
Total Medicare (140.7) -3.1% 4,450.2 6.8 0.2%
------- -------- ------
Military services insured 14.0 0.8% 1,737.6 (3.2) -0.2%
Military services ASO 82.5 7.3% 1,206.2 13.3 1.1%
------- -------- ------
Total military services 96.5 3.4% 2,943.8 10.1 0.3%
------- -------- ------
Medicaid insured 1.3 0.3% 387.7 (2.6) -0.7%
Medicaid ASO (5.5) -3.0% 173.8 3.5 2.0%
------- -------- ------
Total Medicaid (4.2) -0.7% 561.5 0.9 0.2%
------- -------- ------
Total Government Segment (48.4) -0.6% 7,955.5 17.8 0.2%
------- -------- ------
Commercial Segment:
Fully-insured medical:
Group 65.8 4.3% 1,623.3 (27.3) -1.7%
Individual 93.1 41.6% 297.2 19.6 6.6%
Medicare supplement 7.1 62.8% 16.1 2.3 14.3%
------- -------- ------
Total fully-insured
medical 166.0 9.4% 1,936.6 (5.4) -0.3%
ASO 88.9 5.8% 1,621.9 0.9 0.1%
------- -------- ------
Total Commercial Segment 254.9 7.7% 3,558.5 (4.5) -0.1%
------- -------- ------
Total medical membership 206.5 1.8% 11,514.0 13.3 0.1%
======= ======== ======
Specialty Membership
Dental - fully-insured 1,603.9 164.6% 2,612.2 (33.6) -1.3%
Dental - ASO 563.4 112.8% 1,074.0 (11.3) -1.1%
------- -------- ------
Total dental 2,167.3 147.0% 3,686.2 (44.9) -1.2%
Vision 2,188.9 100.0% 2,160.9 28.0 1.3%
Other supplemental
benefits (B) 441.1 96.7% 897.3 (0.1) 0.0%
------- -------- ------
Total specialty membership 4,797.3 248.6% 6,744.4 (17.0) -0.3%
======= ======== ======
Humana Inc.
Premiums and Administrative Services Fees Detail
Dollars in thousands, except per member per month
Per Member
per Month
(C)
Three
Months
Ended
Three Months Ended September
September 30, 30,
--------------------- ----------
Dollar Percentage
2008 2007 Change Change 2008 2007
--------------------- -------------------- ----------
Premium revenues
Government
Segment:
Medicare
Advantage $3,497,568 $2,825,587 $671,981 23.8% $858 $827
Medicare
stand-alone
PDPs 782,855 890,420 (107,565) -12.1% $84 $86
--------------------- ---------
Total
Medicare 4,280,423 3,716,007 564,416 15.2%
Military
services
insured (D) 771,560 714,173 57,387 8.0% $148 $138
Medicaid
insured 152,069 135,609 16,460 12.1% $131 $118
--------------------- ---------
Total
Government
Segment
premiums 5,204,052 4,565,789 638,263 14.0%
--------------------- ---------
Commercial
Segment:
Fully-insured
medical 1,559,120 1,418,884 140,236 9.9% $269 $269
Specialty 228,397 108,168 120,229 111.2% $12 $22
--------------------- ---------
Total
Commercial
Segment
premiums 1,787,517 1,527,052 260,465 17.1%
--------------------- ---------
Total premium
revenues $6,991,569 $6,092,841 $898,728 14.8%
===================== =========
Administrative
services fees
Military
services ASO
(D) $19,066 $17,675 $1,391 7.9% $5 $5
Medicaid ASO 2,103 2,165 (62) -2.9% $4 $4
Commercial
Segment 93,232 81,691 11,541 14.1% $12 $13
--------------------- ---------
Total
administrative
services fees $114,401 $101,531 $12,870 12.7%
===================== =========
Humana Inc.
Premiums and Administrative Services Fees Detail
Dollars in thousands, except per member per month
Nine Months Ended
September 30,
-----------------------
Dollar Percentage
2008 2007 Change Change
----------------------- ----------------------
Premium revenues
Government Segment:
Medicare Advantage $10,157,109 $8,372,736 $1,784,373 21.3%
Medicare stand-alone
PDPs 2,562,925 2,848,105 (285,180) -10.0%
----------------------- -----------
Total Medicare 12,720,034 11,220,841 1,499,193 13.4%
Military services
insured (D) 2,389,195 2,166,428 222,767 10.3%
Medicaid insured 437,725 397,420 40,305 10.1%
----------------------- -----------
Total Government
Segment premiums 15,546,954 13,784,689 1,762,265 12.8%
----------------------- -----------
Commercial Segment:
Fully-insured
medical 4,566,632 4,211,771 354,861 8.4%
Specialty 697,336 324,194 373,142 115.1%
----------------------- -----------
Total Commercial
Segment premiums 5,263,968 4,535,965 728,003 16.0%
----------------------- -----------
Total premium revenues $20,810,922 $18,320,654 $2,490,268 13.6%
======================= ===========
Administrative services
fees
Military services
ASO (D) $56,993 $47,504 $9,489 20.0%
Medicaid ASO 6,338 6,397 (59) -0.9%
Commercial Segment 276,013 240,587 35,426 14.7%
----------------------- -----------
Total administrative
services fees $339,344 $294,488 $44,856 15.2%
======================= ===========
Per Member per Month (C)
Nine Months Ended September 30,
-------------------------------
2008 2007
-------------------------------
Premium revenues
Government Segment:
Medicare Advantage $860 $828
Medicare stand-alone PDPs $91 $91
Total Medicare
Military services insured (D) $153 $140
Medicaid insured $126 $115
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 $5
Medicaid ASO $4 $4
Commercial Segment $11 $13
Total administrative services fees
Humana Inc.
Percentage of Ending Membership under Capitation Arrangements
Government Segment
-----------------------------------------------
Medicare
stand- Total
Medicare alone Military Govt.
September 30, 2008 Advantage PDPs Services Medicaid Segment
---------------------- -----------------------------------------------
Capitated HMO hospital
system based (E) 1.9% - - - 0.3%
Capitated HMO
physician group based
(E) 3.5% - - 26.3% 2.5%
Risk-sharing (F) 20.0% - - 41.6% 6.4%
All other membership 74.6% 100.0% 100.0% 32.1% 90.8%
-----------------------------------------------
Total medical
membership 100.0% 100.0% 100.0% 100.0% 100.0%
===============================================
September 30, 2007
----------------------
Capitated HMO hospital
system based (E) 2.4% - - - 0.3%
Capitated HMO
physician group based
(E) 2.0% - - 26.5% 2.2%
Risk-sharing (F) 24.2% - - 40.8% 6.3%
All other membership 71.4% 100.0% 100.0% 32.7% 91.2%
-----------------------------------------------
Total medical
membership 100.0% 100.0% 100.0% 100.0% 100.0%
===============================================
Commercial Segment
------------------------
Total Total
Fully- Comm. Medical
September 30, 2008 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% 1.9%
Risk-sharing (F) 1.3% - 0.7% 4.7%
All other membership 96.0% 100.0% 97.8% 93.0%
-------------------------------------
Total medical membership 100.0% 100.0% 100.0% 100.0%
=====================================
September 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% 4.7%
All other membership 95.6% 100.0% 97.6% 93.0%
-------------------------------------
Total medical membership 100.0% 100.0% 100.0% 100.0%
=====================================
Humana Inc.
Detail of Benefits Payable Balance and Year-to-Date Changes
Dollars in thousands
September 30, June 30, December 31,
2008 2008 2007
----------------------------------------
Detail of benefits payable
IBNR and other benefits
payable (G) $2,170,971 $2,196,494 $1,918,460
Unprocessed claim
inventories (H) 293,600 228,700 213,400
Processed claim
inventories (I) 83,574 127,707 91,938
Payable to pharmacy
benefit administrator (J) 164,709 141,984 131,663
----------------------------------------
Benefits payable,
excluding military
services 2,712,854 2,694,885 2,355,461
Military services IBNR (K) 327,828 320,172 265,178
Other military services
benefits payable (L) 27,905 90,634 76,194
----------------------------------------
Military services
benefits payable 355,733 410,806 341,372
----------------------------------------
Total Benefits Payable $3,068,587 $3,105,691 $2,696,833
========================================
Nine Months Nine Months
Ended Ended Year Ended
September 30, September 30, 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 34,122 - 41,030
Incurred related to:
Current year 15,769,075 13,655,981 18,015,246
Prior years (N) (230,461) (215,747) (242,922)
----------------------------------------
Total incurred 15,538,614 13,440,234 17,772,324
----------------------------------------
Paid related to:
Current year (13,692,050) (11,636,269) (16,012,828)
Prior years (1,523,293) (1,406,350) (1,424,798)
----------------------------------------
Total paid (15,215,343) (13,042,619) (17,437,626)
----------------------------------------
Balances at end of period $2,712,854 $2,377,348 $2,355,461
========================================
Nine Months Nine Months
Ended Ended Year Ended
September 30, September 30, December 31,
2008 2007 2007
----------------------------------------
Summary of Consolidated
Benefits Expense:
Total benefits expense
incurred, per above $15,538,614 $13,440,234 $17,772,324
Military services benefits 2,098,059 1,905,034 2,481,815
Future policy benefit
expense (O) 30,456 13,012 16,392
----------------------------------------
Consolidated Benefits
Expense $17,667,129 $15,358,280 $20,270,531
========================================
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 15.2 15.9 (0.7) -4.4%
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 (000's) Counts Days on Hand
-----------------------------------------------------------
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
-----------------------------------------------------------
9/30/2008 $293,600 946,500 6.0
-----------------------------------------------------------
Humana Inc.
Benefits Payable Statistics (Continued) (P)
Days in Claims Payable (R)
Days in Claims Change Last 4 Percentage
Quarter Ended Payable (DCP) Quarters Change
----------------------------------------------------------------------
9/30/2006 57.5 7.2 14.2%
12/31/2006 56.3 6.0 11.9%
3/31/2007 59.3 5.8 10.8%
6/30/2007 60.0 4.2 7.5%
9/30/2007 61.8 4.3 7.5%
12/31/2007 60.2 3.9 6.9%
3/31/2008 56.9 (2.4) -4.0%
6/30/2008 57.2 (2.8) -4.7%
----------------------------------------------------------------------
9/30/2008 58.1 (3.7) -6.0%
----------------------------------------------------------------------
DCP Excluding Change Last 4 Percentage
Quarter Ended Capitation Quarters Change
----------------------------------------------------------------------
9/30/2006 64.3 5.5 9.4%
12/31/2006 64.0 7.4 13.1%
3/31/2007 66.0 5.5 9.1%
6/30/2007 68.5 6.5 10.5%
9/30/2007 70.2 5.9 9.2%
12/31/2007 68.3 4.3 6.7%
3/31/2008 63.3 (2.7) -4.1%
6/30/2008 63.3 (5.2) -7.6%
----------------------------------------------------------------------
9/30/2008 65.1 (5.1) -7.3%
----------------------------------------------------------------------
Year-to-Date Change in Days in Claims Payable (S)
2008 2007
-----------
DCP - beginning of period 60.2 56.3
Components of change in DCP:
Internal versus outsourced claims processing
cycle times (3.2) (0.2)
Increase in the Part D component of MAPD expense (2.0) (0.5)
Increase in Medicare PPO business (0.7) 0.2
Change in unprocessed claims inventories 1.5 (0.1)
Change in processed claims inventories (0.3) (0.1)
Change in pharmacy payment cutoff (0.2) 0.3
Change in provider payables under risk
arrangements 2.5 3.4
All other 0.3 0.9
-----------
DCP - end of period 58.1 60.2
===========
Humana Inc.
Investments
Dollars in thousands
Average Average
Duration Credit
Fair value (T) Rating
-------------------------------------------
9/30/2008 12/31/2007 9/30/2008 9/30/2008
-------------------------------------------
Investment Portfolio:
Cash & cash
equivalents $1,542,900 $2,040,453
Investment Securities 3,982,564 3,635,317
Long-term investments 930,450 1,015,050
---------------------
Total investment
portfolio $6,455,914 $6,690,820 ~3.5 years AA+
=====================
Securities Lending
Collateral Portfolio:
Cash & cash
equivalents $79,032 $686,096
Certificates of
deposit 118,710 145,588
Bank notes 67,650 98,789
Corporate Floating
Rate 59,011 147,256
Repurchase Agreements - 4,563
Asset-backed
securities 164,028 254,757
---------------------
$488,431 $1,337,049 AA+
=====================
Fair value
---------------------
9/30/2008 12/31/2007
---------------------
Investment Portfolio Detail:
Cash and cash equivalents $1,542,900 $2,040,453
---------------------
U.S. Government and agency obligations
U.S. Treasury obligations $171,889 $192,185
Federal National Mortgage Association
(Fannie Mae) bonds 796,555 534,468
Federal Home Loan Mortgage Corporation
(Freddie Mac) bonds 241,988 157,544
Government National Mortgage
Association (Ginnie Mae) bonds 274,834 29,695
Other 156,909 70,111
---------------------
Total U.S. Government and agency
obligations 1,642,175 984,003
---------------------
Tax-exempt municipal securities
Guaranteed by monoline insurers 907,052 745,995
Other 656,830 1,118,996
---------------------
Total tax-exempt municipal
securities 1,563,882 1,864,991
---------------------
Mortgage and asset-backed securities
Commercial mortgages 306,280 495,301
Prime residential mortgages 401,165 333,715
Alt-A residential mortgages 5,345 15,077
Sub-prime residential mortgages 3,053 6,888
Other Asset-backed 154,965 59,681
---------------------
Total mortgage and asset-backed
securities 870,808 910,662
---------------------
Corporate Securities
Financial services 341,568 417,944
Other 458,529 445,922
---------------------
Total commercial securities 800,097 863,866
Redeemable preferred stocks 19,207 15,558
Non-redeemable preferred stocks 12,384 7,208
Common stocks 4,461 4,079
---------------------
Total investment portfolio $6,455,914 $6,690,820
=====================
Humana Inc.
Footnotes to Statistical Schedules and Supplementary Information
3Q08 Earnings Release
(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 the company's
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 the company's 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 the company's largest claim
processing platforms represent 90% to 95% 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.
(T) Duration is the time-weighted average of the present value of the
bond portfolio cash flow.
CONTACT: Humana Inc.
http://www.humana.com
Regina Nethery, 502-580-3644
Investor Relations
Rnethery@humana.com
or
Tom Noland, 502-580-3674
Corporate Communications
Tnoland@humana.com
SOURCE: Humana Inc.