Humana Reports Third Quarter Financial Results, Provides 2009 Financial Guidance, Comments on Capital and Liquidity
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-- 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.