Pro forma operating cash declined primarily from lower income tax receipts, slower premium receipt collections, partially the result of a billing system conversion, a reduction in claims inventory and claim payments related to
terminated membership.
On March 31, 2000, the Company received $125 million from the disposition of its workers' compensation business ($60 million, net of cash and cash equivalents included in the disposed operating subsidiary). The operating subsidiary
sold included total assets of $595 million, primarily consisting of marketable securities and reinsurance recoverables and total liabilities of $407 million, primarily consisting of workers' compensation reserves. The Company expects to use the proceeds fro
The Company's subsidiaries operate in states that require minimum levels of equity and regulate the payment of dividends to the parent company. As a result, the Company's ability to use operating subsidiaries' cash flows is restricted
to the extent of the subsidiaries' ability to obtain regulatory approval to pay dividends.
The National Association of Insurance Commissioners has recommended that states adopt a risk-based capital ("RBC") formula for companies established as HMO entities, similar to the current requirement for insurance companies. The RBC
provisions may require new minimum capital and surplus levels for some of the Company's HMO subsidiaries. Many states have not yet determined when they will adopt the RBC formula or if they will allow a phase-in to the required levels of capital and surplus
.<
The Company currently maintains approximately $774 million of capital and surplus in its health insurance and HMO entities, compared to the minimum statutory required capital and surplus levels of approximately $626 million. If the
states in which the Company conducts business adopt the proposed RBC formula, without a phase-in provision, the Company estimates it would be required to fund additional capital into its various subsidiaries of approximately $62 million. After this
capital infu
d have $100 million of capital and surplus above the required RBC level.
The Company maintains a revolving credit agreement ("Credit Agreement") which provides a line of credit of up to $1.0 billion and expires in August 2002. Principal amounts outstanding under the Credit Agreement bear interest at either a
fixed rate or a floating rate, ranging from LIBOR plus 35 basis points to LIBOR plus 80 basis points, depending on the Company's credit ratings. The Credit Agreement contains customary covenants and events of default including, but not limited to, financia
Management believes that funds from future operating cash flows and funds available under the existing Credit Agreement and commercial paper program are sufficient to meet future liquidity needs. Management also believes the
aforementioned sources of funds are adequate to allow the Company to fund capital requirements.
The Company's ongoing capital expenditures relate primarily to information systems and administrative facilities necessary for activities such as claims processing, billing and
collections, medical utilization review and customer service. Excluding acquisitions, planned capital spending for the remainder of 2000 will approximate $100 million to $110 million for the funding of the Company's technology
initiatives and expansion and improvement of its administrative facilities.
To date, the Company has experienced no outages or problems related to the Year 2000 date rollover. All business systems are functioning normally and the Company has not experienced any disruptions in service with third party
organizations with which it interacts related to the century change. The Company developed business continuity and contingency plans as a result of its Year 2000 project. These plans would be enacted if Year 2000 problems were to occur within the Company,
or
In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS No. 133"). In general, SFAS No. 133
requires that all derivatives be recognized as either assets or liabilities in the balance sheet at their fair value, and sets forth the manner in which gains or losses thereon are to be recorded. The treatment of such gains or losses is dependent upon
the type of
|
Quarterly Membership |
2000 |
1999 |
|
Health Plan:
Large group commercial members at:
March 31
June 30
September 30
December 31
Medicare HMO members at:
March 31
June 30
September 30
December 31
TRICARE members at:
March 31
June 30
September 30
December 31
Administrative Services members at:
March 31
June 30
September 30
December 31
Medicaid and other members at:
March 31
June 30
September 30
December 31
Total Health Plan members at:
March 31
June 30
September 30
December 31
Small Group:
Small group commercial members at:
March 31
June 30
September 30
December 31
Total medical members at:
March 31
June 30
September 30
December 31
Specialty members at:
March 31
June 30
September 30
December 31 |
1,409,000
518,000
1,060,000
657,000
697,400
4,341,400
1,568,500
5,909,900
2,980,100
|
1,495,500
1,478,300
1,424,400
1,420,500
480,700
484,800
489,300
488,500
1,085,700
1,064,600
1,065,500
1,058,000
617,900
636,700
641,000
648,000
704,300
707,200
695,000
661,100
4,384,100
4,371,600
4,315,200
4,276,100
1,676,200
1,695,700
1,706,800
1,663,100
6,060,300
6,067,300
6,022,000
5,939,200
2,771,900
2,837,600
2,890,100
2,961,300
|
Item 3. Quantitative and Qualitative Disclosure about Market Risk_____________
Humana Inc.
Since the date of the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1999, no material changes have occurred in the Company's exposure to market risk associated with the Company's investments in market
risk sensitive financial instruments, as set forth in the "Management's Discussion and Analysis of Financial Condition and Results of Operations" included in such Form 10-K.
Part II: Other Information________________________________________________
Humana Inc.
Item 1: Legal Proceedings
Securities Litigation
Six purported class action complaints have been filed in the United States District Court for the Western District of Kentucky at Louisville, by purported stockholders of the Company against the Company and certain of its current
and former directors and officers. The six complaints contain the same or substantially similar allegations; namely, that the Company and the individual defendants knowingly or recklessly made false or misleading statements in press releases and public
filing
ncial condition, primarily with respect to the impact of the negotiations over renewal of the Company's contract with Columbia/HCA which took effect April 1, 1999. The complaints allege violations of Section 10(b) of the Securities Exchange Act of 1934
(the "1934 Act") and SEC Rule 10b-5, and Section 20(a) of the 1934 Act and seek certification of a class of stockholders who purchased shares of Humana common stock starting either (in four complaints) in late October 1998 or (in two complaints) on
February 9
omplaints) on April 8, 1999. All seek money damages in unspecified amounts, plus (in certain of the complaints) pre-judgment and post-judgment interest, and costs and expenses including attorney and expert fees. Plaintiffs moved for consolidation of the
actions, now styled In re Humana Inc. Securities Litigation, and have filed a Consolidated Complaint. On April 28, 2000 the defendants filed a motion requesting dismissal of the Consolidated Complaint. The Company believes that the above allegations a
pursue the defense of the Consolidated Complaint vigorously.
Managed Care Industry Litigation
Since October 1999, the Company has received thirteen purported class action complaints filed on behalf of various named plaintiffs who seek to represent a class consisting of present and former Humana subscribers but excluding
persons insured by Medicare or Medicaid. All of the cases were filed in federal courts, eleven in the Southern District of Florida, one in the Southern District of Mississippi and one in the Northern District of Alabama. Eight of the cases filed in the
Southern
were ordered to be dismissed subject to the plaintiffs' right to re-file as part of a consolidated complaint with the case of Price v. Humana Inc. filed in the same court. In each case, the plaintiffs seek a recovery (including statutory treble
damages) under the Racketeer Influenced and Corrupt Organizations Act ("RICO") for all persons who are or were Humana subscribers at any time during the four-year period prior to the filing of the complaints. In addition, plaintiffs seek to represent a
subclas
d their Humana coverage through their employers' health benefits plans governed by ERISA, and who are or were Humana subscribers at any time during the six-year period prior to filing the complaints.
The complaints, which are generally the same, allege, among other things, that Humana intentionally concealed from its members information concerning the various ways Humana decides what claims will be paid, what procedures will be
deemed medically
Part II: Other Information, continued_______________________________________
Humana Inc.
necessary, and what criteria and procedures are used to determine the extent and type of their coverage. Plaintiffs also allege that Humana concealed from members the existence of direct financial incentives to treating physicians
and other health care providers to deny coverage. The plaintiffs generally do not allege that any of the alleged practices resulted in any named plaintiff, or any other specific member, being denied coverage for services that should have been covered but, i
n
ed the purported class with health insurance benefits of lesser value than promised. Humana requested the Federal Judicial Panel on Multidistrict Litigation ("MDL Panel") to consolidate the management of the cases in a single court. On April 13, 2000, the
MDL Panel ordered the cases consolidated in the federal court in the Southern District of Florida as In Re Humana Managed Care Litigation. On May 10, 2000, an amended complaint was filed in one of the consolidated cases. The amendment, filed in the
., which had been filed originally in Mississippi, joins five other managed care organizations as defendants and adds allegations of industry-wide conspiracy as the basis for the joinder. The other defendants are United HealthCare, Foundation Health
Systems, Inc., Aetna, Inc., Pacificare Health Systems, Inc., The Prudential Insurance Company of America, and Cigna Corporation. The amended complaint, which seeks a class consisting of members of all of the named managed care companies, alleges that the
def
ontainment measures and to conceal these from their members.
Humana has also received a class action suit filed in state court in Louisville, Kentucky, by named plaintiffs who seek to represent a purported nationwide class of providers who allege that the Company has improperly paid them and has
"downcoded" their claims by paying lesser amounts than they billed for. The Company has removed the case to federal court and has asked the MDL Panel to consolidate that case with the ones described above as well as with another case brought by a physician
hers brought by physicians in South Florida. Each of these cases was filed in state court and removed to federal court by the defendants. The plaintiffs in each are seeking to remand the cases to state court. In one of the cases in South Florida, Landa
v. Humana, the court issued a remand order which the defendants challenged before the Court of Appeals for the Eleventh Circuit; that challenge was rejected on May 8, 2000.
The Company believes these actions are without merit and intends to pursue the defense of these actions vigorously.
Damages for claims for personal injuries and medical benefit denials are usual in the Company's business. Personal injury and medical benefit denial claims are covered by insurance from the Company's wholly owned captive insurance
subsidiary and excess carriers, except to the extent that claimants seek punitive damages, which may not be covered by insurance if awarded in states in which insurance coverage for punitive damages is not permitted. In connection with the case of Chipps v. H
of Florida, Inc., the carriers have preliminarily indicated that they
Part II: Other Information, continued_______________________________________
Humana Inc.
believe no coverage may be available for a punitive damages award. Other potential liabilities may not be covered by insurance, insurers may dispute coverage, or the amount of insurance may not be enough to cover the damages
awarded. In addition, insurance coverage for all or certain forms of liability may become unavailable or prohibitively expensive in the future.
Due to the nature of its business, the Company is or may become subject to pending or threatened litigation or other legal actions relating to the failure to provide or pay for health care or other benefits, poor outcomes for care
delivered or arranged under the Company's programs, nonacceptance or termination of providers, failure to return withheld amounts from provider compensation, and failure to disclose network discounts and various provider payment arrangements and claims
relating
Recent court decisions and legislative activity may increase our exposure for any of these types of claims.
Management does not believe that any pending or threatened legal actions against the Company or audits by agencies will have a material adverse effect on the Company's financial position or results of operations. However, the likelihood
or outcome of current or future suits cannot be accurately predicted, and they could adversely affect the Company's financial position, results of operations or cash flows.
Part II: Other Information, continued_______________________________________
Humana Inc.
|
Item 2:
Item 3:
Item 4:
Item 5:
Item 6:
|
Changes in Securities
None.
Defaults Upon Senior Securities
None.
Submission of Matters to a Vote of Security Holders
None.
Other Information
None.
Exhibits and Reports on Form 8-K
(a) Exhibit Index
Exhibit 12 Statement re: Computation of Ratio of Earnings to Fixed Charges, filed herewith.
Exhibit 27 Financial Data Schedule (filed electronically).
(b) Other than the Form 8-K filed on January 3, 2000 and February 3, 2000 and referenced in the 1999 Form 10-K, there were no other
reports filed on Form 8-K. |
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
|
HUMANA INC.
(Registrant) |
|
Date: May 15, 2000
|
By: /s/James E. Murray
James E. Murray
Chief Operating Officer - Health
Plan Division and
Chief Financial Officer
(Principal Accounting Officer)
|
|
Date: May 15, 2000
|
By: /s/Arthur P. Hipwell
Arthur P. Hipwell
Senior Vice President and
General Counsel
|
Exhibit 12
Ratio of Earnings to Fixed Charges
Humana Inc.
For the quarters ended March 31, 2000 and 1999
Unaudited
(Dollars in millions)
Quarters Ended
2000 1999 (a)
Earnings:
Income (loss) before income taxes $ 27 $ (25)
Fixed charges 14 13
$ 41 $ (12)
Fixed charges:
Interest charged to expense $ 8 $ 10
One-third of rent expense 6 3
$ 14 $ 13
Ratio of earnings to fixed charges 2.97 (a)
The one-third of rent expense included in fixed charges is that proportion
deemed representative of the interest portion.
(a) Earnings (loss) for the quarter ended March 31, 1999 were not adequate
to cover fixed charges. Exclusive of $90 million medical expense related
to premium deficiency, reserve strengthening and provider costs and a
$12 million gain on the sale of a tangible asset, the ratio of earnings
to fixed charges for the quarter ended March 31, 1999 would have been
5.0.
5
1,000,000
JAN-01-2000
3-MOS
DEC-31-2000
MAR-31-2000
897
1,336
324
62
4
2,823
841
415
4,421
2,969
0
0
0
28
1,271
4,421
2,611
2,642
2,220
2,607
0
0
8
27
6
21
0
0
0
21
0.13
0.13
