(State or Other Jurisdiction

of Incorporation)

(Commission

File Number)

(I.R.S. Employer

Identification No.)

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Written communication pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

Pre-commencement communication pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

Pre-commencement communication pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Results of Operations and Financial Condition.

Regulation FD Disclosure.

Financial Statements and Exhibits.

Exhibit No.

Description

Humana Inc.

500 West Main Street

P.O. Box 1438

Louisville, KY 40202

http://www.humana.com

FOR MORE INFORMATION CONTACT:

Amy Smith

Humana Investor Relations

(502) 580-2811

e-mail: Amysmith@humana.com

Alex Kepnes

Humana Corporate Communications

(502) 580-2990

e-mail: Akepnes@humana.com

1Q19 earnings per diluted common share (EPS) of $4.16 on a GAAP basis, $4.48 on an Adjusted basis

2019 EPS guidance raised to approximately $16.63 to $16.88 on a GAAP basis, $17.25 to $17.50 on an Adjusted basis, meaningfully exceeding long-term growth targets

Strong start to 2019 driven by better than expected utilization in the individual Medicare Advantage business

Increased full year expected individual Medicare Advantage membership growth to 415,000 to 440,000 members, representing approximately 14 percent growth in 2019

Consolidated pretax income

In millions

Generally Accepted Accounting Principles (GAAP)

Amortization associated with identifiable intangibles

Put/call valuation adjustments associated with 40% minority interest in Kindred at Home

Segment earnings associated with the Individual Commercial Segment

Adjusted (non-GAAP)

Diluted earnings per common share (EPS)

GAAP

Amortization associated with identifiable intangibles

Put/call valuation adjustments associated with 40% minority interest in Kindred at Home

Segment earnings associated with the Individual Commercial segment

Adjustments to provisional estimates for the income tax effects related to the tax reform law enacted on December 22, 2017 (Tax Reform Law)

Adjusted (non-GAAP)

Humana Inc. Summary of Quarter Results

(dollars in millions, except per share amounts)

Consolidated results:

Revenues – GAAP

Revenues – Adjusted

Pretax income – GAAP

Pretax income – Adjusted

EPS – GAAP

EPS – Adjusted

Benefits expense ratio – GAAP

Benefits expense ratio – Adjusted

Operating cost ratio – GAAP

Operating cash flows – GAAP

Operating cash flows – Adjusted

Parent company cash and short term investments

Debt-to-total capitalization

Retail segment results:

Revenues – GAAP

Benefits expense ratio – GAAP

Operating cost ratio – GAAP

Segment earnings – GAAP

Segment earnings – Adjusted

Group and Specialty segment results:

Revenues – GAAP

Benefits expense ratio – GAAP

Operating cost ratio – GAAP

Segment earnings – GAAP

Segment earnings – Adjusted

Healthcare Services segment results:

Revenues – GAAP

Operating cost ratio – GAAP

Segment earnings – GAAP

Adjusted earnings before interest, taxes, depreciation and amortization (Adjusted EBITDA) (c)

Diluted earnings per common share

GAAP

Amortization of identifiable intangibles

Put/call valuation adjustments associated with 40% minority interest in Kindred at Home

Loss on sale of KMG America Corporation (KMG), a wholly-owned subsidiary

Segment earnings associated with the Individual Commercial segment

Adjustments to provisional estimates for the income tax effects related to the Tax Reform Law

Adjusted (non-GAAP) – FY 2019 projected

1Q19 Adjusted results exclude the following:

Amortization expense for identifiable intangibles of approximately $18 million pretax, or $0.10 per diluted common share; GAAP measures affected in this release include consolidated pretax, EPS, and segment earnings (for respective amortization expense for the Retail and Group and Specialty segments).

Put/call valuation adjustments of approximately $39 million, or $0.22 per diluted common share, associated with Humana’s 40% minority interest in Kindred at Home. GAAP measures affected in this release include consolidated pretax and EPS.

1Q18 Adjusted results exclude the following:

Amortization expense for identifiable intangibles of approximately $30 million pretax, or $0.17 per diluted common share; GAAP measures affected in this release include consolidated pretax, EPS, and segment earnings (for respective amortization expense for the Retail and Group and Specialty segments).

Segment earnings of $53 million, or $0.29 per diluted common share, for the company’s Individual Commercial segment given the company’s exit on January 1, 2018, as previously disclosed. GAAP measures affected in this release include consolidated pretax income, EPS, consolidated revenues, consolidated benefit ratio, and consolidated operating cost ratio.

Adjustment of $0.05 per diluted common share related to provisional estimates for the income tax effects related to the Tax Reform Law. The only GAAP measure affected in this release is EPS.

The Healthcare Services segment Adjusted EBITDA includes GAAP segment earnings with adjustments to add back depreciation and amortization expense, interest expense, and income taxes. The Adjusted EBITDA includes results from the all lines of business within the segment and the impact of Humana’s 40% minority interest in Kindred at Home.

FY 2019 Adjusted EPS projections exclude the following:

Amortization expense for identifiable intangibles of approximately $0.40 per diluted common share.

Put/call valuation adjustments of approximately $0.22 per diluted common share, associated with Humana’s 40% minority interest in Kindred at Home. FY 2019 GAAP EPS guidance excludes the impact of future value changes of the Kindred at Home put/call option, which cannot be estimated.

FY 2018 Adjusted results exclude the following:

Amortization expense for identifiable intangibles of approximately $90 million pretax, or $0.49 per diluted common share.

Put/call valuation adjustments of approximately $33 million, or $0.18 per diluted common share, associated with Humana’s 40% minority interest in Kindred at Home.

Loss of approximately $786 million pretax, or $2.41 per diluted common share, associated with the company’s sale of its wholly-owned subsidiary, KMG.

Segment earnings of approximately $74 million, or $0.41 per diluted common share, for the company’s Individual Commercial segment given the company’s exit on January 1, 2018, as previously disclosed.

Adjustment of $0.28 per diluted common share related to provisional estimates for the income tax effects related to the Tax Reform Law.

Excludes estimates of changes in revenues associated with increased accuracy of risk coding.

If Humana does not design and price its products properly and competitively, if the premiums Humana receives are insufficient to cover the cost of healthcare services delivered to its members, if the company is unable to implement clinical initiatives to provide a better healthcare experience for its members, lower costs and appropriately document the risk profile of its members, or if its estimates of benefits expense are inadequate, Humana’s profitability could be materially adversely affected. Humana estimates the costs of its benefit expense payments, and designs and prices its products accordingly, using actuarial methods and assumptions based upon, among other relevant factors, claim payment patterns, medical cost inflation, and historical developments such as claim inventory levels and claim receipt patterns. The company continually reviews estimates of future payments relating to benefit expenses for services incurred in the current and prior periods and makes necessary adjustments to its reserves, including premium deficiency reserves, where appropriate. These estimates, however, involve extensive judgment, and have considerable inherent variability because they are extremely sensitive to changes in claim payment patterns and medical cost trends, so any reserves the company may establish, including premium deficiency reserves, may be insufficient.

If Humana fails to effectively implement its operational and strategic initiatives, particularly its Medicare initiatives and state-based contract strategy, the company’s business may be materially adversely affected, which is of particular importance given the concentration of the company’s revenues in these products. In addition, there can be no assurances that the company will be successful in maintaining or improving its Star ratings in future years.

If Humana fails to properly maintain the integrity of its data, to strategically implement new information systems, to protect Humana’s proprietary rights to its systems, or to defend against cyber-security attacks, the company’s business may be materially adversely affected.

Humana is involved in various legal actions, or disputes that could lead to legal actions (such as, among other things, provider contract disputes and qui tam litigation brought by individuals on behalf of the government), governmental and internal investigations, and routine internal review of business processes any of which, if resolved unfavorably to the company, could result in substantial monetary damages or changes in its business practices. Increased litigation and negative publicity could also increase the company’s cost of doing business.

As a government contractor, Humana is exposed to risks that may materially adversely affect its business or its willingness or ability to participate in government healthcare programs including, among other things, loss of material government contracts, governmental audits and investigations, potential inadequacy of government determined payment rates, potential restrictions on profitability, including by comparison of profitability of the company’s Medicare Advantage business to non-Medicare Advantage business, or other changes in the governmental programs in which Humana participates. Changes to the risk-adjustment model utilized by CMS to adjust premiums paid to Medicare Advantage, or MA, plans according to the health status of covered members, including proposed changes to the methodology used by CMS for risk adjustment data validation audits that fail to address adequately the statutory requirement of actuarial equivalence, if implemented, could have a material adverse effect on our operating results, financial position and cash flows.

The Healthcare Reform Law, including The Patient Protection and Affordable Care Act and The Healthcare and Education Reconciliation Act of 2010, could have a material adverse effect on Humana’s results of operations, including restricting revenue, enrollment and premium growth in certain products and market segments, restricting the company’s ability to expand into new markets, increasing the company’s medical and operating costs by, among other things, requiring a minimum benefit ratio on insured products, lowering the company’s Medicare payment rates and increasing the company’s expenses associated with a non-deductible health insurance industry fee and other assessments; the company’s financial position, including the company’s ability to maintain the value of its goodwill; and the company’s cash flows. Additionally, potential legislative or judicial changes, including activities to invalidate, repeal or replace, in whole or in part, the Health Care Reform Law, creates uncertainty for Humana’s business, and when, or in what form, such legislative or judicial changes may occur cannot be predicted with certainty.

Humana’s business activities are subject to substantial government regulation. New laws or regulations, or changes in existing laws or regulations or their manner of application could increase the company’s cost of doing business and may adversely affect the company’s business, profitability and cash flows.

Humana’s failure to manage acquisitions, divestitures and other significant transactions successfully may have a material adverse effect on the company’s results of operations, financial position, and cash flows.

If Humana fails to develop and maintain satisfactory relationships with the providers of care to its members, the company’s business may be adversely affected.

Humana’s pharmacy business is highly competitive and subjects it to regulations in addition to those the company faces with its core health benefits businesses.

Changes in the prescription drug industry pricing benchmarks may adversely affect Humana’s financial performance.

If Humana does not continue to earn and retain purchase discounts and volume rebates from pharmaceutical manufacturers at current levels, Humana’s gross margins may decline.

Humana’s ability to obtain funds from certain of its licensed subsidiaries is restricted by state insurance regulations.

Downgrades in Humana’s debt ratings, should they occur, may adversely affect its business, results of operations, and financial condition.

The securities and credit markets may experience volatility and disruption, which may adversely affect Humana’s business.

Form 10-K for the year ended December 31, 2018; and

Form 8-Ks filed during 2019.

Annual reports to stockholders

Securities and Exchange Commission filings

Most recent investor conference presentations

Quarterly earnings news releases and conference calls

Calendar of events

Corporate Governance information

Humana Inc.

500 West Main Street

P.O. Box 1438

Louisville, KY 40202

http://www.humana.com

FOR MORE INFORMATION CONTACT:

Amy Smith

Humana Investor Relations

(502) 580-2811

e-mail: Amysmith@humana.com

Alex Kepnes

Humana Corporate Communications

(502) 580-2990

e-mail: Akepnes@humana.com

1Q19 earnings per diluted common share (EPS) of $4.16 on a GAAP basis, $4.48 on an Adjusted basis

2019 EPS guidance raised to approximately $16.63 to $16.88 on a GAAP basis, $17.25 to $17.50 on an Adjusted basis, meaningfully exceeding long-term growth targets

Strong start to 2019 driven by better than expected utilization in the individual Medicare Advantage business

Increased full year expected individual Medicare Advantage membership growth to 415,000 to 440,000 members, representing approximately 14 percent growth in 2019

Consolidated pretax income

In millions

Generally Accepted Accounting Principles (GAAP)

Amortization associated with identifiable intangibles

Put/call valuation adjustments associated with 40% minority interest in Kindred at Home

Segment earnings associated with the Individual Commercial Segment

Adjusted (non-GAAP)

Diluted earnings per common share (EPS)

GAAP

Amortization associated with identifiable intangibles

Put/call valuation adjustments associated with 40% minority interest in Kindred at Home

Segment earnings associated with the Individual Commercial segment

Adjustments to provisional estimates for the income tax effects related to the tax reform law enacted on December 22, 2017 (Tax Reform Law)

Adjusted (non-GAAP)

Humana Inc. Summary of Quarter Results

(dollars in millions, except per share amounts)

Consolidated results:

Revenues – GAAP

Revenues – Adjusted

Pretax income – GAAP

Pretax income – Adjusted

EPS – GAAP

EPS – Adjusted

Benefits expense ratio – GAAP

Benefits expense ratio – Adjusted

Operating cost ratio – GAAP

Operating cash flows– GAAP

Operating cash flows– Adjusted

Parent company cash and short term investments

Debt-to-total capitalization

Retail segment results:

Revenues – GAAP

Benefits expense ratio – GAAP

Operating cost ratio – GAAP

Segment earnings – GAAP

Segment earnings – Adjusted

Group and Specialty segment results:

Revenues – GAAP

Benefits expense ratio – GAAP

Operating cost ratio – GAAP

Segment earnings – GAAP

Segment earnings – Adjusted

Healthcare Services segment results:

Revenues – GAAP

Operating cost ratio – GAAP

Segment earnings – GAAP

Adjusted earnings before interest, taxes, depreciation and amortization (Adjusted EBITDA) (c)

Diluted earnings per common share

GAAP

Amortization of identifiable intangibles

Put/call valuation adjustments associated with 40% minority interest in Kindred at Home

Loss on sale of KMG America Corporation (KMG), a wholly-owned subsidiary

Segment earnings associated with the Individual Commercial segment

Adjustments to provisional estimates for the income tax effects related to the Tax Reform Law

Adjusted (non-GAAP) – FY 2019 projected

Consolidated revenues

(in millions)

GAAP

Revenues associated with the Individual Commercial segment

Adjusted (non-GAAP)

Consolidated benefit ratio

(benefits expense as a percent of premiums)

GAAP

Benefit ratio impact associated with the Individual Commercial segment

Adjusted (non-GAAP)

the suspension of the HIF in 2019 which was contemplated in the pricing and benefit design of the company’s products; and

the unfavorable impact to the benefit ratio associated with higher-than-expected individual Medicare Advantage membership growth for 2019. At the onset, on average, new Medicare Advantage members typically have a higher benefit ratio than existing Medicare Advantages members as they were not previously engaged in clinical programs or appropriately documented under the CMS risk-adjustment model.

Consolidated Prior Period Development (in millions)

Favorable (unfavorable)

Prior Period Development from prior years recognized in 1Q19

Prior Period Development from prior years recognized in 1Q18

At March 31, 2019, the company had cash, cash equivalents, and investment securities of $14.18 billion, up $1.40 billion, or 11 percent, from $12.78 billion at December 31, 2018, primarily reflecting the impact of sequentially higher premiums as result of higher average Medicare Advantage membership in 1Q19 due to a strong recently completed AEP. Additional changes are outlined in the company’s consolidated statement of cash flows on page S-5 of the statistical supplement included in this release.

At March 31, 2019, cash and short-term investments held at the parent company of $721 million increased $143 million, or 25 percent, from $578 million at December 31, 2018 primarily resulting from non-regulated subsidiary earnings and other working capital changes, partially offset by capital expenditures, capital contributions to regulated subsidiaries, and cash dividends to shareholders.

Days in claims payable (DCP) of 40.2 at March 31, 2019, increased by 1.1 days from 39.1 at December 31, 2018, and increased 1.9 days from 38.3 at March 31, 2018. Changes are outlined in the DCP rollforward on page S-13 of the statistical supplement included in this release.

Debt-to-total capitalization at March 31, 2019 of 36.0 percent was down 140 basis points from 37.4 percent at December 31, 2018, primarily resulting from the net impact of the quarter’s earnings. The company’s long-term debt-to-total capitalization target of approximately 35 percent is expected to allow the company to maintain its investment grade credit rating while providing significant financial flexibility. At times, the company’s debt-to-total capitalization will exceed this target due to the timing of share repurchases, acquisitions, and debt issuance.

Net cash provided by operating activities

(in millions)

GAAP

Timing of premium payment from CMS (g)

Adjusted (non-GAAP)

During November 2018, the company entered into an agreement with a third party financial institution to effectuate a $750 million accelerated share repurchase (ASR) program under its current share repurchase authorization. Under the terms of the program, which was completed in 1Q19, the company repurchased a total of approximately 2,541,100 of its outstanding shares at an average price of $295.15. Aside from the completion of the ASR program, the company did not complete any other share repurchase transactions during 1Q19.

As of April 30, 2019, approximately $1.03 billion of the current repurchase authorization was remaining.

The company paid cash dividends to its stockholders of $68 million in 1Q19 versus $57 million in 1Q18, primarily reflecting an increase in the per share dividend to $0.55 in 1Q19 from $0.50 per share in 1Q18.

In April 2019, the company’s Board of Directors declared a cash dividend of $0.55 per share. This dividend will be payable on July 26, 2019 to stockholders of record on June 28, 2019.

The 1Q19 revenues for the Retail segment were $14.01 billion, an increase of $1.91 billion, or 16 percent, from $12.11 billion in 1Q18 primarily reflecting individual and group Medicare Advantage membership growth and higher per member premiums, as well as increased state-based contracts membership as further discussed below.

Individual Medicare Advantage membership was 3,433,300 as of March 31, 2019, a net increase of 414,800 or 14 percent, from 3,018,500 as of March 31, 2018, and up 369,300, or 12 percent, from 3,064,000 as of December 31, 2018. The increases were primarily due to membership additions associated with the most recent AEP and Open Election Period (OEP) for Medicare beneficiaries. The OEP sales period, which ran from January 1 to March 31, added approximately 28,700 members through March 31, 2019. Another 15,000 members became effective April 1, 2019, for a total OEP impact of 43,700.

Group Medicare Advantage membership was 517,900 as of March 31, 2019, a net increase of 25,200, or 5 percent, from 492,700 at March 31, 2018, and up 20,100 or 4 percent, from 497,800 as of December 31, 2018. The increases primarily resulted from net membership additions associated with the most recent AEP for Medicare beneficiaries.

Membership in the company’s stand-alone PDP offerings was 4,448,400 as of March 31, 2019, a net decrease of 593,700, or 12 percent, from 5,042,100 as of March 31, 2018, and down 555,900, or 11 percent, from 5,004,300 as of December 31, 2018, reflecting net declines during the most recent AEP for Medicare beneficiaries. These anticipated declines were primarily due to the competitive nature of the industry and the pricing discipline the company has employed, which has resulted in it no longer being the low cost plan in any market for 2019.

State-based contracts membership (including dual-eligible demonstration members) was 461,300 as of March 31, 2019, a net increase of 125,300, or 37 percent, from 336,000 at March 31, 2018, and up 120,200, or 35 percent, from 341,100 as of December 31, 2018. The increases primarily resulted from the statewide award of a comprehensive contract under the Managed Medical Assistance (MMA) program in Florida.

The 1Q19 benefit ratio for the Retail segment of 88.3 percent increased 90 basis points from 87.4 percent in 1Q18. The year-over-year increase was primarily impacted by the following:

the suspension of the HIF in 2019 which was contemplated in the pricing and benefit design of the company’s products; and

the unfavorable impact to the benefit ratio associated with higher-than-expected individual Medicare Advantage membership growth for 2019. At the onset, on average, new Medicare Advantage members typically have a higher benefit ratio than existing Medicare Advantage members as they were not previously engaged in clinical programs or appropriately documented under the CMS risk-adjustment model.

the impact of engaging our new 2018 Medicare Advantage members in clinical programs and ensuring that they are appropriately documented under the CMS risk-adjustment model,

higher favorable Prior Period Development in the segment, and

the impact of a less severe flu season in 1Q19.

The Retail segment’s favorable Prior Period Development of $283 million in 1Q19 compared to favorable development of $187 million in 1Q18. Prior Period Development decreased the Retail segment benefit ratio by 200 basis points in 1Q19 and 150 basis points in 1Q18.

The Retail segment’s operating cost ratio of 8.2 percent in 1Q19 decreased 190 basis points from 10.1 percent in 1Q18. The year-over-year comparison was positively impacted by the following:

the suspension of the HIF in 2019, which increased the Retail segment’s 1Q18 GAAP operating cost ratio by approximately 190 basis points; and

significant operating cost efficiencies in 1Q19 driven by previously implemented productivity initiatives.

Retail segment earnings

in millions

GAAP

Amortization associated with identifiable intangibles

Adjusted (non-GAAP)

The Retail segment’s GAAP segment earnings of $465 million in 1Q19 increased $198 million, or 74 percent, from GAAP segment earnings of $267 million in 1Q18. The year-over-year favorable comparison was impacted by the segment’s lower operating cost ratio in 1Q19, partially offset by the segment’s higher benefit ratio in 1Q19, as described above. As expected, the company’s higher-than-anticipated individual Medicare Advantage membership growth during the recently completed AEP had a muted impact on the segment’s earnings in 1Q19. While new Medicare Advantage members increase revenues, on average, they have a breakeven impact on pretax earnings in the first year as they were not previously engaged in clinical programs or appropriately documented under the CMS risk-adjustment model, and accordingly, carry a higher benefit ratio.

The 1Q19 revenues for the Group and Specialty segment were $1.89 billion, down $83 million, or 4 percent, from $1.97 billion in 1Q18. The year-over-year decrease was primarily due to the following factors:

a decline in the company’s fully-insured group commercial and specialty membership,

the impact of certain contractual incentives and adjustments related to the previous TRICARE contract received in 1Q18, which did not recur in 1Q19, and

the reduction in year-over-year premium revenues related to the company’s workplace voluntary benefit (WVB) and Financial Protection Product (FPP) lines of business due to the exit of these businesses in connection with Humana’s divestiture of KMG during the second quarter of 2018.

Group fully-insured commercial medical membership was 958,200 at March 31, 2019, a decrease of 116,900, or 11 percent, from 1,075,100 at March 31, 2018, and down 46,500, or 5 percent, from 1,004,700 at December 31, 2018. These anticipated declines primarily reflect lower membership in small group accounts due in part to the continuation of small group accounts selecting level-funded ASO products in 2019, as well as the loss of certain large group accounts due to the competitive pricing environment. The portion of group fully-insured commercial medical membership in small group accounts (2-99 sized employer groups) was approximately 61 percent at March 31, 2019 and December 31, 2018 compared to approximately 63 percent at March 31, 2018.

Group ASO commercial medical membership was 478,600 at March 31, 2019, an increase of 26,000, or 6 percent, from 452,600 at March 31, 2018, but down 3,300, or 1 percent, from 481,900 at December 31, 2018. The year-over-year increase primarily reflects the continuation of more small group accounts selecting level-funded ASO products in 2019, partially offset by the loss of certain large group accounts due to continued discipline in pricing of services for self-funded accounts amid a highly competitive environment. The sequential change is a result of declining membership from the loss of large group accounts outpacing the growth from the small group level-funded ASO product. Small group membership comprised 34 percent of group ASO medical membership at March 31, 2019 versus 16 percent at March 31, 2018 and 26 percent at December 31, 2018.

Military services membership was 5,942,500 at March 31, 2019, an increase of 11,400, or less than 1 percent, from 5,931,100 at March 31, 2018, and up 13,900 or less than 1 percent, versus 5,928,600 at December 31, 2018. Membership includes military service members, retirees, and their families to whom the company is providing healthcare services under the current TRICARE East Region contract. The current contract, which covers 32 states, became effective on January 1, 2018.

Membership in specialty products ^(h) was 5,835,200 at March 31, 2019, a decrease of 903,700, or 13 percent, from 6,738,900, at March 31, 2018, and down 237,100, or 4 percent, from 6,072,300 at December 31, 2018. The decreases primarily resulted from the previously disclosed exit of the company’s WVB and FPP lines of business in connection with the KMG divestiture, which resulted in the loss of approximately 600,000 members, as well as the loss of some group accounts offering stand-alone dental and vision products.

The 1Q19 benefit ratio for the Group and Specialty segment was 76.4 percent, an increase of 320 basis points from 73.2 percent for 1Q18. The year-over-year increase in the segment’s benefit ratio is primarily due to the impact of the following factors:

the impact of unfavorable Prior Period Development in 1Q19,

the impact of the suspension of the HIF in 2019 which was contemplated in the pricing of the company’s products, and

membership mix, including the continued migration of healthier groups to level-funded ASO products in 1Q19.

The segment’s unfavorable Prior Period Development of $16 million in 1Q19 compared to favorable development of $34 million in 1Q18. The unfavorable Prior Period Development for the Group and Specialty segment increased the 1Q19 segment benefit ratio by 100 basis points while favorable Prior Period Development decreased the 1Q18 ratio by 200 basis points.

The Group and Specialty segment’s operating cost ratio was 21.9 percent in 1Q19, a decrease of 170 basis points from 23.6 percent in 1Q18 primarily reflecting the temporary suspension of the HIF in 2019, as well as significant operating cost efficiencies in 1Q19 driven by previously implemented productivity initiatives. The non-deductible HIF increased the Group and Specialty segment’s operating cost ratio by approximately 160 basis points in 1Q18. The year-over-year improvement was further impacted by the exit of the WVB and FPP lines of business in connection with the KMG divestiture during the second quarter of 2018, which carried a higher operating cost ratio.

Group and Specialty segment earnings

In millions

GAAP

Amortization associated with identifiable intangibles

Adjusted (non-GAAP)

The Group and Specialty segment’s GAAP segment earnings of $165 million in 1Q19 compared to GAAP segment earnings of $211 million in 1Q18, a decrease of $46 million, or 22 percent. The decrease primarily reflects the same factors resulting in the segment’s higher benefit ratio, along with lower military services business earnings. Earnings related to the military services business were unfavorably impacted by the receipt of certain contractual incentives and adjustments in 1Q18 related to the previous TRICARE contract which did not recur in 1Q19. The declines were partially offset by a lower operating cost ratio in 1Q19 and a favorable year-over-year earnings comparison for the company’s group ASO commercial medical business.

Revenues of $6.10 billion in 1Q19 for the Healthcare Services segment increased by $435 million, or 8 percent, from $5.66 billion in 1Q18. The year-over-year comparison was favorably impacted by the following:

strong Medicare Advantage membership growth; and

higher revenues associated with the company’s provider services business reflecting the previously disclosed acquisition of MCCI Holdings, LLC (MCCI) and Family Physicians Group (FPG).

The Healthcare Services segment’s operating cost ratio of 96.6 percent in 1Q19 increased 40 basis points from 96.2 percent in 1Q18 primarily due to investments in the company’s provider services business and a change in the mix of pharmacy spend as specialty drug spending continues to rise as a percentage of total spend.

Primary care providers in value-based (shared risk and path to risk) relationships of 57,600 at March 31, 2019 increased 13 percent from 51,000 at March 31, 2018, and increased 8 percent from 53,400 at December 31, 2018. The percentage of the company’s individual Medicare Advantage members in value-based relationships was 65 percent at both March 31, 2019 and March 31, 2018, compared to 67 percent December 31, 2018. The sequential decline was impacted by the strong AEP and OEP results which has resulted in a greater proportion of new individual Medicare Advantage members that are not yet assigned to a primary care provider.

Medicare Advantage and dual demonstration program membership enrolled in a Humana chronic care management program ⁽ⁱ⁾ was 834,700 at March 31, 2019, up 11 percent from 752,400 at March 31, 2018 and up 17 percent from 716,000 at December 31, 2018. The increases were driven by the company’s improved process for identifying and enrolling members in the appropriate program at the right time, coupled with growth in Special Need Plans (SNP) membership and the insourcing of certain SNP membership to Humana At Home’s care management program.

Pharmacy script volume on an adjusted 30-day equivalent basis of 110 million for 1Q19 increased 2 percent compared to 108 million for 1Q18. This increase primarily was driven by higher individual Medicare Advantage membership, partially offset by the decline in stand-alone PDP membership.

Healthcare Services segment results

(in millions)

GAAP segment earnings

Depreciation and amortization expense

Interest and taxes from Kindred at Home

Adjusted EBITDA

The Healthcare Services segment’s 1Q19 GAAP segment earnings of $175 million were generally in-line with the GAAP segment earnings of $173 million in 1Q18.

Adjusted EBITDA in 1Q19 for the Healthcare Services segment of $238 million was up $16 million, or 7 percent, compared to Adjusted EBITDA of $222 million in 1Q18. The increase in 1Q19 Adjusted EBITDA from 1Q18 Adjusted EBITDA primarily resulted from the impact of Kindred at Home.

1Q19 Adjusted results exclude the following:

Amortization expense for identifiable intangibles of approximately $18 million pretax, or $0.10 per diluted common share; GAAP measures affected in this release include consolidated pretax, EPS, and segment earnings (for respective amortization expense for the Retail and Group and Specialty segments).

Put/call valuation adjustments of approximately $39 million, or $0.22 per diluted common share, associated with Humana’s 40% minority interest in Kindred at Home. GAAP measures affected in this release include consolidated pretax and EPS.

1Q18 Adjusted results exclude the following:

Amortization expense for identifiable intangibles of approximately $30 million pretax, or $0.17 per diluted common share; GAAP measures affected in this release include consolidated pretax, EPS, and segment earnings (for respective amortization expense for the Retail and Group and Specialty segments).

Segment earnings of $53 million, or $0.29 per diluted common share, for the company’s Individual Commercial segment given the company’s exit on January 1, 2018, as previously disclosed. GAAP measures affected in this release include consolidated pretax income, EPS, consolidated revenues, consolidated benefit ratio, and consolidated operating cost ratio.

Adjustment of $0.05 per diluted common share related to provisional estimates for the income tax effects related to the Tax Reform Law. The only GAAP measure affected in this release is EPS.

The Healthcare Services segment Adjusted EBITDA includes GAAP segment earnings with adjustments to add back depreciation and amortization expense, interest expense, and income taxes. The Adjusted EBITDA includes results from the all lines of business within the segment and the impact of Humana’s 40% minority interest in Kindred at Home.

FY 2019 Adjusted EPS projections exclude the following:

Amortization expense for identifiable intangibles of approximately $0.40 per diluted common share.

Put/call valuation adjustments of approximately $0.22 per diluted common share, associated with Humana’s 40% minority interest in Kindred at Home. FY 2019 GAAP EPS guidance excludes the impact of future value changes of the Kindred at Home put/call option, which cannot be estimated.

FY 2018 Adjusted results exclude the following:

Amortization expense for identifiable intangibles of approximately $90 million pretax, or $0.49 per diluted common share.

Put/call valuation adjustments of approximately $33 million, or $0.18 per diluted common share, associated with Humana’s 40% minority interest in Kindred at Home.

Loss of approximately $786 million pretax, or $2.41 per diluted common share, associated with the company’s sale of its wholly-owned subsidiary, KMG.

Segment earnings of approximately $74 million, or $0.41 per diluted common share, for the company’s Individual Commercial segment given the company’s exit on January 1, 2018, as previously disclosed.

Adjustment of $0.28 per diluted common share related to provisional estimates for the income tax effects related to the Tax Reform Law.

Excludes estimates of changes in revenues associated with increased accuracy of risk coding.

Generally, when the first day of a month falls on a weekend or holiday, with the exception of January 1 (New Year’s Day), the company receives its monthly Medicare premium payment from CMS on the last business day of the previous month. On a GAAP basis, this can result in certain quarterly cash flows from operations including more or less than three monthly payments. Consequently, when this occurs, the company reports Adjusted cash flows from operations to reflect three payments in each quarter to match the related expenses.

The company provides a full range of insured specialty products including dental, vision, and other supplemental health benefits, including group life benefits, marketed to individuals and groups. Members included in these products may not be unique to each product since members have the ability to enroll in multiple products.

Includes Medicare Advantage (including Special Needs Plans (SNP)) and dual-eligible demonstration program members enrolled in one of Humana’s chronic care programs. These members may be enrolled in Humana At Home Chronic Care Program (HCCP), Humana At Home Remote Monitoring, or an Advance Illness Support program. Members included in these programs may not be unique to each program since members have the ability to enroll in multiple programs. In addition, the members in the HCCP program may receive varying levels of care management based on their health status and needs, ranging from active care management to ongoing monitoring.

If Humana does not design and price its products properly and competitively, if the premiums Humana receives are insufficient to cover the cost of healthcare services delivered to its members, if the company is unable to implement clinical initiatives to provide a better healthcare experience for its members, lower costs and appropriately document the risk profile of its members, or if its estimates of benefits expense are inadequate, Humana’s profitability could be materially adversely affected. Humana estimates the costs of its benefit expense payments, and designs and prices its products accordingly, using actuarial methods and assumptions based upon, among other relevant factors, claim payment patterns, medical cost inflation, and historical developments such as claim inventory levels and claim receipt patterns. The company continually reviews estimates of future payments relating to benefit expenses for services incurred in the current and prior periods and makes necessary adjustments to its reserves, including premium deficiency reserves, where appropriate. These estimates, however, involve extensive judgment, and have considerable inherent variability because they are extremely sensitive to changes in claim payment patterns and medical cost trends, so any reserves the company may establish, including premium deficiency reserves, may be insufficient.

If Humana fails to effectively implement its operational and strategic initiatives, particularly its Medicare initiatives and state-based contract strategy, the company’s business may be materially adversely affected, which is of particular importance given the concentration of the company’s revenues in these products. In addition, there can be no assurances that the company will be successful in maintaining or improving its Star ratings in future years.

If Humana fails to properly maintain the integrity of its data, to strategically implement new information systems, to protect Humana’s proprietary rights to its systems, or to defend against cyber-security attacks, the company’s business may be materially adversely affected.

Humana is involved in various legal actions, or disputes that could lead to legal actions (such as, among other things, provider contract disputes and qui tam litigation brought by individuals on behalf of the government), governmental and internal investigations, and routine internal review of business processes any of which, if resolved unfavorably to the company, could result in substantial monetary damages or changes in its business practices. Increased litigation and negative publicity could also increase the company’s cost of doing business.

As a government contractor, Humana is exposed to risks that may materially adversely affect its business or its willingness or ability to participate in government healthcare programs including, among other things, loss of material government contracts, governmental audits and investigations, potential inadequacy of government determined payment rates, potential restrictions on profitability, including by comparison of profitability of the company’s Medicare Advantage business to non-Medicare Advantage business, or other changes in the governmental programs in which Humana participates. Changes to the risk-adjustment model utilized by CMS to adjust premiums paid to Medicare Advantage, or MA, plans according to the health status of covered members, including proposed changes to the methodology used by CMS for risk adjustment data validation audits that fail to address adequately the statutory requirement of actuarial equivalence, if implemented, could have a material adverse effect on our operating results, financial position and cash flows.

The Healthcare Reform Law, including The Patient Protection and Affordable Care Act and The Healthcare and Education Reconciliation Act of 2010, could have a material adverse effect on Humana’s results of operations, including restricting revenue, enrollment and premium growth in certain products and market segments, restricting the company’s ability to expand into new markets, increasing the company’s medical and operating costs by, among other things, requiring a minimum benefit ratio on insured products, lowering the company’s Medicare payment rates and increasing the company’s expenses associated with a non-deductible health insurance industry fee and other assessments; the company’s financial position, including the company’s ability to maintain the value of its goodwill; and the company’s cash flows. Additionally, potential legislative or judicial changes, including activities to invalidate, repeal or replace, in whole or in part, the Health Care Reform Law, creates uncertainty for Humana’s business, and when, or in what form, such legislative or judicial changes may occur cannot be predicted with certainty.

Humana’s business activities are subject to substantial government regulation. New laws or regulations, or changes in existing laws or regulations or their manner of application could increase the company’s cost of doing business and may adversely affect the company’s business, profitability and cash flows.

Humana’s failure to manage acquisitions, divestitures and other significant transactions successfully may have a material adverse effect on the company’s results of operations, financial position, and cash flows.

If Humana fails to develop and maintain satisfactory relationships with the providers of care to its members, the company’s business may be adversely affected.

Humana’s pharmacy business is highly competitive and subjects it to regulations in addition to those the company faces with its core health benefits businesses.

Changes in the prescription drug industry pricing benchmarks may adversely affect Humana’s financial performance.

If Humana does not continue to earn and retain purchase discounts and volume rebates from pharmaceutical manufacturers at current levels, Humana’s gross margins may decline.

Humana’s ability to obtain funds from certain of its licensed subsidiaries is restricted by state insurance regulations.

Downgrades in Humana’s debt ratings, should they occur, may adversely affect its business, results of operations, and financial condition.

The securities and credit markets may experience volatility and disruption, which may adversely affect Humana’s business.

Form 10-K for the year ended December 31, 2018; and

Form 8-Ks filed during 2019.

Annual reports to stockholders

Securities and Exchange Commission filings

Most recent investor conference presentations

Quarterly earnings news releases and conference calls

Calendar of events

Corporate Governance information

In accordance
with GAAP
unless
otherwise
noted

Humana Inc.

Full-Year 2019 Projections

As of May 1, 2019

Comments

Diluted earnings per common share (EPS)

$16.63 to $16.88

(was $16.60 to $17.10)

•  GAAP EPS guidance excludes the impact of future fair value changes of the Kindred at Home put/call option, which cannot be estimated

•  See footnote (d) for detail of non-GAAP adjustments

~$0.62

(was ~$0.40)

$17.25 to $17.50

(was $17.00 to $17.50)

Total revenues

Consolidated

$63.3 billion to $63.9 billion

(was $63.1 billion to $63.7 billion)

•  Consolidated and segment-level revenue projections include expected investment income

•  Segment-level revenues include amounts that eliminate in consolidation

$55.1 billion to $55.7 billion

(was $54.9 billion to $55.5 billion)

$7.1 billion to $7.6 billion

(no change)

$25.1 billion to $25.6 billion

(was $25.95 billion to $26.25 billion)

Change in year-end medical membership from prior year end

•  Individual Medicare Advantage: Up 415,000 to 440,000 (was Up 375,000 to 400,000)

•  Group Medicare Advantage: Up ~30,000 (no change)

•  Medicare stand-alone PDP: Down 700,000 to 750,000 (no change)

•  Group commercial medical: Down 60,000 to 80,000 (was Down 80,000 to 100,000)

•  Group commercial medical membership includes fully-insured and ASO (self-insured).

Benefit ratios

Retail segment

86.4% to 87.4%

(was 86.6% to 87.6%)

•  Ratio calculation: benefits expense as a percent of premium revenues

81.3% to 81.8%

(was 81.0% to 81.5%)

Consolidated operating cost ratio

10.7% to 11.5% (was 10.6% to 11.4%)

•  Ratio calculation: operating costs excluding depreciation and amortization as a percent of revenues excluding investment income

In accordance
with GAAP
unless
otherwise
noted

Humana Inc.

Full-Year 2019 Projections

As of May 1, 2019

Comments

$1.925 billion to $2.125 billion

(was $1.875 billion to $2.075 billion)

•  No material impact to segment earnings anticipated from non-GAAP adjustments

$300 million to $350 million

(no change)

$1.00 billion to $1.05 billion

(no change)

Effective tax rate

23.8% to 24.3% (was 23.3% to 23.8%)

Weighted average share count for diluted EPS

135.3 million to 136.3 million (no change)

•  Includes impact of share repurchases already completed

Cash flows from operations

$2.5 billion to $2.9 billion (no change)

Capital expenditures

$725 million to $775 million (no change)

Diluted earnings per common share (EPS)

FY 2019 guidance issued on February 6, 2019

Changes in projected operating performance:

Retail segment

Put/call valuation adjustments associated with 40% minority ownership in Kindred at Home

Other

FY 2019 guidance issued on May 1, 2019

Consolidated Financial Statements

1.     Consolidated Statements of Income

2.     Consolidated Balance Sheets

3.     Consolidated Statements of Cash Flows

Operating Results Detail

4.     Consolidating Statements of Income - Quarter

5.     Ending Membership Detail

6.     Premiums and Services Revenue Detail

7.     Healthcare Services Segment Metrics

Balance Sheet Detail

8.     Benefits Payable Detail and Statistics

Footnotes

Revenues:

Premiums

Services

Investment income

Total revenues

Operating expenses:

Benefits

Operating costs

Depreciation and amortization

Total operating expenses

Income from operations

Interest expense

Other expense, net (A)

Income before income taxes and equity in net earnings

Provision for income taxes

Equity in net earnings of Kindred at Home (B)

Net income

Basic earnings per common share

Diluted earnings per common share

Shares used in computing basic earnings per common share (000’s)

Shares used in computing diluted earnings per common share (000’s)

Assets

Current assets:

Cash and cash equivalents

Investment securities

Receivables, net

Other current assets

Total current assets

Property and equipment, net

Long-term investment securities

Goodwill

Equity method investment in Kindred at Home

Other long-term assets

Total assets

Liabilities and Stockholders’ Equity

Current liabilities:

Benefits payable

Trade accounts payable and accrued expenses

Book overdraft

Unearned revenues

Short-term debt

Total current liabilities

Long-term debt

Future policy benefits payable

Other long-term liabilities

Total liabilities

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; 198,594,841 issued at March 31, 2019

Capital in excess of par value

Retained earnings

Accumulated other comprehensive loss

Treasury stock, at cost, 63,559,823 shares at March 31, 2019

Total stockholders’ equity

Total liabilities and stockholders’ equity

Debt-to-total capitalization ratio

Return on Invested Capital (ROIC) based on Net Operating Profit After Tax
(NOPAT)—trailing 12 months

Cash flows from operating activities

Net income

Adjustments to reconcile net income to net cash provided by (used in) operating activities:

Depreciation

Amortization

Net realized capital loss (gain)

Equity in net earnings of Kindred at Home

Stock-based compensation

(Benefit) provision for deferred income taxes

Changes in operating assets and liabilities, net of effect of businesses acquired and dispositions:

Receivables

Other assets

Benefits payable

Other liabilities

Unearned revenues

Other, net

Net cash provided by operating activities

Cash flows from investing activities

Acquisitions, net of cash acquired

Purchases of property and equipment

Purchases of investment securities

Maturities of investment securities

Proceeds from sales of investment securities

Net cash provided by (used in) investing activities

Cash flows from financing activities

Receipts (withdrawals) from contract deposits, net

Proceeds from issuance of commercial paper, net

Change in book overdraft

Common stock repurchases

Dividends paid

Proceeds from stock option exercises and other

Net cash provided by financing activities