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hum-20210428

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 8-K

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the

Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): April 28, 2021 (April 28, 2021)

Humana Inc.


(Exact name of registrant as specified in its charter)


Delaware	1-5975	61-0647538
(State or other jurisdiction of incorporation)	(Commission File Number)	(IRS Employer Identification No.)

500 West Main Street Louisville, KY 40202

(Address of principal executive offices, including zip code)

502-580-1000

(Registrant’s telephone number, including area code)

(Former name or former address, if changed since last report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):


☐			Written communications 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 communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))


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

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock	HUM	New York Stock Exchange

Indicate by check mark whether the registrant is an emerging growth company as defined in as defined in Rule 405 of the Securities Act of 1933 (17 CFR §230.405) or Rule 12b-2 of the Securities Exchange Act of 1934 (17 CFR §240.12b-2).

Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Item 2.02 Results of Operations and Financial Condition.

Item 7.01 Regulation FD Disclosure.

Humana Inc. (the "Company") issued a press release this morning reporting financial results for the quarter ended March 31, 2021, and posted a detailed earnings release related to the same period to the Investor Relations portion of the Company’s website at www.humana.com. A copy of each release is attached hereto as Exhibit 99.1 and Exhibit 99.2, respectively, and each release is incorporated herein by reference.

On April 27, 2021, Humana Inc. announced it has signed a definitive agreement to acquire the remaining 60 percent interest in Kindred at Home that it does not already own. A copy of Humana’s press release and related materials are being furnished as Exhibit 99.3 and Exhibit 99.4, respectively, to this Form 8-K.

Item 9.01 Financial Statements and Exhibits.

(d)Exhibits:


Exhibit No.			Description

99.1			Press Release

99.2			Earnings Release and Statistical Pages

99.3			Kindred at Home Press Release dated April 27, 2021
99.4			Kindred at Home Slide Deck
104			Cover Page Interactive Data File (embedded within the Inline XBRL document)

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 hereunto duly authorized.


HUMANA INC.

BY:			/s/ Cynthia H. Zipperle
			Cynthia H. Zipperle
			Senior Vice President, Chief Accounting Officer and Controller
			(Principal Accounting Officer)

Dated: April 28, 2021

Document


n e w s r e l e a s e			Exhibit 99.1 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

Kelley Murphy

Humana Corporate Communications

(502) 224-1755

e-mail: Kmurphy26@humana.com

Humana Reports First Quarter 2021 Financial Results;

Reaffirms Full Year 2021 Adjusted EPS Financial Guidance

•Reports 1Q21 earnings per diluted common share of $6.39 on a GAAP basis, $7.67 on an Adjusted basis

•Updates FY 2021 EPS guidance to a range of $19.62 to $20.12 on a GAAP basis, reaffirms $21.25 to $21.75 on Adjusted basis; while acknowledging the continued heightened uncertainty surrounding the ongoing pandemic

•Reaffirms FY 2021 expected individual Medicare Advantage membership growth range of approximately 425,000 to 475,000 members

•Reflects solid performance across each of the company's segments, fueled by strong individual Medicare Advantage and state-based membership growth and improved profitability in the Group and Specialty and Healthcare Services segments

LOUISVILLE, KY (April 28, 2021) – Humana Inc. (NYSE: HUM) today reported consolidated pretax income and diluted earnings per common share for the quarter ended March 31, 2021 (1Q21) versus the quarter ended March 31, 2020 (1Q20) as noted in the tables below.


Consolidated income before income taxes and equity in earnings (pretax income) In millions	1Q21 (a)	1Q20 (b)
Generally Accepted Accounting Principles (GAAP)	$1,040	$717
Amortization associated with identifiable intangibles	15	21
Put/call valuation adjustments associated with company's non-consolidating minority interest investments	115	297
Change in fair market value of publicly-traded equity securities	85	—


Adjusted (non-GAAP)	$1,255	$1,035


Diluted earnings per common share (EPS)	1Q21 (a)	1Q20 (b)
GAAP	$6.39	$3.56
Amortization associated with identifiable intangibles	0.08	0.12
Put/call valuation adjustments associated with company's non-consolidating minority interest investments	0.69	1.72
Change in fair market value of publicly-traded equity securities	0.51	—


Adjusted (non-GAAP)	$7.67	$5.40

The company has included financial measures throughout this earnings release that are not in accordance with GAAP. Management believes that these measures, when presented in conjunction with the comparable GAAP measures, are useful to both management and its investors in analyzing the company’s ongoing business and operating performance. Consequently, management uses these non-GAAP (Adjusted) financial measures as indicators of the company’s business performance, as well as for operational planning and decision making purposes. Non-GAAP (Adjusted) financial measures should be considered in addition to, but not as a substitute for, or superior to, financial measures prepared in accordance with GAAP. All financial measures in this press release are in accordance with GAAP unless otherwise indicated. Please refer to the footnotes for a detailed description of each item adjusted out of GAAP financial measures to arrive at a non-GAAP (Adjusted) financial measure.

“We’re pleased with the strong start of the year, with solid results across the company, and meaningful progress against our strategy, all while we continue to navigate the pandemic,” said Bruce D. Broussard, Humana’s President and Chief Executive Officer. “In partnership with federal, state and local governments, and with retailers and providers, we’re working to educate our members about the COVID-19 vaccines, ensuring individuals have access to a vaccine, especially those in underserved communities. Our full range of clinical capabilities, which will be even broader now with our recently announced acquisition of Kindred at Home, uniquely position us to help improve the health of our country’s most vulnerable populations. The home is highly effective not only in making access to care more convenient for people, but it also allows us to understand their environment and help them address other barriers that limit their ability to improve their health.”

Summary of Quarterly Results

The company's year-over-year changes in GAAP and Adjusted pretax results in 1Q21 were favorably impacted by solid performance across each of the company's segments, fueled by strong individual Medicare Advantage and state-based contract membership growth and improved profitability in the Group and Specialty and Healthcare Services segments.

The year-over-year changes in GAAP and Adjusted EPS for 1Q21 reflected the same factors impacting GAAP and Adjusted consolidated pretax income comparisons as well as the beneficial tax impact of the termination of the health insurance industry fee (HIF) in 2021 and a lower number of shares used to compute EPS, primarily reflective of share repurchases.

Humana’s 1Q21 GAAP results of operations were further impacted by the put/call valuation adjustments associated with the company's non-consolidating minority interest investments, along with the change in the fair market value of publicly-traded equity securities (primarily Oak Street Health, Inc.). The impact of these changes have been excluded in the company’s Adjusted (non-GAAP) consolidated results of operations as detailed in the tables above.

Please refer to the tables above, as well as the consolidated and segment highlight sections in the detailed earnings release for additional discussion of the factors impacting the year-over-comparisons.

In addition, below is a summary of key consolidated and segment statistics comparing 1Q21 to 1Q20.


Humana Inc. Summary of Quarterly Results (dollars in millions, except per share amounts)	1Q21 (a)		1Q20 (b)
Consolidated results:
Revenues - GAAP	$20,668		$18,935
Revenues - Adjusted	$20,753		$18,935
Pretax income - GAAP	$1,040		$717
Pretax income - Adjusted	$1,255		$1,035
Diluted EPS - GAAP	$6.39		$3.56
Diluted EPS - Adjusted	$7.67		$5.40
Benefits expense ratio - GAAP	85.9	%	85.1	%

Operating cost ratio - GAAP	9.7	%	11.3	%

Operating cash flows - GAAP	($837)		$474

Parent company cash and short term investments	$547		$2,353
Debt-to-total capitalization	33.9	%	39.2	%
Retail segment results:
Revenues - GAAP	$18,648		$16,762
Benefits expense ratio - GAAP	87.7	%	86.6	%
Operating cost ratio - GAAP	7.8	%	9.2	%
Segment earnings - GAAP	$794		$685
Segment earnings - Adjusted	$798		$689
Group and Specialty segment results:
Revenues - GAAP	$1,737		$1,865
Benefits expense ratio - GAAP	74.7	%	79.1	%
Operating cost ratio - GAAP	22.9	%	23.1	%
Segment earnings - GAAP	$174		$105
Segment earnings - Adjusted	$175		$106
Healthcare Services segment results:
Revenues - GAAP	$7,198		$7,085
Operating cost ratio - GAAP	96.0	%	96.0	%
Segment earnings - GAAP	$269		$250
Adjusted earnings before interest, taxes, depreciation and amortization (Adjusted EBITDA) (c)	$329		$319

2021 Earnings Guidance

Humana is revising its GAAP EPS guidance range for the year ending December 31, 2021 (FY 2021) to $19.62 to $20.12 from the previous range of $20.82 to $21.32, reflecting the 1Q21 impact of the company's non-consolidating minority interest put/call valuation adjustments and the change in the fair market value of publicly-traded equity securities held by the company. While continuing to acknowledge the heightened uncertainty surrounding the ongoing pandemic, Humana is maintaining its FY 2021 Adjusted EPS guidance range of $21.25 to $21.75. GAAP and Adjusted results for FY 2020 are also shown for comparison.


Diluted earnings per common share	FY 2021 Guidance (d)	FY 2020 (e)
GAAP	$19.62 to $20.12	$25.31
Amortization of identifiable intangibles	~$0.43	0.51
Put/call valuation adjustments associated with company's non-consolidating minority interest investments	0.69	0.60
Change in fair market value of publicly-traded equity securities	0.51	(4.32)
Receipt of commercial risk corridor receivables previously written off, net	—	(3.35)
Adjusted (non-GAAP) – FY 2021 projected; FY 2020 reported	$21.25 to $21.75	$18.75

Detailed Press Release

Humana’s full earnings press release including the statistical pages has been posted to the company’s Investor Relations site and may be accessed at https://humana.gcs-web.com/ or via a current report on Form 8-K filed by the company with the Securities and Exchange Commission this morning (available at www.sec.gov or on the company’s website).

Conference Call

Humana will host a conference call at 9:00 a.m. Eastern time today to discuss its financial results for the quarter and the company’s expectations for future earnings.

All parties interested in the company’s 1Q21 earnings conference call are invited to dial 888-625-7430. No password is required. The audio-only webcast of the 1Q21 earnings call may be accessed via Humana’s Investor Relations page at humana.com. The company suggests participants for both the conference call and those listening via the web dial in or sign on at least 15 minutes in advance of the call.

For those unable to participate in the live event, the archive will be available in the Historical Webcasts and Presentations section of the Investor Relations page at humana.com, approximately two hours following the live webcast. Telephone replays will also be available from approximately 12:15 p.m. Eastern time on April 28, 2021 until 10:59 p.m. Eastern time on June 26, 2021 and can be accessed by dialing 855-859-2056 and providing the conference ID #9581139.

Footnotes

(a) 1Q21 Adjusted results exclude the following:

•Amortization expense for identifiable intangibles of approximately $15 million pretax, or $0.08 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 $115 million, or $0.69 per diluted common share, associated with Humana’s non-consolidating minority interest investments. GAAP measures affected in this release include consolidated pretax and EPS.

•Change in fair market value of publicly-traded equity securities of $85 million, or $0.51 per diluted common share. Humana adjusts for the market gains and losses of its publicly-traded equity investments (primarily Oak Street Health, Inc.) each period because while investments are strategic decisions for the company, management's measure of performance is primarily focused on operational results rather than fair value of such investments. Also, management does not forecast changes in fair value of its equity investments. Accordingly, the company believes it is useful to adjust GAAP EPS for the market gains and losses of publicly-traded equity securities. GAAP measures affected in this release include consolidated pretax, EPS, and consolidated revenues.

(b) 1Q20 Adjusted results exclude the following:

•Amortization expense for identifiable intangibles of approximately $21 million pretax, or $0.12 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 $297 million, or $1.72 per diluted common share, associated with Humana’s non-consolidating minority interest investments. GAAP measures affected in this release include consolidated pretax and EPS.

(c) The Healthcare Services segment Adjusted earnings before interest, taxes, depreciation and amortization (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 all lines of business within the segment. The Adjusted EBITDA also includes the impact of Humana’s 40 percent minority interest in Kindred at Home and the strategic partnership with Welsh, Carson, Anderson & Stowe (WCAS) to develop and operate senior-focused, payor-agnostic, primary care centers.

(d) FY 2021 Adjusted EPS projections exclude the following:

•Amortization expense for identifiable intangibles of approximately ~$0.43 per diluted common share.

•Put/call valuation adjustments of $0.69 per diluted common share related to Humana’s non-consolidating minority interest investments. FY 2021 GAAP EPS guidance excludes the impact of future value changes of these put/call options as the future value changes cannot be estimated.

•Change in the fair market value of equity securities of $0.51 per diluted common share. The future value of publicly-traded equity securities, their impact on GAAP EPS, and the related non-GAAP adjustment will fluctuate on the public trading value of the stock. The guidance set forth herein assumes no further change in the fair value of these investments.

(e) FY 2020 Adjusted results exclude the following:

• Amortization expense for identifiable intangibles of approximately $88 million pretax, or $0.51 per diluted

common share.

• Put/call valuation adjustments of approximately $103 million, or $0.60 per diluted common share,

associated with Humana's non-consolidating minority interest investments.

• Change in fair market value of publicly-traded equity securities of $745 million, or $4.32 per diluted

common share. Humana adjusts for the market gains and losses of its publicly-traded equity investments

(primarily Oak Street Health, Inc.) each period because while investments are strategic decisions for the

company, management's measure of performance is primarily focused on operational results rather than

fair value of such investments. Also, management does not forecast changes in fair value of its equity

investments. Accordingly, the company believes it is useful to adjust GAAP EPS for the market gains and

losses of publicly-traded equity securities.

• Net adjustment of $578 million, or $3.35 per diluted common share, related to the receipt of unpaid risk

corridor payments associated with the losses incurred by the company under the ACA business from 2014

to 2016 (previously written off).

Cautionary Statement

This news release includes forward-looking statements regarding Humana within the meaning of the Private Securities Litigation Reform Act of 1995. When used in investor presentations, press releases, Securities and Exchange Commission (SEC) filings, and in oral statements made by or with the approval of one of Humana’s executive officers, the words or phrases like “expects,” “believes,” “anticipates,” “intends,” “likely will result,” “estimates,” “projects” or variations of such words and similar expressions are intended to identify such forward-looking statements.

These forward-looking statements are not guarantees of future performance and are subject to risks, uncertainties, and assumptions, including, among other things, information set forth in the “Risk Factors” section of the company’s SEC filings, a summary of which includes but is not limited to the following:

•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 involve extensive judgment, and have considerable inherent variability because they are extremely sensitive to changes in claim payment patterns and medical cost trends. Accordingly, Humana's 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 maintain existing or implement new information systems, to protect Humana’s proprietary rights to its systems, or to defend against cyber-security attacks or prevent other privacy or data security incidents that result in security breaches that disrupt our operations or in the unintended dissemination of sensitive personal information or proprietary or confidential information, 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.

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.

•Humana's business activities are subject to substantial government regulation. New laws or regulations, or legislative, judicial, or regulatory changes in existing laws or regulations or their manner of application could increase the company's cost of doing business and 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.

•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 and supply chain risks 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.

•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.

•The spread of, and response to, the novel coronavirus, or COVID-19, underscores certain risks Humana faces, including those discussed above, and the ongoing, heightened uncertainty created by the pandemic precludes any prediction as to the ultimate adverse impact to Humana of COVID-19.

To the extent that the spread of COVID-19 is not contained, the premiums the company charges may prove to be insufficient to cover the cost of health care services delivered to its members, which may increase significantly as a result of higher utilization rates of medical facilities and services and other increases in associated hospital and pharmaceutical costs. Humana may also experience increased costs or decreased revenues if, as a result of the company’s members being unable or unwilling to see their providers due to actions taken to mitigate the spread of COVID-19, Humana is unable to implement clinical initiatives to manage health care costs and chronic conditions of its members, and appropriately document their risk profiles. In addition, Humana is offering, and has been mandated by legislative and regulatory action (including the Families First Act and CARES Act) to provide, certain expanded benefit coverage to its members, such as waiving out of pocket costs for COVID-19 testing and treatment. Humana is also taking actions designed to help provide financial and administrative relief for the health care provider community. Such measures and any further steps taken by Humana, or governmental action, to continue to respond to and address the ongoing impact of COVID-19 (including further expansion or modification of the services delivered to its members, the adoption or modification of regulatory requirements associated with those services and the costs and challenges associated with ensuring timely compliance with such requirements), to provide further relief for the health care provider community, or in connection with the relaxation of stay-at-home and physical distancing orders and other restrictions on movement and economic activity, including the potential for widespread testing and therapeutic treatments and the distribution and administration of COVID-19 vaccines, could adversely impact the company’s profitability.

availability of in-person sales and marketing channels, financial services and supply chains, could materially and adversely disrupt the company’s normal business operations. Humana has transitioned a significant subset of its employee population to a remote work environment in an effort to mitigate the spread of COVID-19, as have a number of the company’s third-party service providers, which may exacerbate certain risks to Humana’s business, including an increased demand for information technology resources, increased risk of phishing and other cybersecurity attacks, and increased risk of unauthorized dissemination of sensitive personal information or proprietary or confidential information about the company or its members or other third-parties. The outbreak of COVID-19 has severely impacted global economic activity, including the businesses of some of Humana’s commercial customers, and caused significant volatility and negative pressure in the financial markets. In addition to disrupting Humana’s operations, these developments may adversely affect the timing of commercial customer premium collections and corresponding claim payments, the value of the company’s investment portfolio, or future liquidity needs.

The ongoing, heightened uncertainty created by the pandemic precludes any prediction as to the ultimate adverse impact to Humana of COVID-19. Humana is continuing to monitor the spread of COVID-19, changes to the company’s benefit coverages, and the ongoing costs and business impacts of dealing with COVID-19, including the potential costs and impacts associated with lifting or reimposing restrictions on movement and economic activity, the timing and degree in resumption of demand for deferred healthcare services, the pace of administration of COVID-19 vaccines and the effectiveness of those vaccines, and related risks. The magnitude and duration of the pandemic and its impact on Humana’s business, results of operations, financial position, and cash flows is uncertain, but such impacts could be material to the company’s business, results of operations, financial position and cash flows.

In making forward-looking statements, Humana is not undertaking to address or update them in future filings or communications regarding its business or results. In light of these risks, uncertainties, and assumptions, the forward-looking events discussed herein may or may not occur. There also may be other risks that the company is unable to predict at this time. Any of these risks and uncertainties may cause actual results to differ materially from the results discussed in the forward-looking statements.

Humana advises investors to read the following documents as filed by the company with the SEC for further discussion both of the risks it faces and its historical performance:

•Form 10-K for the year ended December 31, 2020; and

•Form 8-Ks filed during 2021.

About Humana

Humana Inc. (NYSE: HUM) is committed to helping our millions of medical and specialty members achieve their best health. Our successful history in care delivery and health plan administration is helping us create a new kind of integrated care with the power to improve health and well-being and lower costs. Our efforts are leading to a better quality of life for people with Medicare, families, individuals, military service personnel, and communities at large.

To accomplish that, we support physicians and other health care professionals as they work to deliver the right care in the right place for their patients, our members. Our range of clinical capabilities, resources and tools – such as in-home care, behavioral health, pharmacy services, data analytics and wellness solutions – combine to produce a simplified experience that makes health care easier to navigate and more effective.

More information regarding Humana is available to investors via the Investor Relations page of the company’s website at humana.com, including copies of:

•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

Document


n e w s r e l e a s e


Exhibit 99.2


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

Kelley Murphy

Humana Corporate Communications

(502) 224-1755

e-mail: Kmurphy26@humana.com

Humana Reports First Quarter 2021 Financial Results;

Reaffirms Full Year 2021 Adjusted EPS Financial Guidance

•Reports 1Q21 earnings per diluted common share of $6.39 on a GAAP basis, $7.67 on an Adjusted basis

•Reaffirms FY 2021 expected individual Medicare Advantage membership growth range of approximately 425,000 to 475,000 members


Consolidated income before income taxes and equity in earnings (pretax income) In millions	1Q21 (a)	1Q20 (b)
Generally Accepted Accounting Principles (GAAP)	$1,040	$717
Amortization associated with identifiable intangibles	15	21
Put/call valuation adjustments associated with company's non-consolidating minority interest investments	115	297
Change in fair market value of publicly-traded equity securities	85	—


Adjusted (non-GAAP)	$1,255	$1,035


Diluted earnings per common share (EPS)	1Q21 (a)	1Q20 (b)
GAAP	$6.39	$3.56
Amortization associated with identifiable intangibles	0.08	0.12
Put/call valuation adjustments associated with company's non-consolidating minority interest investments	0.69	1.72
Change in fair market value of publicly-traded equity securities	0.51	—


Adjusted (non-GAAP)	$7.67	$5.40

Summary of Quarterly Results

Please refer to the tables above, as well as the consolidated and segment highlight sections that follow for additional discussion of the factors impacting the year-over-year comparisons.

In addition, below is a summary of key consolidated and segment statistics comparing 1Q21 to 1Q20.


Humana Inc. Summary of Quarterly Results (dollars in millions, except per share amounts)	1Q21 (a)		1Q20 (b)
Consolidated results:
Revenues - GAAP	$20,668		$18,935
Revenues - Adjusted	$20,753		$18,935
Pretax income - GAAP	$1,040		$717
Pretax income - Adjusted	$1,255		$1,035
Diluted EPS - GAAP	$6.39		$3.56
Diluted EPS - Adjusted	$7.67		$5.40
Benefits expense ratio - GAAP	85.9	%	85.1	%

Operating cost ratio - GAAP	9.7	%	11.3	%

Operating cash flows - GAAP	($837)		$474

Parent company cash and short term investments	$547		$2,353
Debt-to-total capitalization	33.9	%	39.2	%
Retail segment results:
Revenues - GAAP	$18,648		$16,762
Benefits expense ratio - GAAP	87.7	%	86.6	%
Operating cost ratio - GAAP	7.8	%	9.2	%
Segment earnings - GAAP	$794		$685
Segment earnings - Adjusted	$798		$689
Group and Specialty segment results:
Revenues - GAAP	$1,737		$1,865
Benefits expense ratio - GAAP	74.7	%	79.1	%
Operating cost ratio - GAAP	22.9	%	23.1	%
Segment earnings - GAAP	$174		$105
Segment earnings - Adjusted	$175		$106
Healthcare Services segment results:
Revenues - GAAP	$7,198		$7,085
Operating cost ratio - GAAP	96.0	%	96.0	%
Segment earnings - GAAP	$269		$250
Adjusted earnings before interest, taxes, depreciation and amortization (Adjusted EBITDA) (c)	$329		$319

2021 Earnings Guidance


Diluted earnings per common share	FY 2021 Guidance (d)	FY 2020 (e)
GAAP	$19.62 to $20.12	$25.31
Amortization of identifiable intangibles	~$0.43	0.51
Put/call valuation adjustments associated with company's non-consolidating minority interest investments	0.69	0.60
Change in fair market value of publicly-traded equity securities	0.51	(4.32)
Receipt of commercial risk corridor receivables previously written off, net	—	(3.35)
Adjusted (non-GAAP) – FY 2021 projected; FY 2020 reported	$21.25 to $21.75	$18.75

Humana Consolidated Highlights

Consolidated revenues


Consolidated revenues	1Q21 (a)		1Q20
GAAP	$	20,668	$	18,935
Change in fair market value of publicly-traded equity securities	85		—

Adjusted (non-GAAP)	$	20,753	$	18,935

GAAP consolidated revenues for 1Q21 were $20.67 billion, an increase of $1.73 billion, or 9 percent, from $18.94 billion in 1Q20. Total premiums and services revenues of $20.59 billion in 1Q21 increased $1.80 billion, or 10 percent, from $18.79 billion in 1Q20. The favorable year-over-year comparisons were primarily driven by the following factors:

•individual Medicare Advantage and state-based contracts membership growth; and

•higher per member individual Medicare Advantage premiums as a result of the improving CMS benchmark rate for 2021 and the impact of Medicare sequestration relief in 1Q21 that was not enacted until the second quarter of 2020, partially offset by Medicare Risk Adjustment (MRA) headwinds resulting from COVID-19 related utilization disruption in 2020.

These increases were partially offset by declining year-over-year stand-alone PDP, group commercial medical, and group Medicare Advantage membership.

Adjusted consolidated revenues for 1Q21 were impacted by the same factors affecting the GAAP comparisons while excluding the impact of the factor detailed in the table above.

Consolidated benefits expense

The 1Q21 and 1Q20 GAAP consolidated benefit ratios were 85.9 percent and 85.1 percent, respectively.

The year-over-year increase in the quarterly GAAP comparison reflects the following factors:

•the termination in 2021 of the non-deductible HIF which, along with a portion of the related tax benefit, was contemplated in the pricing and benefit design of the company's products; and

•the impact in 1Q21 associated with the competitive nature of the group Medicare Advantage business, particularly in large group accounts that were recently procured, as well as in the stand-alone PDP business.

These factors were partially offset by higher favorable prior period medical claims reserve development (Prior Period Development) in 1Q21 as further described below.

Prior Period Medical Claims Reserve Development (Prior Period Development)

As anticipated, Humana experienced a higher level of favorable Prior Period Development in 1Q21 as a result of the reversal of actions taken in 2020, including the suspension of certain financial recovery programs for a period of time. The suspension during 2020 was intended to provide financial and administrative relief for providers facing unprecedented strain as a result of the COVID-19 pandemic.

Favorable Prior Period Development of $555 million in 1Q21 decreased the consolidated benefit ratio by 280 basis points while favorable Prior Period Development of $284 million in 1Q20 decreased the consolidated benefit ratio by 150 basis points.

Consolidated operating expenses

The 1Q21 GAAP consolidated operating cost ratio (operating costs as a percent of total revenues less investment income) of 9.7 percent decreased 160 basis points from the 1Q20 ratio of 11.3 percent. The decrease was primarily related to the following factors:

•termination of the non-deductible HIF in 2021, which increased the consolidated GAAP operating cost ratio by approximately 160 basis points in 1Q20,

•scale efficiencies associated with growth in the company's Medicare Advantage membership,

•operating cost efficiencies in 1Q21 driven by previously implemented productivity initiatives, and

•lower COVID-19 related administrative costs in 1Q21 compared to 1Q20.

These improvements were partially offset by continued strategic investments made to position the company for long-term success.

Balance sheet

•At March 31, 2021, the company had cash, cash equivalents, and investment securities of $18.25 billion, down approximately $191 million, or 1 percent, from $18.44 billion at December 31, 2020 primarily resulting from capital expenditures, acquisitions, and cash dividends to shareholders, partially offset by the issuance of commercial paper. Detailed changes are outlined in the company’s consolidated statement of cash flows on pages S-5 of the statistical supplement included in this release.

•At March 31, 2021, cash and short-term investments held at the parent company of $547 million decreased approximately $225 million, or 29 percent, from $772 million at December 31, 2020. The sequential change primarily reflects acquisitions, capital expenditures, cash dividends to shareholders, and capital contributions to certain subsidiaries, partially offset by the issuance of commercial paper and an increase in non-regulated subsidiary earnings in the company's Healthcare Services segment.

•Days in claims payable (DCP) of 45.0 days at March 31, 2021, decreased by 1.2 days from 46.2 days at December 31, 2020 but increased 3.7 days from 41.3 days at March 31, 2020. 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, 2021 was 33.9 percent, up 120 basis points from 32.7 percent at December 31, 2020, but down 530 basis points from 39.2 percent at March 31, 2020. The sequential increase primarily resulted from the issuance of commercial paper, partially offset by the impact of the 1Q21 earnings. Debt-to-total capitalization at 1Q20 was impacted by net proceeds of a $1.10 billion senior note issuance as well as proceeds from a term loan.

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, debt issuance, and acquisitions, including, for example, the Kindred at Home transaction announced on April 27, 2021.

Operating cash flows

•GAAP cash flows used in operations of $837 million in 1Q21 compared to GAAP cash flows provided by operations of $474 million in 1Q20, a decrease of $1.3 billion year over year. The decline primarily resulted from the negative impact of working capital items, partially offset by higher earnings in 1Q21 compared to 1Q20. The 1Q21 cash flows were significantly impacted by changes to working capital levels, primarily as a result of prior year disruptions caused by COVID-19. These impacts include paying down claims inventory and capitation for provider surplus amounts earned in 2020, as well as additional provider support. Other working capital items also contributed to the decline in operating cash flows in 1Q21, including typical working capital activity that tends to decrease operating cash flows in the first quarter of each year.

Share repurchases

•In December 2020, the company entered into separate agreements with two third-party financial institutions to effect an aggregate $1.75 billion accelerated stock repurchase (ASR) program as part of the $3.00 billion repurchase program authorized by the Board of Directors on July 30, 2019. During the fourth quarter of 2020, under the terms of this program, the company repurchased approximately 3,829,400 shares. The actual number of shares repurchased under the December 2020 ASR agreements will be determined based on a volume-weighted average price of the company's common stock during the purchase period. Under the ASR agreements, settlement of approximately $263 million of repurchases remains pending, and the company expects final settlement in second quarter of 2021.

•The company did not complete any open-market share repurchase transactions during 1Q21.

•In February 2021, Humana's Board of Directors approved a $3.00 billion share repurchase authorization with an expiration date of February 18, 2024, replacing the previous $3.00 billion share repurchase authorization (of which approximately $250 million remain unused). As of April 27, 2021, the company has a remaining repurchase authorization of $3.00 billion.

Cash dividends

•The company paid cash dividends to its stockholders of $83 million in 1Q21 versus $73 million in 1Q20. The increase reflects growth in the per share dividend amount to $0.625, as approved by the company's Board of Directors in February 2020, versus the previous per share amount of $0.55.

•In April 2021, Humana Board of Directors declared an additional cash dividend of $0.70 per share to stockholders of record on June 30, 2021. The dividend is payable on July 30, 2021.

Humana’s Retail Segment

This segment consists of the company’s Medicare benefits, marketed to individuals directly or via group Medicare accounts, as well as its Medicare Supplement and state-based contracts businesses. State-based contracts include those with various states to provide services under the Medicaid program, including Temporary Assistance for Needy Families (TANF), dual eligible, and Long-Term Support Services benefits. In addition, this segment also includes the company’s contract with Centers for Medicare & Medicaid Services (CMS) to administer the Limited Income Newly Eligible Transition prescription drug plan (PDP) program.

Retail segment revenues:

•The 1Q21 revenues for the Retail segment were $18.65 billion, an increase of $1.89 billion, or 11 percent, from $16.76 billion in 1Q20 primarily reflecting the following items:

◦individual Medicare Advantage and state-based contracts membership growth; and

◦higher per member individual Medicare Advantage premiums as a result of the improving CMS benchmark rate for 2021 and the impact of Medicare sequestration relief in 1Q21 that was not enacted until the second quarter of 2020, partially offset by MRA headwinds resulting from COVID-19 related utilization disruption in 2020.

These favorable items were partially offset by the decline in membership in the company's stand-alone PDP and group Medicare Advantage offerings.

Retail segment enrollment:

•Individual Medicare Advantage membership was 4,291,300 as of March 31, 2021, a net increase of 453,200 or 12 percent, from 3,838,100 as of March 31, 2020, and up 328,600, or 8 percent, from 3,962,700 as of December 31, 2020. The year-over-year and sequential increases were primarily due to membership additions associated with the most recent Annual Election Period (AEP) and Open Election Period (OEP) for Medicare beneficiaries, as well as the impact of Dual Eligible Special Need Plans (D-SNP) membership added as a result of the recently completed Independent Care Health Plan (iCare) acquisition. The year-over-year growth was further impacted by continued enrollment resulting from special elections, age-ins, and D-SNP members following the 2020 OEP.

The 2021 OEP sales period, which ran from January 1 to March 31, 2021, added approximately 21,000 members through March 31, 2021. An additional 15,000 members became effective April 1, 2021 (not included in the March 31, 2021 membership detailed above), for a total 2021 OEP impact of 36,000 members. In comparison, the 2020 OEP added approximately 30,000 members.

Individual Medicare Advantage membership includes 501,100 D-SNP members as of March 31, 2021, a net increase of 158,600, or 46 percent, from 342,500 as of March 31, 2020, and up 95,000, or 23 percent, from 406,100 as of December 31, 2020.

•Group Medicare Advantage membership was 556,700 as of March 31, 2021, a net decrease of 50,700, or 8 percent, from 607,400 at March 31, 2020, and down 56,500, or 9.2 percent, from 613,200 as of December 31, 2020. These anticipated decreases reflect the net loss of certain large accounts in January 2021, partially offset by continued growth in small group accounts.

•Membership in the company’s stand-alone PDP offerings was 3,666,200 as of March 31, 2021, a net decrease of 228,900, or 6 percent, from 3,895,100 as of March 31, 2020, and down 200,500, or 5 percent, from 3,866,700 as of December 31, 2020. These anticipated declines were primarily the result of the Walmart Value plan no longer being the low cost leader in 2021.

•State-based contracts membership (including dual-eligible demonstration members) was 838,900 as of March 31, 2021, a net increase of 221,600, or 36 percent, from 617,300 at March 31, 2020 and up 66,500, or 9 percent, from 772,400 at December 31, 2020. These increases primarily reflect the additional enrollment resulting from the current economic downturn due to the COVID-19 pandemic, as well as the recently completed iCare acquisition in Wisconsin.

Retail segment benefits expense:

•The 1Q21 benefit ratio for the Retail segment was 87.7 percent, an increase of 110 basis points from 86.6 percent for 1Q20. The year-over-year increase in the segment benefit ratio primarily reflects the following items:

◦the termination in 2021 of the non-deductible HIF which, along with a portion of the related tax benefit, was contemplated in the pricing and benefit design of the company's products; and

◦the impact in 1Q21 associated with the competitive nature of the group Medicare Advantage business, particularly in large group accounts that were recently procured, as well as in the stand-alone PDP business.

These factors were partially offset by higher favorable Prior Period Development in 1Q21 as further described below.

Prior Period Development

The Retail segment's favorable Prior Period Development of $463 million in 1Q21 decreased the segment benefit ratio by 250 basis points in 1Q21. In 1Q20, the segment's favorable Prior Period Development of $238 million decreased the benefit ratio by 140 basis points.

Retail segment operating costs:

•The Retail segment’s operating cost ratio of 7.8 percent in 1Q21 decreased 140 basis points from 9.2 percent in 1Q20. The year-over-year comparison was positively impacted by the following factors:

◦termination of the non-deductible HIF in 2021, which increased the Retail segment GAAP operating cost ratio by approximately 170 basis points in 1Q20,

◦scale efficiencies associated with growth in the company's individual Medicare Advantage membership, and

◦operating cost efficiencies in 1Q21 driven by previously implemented productivity initiatives.

These improvements were partially offset by continued strategic investments made to position the company for long-term success.

Retail segment results:


Retail segment earnings in millions	1Q21 (a)	1Q20 (b)
GAAP	$794	$685
Amortization associated with identifiable intangibles	4	4
Adjusted (non-GAAP)	$798	$689

•The year-over-year favorable quarter comparison of GAAP segment results was impacted by the same factors that led to the segment's lower operating cost ratio in 1Q21, partially offset by the higher benefit ratio.

Humana’s Group and Specialty Segment

This segment consists of the company’s employer group fully-insured commercial medical products and specialty insurance benefits marketed to individuals and groups, including dental, vision, and life insurance benefits. In addition, the segment also includes the company’s administrative services only (ASO) products and its military services businesses.

Group and Specialty segment revenues:

•The 1Q21 revenues for the Group and Specialty segment were $1.74 billion, down $128 million, or 7 percent, year over year from $1.87 billion in 1Q20. This decrease was primarily due to the anticipated decline in the company's fully-insured group commercial membership, partially offset by higher per member premiums across the fully-insured commercial business.

Group and Specialty segment enrollment:

•Group fully-insured commercial medical membership was 721,300 at March 31, 2021, a decrease of 140,300, or 16 percent, from 861,600 at March 31, 2020, and down 56,100, or 7 percent, from 777,400 at December 31, 2020. These declines reflect lower small group quoting activity and sales attributable to depressed economic activity from the COVID-19 pandemic, partially offset by higher retention of existing customers, particularly in larger groups. The portion of group fully-insured commercial medical membership in small group accounts (2-99 sized employer groups) was approximately 53 percent at March 31, 2021 compared to 54 percent at December 31, 2020 and 57 percent at March 31, 2020.

•Group ASO commercial medical membership was 500,600 at March 31, 2021, a decrease of 5,500, or 1 percent, from 506,100 at March 31, 2020, and down 4,300, or 1 percent, from 504,900 at December 31, 2020. Small group membership comprised 45 percent of group ASO medical membership at March 31, 2021, December 31, 2020 and March 31, 2020. Membership as of March 31, 2021 reflects intensified competition for small group accounts, partially offset by strong retention among large group accounts.

•Military services membership was 6,047,400 at March 31, 2021, an increase of 48,200, or 1 percent, from 5,999,200 at March 31, 2020, and up 48,700, or 1 percent, from 5,998,700 at December 31, 2020. Membership includes military service members, retirees, and their families to whom the company is providing healthcare services under the current TRICARE East Region contract.

•Membership in specialty products(f) was 5,326,100 at March 31, 2021, a decrease of 144,600, or 3 percent, from 5,470,700, at March 31, 2020, but up 15,800 from 5,310,300 at December 31, 2020. These changes reflect the impact of the current economic downturn driven by the COVID-19 pandemic as previously discussed. The year-over-year membership decline reflects the loss of dental and vision groups cross-sold with medical, as reflected in the loss of group fully-insured commercial medical membership, as well as the loss of certain groups with stand-alone dental and vision. The sequential increase in specialty membership resulted from higher vision membership partially offset by a decline in dental members.

Group and Specialty segment benefits expense:

•The 1Q21 benefit ratio for the Group and Specialty segment was 74.7 percent, a decrease of 440 basis points from 79.1 percent for 1Q20. The year-over-year decrease in the segment benefit ratio was primarily due to the following factors:

◦ higher favorable Prior Period Development in the segment in 1Q21 as further described below; and

◦deliberate pricing and benefit design efforts to increase profitability and position the commercial business for long-term success.

These improvements were partially offset by the following factors:

◦the termination in 2021 of the non-deductible HIF which, along with a portion of the related tax benefit, was contemplated in the pricing and benefit design of the company's products; and

◦higher utilization in 1Q21 driven by COVID-19 treatment and testing costs, net of the impact of the temporary deferral of non-COVID utilization, primarily associated with dental services.

Prior Period Development

As anticipated, Humana experienced a higher level of favorable Prior Period Development in 1Q21 as a result of the suspension of certain financial recovery programs for a period of time in 2020. The suspension during 2020 was intended to provide financial and administrative relief for providers facing unprecedented strain as a result of the COVID-19 pandemic.

The segment's favorable Prior Period Development of $92 million for 1Q21 compared to favorable development of $46 million in 1Q20. The favorable Prior Period Development for the Group and Specialty segment decreased the 1Q21 benefit ratio by 600 basis points and decreased the 1Q20 ratio by 280 basis points.

Group and Specialty segment operating costs:

•The Group and Specialty segment’s operating cost ratio was 22.9 percent in 1Q21, a decrease of 20 basis points from 23.1 percent in 1Q20, primarily reflecting the following factors:

◦termination of the non-deductible HIF in 2021, which increased the Group and Specialty segment GAAP operating cost ratio by approximately 140 basis points in 1Q20; and

◦operating cost efficiencies in 1Q21 driven by previously implemented productivity initiatives.

These improvements were partially offset by continued strategic investments made to position the company for long-term success.

Group and Specialty segment results:


Group and Specialty segment earnings In millions	1Q21 (a)	1Q20 (b)
GAAP	$174	$105
Amortization associated with identifiable intangibles	1	1
Adjusted (non-GAAP)	$175	$106

•The favorable year-over-year quarter comparison in GAAP segment results was impacted by the same factors that led to the segment's lower benefit and operating cost ratios in 1Q21.

Humana’s Healthcare Services Segment

This segment includes services offered to the company’s health plan members as well as to third parties, including pharmacy solutions, provider services, and clinical programs, such as home health and other services and capabilities to promote wellness and advance population health, including the company's non-consolidating minority interest investments in Kindred at Home and the strategic partnership with Welsh, Carson, Anderson & Stowe (WCAS) to develop and operate senior-focused, payor-agnostic, primary care centers.

Services offered by this segment are designed to enhance the healthcare experience overall. These services may lead to lower utilization associated with improved member health and/or lower drug costs.

Healthcare Services segment revenues:

•Revenues of $7.20 billion in 1Q21 for the Healthcare Services segment increased by $113 million, or 2 percent, from $7.09 billion in 1Q20. The year-over-year comparison was favorably impacted by the following factors:

◦the company's strong individual Medicare Advantage membership growth,

◦additional pharmacy revenues in 1Q21 associated with the Enclara Healthcare acquisition that closed during 1Q20, and

◦higher revenues associated with the company's provider business.

These factors were partially offset by the following:

◦loss of intersegment revenues associated with the decline in stand-alone PDP and group Medicare Advantage membership as previously discussed; and

◦the impact of increased pharmacy revenues in 1Q20 as a result of the company allowing early prescription refills to permit members to prepare for extended supply needs due to COVID-19 restrictions.

Healthcare Services segment operating costs:

•The Healthcare Services segment’s operating cost ratio of 96.0 percent in 1Q21 was unchanged from the 1Q20 ratio. The 1Q21 ratio reflects operational improvements in the company's provider services business, largely related to Conviva, along with operating cost efficiencies driven by previously implemented productivity initiatives in 1Q21. These improvements were offset by increased administrative costs in the pharmacy operations as a result of incremental spend to accelerate growth within the business, labor-related overtime and shipping costs due to weather related disruptions in February 2021, and COVID-related staffing and personal protective equipment costs.

Healthcare Services segment operating statistics:

•Medicare Advantage and dual demonstration program membership enrolled in a Humana care management program(g) was 925,100 at March 31, 2021, up 3 percent from 899,700 at March 31, 2020 and up 2 percent from 910,600 at December 31, 2020. These increases were primarily driven by growth in Special Needs Plans (SNP) membership, partially offset by improved predictive modeling leading to a reduction in members being managed by legacy care management programs.

•Pharmacy script volume on an adjusted 30-day equivalent basis of 126 million for 1Q21 increased 4 percent compared to 120 million for 1Q20. The increase was primarily driven by higher individual Medicare Advantage and state-based contracts membership, partially offset by the decline in stand-alone PDP and group Medicare Advantage membership and the impact of early prescription refills in 1Q20 as members prepared for extended supply needs in response to COVID-19 restrictions.

Healthcare Services segment results:


Healthcare Services segment results (in millions)	1Q21	1Q20
GAAP segment earnings	$269	$250
Depreciation and amortization expense	45	48
Interest and taxes	15	21
Adjusted EBITDA (c)	$329	$319

•The Healthcare Services segment’s 1Q21 GAAP segment earnings increased $19 million, or 8 percent, to $269 million compared to GAAP segment earnings of $250 million in 1Q20. The increase primarily resulted from

improved operating performance in the provider business as well as higher earnings from equity in affiliates in 1Q21.

Adjusted EBITDA in 1Q21 for the Healthcare Services segment of $329 million was up $10 million, or 3 percent, compared to Adjusted EBITDA of $319 million in 1Q20. The favorable year-over-year comparison of Adjusted EBITDA primarily resulted from the same factors that impacted the quarterly GAAP segment results comparison while excluding the impact of the factors detailed in the table above.