Humana Reports Fourth Quarter and Full Year 2002 Results
Humana Reports Fourth Quarter and Full Year 2002 Results
February 3, 2003 at 12:00 AM EST
LOUISVILLE, Ky., Feb 3, 2003 /PRNewswire-FirstCall via COMTEX/ -- Humana Inc.
(NYSE: HUM) today reported results for the fourth quarter ended December 31,
2002 and comparative amounts for the quarter ended December 31, 2001 as follows:
4Q02 4Q01 4Q02 4Q01
GAAP(1) GAAP(1) Adjusted(2) Adjusted(3)
Earnings (loss)
per diluted share $(.01) $ .21 $ .34 $.29
Net income (loss)
(in thousands) $(1,705) $35,108 $56,495 $48,281
Pre-tax margin -- 2.1% 2.9% 2.6%
(See "Footnote Definitions" section of this press release.)
Fourth quarter 2002 adjusted earnings per diluted share of $.34 increased 17
percent compared to the same period in the prior year driven primarily by
improved adjusted earnings in the company's Commercial segment. Adjusted net
income for the fourth quarter also improved 17 percent compared to that for the
same period in the prior year. The adjusted pre-tax margin of 2.9 percent
increased 30 basis points from the fourth quarter of 2001.
Results for the years ended December 31, 2002 and 2001 are as follows:
Full Year Full Year Full Year Full Year
2002 2001 2002 2001
GAAP(1) GAAP(1) Adjusted(2) Adjusted(3)
Earnings per
diluted share $ .85 $.70 $1.20 $1.01
Net income
(in thousands) $142,755 $117,171 $200,955 $169,417
Pre-tax margin 1.9% 1.8% 2.6% 2.3%
(See "Footnote Definitions" section of this press release.)
Adjusted earnings per diluted share for the year ended December 31, 2002 of
$1.20 increased 19 percent compared to $1.01 for the year ended December 31,
2001. Net income on an adjusted basis also improved 19 percent for the full year
2002 versus the full year 2001.
In July 2002, the company announced a $100 million share repurchase program. As of February 2, 2003, 6.6 million shares had been repurchased for an aggregate purchase price of $76.0 million, or $11.53 per share.
"Humana has targeted specific opportunities within the Commercial segment, and the early impact of those initiatives is demonstrated by significant progress in our financial results for that segment during 2002," said Michael B. McCallister, Humana's chief executive officer. "Our strategy of providing solutions for employers is proving effective, and we believe we can further improve our Commercial business in 2003 while maintaining strong results in our Government segment."
Unusual Items
During the fourth quarter of 2002, the company recorded the following items that were not reflective of the run-rate operations of the company. These adjustments initially were described in the company's press release, dated December 5, 2002. Management believes these unusual items should be excluded to properly reflect the run-rate operations of the company and to provide better comparability to prior year results.
Statement of Earnings
Operations per diluted
Line Item Pre-tax After-tax share
Impacted Impact Impact Impact
(in thousands,
except per share
amounts)
Severance and related Restructuring
employee benefits charge $(32,105) $(19,616) $( .12)
Building, equipment
and lease Restructuring
discontinuance charge $(3,772) $(2,305) $( .01)
Reserves for Selling,
liabilities related general and
to previous administrative
acquisitions ("SG&A") $(30,140) $(18,416) $( .11)
Impairment in the
fair value of
certain private
debt and equity Investment
investments income $(19,571) $(17,863) $( .11)
Total unusual items $(85,588) $(58,200) $( .35)
(See "Footnote Definitions" section of this press release.)
Segment Results
Pre-tax results for the company's business segments for the fourth quarters and years ended December 31, 2002 and 2001 were as follows:
Pre-tax income (loss) 4Q02 4Q01 4Q02 4Q01
GAAP(1) GAAP(1) Adjusted(2) Adjusted(3)
(in thousands)
Commercial segment $(60,702) $(10,756) $ 8,199 $ (2,748)
Government segment $ 58,195 $ 65,612 $ 74,882 $ 71,553
Consolidated $ (2,507) $ 54,856 $ 83,081 $ 68,805
Pre-tax income (loss) Full Year Full Year Full Year Full Year
2002 2001 2002 2001
GAAP(1) GAAP(1) Adjusted(2) Adjusted(3)
(in thousands)
Commercial segment $(15,174) $ (2,013) $ 53,727 $ 31,422
Government segment $225,108 $185,093 $241,795 $206,723
Consolidated $209,934 $183,080 $295,522 $238,145
(See "Footnote Definitions" section of this press release.)
Revenues and Membership
Consolidated revenues and membership for the fourth quarters and the years ended December 31, 2002 and 2001 were as follows:
Consolidated 2002 2001 2002 2001
GAAP(1) GAAP(1) Adjusted(2) Adjusted(3)
(in thousands)
Fourth quarter -
total revenues $2,855,032 $2,622,716 $2,874,603 $2,622,716
Full year -
total revenues $ 11,261,181 $ 10,194,886 $ 11,280,752 $ 10,194,886
Ending medical
membership 6,647.1 6,435.8 6,647.1 6,435.8
(See "Footnote Definitions" section of this press release.)
Commercial segment premiums and administrative services fees and membership for
the fourth quarters and the years ended December 31, 2002 and 2001 were as
follows:
Commercial Segment Full Year Full Year
4Q02 4Q01 2002 2001
GAAP(1) GAAP(1) GAAP(1) GAAP(1)
(in thousands)
Premiums $1,508,550 $1,336,704 $5,836,328 $5,246,602
Administrative
services fees $ 25,913 $ 21,695 $ 103,203 $ 84,204
Total premiums and
administrative
services fees $1,534,463 $1,358,399 $5,939,531 $5,330,806
Ending medical
membership 2,992.5 2,893.8 2,992.5 2,893.8
(See "Footnote Definitions" section of this press release.)
Commercial segment medical membership grew by 3.4 percent from December 31, 2001
to December 31, 2002. Commercial premium yields were within the 12 to 14 percent
range for 2002. These factors contributed to a year-over-year increase in total
premiums and administrative services fees for the Commercial segment of 13
percent for the fourth quarter 2002 and 11 percent for the year ended December
31, 2002.
Government segment premiums and administrative services fees and membership for the fourth quarters and the years ended December 31, 2002 and 2001 were as follows:
Government Segment Full Year Full Year
4Q02 4Q01 2002 2001
GAAP(1) GAAP(1) GAAP(1) GAAP(1)
(in thousands)
Premiums $1,283,960 $1,207,682 $5,094,069 $4,692,359
Administrative
services fees $ 28,583 $ 27,622 $ 141,193 $ 52,886
Total premiums
and administrative
services fees $1,312,543 $1,235,304 $5,235,262 $4,745,245
Ending medical
membership 3,654.6 3,542.0 3,654.6 3,542.0
(See "Footnote Definitions" section of this press release.)
Government segment premiums and administrative services fees increased
year-over-year by 6 percent in the fourth quarter of 2002 and 10 percent during
the year ended December 31, 2002.
Medicare+Choice membership totaled 344,100 at December 31, 2002, a decline of 4,900 members sequentially during the quarter and 49,800 for the year. Medicare+Choice premium yields for 2002 were within the 5 to 7 percent range.
TRICARE's insured membership totaled 1,755,800 at December 31, 2002, essentially flat sequentially and 2 percent higher than the December 31, 2001 level. TRICARE ASO membership was 1,048,700 at the end of the fourth quarter of 2002, up approximately 1 percent sequentially and a growth of 11 percent for the year. TRICARE premium revenues and administrative services fees increased year-over-year by 26 percent during the fourth quarter of 2002 and 54 percent for the full year. These increases in TRICARE revenues primarily are attributable to Congressionally legislated benefit changes, an increase in eligible beneficiaries, a decrease in the use of military treatment facilities, and for the full year, the acquisition of the Regions 2 and 5 business on May 31, 2001.
Medicaid membership of 506,000 at December 31, 2002 grew by approximately 3 percent from December 31, 2001. Approximately 86 percent of the company's Medicaid membership is in Puerto Rico, where reimbursement rates are contractually specified.
Medical and SG&A Expenses
The company's medical expense ratio (medical expenses as a percent of premiums) and SG&A expense ratio (SG&A expenses as a percent of premiums and administrative services fees) for the quarters and years ended December 31, 2002 and 2001 were as follows:
Full Year Full Year
4Q02 4Q01 2002 2001
Medical expense
ratio - GAAP(1) 83.3% 82.9% 83.6% 83.3%
SG&A expense
ratio - GAAP(1) 16.2% 15.9% 15.6% 15.3%
SG&A expense
ratio - Adjusted(2) 15.1% 15.9% 15.3% 15.3%
(See "Footnote Definitions" section of this press release.)
Medical cost trends for the Commercial fully-insured business for 2002 were in
the expected 11 to 13 percent range. Medicare+Choice medical cost trends for
2002 were also in the expected 4 to 6 percent range.
Cash flows from operations
Cash flows from operations for the fourth quarters and the years ended December 31, 2002 and 2001 were as follows:
(in thousands) Full Year Full Year
4Q02 4Q01 2002 2001
GAAP(1) $422,710 $ 89,120 $321,408 $148,958
Normalized(4) $216,955 $100,169 $332,281 $165,773
(See "Footnote Definitions" section of this press release.)
Guidance
The company has offered the following earnings guidance points for the investor community:
For the Full Year 2003: Projected
Earnings per diluted share - GAAP(1) $1.23 - $1.28
Earnings per diluted share - Adjusted(5) $1.35 - $1.40
Organic growth - Commercial
segment medical membership
(fully insured and ASO combined) 4 - 5%
Commercial premium yields 13 - 15%
Commercial medical cost trends 12 - 14%
SG&A expense ratio - Adjusted(5) Improve by approximately 80
basis points year over year
Normalized cash flows
from operations(4) $325 million to $350 million
Effective tax rate 36%
(See "Footnote Definitions" section of this press release.)
Footnote Definitions
1 - Generally Accepted Accounting Principles ("GAAP")
2 - Adjusted results for 2002 exclude from GAAP results the impact of
unusual items recorded during that year. These items were recorded in
the fourth quarter of 2002. The statistics pages at the end of this
press release provide a reconciliation of GAAP to adjusted results.
The detail of the adjustments also is described in the "Unusual Items"
section of this press release.
3 - Adjusted results for 2001 exclude from previously reported GAAP
results amortization expense for goodwill to facilitate comparability.
GAAP required all companies to cease amortizing goodwill effective
January 1, 2002. The statistics pages at the end of this press
release provide a reconciliation of GAAP to adjusted results.
4 - Normalized cash flows from operations give effect to the usual
adjustment for the timing of the receipt of the Medicare+Choice
premium payment from the Centers for Medicare and Medicaid Services
("CMS"). The fixed monthly payment from CMS is payable to Humana on
the first day of each month. However, if the first of the month falls
on a weekend or a holiday, the company receives that payment early,
often resulting in a significant impact on cash flows from operations.
The statistics pages at the end of this press release provide a
reconciliation of GAAP to normalized cash flows from operations.
5 - Adjusted results for the full year 2003 exclude from GAAP results the
expected impact of non-run-rate items to be recorded during that year.
As discussed in the company's press release issued December 5, 2002,
the anticipated adjustments relate to the disposition of one customer
service center, related equipment and other assets.
Conference Call
Humana will host a conference call, as well as a virtual slide presentation, at 9:30 a.m. EST today to discuss its financial results for the quarter and earnings guidance.
All parties interested in the audio only portion of the conference call are invited to dial 888-625-7430. No password is required. The company suggests participants dial in approximately ten minutes in advance of the call.
A live virtual presentation (audio with slides) will be available and may be accessed via Humana's Investor Relations page at www.humana.com. The company suggests web participants sign on approximately 15 minutes in advance of the call. The company also suggests web participants visit the site well in advance of the call to run a system test and to download any free software needed to view the presentation.
For those unable to participate in the live event, the virtual presentation archive will be available in the Presentations section of the Investor Relations page at www.humana.com, approximately two hours following the live web cast. An audio recording of the conference call will also be available in the Audio Archives located on the Investor Relations page at www.humana.com approximately two hours after the live call.
This news release contains forward-looking statements. The forward- looking statements made in this news release are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements may be significantly impacted by certain risks and uncertainties described in the following documents as filed by Humana with the Securities and Exchange Commission:
- Form 10-K for the year ended December 31, 2001,
- Form 10-Qs for the quarters ended March 31, 2002, June 30, 2002, and
September 30, 2002, and
- Form S-3 (No. 333-100419) filed October 8, 2002.
Humana Inc., headquartered in Louisville, Kentucky, is one of the nation's
largest publicly traded health benefits companies, with approximately 6.6
million medical members located primarily in 18 states and Puerto Rico. Humana
offers coordinated health insurance coverage and related services through
traditional and Internet based plans -- to employer groups, government-sponsored
plans, and individuals.
More information regarding Humana is available via the Internet at www.humana.com, including on-line:
- Copies of annual reports to stockholders;
- Securities and Exchange Commission filings including Form 10-Ks, Form
10-Qs, proxy statements, Form 4s, Form S-3s, and Form 8-Ks;
- Copy of most recent investor presentation;
- Copies of quarterly earnings press releases;
- Audio archive of the most recent earnings release conference call;
- Calendar of events (includes upcoming earnings conference call dates,
related conference call access number, and planned participation in
investor conferences).
Humana Inc.
In thousands
December 31, Difference Percent
Ending Medical Membership 2002 2001 Change
Commercial:
Fully insured 2,340.3 2,301.3 39.0 1.7
ASO 652.2 592.5 59.7 10.1
Total Commercial 2,992.5 2,893.8 98.7 3.4
Government:
Medicare+Choice 344.1 393.9 (49.8) (12.6)
Medicaid 506.0 490.8 15.2 3.1
TRICARE 1,755.8 1,714.6 41.2 2.4
TRICARE ASO 1,048.7 942.7 106.0 11.2
Total Government 3,654.6 3,542.0 112.6 3.2
Total ending
medical membership 6,647.1 6,435.8 211.3 3.3
December 31, Difference Percent
Ending Specialty Membership 2002 2001 Change
Commercial:
Dental-fully insured 918.9 908.5 10.4 1.1
Dental-ASO 313.2 343.0 (29.8) (8.7)
Total Dental 1,232.1 1,251.5 (19.4) (1.6)
Group life 523.3 546.1 (22.8) (4.2)
Short-term disability 22.1 25.2 (3.1) (12.3)
Total ending
specialty membership 1,777.5 1,822.8 (45.3) (2.5)
Three months ended Twelve months ended
December 31, December 31,
Premiums 2002 2001 2002 2001
Commercial:
Fully insured medical $1,422,602 $1,258,530 $5,499,033 $4,941,888
Specialty 85,948 78,174 337,295 304,714
Total Commercial 1,508,550 1,336,704 5,836,328 5,246,602
Government:
Medicare+Choice 647,666 718,987 2,629,597 2,909,478
Medicaid 119,609 83,431 462,998 441,324
TRICARE 516,685 405,264 2,001,474 1,341,557
Total Government 1,283,960 1,207,682 5,094,069 4,692,359
Total premiums $2,792,510 $2,544,386 $10,930,397 $9,938,961
Three months ended Twelve months ended
December 31, December 31,
Administrative services fees 2002 2001 2002 2001
Commercial $25,913 $21,695 $103,203 $84,204
Government 28,583 27,622 141,193 52,886
Total Administrative
services fees $54,496 $49,317 $244,396 $137,090
Humana Inc.
Dollars in thousands, except per share results
Three months ended
Restructuring
and Other Adjusted
Dec. 31, Unusual Dec. 31, Dec. 31,
2002 Items 2002 2001
Consolidated Statements of
Operations
Revenues:
Premiums $2,792,510 $ - $2,792,510 $2,544,386
Administrative
services fees 54,496 - 54,496 49,317
Investment income 6,138 19,571 25,709 25,676
Other income 1,888 - 1,888 3,337
Total revenues 2,855,032 19,571 2,874,603 2,622,716
Operating expenses:
Medical 2,326,448 - 2,326,448 2,108,187
Selling, general and
administrative 460,676 (30,140) 430,536 412,469
Depreciation 26,243 - 26,243 24,302
Goodwill amortization - - - 13,949
Other intangible
amortization 3,931 - 3,931 4,119
Restructuring charge 35,877 (35,877) - -
Total operating expenses 2,853,175 (66,017) 2,787,158 2,563,026
Income from operations 1,857 85,588 87,445 59,690
Interest expense 4,364 - 4,364 4,834
(Loss) income before income
taxes (2,507) 85,588 83,081 54,856
(Benefit) provision for
income taxes (802) 27,388 26,586 19,748
Net (loss) income $(1,705) $58,200 $56,495 $35,108
Add back: Goodwill
amortization expense, net
of tax - - - 13,173
Adjusted net (loss) income $(1,705) $58,200 $56,495 $48,281
Basic (loss) earnings per
common share $(0.01) $0.36 $0.35 $0.21
Add back: Goodwill
amortization expense, net
of tax - - - 0.08
Adjusted basic (loss)
earnings per common share $(0.01) $0.36 $0.35 $0.29
Diluted (loss) earnings per
common share $(0.01) $0.35 $0.34 $0.21
Add back: Goodwill
amortization expense, net
of tax - - - 0.08
Adjusted diluted (loss)
earnings per common share $(0.01) $0.35 $0.34 $0.29
Shares used in basic (loss)
earnings per common share
computation (000) 160,943 160,943 160,943 164,020
Shares used in diluted (loss)
earnings per common share
computation (000) 160,943 164,804 164,804 167,396
Pretax Results by Segment
Commercial, as reported $(60,702) $68,901 $8,199 $(10,756)
Add back: Goodwill
amortization expense - - - 8,008
Commercial, as adjusted $(60,702) $68,901 $8,199 $(2,748)
Government, as reported $58,195 $16,687 $74,882 $65,612
Add back: Goodwill
amortization expense - - - 5,941
Government, as adjusted $58,195 $16,687 $74,882 $71,553
Key Ratios
Medical expense ratio
Commercial 83.7% - 83.7% 84.2%
Government 82.8% - 82.8% 81.4%
Total 83.3% - 83.3% 82.9%
Selling, general, and
administrative expense ratio
Commercial 19.1% -1.8% 17.3% 17.4%
Government 12.8% -0.2% 12.6% 14.2%
Total 16.2% -1.1% 15.1% 15.9%
EBITDA *
Commercial $(38,390) $68,901 $30,511 $16,743
Government 70,421 16,687 87,108 85,317
Total EBITDA $32,031 $85,588 $117,619 $102,060
*EBITDA is defined as earnings (including investment and other income)
before interest expense, income taxes, depreciation and amortization.
Humana Inc.
Dollars in thousands, except per share results
Twelve months ended
Restructuring
and Other Adjusted
Dec. 31, Unusual Dec. 31, Dec. 31,
2002 Items 2002 2001
Consolidated Statements of
Operations
Revenues:
Premiums $10,930,397 $ - $10,930,397 $9,938,961
Administrative services
fees 244,396 - 244,396 137,090
Investment income 78,833 19,571 98,404 112,676
Other income 7,555 - 7,555 6,159
Total revenues 11,261,181 19,571 11,280,752 10,194,886
Operating expenses:
Medical 9,138,196 - 9,138,196 8,279,844
Selling, general and
administrative 1,739,192 (30,140) 1,709,052 1,545,129
Depreciation 105,006 - 105,006 92,929
Goodwill amortization - - - 55,065
Other intangible
amortization 15,724 - 15,724 13,537
Restructuring charge 35,877 (35,877) - -
Total operating expenses 11,033,995 (66,017) 10,967,978 9,986,504
Income from operations 227,186 85,588 312,774 208,382
Interest expense 17,252 - 17,252 25,302
Income before income taxes 209,934 85,588 295,522 183,080
Provision for income taxes 67,179 27,388 94,567 65,909
Net income $142,755 $58,200 $200,955 $117,171
Add back: Goodwill
amortization expense, net
of tax - - - 52,246
Adjusted net income $142,755 $58,200 $200,955 $169,417
Basic earnings per common
share $0.87 $0.36 $1.23 $0.71
Add back: Goodwill
amortization expense, net
of tax - - - 0.32
Adjusted basic earnings per
common share $0.87 $0.36 $1.23 $1.03
Diluted earnings per common share $0.85 $0.35 $1.20 $0.70
Add back: Goodwill
amortization expense, net
of tax - - - 0.31
Adjusted diluted earnings
per common share $0.85 $0.35 $1.20 $1.01
Shares used in basic
earnings per common share
computation (000) 163,489 163,489 163,489 164,071
Shares used in diluted
earnings per common share
computation (000) 167,801 167,801 167,801 167,308
Pretax Results by Segment
Commercial, as reported $(15,174) $68,901 $53,727 $(2,013)
Add back: Goodwill
amortization expense - - - 33,435
Commercial, as adjusted $(15,174) $68,901 $53,727 $31,422
Government, as reported $225,108 $16,687 $241,795 $185,093
Add back: Goodwill
amortization expense - - - 21,630
Government, as adjusted $225,108 $16,687 $241,795 $206,723
Key Ratios
Medical expense ratio
Commercial 83.5% - 83.5% 83.1%
Government 83.8% - 83.8% 83.6%
Total 83.6% - 83.6% 83.3%
Selling, general, and
administrative expense
ratio
Commercial 17.5% -0.4% 17.1% 17.6%
Government 13.3% - 13.3% 12.8%
Total 15.6% -0.3% 15.3% 15.3%
EBITDA *
Commercial $69,470 $68,901 $138,371 $111,626
Government 278,446 16,687 295,133 258,287
Total EBITDA $347,916 $85,588 $433,504 $369,913
*EBITDA is defined as earnings (including investment and other income)
before interest expense, income taxes, depreciation and amortization.
Humana Inc.
Dollars in thousands, except per share results
December 31, September 30, December 31,
Consolidated Balance Sheets 2002 2002 2001
Assets
Current assets:
Cash and cash equivalents $721,357 $375,736 $651,420
Investment securities 1,405,833 1,420,524 1,389,596
Receivables, net:
Premiums 411,829 489,518 299,601
Administrative services fees 68,316 67,762 26,667
Other 244,354 230,963 255,654
Total current assets 2,851,689 2,584,503 2,622,938
Property and equipment, net 459,842 462,453 461,761
Other assets:
Long-term investment securities 283,954 317,346 280,320
Goodwill 776,874 776,874 776,874
Other 197,964 238,154 261,745
Total other assets 1,258,792 1,332,374 1,318,939
Total assets $4,570,323 $4,379,330 $4,403,638
Liabilities and Stockholders' Equity
Current liabilities:
Medical and other expenses payable $1,142,131 $1,164,431 $1,086,386
Trade accounts payable and accrued
expenses 532,637 475,885 479,996
Book overdraft 94,882 104,402 152,757
Unearned premium revenues 335,757 89,977 325,040
Short-term debt 265,000 265,000 263,000
Total current liabilities 2,370,407 2,099,695 2,307,179
Long-term debt 339,913 334,061 315,489
Professional liability risks 209,302 247,690 241,431
Other long-term liabilities 44,227 30,440 31,590
Total liabilities 2,963,849 2,711,886 2,895,689
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;
171,334,893, 171,303,567, and
170,692,520 issued at December
31, 2002,
September 30, 2002, and December
31, 2001, respectively 28,556 28,551 28,449
Capital in excess of par value 931,089 930,942 922,439
Retained earnings 720,878 722,583 578,122
Accumulated other comprehensive
income 22,454 35,819 11,670
Unearned restricted stock
compensation (6,516) (9,059) (17,882)
Treasury stock, at cost, 8,362,537,
4,028,137, and 1,880,619 shares at
December 31, 2002, September 30,
2002, and December 31, 2001,
respectively (89,987) (41,392) (14,849)
Total stockholders' equity 1,606,474 1,667,444 1,507,949
Total liabilities and stockholders'
equity $4,570,323 $4,379,330 $4,403,638
Debt to total capitalization ratio 27.4% 26.4% 27.8%
Humana Inc.
Dollars in thousands
Three months ended Twelve months ended
December 31, December 31,
2002 2001 2002 2001
Consolidated Statements of
Cash Flows
Cash flows from operating activities
Net (loss) income $(1,705) $35,108 $142,755 $117,171
Adjustments to reconcile net
(loss) income to net
cash provided by operating
activities:
Non-cash restructuring charge 2,448 - 2,448 -
Depreciation and
amortization 30,174 42,370 120,730 161,531
Provision for deferred
income taxes 15,340 15,816 49,561 56,104
Payment for government audit
settlement - - - (8,000)
Changes in operating assets
and liabilities excluding
effects of acquisitions
and divestitures:
Receivables 77,135 (35,443) (153,877) (21,192)
Other assets (2,732) (3,260) (2,464) 10,579
Medical and other
expenses payable (22,300) (23,632) 55,745 (179,539)
Other liabilities 56,401 17,220 61,143 27,456
Unearned premium
revenues 245,780 42,094 10,717 (13,397)
Other 22,169 (1,153) 34,650 (1,755)
Net cash provided by
operating activities 422,710 89,120 321,408 148,958
Timing of Medicare+Choice
premium payment from CMS (205,755) 11,049 10,873 16,815
Normalized net cash provided
by operating activities 216,955 100,169 332,281 165,773
Cash flows from investing activities
Acquisitions, net of cash
and cash equivalents
acquired - 3,341 - (29,359)
Divestitures, net of cash
and cash equivalents
disposed - 420 - 1,470
Purchases of property and
equipment (27,815) (32,798) (110,287) (114,971)
Purchases of marketable
securities (929,275) (514,806) (2,569,078) (1,874,482)
Proceeds from maturities of
marketable securities 219,736 204,871 492,935 626,369
Proceeds from sales of
marketable securities 719,149 307,646 2,058,273 1,272,166
Net cash used in investing
activities (18,205) (31,326) (128,157) (118,807)
Cash flows from financing activities
Revolving credit agreement
(repayments) borrowings - (270,000) - (520,000)
Net commercial paper conduit
borrowings - 263,000 2,000 263,000
Net commercial paper repayments - - - (79,952)
Proceeds from issuance of
senior notes - - - 299,277
Proceeds from other
borrowings - - - 5,700
Debt issue costs (990) (3,876) (1,549) (7,116)
Change in book overdraft (9,520) 11,823 (57,875) 4,194
Common stock repurchases (48,595) - (74,034) (1,867)
Other 221 846 8,144 471
Net cash (used in) provided
by financing activities (58,884) 1,793 (123,314) (36,293)
Increase (decrease) in cash
and cash equivalents 345,621 59,587 69,937 (6,142)
Cash and cash equivalents at
beginning of period 375,736 591,833 651,420 657,562
Cash and cash equivalents at
end of period $721,357 $651,420 $721,357 $651,420
Humana Inc.
Percentage of Ending Membership Under Capitation Arrangements
Commercial Segment
Fully Total
Insured ASO Segment
December 31, 2002
Capitated HMO
hospital system based A 6.3% - 4.9%
Capitated HMO
physician group based A 3.2% - 2.5%
Risk-sharing B 2.9% - 2.3%
All other membership 87.6% 100.0% 90.3%
Total 100.0% 100.0% 100.0%
December 31, 2001
Capitated HMO
hospital system based A 7.0% - 5.6%
Capitated HMO
physician group based A 4.1% - 3.3%
Risk-sharing B 3.9% - 3.1%
All other membership 85.0% 100.0% 88.0%
Total 100.0% 100.0% 100.0%
A In a limited number of circumstances, we contract with hospitals and
physicians to accept financial risk for a defined set of HMO
membership. In transferring this risk, we prepay these providers a
monthly fixed-fee per member to coordinate substantially all of the
medical care for their capitated HMO membership, including some health
benefit administrative functions and claims processing. For these
capitated HMO arrangements, we generally agree to reimbursement rates
that target a medical expense ratio ranging from 82% to 89%. Providers
participating in hospital-based capitated HMO arrangements generally
receive a monthly payment for all of the services within their system
for their HMO membership. Providers participating in physician-based
capitated HMO arrangements generally have subcontracted directly with
hospitals and specialist physicians, and are responsible for
reimbursing such hospitals and physicians for services rendered to
their HMO membership.
B In some circumstances, we contract with physicians under risk-sharing
arrangements whereby physicians have assumed some level of risk for all
or a portion of the medical costs of their HMO membership. Although
these arrangements do include capitation payments for services
rendered, we process substantially all of the claims under these
arrangements.
Humana Inc.
Percentage of Ending Membership Under Capitation Arrangements
Government Segment
Consol.
Medicare+ TRICARE Total Total
Choice Medicaid TRICARE ASO Segment Medical
December 31, 2002
Capitated HMO
hospital system
based A 13.7% 2.4% - - 1.6% 3.1%
Capitated HMO
physician group
based A 3.1% 57.9% - - 8.3% 5.7%
Risk-sharing B 46.6% 32.4% - - 8.9% 5.9%
All other membership 36.6% 7.3% 100.0% 100.0% 81.2% 85.3%
Total 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
December 31, 2001
Capitated HMO
hospital system
based A 14.9% 2.1% - - 2.0% 3.6%
Capitated HMO
physician group
based A 3.5% 18.2% - - 2.9% 3.1%
Risk-sharing B 44.5% 37.1% - - 10.1% 6.9%
All other membership 37.1% 42.6% 100.0% 100.0% 85.0% 86.4%
Total 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
A In a limited number of circumstances, we contract with hospitals and
physicians to accept financial risk for a defined set of HMO
membership. In transferring this risk, we prepay these providers a
monthly fixed-fee per member to coordinate substantially all of the
medical care for their capitated HMO membership, including some health
benefit administrative functions and claims processing. For these
capitated HMO arrangements, we generally agree to reimbursement rates
that target a medical expense ratio ranging from 82% to 89%. Providers
participating in hospital-based capitated HMO arrangements generally
receive a monthly payment for all of the services within their system
for their HMO membership. Providers participating in physician-based
capitated HMO arrangements generally have subcontracted directly with
hospitals and specialist physicians, and are responsible for
reimbursing such hospitals and physicians for services rendered to
their HMO membership.
B In some circumstances, we contract with physicians under risk-sharing
arrangements whereby physicians have assumed some level of risk for all
or a portion of the medical costs of their HMO membership. Although
these arrangements do include capitation payments for services
rendered, we process substantially all of the claims under these
arrangements.
Humana Inc.
Dollars in thousands
Medical Claim Reserves - Details and Statistics
Change in medical and other expenses payable:
The change in medical and other expenses payable is summarized as follows:
2002 2001 2000
Balances at January 1 $1,086,386 $1,181,027 $1,432,226
Acquisitions and
divestitures, net - 85,052 A 5,213 A
Incurred related to:
Current year 9,125,915 8,303,256 8,790,478
Prior years 12,281 B (23,412)C (8,480)D
Total incurred 9,138,196 8,279,844 8,781,998
Paid related to:
Current year (8,002,610) (7,291,541) (7,634,338)
Prior years (1,079,841) (1,167,996) (1,404,072)
Total paid (9,082,451) (8,459,537) (9,038,410)
Balances at December 31 $1,142,131 $1,086,386 $1,181,027
A Includes reserves acquired in connection with the acquisition of
TRICARE Regions 2 and 5 during the second quarter of 2001. Included
in 2000 are the dispositions of our workers compensation and Medicare
supplement businesses and the acquisition of Memorial Sisters of
Charity Health Network, Inc.
B Changes in estimates of incurred claims for prior years recognized
during 2002 consisted of a $25.7 million increase in TRICARE medical
claim expense estimates as a result of expanded Congressionally
legislated benefits, an increase in eligible beneficiaries and a
decrease in the use of military treatment facilities. These same
items resulted in additional revenues recorded during 2002 through
the change order and bid price adjustment process with the Department
of Defense. Other than this $25.7 million, medical claim liabilities
developed favorably by $13.4 million for our medical and other lines
of business (primarily in our commercial products).
C Changes in estimates of incurred claims for prior years recognized
during 2001 were primarily attributable to favorable development in
our TRICARE operations, including lower than anticipated utilization
of medical services for the latter half of 2000.
D Changes in estimates of incurred claims for prior years recognized
during 2000 were primarily attributable to favorable development in
our TRICARE operations, including lower than anticipated utilization
of medical services for the latter half of 1999.
Humana Inc.
Dollars in thousands
Medical Claim Reserves - Details and Statistics
Medical and Other Expenses Payable Detail:
December 31,
2002 2001 2000
A IBNR and other medical expenses
payable $650,606 $615,834 $685,967
B TRICARE IBNR 212,826 186,740 126,100
C TRICARE other medical expenses
payable 37,793 30,089 446
D Unprocessed claim inventories 92,300 125,400 257,400
E Processed claim inventories 105,422 102,622 81,361
F Payable to pharmacy benefit
administrator 43,184 25,701 29,753
Total medical and other
expenses payable $1,142,131 $1,086,386 $1,181,027
A IBNR represents an estimate of medical expenses payable for claims
incurred but not reported (IBNR) at the balance sheet date.
The level of IBNR is primarily impacted by membership levels, medical
claim trends and the receipt cycle time which represents
the length of time between when a claim is initially incurred and when
the claim form is received (i.e. a shorter time span results in
lower reserves for claims IBNR).
B TRICARE IBNR has increased primarily due to higher membership levels
and, to a lesser extent, medical claim trends.
C TRICARE other medical expense payable may include liabilities to
subcontractors and/or risk share payables to the Department of
Defense. The level of these balances may fluctuate from period to
period due to the timing of payment (cutoff) and whether or
not the balances are payables or receivables (receivables from the
Department of Defense are classified as "receivables" in our
balance sheet).
D Unprocessed claim inventories represent the estimated valuation of
claims received but not yet fully processed. TRICARE claim
inventories are not included in this amount as an independent third
party administrator processes all TRICARE medical claims
on our behalf. Reserves for TRICARE claims inventory are included in
TRICARE IBNR.
E Processed claim inventories represent the estimated valuation of
processed claims that are in the post claim adjudication
process, which consists of administrative functions such as audit and
check batching and handling.
F The balance due to our pharmacy benefit administrator fluctuates due
to bi-weekly payments and the month-end cutoff.
Receipt Cycle Time:
Due to increasing electronic connectivity and other efficiencies
gained by our providers with regards to the claim submission
process, the average length of time between when a claim was initially
incurred and when the claim form was received has
shortened over the last two years, as follows:
Average # of Days from Incurred
Date to Receipt Date (1)
2002 2001 Change % Change
1st Quarter Average 19.0 20.8 (1.8) -8.7%
2nd Quarter Average 18.1 20.0 (1.9) -9.5%
3rd Quarter Average 17.3 20.0 (2.7) -13.5%
4th Quarter Average 16.9 19.1 (2.2) -11.5%
Full Year Average 17.8 20.0 (2.2) -11.0%
(1) Receipt cycle time data for our 2 largest claim processing
platforms representing approximately 90% of our claims
volume.
Humana Inc.
Medical Claim Reserves - Details and Statistics
Unprocessed Claim Inventories:
The estimated valuation and number of claims on hand that are yet to be
processed are as follows:
Estimated Number of
Valuation Claim Item Days
Date (000) Counts On Hand
12/31/2000 $257,400 1,157,900 11.0
03/31/2001 $213,800 870,200 8.3
06/30/2001 $172,000 714,600 6.8
09/30/2001 $154,800 664,800 6.4
12/31/2001 $125,400 518,100 5.0
03/31/2002 $121,000 559,600 5.2
06/30/2002 $110,300 513,100 4.8
09/30/2002 $108,800 496,200 4.8
12/31/2002 $92,300 424,200 4.1
The reduction of unprocessed claim inventories was a direct result of our
focused effort to drive service and operational efficiencies through the
increased use of technology and other process improvement.
Days in Claim Payable (Quarterly):
A common metric for monitoring medical claim reserve levels relative to the medical claim expenses is days in claims payable, or DCP, which represents the medical claim liabilities at the end of the period divided by average medical expenses per day in the quarterly period. Since we have some providers under capitation payment arrangements (which do not require a medical claim IBNR reserve), we have summarized this metric excluding capitation expenses as well.
Days DCP
in Claims Annual % Excluding Annual %
Quarter Ended Payable (DCP) Change Change Capitation Change Change
12/31/2000 51.3 61.5
03/31/2001 49.5 59.6
06/30/2001 49.9 60.0
09/30/2001 49.1 59.2
12/31/2001 47.4 (3.9) -7.6% 57.1 (4.4) -7.2%
03/31/2002 47.2 (2.3) -4.6% 56.2 (3.4) -5.7%
06/30/2002 46.8 (3.1) -6.2% 55.3 (4.7) -7.8%
09/30/2002 46.6 (2.5) -5.1% 55.3 (3.9) -6.6%
12/31/2002 45.2 (2.2) -4.6% 53.3 (3.8) -6.7%
This metric fluctuates due to all of the issues reviewed above, including the
shortening of the receipt cycle time, the paydown of medical claim inventories,
the changes in TRICARE liability balances, the timing of our bi-weekly payment
to our pharmacy benefits administrator and the change in provider risk-share
balances. An annual recap follows:
2002 2001
4th quarter-prior year 47.4 51.3
Impact of shortening claim
receipt cycle time (2.6) (2.0)
Impact of reducing unprocessed
claim inventories (1.3) (5.8)
Impact of changing TRICARE
balances 0.3 1.3
Impact of change in pharmacy
payment cutoff 0.7 (0.2)
All other 0.7 2.8
4th quarter-current year 45.2 47.4
SOURCE Humana Inc.
CONTACT: Regina Nethery, Humana Investor Relations, +1-502-580-3644,
Rnethery@humana.com, or Tom Noland, Humana Corporate Communications,
+1-502-580-3674, Tnoland@humana.com