Humana Reports First Quarter 2003 Results
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LOUISVILLE, Ky., Apr 28, 2003 /PRNewswire-FirstCall via COMTEX/ -- Humana Inc. (NYSE: HUM) today reported results for the first quarter ended March 31, 2003 and comparative amounts for the quarter ended March 31, 2002 as follows:
1Q03 1Q02 1Q03 GAAP(1) GAAP(1) Adjusted(2) Earnings per diluted share $ .19 $ .28 $ .31 Net income (in thousands) $ 31,230 $ 46,770 $ 50,024 Pretax margin 1.6% 2.5% 2.7% (See "Footnote Definitions" section of this press release.)
Driven by improved adjusted earnings in the company's Commercial segment, first quarter 2003 adjusted earnings per diluted share of $.31 increased 11 percent compared to the same period in the prior year. Adjusted net income for the first quarter improved 7 percent compared to that for the same period in the prior year. The adjusted pretax margin of 2.7 percent increased 20 basis points from the first quarter of 2002.
"Our adjusted Commercial segment pretax earnings for the first quarter exceeded those for all of 2002. We believe this is a clear demonstration of our growing ability to improve Commercial profitability," said Michael B. McCallister, chief executive officer. "Humana's innovative products and rigorous operating discipline, supported by streamlining of administrative expenses, should result in a substantial improvement in our Commercial segment results for 2003. Our Government segment profitability complemented the Commercial segment improvement in the quarter."
Restructuring Charge
During the first quarter of 2003, the company recorded the following items that were not reflective of the run-rate operations of the company. These adjustments, which are reflected in the restructuring charge line in the Statement of Income, were described initially in the company's press release, dated December 5, 2002, and again in the company's Form 10-K for the year ended December 31, 2002. Management believes this restructuring charge should be excluded to properly reflect the run-rate operations of the company and to provide better comparability to prior year results.
Earnings per (in thousands, Pretax After-tax diluted share except per share amounts) Impact Impact Impact Building and equipment writedown $ (17,233) $ (10,529) $ (.07) Software abandonment (13,527) (8,265) (.05) Total restructuring charge $ (30,760) $ (18,794) $ (.12) (See "Footnote Definitions" section of this press release.)
Segment Results
Pretax results and margins for the company's business segments for the quarters ended March 31, 2003 and 2002 were as follows:
Pretax income (in thousands) 1Q03 1Q02 1Q03 GAAP(1) GAAP(1) Adjusted(2) Commercial segment $37,239 $26,095 $55,091 Government segment $10,163 $42,684 $23,071 Consolidated $47,402 $68,779 $78,162 (See "Footnote Definitions" section of this press release.) Pretax margins 1Q03 1Q02 1Q03 GAAP(1) GAAP(1) Adjusted(2) Commercial segment 2.2% 1.8% 3.3% Government segment 0.8% 3.4% 1.8% Consolidated 1.6% 2.5% 2.7% (See "Footnote Definitions" section of this press release.)
Revenues and Membership
Consolidated revenues and membership for the quarters ended March 31, 2003 and 2002 were as follows:
Consolidated (in thousands) 1Q03 1Q02 GAAP(1) GAAP(1) First quarter - total revenues $2,931,716 $2,732,582 Ending medical membership 6,625.2 6,534.9 (See "Footnote Definitions" section of this press release.)
Commercial segment premiums and administrative services fees and membership for the quarters ended March 31, 2003 and 2002 were as follows:
Commercial Segment (in thousands) 1Q03 1Q02 GAAP(1) GAAP(1) Premiums $1,615,556 $1,425,988 Administrative services fees $ 29,590 $ 25,147 Total premiums and administrative services fees $1,645,146 $1,451,135 Ending medical membership 3,003.4 2,954.2 (See "Footnote Definitions" section of this press release.)
Commercial segment medical membership grew by 2 percent from March 31, 2002 to March 31, 2003. Commercial premium yields were within the 13 to 15 percent range for first quarter of 2003. 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 first quarter 2003.
Government segment premiums and administrative services fees and membership for the first quarter ended March 31, 2003 were as follows:
Government Segment (in thousands) 1Q03 1Q02 GAAP(1) GAAP(1) Premiums $1,227,393 $1,215,824 Administrative services fees $ 31,546 $ 39,866 Total premiums and administrative services fees $1,258,939 $1,255,690 Ending medical membership 3,621.8 3,580.7 (See "Footnote Definitions" section of this press release.)
Government segment premiums and administrative services fees were essentially unchanged year-over-year for the first quarter of 2003.
Medicare+Choice membership totaled 327,100 at March 31, 2003, a decline of 36,600 members year over year. Medicare+Choice premium yields for the first quarter were within the 4 to 6 percent range.
TRICARE's insured membership totaled 1,752,500 at March 31, 2003, approximately 1 percent higher than the March 31, 2002 level. TRICARE ASO membership was 1,050,800 at the end of the first quarter of 2003, up approximately 5 percent year over year. TRICARE premium revenues and administrative services fees increased year-over-year by 6 percent during the first quarter of 2003. These increases in TRICARE revenues primarily are attributable to Congressionally legislated benefit changes, an increase in eligible beneficiaries, and a decrease in the use of military treatment facilities.
Medicaid membership of 491,400 at March 31, 2003 grew by approximately 3 percent from March 31, 2002. Approximately 85 percent of the company's Medicaid membership is in Puerto Rico.
Medical and SG&A Expenses
The company's medical expense ratio (medical expenses as a percent of premiums) and selling, general and administrative ("SG&A") expense ratio (SG&A expenses as a percent of premiums and administrative services fees) for the quarters ended March 31, 2003 and 2002 were as follows:
1Q03 1Q02 Medical expense ratio - GAAP(1) 83.4% 83.1% SG&A expense ratio - GAAP(1) 15.4% 16.1% (See "Footnote Definitions" section of this press release.)
Cash flows from operations
Cash flows provided by (used in) operations for the quarters ended March 31, 2003 and 2002 were as follows:
(in thousands) 1Q03 1Q02 GAAP(1) $ (108,230) $ (140,137) Normalized(3) $ 97,525 $ 76,491 (See "Footnote Definitions" section of this press release.)
Share Repurchase Program
In July 2002, the company announced a $100 million share repurchase program. As of March 31, 2003, 8.6 million shares had been repurchased for an aggregate purchase price of $94.9 million, an average price of $10.98 per share.
Guidance
The company offered the following earnings guidance points for the investor community:
For the Full Year 2003: Projected Earnings per diluted share - GAAP(1) $1.25 - $1.31 Earnings per diluted share - Adjusted(2) $1.37 - $1.43 Consolidated revenues - GAAP(1) Over $12 billion Commercial segment pretax income - GAAP(1) At least $102 million Commercial segment pretax income - Adjusted(2) At least $120 million Commercial segment medical membership (fully insured and ASO combined) Organic growth of 2 - 4% Commercial premium yields 13 - 15% Commercial medical cost trends 12 - 14% Commercial segment SG&A expense ratio - GAAP(1) 16.3 - 16.5% Medicare+Choice membership 310,000 to 320,000 by year end Medicare+Choice premium yields 4 - 6% Medicare+Choice medical cost trends 4 - 6% Government segment SG&A expense ratio - GAAP(1) Flat year over year TRICARE pretax margin 2 - 3% Cash flows from operations - GAAP(1) and Normalized(3) $340 million to $360 million Capital expenditures Approximately $105 million Effective tax rate 36% For the Second Quarter of 2003: Projected Earnings per diluted share - GAAP(1) $.28 - $.29 (See "Footnote Definitions" section of this press release.) Footnote Definitions 1 - Generally Accepted Accounting Principles ("GAAP") 2 - Adjusted results exclude from GAAP results the impact of the restructuring charge recorded during the first quarter of 2003. The statistics pages at the end of this press release provide a reconciliation of GAAP to adjusted results for the first quarter of 2003. The detail of the adjustments also is described in the "Restructuring Charge" section of this press release. 3 - 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.
Conference Call
Humana will host a conference call, as well as a virtual slide presentation, at 9:00 a.m. EDT 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 Humana's Form 10-K for the year ended December 31, 2002, as filed with the Securities and Exchange Commission.
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; * Copies of Securities and Exchange Commission filings; * 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 March 31, Percent Ending Medical Membership 2003 2002 Difference Change Commercial: Fully insured 2,348.8 2,332.4 16.4 0.7 ASO 654.6 621.8 32.8 5.3 Total Commercial 3,003.4 2,954.2 49.2 1.7 Government: Medicare+Choice 327.1 363.7 (36.6) (10.1) Medicaid 491.4 476.8 14.6 3.1 TRICARE 1,752.5 1,742.3 10.2 0.6 TRICARE ASO 1,050.8 997.9 52.9 5.3 Total Government 3,621.8 3,580.7 41.1 1.1 Total ending medical membership 6,625.2 6,534.9 90.3 1.4 March 31, Percent Ending Specialty Membership 2003 2002 Difference Change Commercial: Dental-fully insured 741.7 786.8 (45.1) (5.7) Dental-ASO 367.9 306.5 61.4 20.0 Total Dental 1,109.6 1,093.3 16.3 1.5 Group life 519.0 542.1 (23.1) (4.3) Short-term disability 21.5 23.9 (2.4) (10.0) Total ending specialty membership 1,650.1 1,659.3 (9.2) (0.6) Three months ended March 31, Premiums 2003 2002 Commercial: Fully insured medical $1,536,953 $1,343,261 Specialty 78,603 82,727 Total Commercial 1,615,556 1,425,988 Government: Medicare+Choice 635,842 672,186 Medicaid 121,230 111,253 TRICARE 470,321 432,385 Total Government 1,227,393 1,215,824 Total premiums $2,842,949 $2,641,812 Three months ended March 31, Administrative services fees 2003 2002 Commercial $29,590 $25,147 Government 31,546 39,866 Total Administrative services fees $61,136 $65,013 Humana Inc. Dollars in thousands, except per share results Three months ended Adjusted March 31, Restructuring March 31, March 31, Consolidated Statements of 2003 Charge 2003 2002 Income Revenues: Premiums $2,842,949 $ -- $2,842,949 $2,641,812 Administrative services fees 61,136 -- 61,136 65,013 Investment income 25,817 -- 25,817 24,308 Other income 1,814 -- 1,814 1,449 Total revenues 2,931,716 -- 2,931,716 2,732,582 Operating expenses: Medical 2,371,434 -- 2,371,434 2,194,539 Selling, general and administrative 447,045 -- 447,045 435,064 Depreciation 27,209 -- 27,209 25,865 Other intangible amortization 3,931 -- 3,931 3,931 Restructuring charge 30,760 (30,760) -- -- Total operating expenses 2,880,379 (30,760) 2,849,619 2,659,399 Income from operations 51,337 30,760 82,097 73,183 Interest expense 3,935 -- 3,935 4,404 Income before income taxes 47,402 30,760 78,162 68,779 Provision for income taxes 16,172 11,966 28,138 22,009 Net income $31,230 $18,794 $50,024 $46,770 Basic earnings per common share $0.20 $0.12 $0.32 $0.28 Diluted earnings per common share $0.19 $0.12 $0.31 $0.28 Shares used in basic earnings per common share computation (000) 157,739 157,739 157,739 164,255 Shares used in diluted earnings per common share computation (000) 161,406 161,406 161,406 167,704 Key Ratios Medical expense ratio Commercial 81.3% -- 81.3% 81.9% Government 86.2% -- 86.2% 84.5% Total 83.4% -- 83.4% 83.1% Selling, general, and administrative expense ratio Commercial 16.8% -- 16.8% 17.6% Government 13.6% -- 13.6% 14.3% Total 15.4% -- 15.4% 16.1% Humana Inc. Dollars in thousands, except per share results Three months ended Adjusted March 31, Restructuring March 31, March 31, Operating Results by Segment 2003 Charge 2003 2002 Commercial: Income before income taxes $37,239 $17,852 $55,091 $26,095 Interest expense 3,063 -- 3,063 3,059 Depreciation and amortization 19,228 -- 19,228 17,167 Commercial EBITDA* 59,530 17,852 77,382 46,321 Government: Income before income taxes 10,163 12,908 23,071 42,684 Interest expense 872 -- 872 1,345 Depreciation and amortization 11,912 -- 11,912 12,629 Government EBITDA* 22,947 12,908 35,855 56,658 Consolidated: Income before income taxes 47,402 30,760 78,162 68,779 Interest expense 3,935 -- 3,935 4,404 Depreciation and amortization 31,140 -- 31,140 29,796 Consolidated EBITDA* $82,477 $30,760 $113,237 $102,979 * EBITDA represents earnings (including investment and other income) before interest expense, income taxes, depreciation and amortization. EBITDA is not a measure under accounting principles generally accepted in the United States and may not be similar to EBITDA measures of other companies. EBITDA also is a measure commonly used by analysts, investors, and other interested parties in the health care industry. We believe EBITDA is an important indicator of the cash content of the Company's operating income, and as such the quality of net income. Humana Inc. Dollars in thousands, except per share results March 31, December 31, Consolidated Balance Sheets 2003 2002 Assets Current assets: Cash and cash equivalents $532,652 $721,357 Investment securities 1,411,356 1,405,833 Receivables, net: Premiums 472,972 348,562 Administrative services fees 55,726 68,316 Other 258,481 250,857 Total current assets 2,731,187 2,794,925 Property and equipment, net 423,465 459,842 Other assets: Long-term investment securities 312,517 288,724 Goodwill 776,874 776,874 Other 185,144 279,665 Total other assets 1,274,535 1,345,263 Total assets $4,429,187 $4,600,030 Liabilities and Stockholders' Equity Current liabilities: Medical and other expenses payable $1,226,043 $1,142,131 Trade accounts payable and accrued expenses 512,723 552,689 Book overdraft 84,579 94,882 Unearned premium revenues 117,604 335,757 Short-term debt 265,000 265,000 Total current liabilities 2,205,949 2,390,459 Long-term debt 334,328 339,913 Other long-term liabilities 268,131 263,184 Total liabilities 2,808,408 2,993,556 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; 171,371,759 shares issued at March 31, 2003 and 171,334,893 shares issued at December 31, 2002 28,562 28,556 Capital in excess of par value 931,460 931,089 Retained earnings 752,107 720,877 Accumulated other comprehensive income 23,257 22,455 Unearned restricted stock compensation (3,961) (6,516) Treasury stock, at cost, 10,584,719 shares at March 31, 2003 and 8,362,537 shares at December 31, 2002 (110,646) (89,987) Total stockholders' equity 1,620,779 1,606,474 Total liabilities and stockholders' equity $4,429,187 $4,600,030 Debt to total capitalization ratio 27.0% 27.4% Humana Inc. Dollars in thousands Three months ended March 31, Consolidated Statements of Cash Flows 2003 2002 Cash flows from operating activities Net income $31,230 $46,770 Adjustments to reconcile net income to net cash provided by operating activities: Non-cash restructuring charge 30,760 -- Depreciation and amortization 31,140 29,796 Provision for deferred income taxes 3,646 12,880 Changes in operating assets and liabilities excluding effects of acquisitions and divestitures: Receivables (48,553) (45,810) Other assets 5,685 (2,398) Medical and other expenses payable 83,912 63,977 Other liabilities (29,012) (10,804) Unearned premium revenues (218,153) (237,758) Other 1,115 3,210 Net cash used in operating activities (108,230) (140,137) Timing of Medicare+Choice premium payment from CMS 205,755 216,628 Normalized net cash provided by operating activities 97,525 76,491 Cash flows from investing activities Purchases of property and equipment, net (21,634) (31,256) Purchases of marketable securities (1,545,241) (425,135) Proceeds from maturities of marketable securities 196,923 115,954 Proceeds from sales of marketable securities 1,320,246 303,896 Net cash used in investing activities (49,706) (36,541) Cash flows from financing activities Debt issue costs (153) (559) Change in book overdraft (10,303) 10,673 Common stock repurchases (20,817) - Other 504 1,026 Net cash (used in) provided by financing activities (30,769) 11,140 Decrease in cash and cash equivalents (188,705) (165,538) Cash and cash equivalents at beginning of period 721,357 651,420 Cash and cash equivalents at end of period $532,652 $485,882 Humana Inc. Percentage of Ending Membership Under Capitation Arrangements Commercial Segment Government Segment Fully Total Medicare+ Insured ASO Segment Choice Medicaid March 31, 2003 Capitated HMO hospital system based (A) 6.3% -- 4.9% 12.9% 2.5% Capitated HMO physician group based (A) 3.2% -- 2.5% 2.0% 56.2% Risk-sharing (B) 3.1% -- 2.4% 47.8% 33.9% All other membership 87.4% 100.0% 90.2% 37.3% 7.4% Total 100.0% 100.0% 100.0% 100.0% 100.0% March 31, 2002 Capitated HMO hospital system based (A) 6.7% -- 5.3% 13.3% 2.2% Capitated HMO physician group based (A) 4.1% -- 3.2% 4.1% 57.6% Risk-sharing (B) 3.2% -- 2.5% 45.7% 34.3% All other membership 86.0% 100.0% 89.0% 36.9% 5.9% Total 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. Percentage of Ending Membership Under Capitation Arrangements Government Segment Consol. TRICARE Total Total TRICARE ASO Segment Medical March 31, 2003 Capitated HMO hospital system based (A) -- -- 1.5% 3.0% Capitated HMO physician group based (A) -- -- 7.8% 5.4% Risk-sharing (B) -- -- 8.9% 6.0% All other membership 100.0% 100.0% 81.8% 85.6% Total 100.0% 100.0% 100.0% 100.0% March 31, 2002 Capitated HMO hospital system based (A) -- -- 1.6% 3.3% Capitated HMO physician group based (A) -- -- 8.1% 5.9% Risk-sharing (B) -- -- 9.2% 6.2% All other membership 100.0% 100.0% 81.1% 84.6% Total 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. 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: For the Three For the Twelve Months Ended Months Ended March 31, December 31, 2003 2002 Balances at January 1 $1,142,131 $1,086,386 Incurred related to: Current year 2,425,464 9,125,915 Prior years - TRICARE (18,890) 25,685 (1) Prior years - non-TRICARE (2) (35,140) (13,404) Total incurred 2,371,434 9,138,196 Paid related to: Current year (1,403,792) (8,002,610) Prior years (883,730) (1,079,841) Total paid (2,287,522) (9,082,451) Balances at end of period $1,226,043 $1,142,131 (1) Changes in estimates of medical expenses payable for TRICARE may result from issues that entitle us to additional revenues derived from change orders or the bid price adjustment process, which was the case with substantially all of the unfavorable development for prior periods recognized during 2002. (2) Changes in estimates of non-TRICARE incurred claims for prior years recognized during 2003 and 2002 related primarily to our commercial lines of business. The impact of any reduction of "incurred related to prior years" claims may be offset as we re-establish the "incurred related to current year". Our reserving practice is to consistently recognize the actuarial best estimate of our ultimate liability for our claims within a level of confidence required to meet actuarial standards. Thus, only when the release of a prior year reserve is not offset with the same level of conservatism in estimating the current year reserve will the redundancy reduce medical expense. We believe we have consistently applied this methodology in determining our best estimate for unpaid claims liability in each period. Humana Inc. Dollars in thousands Medical Claim Reserves - Details and Statistics Medical and Other Expenses Payable Detail: March 31, December 31, 2003 2002 A IBNR and other medical expenses payable $ 703,910 $ 650,606 B TRICARE IBNR 232,249 212,826 C TRICARE other medical expenses payable 30,055 37,793 D Unprocessed claim inventories 99,000 92,300 E Processed claim inventories 118,300 105,422 F Payable to pharmacy benefit administrator 42,529 43,184 Total medical and other expenses payable $ 1,226,043 $ 1,142,131 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 an increase in claim inventories at our third party claim administrator for claims not submitted electronically. 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 generally shortened over the past several years. Below is a summary:
Average # of Days from Incurred Date to Receipt Date (1) 2003 2002 Change % Change 1st Quarter Average 17.1 19.0 (1.9) -10.0% 2nd Quarter Average -- 18.1 n/a n/a 3rd Quarter Average -- 17.3 n/a n/a 4th Quarter Average -- 16.9 n/a n/a Full Year Average 17.1 17.8 (0.7) -3.9% (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 Valuation Claim Item of Days Date (000) Counts On Hand 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 03/31/2003 $99,000 421,700 4.0 Days in Claims 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 also summarized this metric excluding capitation expenses. Days DCP in Claims Annual Excluding Annual Quarter Ended Payable(DCP) Change % Change Capitation Change % Change 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% 03/31/2003 46.5 (0.7) -1.5% 54.7 (1.5) -2.7% This metric fluctuates due to all of the issues reviewed above, including the change in the receipt cycle time, the change in medical claim inventories, the change in TRICARE liability balances, and the timing of our bi-weekly payment to our pharmacy benefits administrator. An annual recap follows: 2003 2002 4th quarter-prior year 45.2 47.4 Impact of change in claim receipt cycle time 0.3 (2.6) Impact of change in unprocessed claim inventories 0.3 (1.3) Impact of changing TRICARE reserve balances 0.7 0.3 Impact of change in pharmacy payment cutoff -- 0.7 All other -- 0.7 Year to date-current year 46.5 45.2
SOURCE Humana Inc.
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 /Company News On-Call: http://www.prnewswire.com/gh/cnoc/comp/423125.html /Photo: NewsCom: http://www.newscom.com/cgi-bin/prnh/20030425/HUMANALOGO AP Archive: http://photoarchive.ap.org PRN Photo Desk, 888-776-6555 or 212-782-2840