Humana Reports Second Quarter 2011 Financial Results

  • Second quarter EPS of $2.71 included $0.21 of favorable prior-period reserve development
  • Full-year 2011 EPS raised to $7.50 to $7.60
  • 1H11 cash flows from operations of $957 million

LOUISVILLE, Ky.--(BUSINESS WIRE)-- Humana Inc. (NYSE: HUM) today reported diluted earnings per common share (EPS) for the quarter ended June 30, 2011 (2Q11) of $2.71, compared to $2.00 per share for the quarter ended June 30, 2010 (2Q10). For the six months ended June 30, 2011 (1H11) the company reported $4.57 in EPS compared to $3.52 for the six months ended June 30, 2010 (1H10). Comparison of operating results for these periods is affected by the items noted below:

 
Consolidated Results of Operations

($ in millions except EPS)

   

2Q11 Pretax

Income

 

2Q10 Pretax

Income

  2Q11 EPS   2Q10 EPS
GAAP     $ 726.5     $ 535.9     $ 2.71     $ 2.00  

Write-down of certain deferred acquisition costs, or DAC(a)

      -       147.5       -       0.55  

Favorable prior-period medical claims reserve development(b)

      (55.1 )     (117.0 )     (0.21 )     (0.44 )

Non-GAAP(c)

    $ 671.4     $ 566.4     $ 2.50     $ 2.11  
 
 
Consolidated Results of Operations

($ in millions except EPS)

   

1H11 Pretax

Income

 

1H10 Pretax

Income

  1H11 EPS   1H10 EPS
GAAP     $ 1,223.3     $ 952.8     $ 4.57     $ 3.52  

Write-down of certain DAC(a)

      -       147.5       -       0.55  

Favorable prior-year medical claims reserve development(b)

      (116.8 )     (137.5 )     (0.44 )     (0.51 )

Non-GAAP(c)

    $ 1,106.5     $ 962.8     $ 4.13     $ 3.56  
         

The company also today raised its EPS guidance for the year ending December 31, 2011 (FY11) to a range of $7.50 to $7.60 versus its previous estimate of $6.70 to $6.90. This increase in FY11 EPS guidance primarily reflects lower projected benefit expense ratios in the company’s Retail and Employer Group Segments partially offset by higher projected Medicare sales and marketing reinvestments as well as expenses designed to enhance the company’s Star ratings positioning and clinical initiatives.

“This quarter’s results demonstrate our on-going commitment to operational excellence across all of our lines of business, progress with our 15 Percent Solution and the continuation of low utilization of medical services primarily in our commercial business," said Michael B. McCallister, Humana’s chairman of the board and chief executive officer. “We believe the reinvestment spending we intend to make in the back half of 2011 will further position us for success in 2012 and beyond."

Consolidated Highlights

Revenues – 2Q11 consolidated revenues were $9.28 billion, an increase of 8 percent from $8.59 billion in 2Q10, with total premiums and services revenue also up 8 percent compared to the prior year’s quarter. The year-over-year increase in premiums and services revenue primarily reflected an increase in the revenues in both the company’s Retail and Health and Well-Being Services segments, partially offset by a decline in revenues in the company’s Employer Group segment.

1H11 consolidated revenues rose 9 percent to $18.47 billion from $16.97 billion in 1H10 with total premiums and services revenue also up 9 percent compared to the prior year’s period, driven primarily by the same factors as the second quarter year-over-year increase.

Benefit expenses – The 2Q11 consolidated benefit ratio (benefit expenses as a percent of premiums) of 82.2 percent increased by 20 basis points from 82.0 percent for the prior year’s quarter due primarily to lower favorable prior-period medical claims development than the prior year. The consolidated benefit ratio for 1H11 of 83.0 percent increased by 20 basis points from the 1H10 consolidated benefit ratio of 82.8 percent.

Favorable prior-period medical claims reserve development impacted the consolidated benefit ratio year-over-year comparisons as follows:

 
Consolidated Benefit Ratio     2Q11   2Q10   1H11   1H10
GAAP     82.2 %   82.0 %   83.0 %   82.8 %

Favorable prior-period medical claims reserve development(b)

    0.6 %   1.4 %   0.6 %   0.8 %

Non-GAAP(c)

    82.8 %   83.4 %   83.6 %   83.6 %
 

The year-over-year improvement in the non-GAAP consolidated benefit ratio for the second quarter reflects the company’s dedication to continual operational improvement. This non-GAAP metric was flat for the first half of the year versus the prior year’s period as a result of a significant increase in the company’s stand-alone prescription drug plan (PDP) membership for 2011. The stand-alone PDP product design carries a higher benefit ratio in the first quarter than other quarters throughout the year.

Operating costs – The consolidated operating cost ratio (operating costs as a percent of total revenues less investment income) of 13.0 percent for 2Q11 compares to 12.9 percent in 2Q10 primarily reflecting a 3 percent increase in the portion of the company’s revenues derived from its Health and Well-Being Services Segment, which carries a higher operating cost ratio than the company’s other business segments.

The 1H11 consolidated operating cost ratio of 13.4 percent increased 60 basis points from that for 1H10 of 12.8 percent primarily due to the same factor impacting the second quarter year-over-year comparison.

The write-down of certain DAC during 2Q10 impacted the consolidated year-over-year operating cost ratio comparisons as follows:

 
Consolidated operating cost ratio     2Q11   2Q10   1H11   1H10
GAAP     13.0 %   12.9 %   13.4 %   12.8 %

Write-down of certain DAC(a)

    -     (1.8 %)   -     (0.9 %)

Non-GAAP(c)

    13.0 %   11.1 %   13.4 %   11.9 %
 

The non-GAAP consolidated operating cost ratio increased versus the prior year for both the second quarter and first half of the year due to the company’s December 2010 acquisition of Concentra, Inc. (Concentra).

Retail Segment Highlights

Pretax results:

  • Retail Segment pretax income of $503.1 million in 2Q11 compares to $325.9 million in 2Q10. This increase was primarily due to increased average membership. For 1H11, pretax earnings for the Retail Segment of $720.1 million increased by $129.3 million versus 1H10 pretax earnings for the segment of $590.7 million. Comparison of operating results for these periods was also affected by the items noted below:
 
Retail Segment Results

($ in millions)

   

2Q11 Pretax

Income

 

2Q10 Pretax

Income

 

1H11 Pretax

Income

 

1H10 Pretax

Income

GAAP     $ 503.1     $ 325.9     $ 720.1     $ 590.7  

Write-down of certain DAC(a)

      -       147.5       -       147.5  

Favorable prior-period medical claims reserve development(b)

      (38.0 )     (39.6 )     (71.7 )     (119.9 )

Non-GAAP(c)

    $ 465.1     $ 433.8     $ 648.4     $ 618.3  
 

Enrollment:

  • Individual Medicare Advantage membership was 1,602,500 at June 30, 2011, an increase of 139,600 members, or 10 percent from 1,462,900 at June 30, 2010 primarily due to a successful enrollment season associated with the 2011 plan year. Individual Medicare Advantage membership has increased 141,800 or 10 percent through 1H11 from 1,460,700 at December 31, 2010.
  • Membership in the company’s individual stand-alone Prescription Drug Plans (PDPs) was 2,408,700 at June 30, 2011, up 700,700 or 41 percent compared to 1,708,000 at June 30, 2010 and up 738,400 or 44 percent from 1,670,300 at December 31, 2010. These increases resulted from higher gross sales primarily during the 2011 enrollment season, particularly for the company’s low-price-point Humana-Walmart plan offering.
  • HumanaOne medical membership increased to 403,700 at June 30, 2011, an increase of 32,200, or 9 percent, from 371,500 at June 30, 2010 and an increase of 31,400 or 8 percent, from 372,300 at December 31, 2010.
  • Membership in individual specialty products(d) of 680,500 at June 30, 2011 increased 55 percent from 440,400 at June 30, 2010 and up 170,500 or 33 percent from 510,000 at December 31, 2010 driven primarily by increased sales in dental and vision offerings.

Premiums and services revenue:

  • 2Q11 premiums and services revenue for the Retail Segment were $5.40 billion, an increase of 12 percent from $4.82 billion in 2Q10. The increase was primarily the result of 9 percent higher average Medicare Advantage membership year over year.

Benefit expenses:

  • The 2Q11 benefit ratio for the Retail Segment was 81.4 percent, an improvement of 10 basis points from 81.5 percent in 2Q10. Favorable prior-period reserve development impacted the year-over-year comparison of the benefit ratio for this segment as follows:
 
Retail Segment Benefit Ratio     2Q11   2Q10
GAAP     81.4 %   81.5 %

Favorable prior-period medical claims reserve development(b)

    0.7 %   0.8 %

Non-GAAP(c)

    82.1 %   82.3 %
 

Operating costs:

  • The Retail Segment’s operating cost ratio of 9.1 percent in 2Q11 improved 240 basis points from 11.5 percent in 2Q10. The write-down of certain DAC during 2Q10 impacted the year-over-year comparison of the operating cost ratio for this segment as follows:
 
Retail Segment Operating Cost Ratio     2Q11   2Q10
GAAP     9.1 %   11.5 %

Write-down of certain DAC(a)

    -     (3.0 %)

Non-GAAP(c)

    9.1 %   8.5 %
 

On a non-GAAP basis, the Retail Segment’s operating cost ratio increased year over year, primarily reflecting a higher percentage of the segment’s membership in the Humana Walmart-Preferred Rx Plan which carries a higher operating cost ratio than other stand-alone PDP products.

Employer Group Segment Highlights

Pretax results:

  • Employer Group Segment pretax income of $108.4 million in 2Q11 compares to $107.8 million in 2Q10. For 1H11, pretax earnings for the Employer Group Segment of $247.2 million increased by $65.9 million versus 1H10 pretax earnings for the segment of $181.2 million. Favorable prior-period reserve development impacted the year-over-year comparisons of the pretax income for this segment as follows:
 
Employer Group Segment Results

($ in millions)

   

2Q11 Pretax

Income

 

2Q10 Pretax

Income

 

1H11 Pretax

Income

 

1H10 Pretax

Income

GAAP     $ 108.4     $ 107.8     $ 247.2     $ 181.2  

Favorable prior-period medical claims reserve development(b)

      (17.0 )     (77.4 )     (33.0 )     (17.6 )

Non-GAAP(c)

    $ 91.4     $ 30.4     $ 214.2     $ 163.6  
 

Enrollment:

  • Group Medicare Advantage membership was 309,700 at June 30, 2011, an increase of 11,500 members, or 4 percent, from 298,200 at June 30, 2010, and an increase of 8,400 or 3 percent, from 301,300 at December 31, 2010.
  • Group fully-insured commercial medical membership declined to 1,186,200 at June 30, 2011, a decrease of 109,200 or 8 percent, from 1,295,400 at June 30, 2010, and a decrease of 66,000 or 5 percent, from 1,252,200 at December 31, 2010. This decline primarily reflected the company’s continued dedication to pricing discipline in a highly competitive environment for large group business partially offset by small group business membership gains.
  • Group administrative services only, or ASO, commercial medical membership declined to 1,313,600 at June 30, 2011, a decrease of 269,000 or 17 percent from 1,582,600 at June 30, 2010, and a decrease of 140,000 or 10 percent, from 1,453,600 at December 31, 2010. This decline reflected the loss of a large ASO account in July 2010 and a continuation of discipline in pricing services for self-funded accounts amid a highly competitive environment.
  • Membership in Employer Group specialty products(d) of 6,669,600 at June 30, 2011 decreased 2 percent from 6,806,900 at June 30, 2010, and increased 152,100 or 2 percent, from 6,517,500 at December 31, 2010.

Premiums and services revenue:

  • 2Q11 premiums and services revenue for the Employer Group Segment were $2.30 billion, a decrease of 4 percent from $2.40 billion in 2Q10. The decrease was primarily the result of a 14 percent decline in average commercial group medical membership year-over-year.

Benefit expenses:

  • 2Q11 benefit ratio for the Employer Group Segment was 81.2 percent, unchanged from that for 2Q10. Favorable prior-period reserve development impacted the year-over-year comparison of the benefit ratio for this segment as follows:
 
Employer Group Segment Benefit Ratio     2Q11   2Q10
GAAP     81.2 %   81.2 %

Favorable prior-period medical claims reserve development(b)

    0.8 %   3.3 %

Non-GAAP(c)

    82.0 %   84.5 %
 

The 250 basis point year-over year improvement in the Employer Group Segment’s non-GAAP benefit ratio reflects a continuation of low utilization of medical services, particularly in the company’s commercial business, combined with a higher percentage of the segment’s membership in small group accounts which generally have a lower benefit ratio than larger group accounts.

Operating costs:

  • The Employer Group Segment’s operating cost ratio of 16.8 percent in 2Q11 improved from 17.2 percent in 2Q10 primarily reflecting administrative scale efficiencies associated with a 5 percent increase in average fully-insured Medicare Advantage group membership.

Health and Well-Being Services Segment Highlights

Pretax results:

  • Health and Well-Being Services Segment pretax income of $87.8 million in 2Q11 increased 73 percent compared to $50.9 million in 2Q10 reflecting growth in the company’s pharmacy solutions business as well as the addition of the Concentra business acquired in December 2010.
  • For 1H11, pretax earnings for the Health and Well-Being Services Segment of $184.2 million increased by $85.1 million versus 1H10 pretax earnings for the segment of $99.1 million, reflecting the same factors as those affecting the quarterly year-over-year comparisons.

Revenues:

  • Revenues of $2.73 billion in 2Q11 for the Health and Well-Being Services Segment increased 22 percent from $2.23 billion in 2Q10. This increase was primarily due to growth in the company’s pharmacy solutions business together with the December 2010 acquisition of the company’s Concentra business.

Operating costs:

  • The Health and Well-Being Services Segment’s operating cost ratio of 96.1 percent in 2Q11 improved 130 basis points from 97.4 percent in 2Q10 reflecting scale efficiencies associated with growth in the company’s pharmacy solutions business together with the addition of the company’s Concentra operations which carries a lower operating cost ratio than other lines of business in this segment.

Balance Sheet

  • At June 30, 2011, the company had cash, cash equivalents, and investment securities of $10.77 billion compared to $10.75 billion at March 31, 2011.
  • Parent company cash and investments of $990.4 million at June 30, 2011 increased $622.6 million from $367.8 million at March 31, 2011 primarily due to dividends to the parent company from the operating subsidiaries being partially offset by share repurchases during the second quarter.
  • Debt-to-total capitalization at June 30, 2011 was 18.0 percent, down 70 basis points compared to 18.7 percent at March 31, 2011 primarily driven by higher capitalization associated with second quarter earnings.

Cash Flows from Operations

  • Cash flows provided by operations for 2Q11 totaled $161.2 million compared to $325.3 million in 2Q10. Cash flows provided by operations for 1H11 totaled $956.7 million compared to $1.08 billion in 1H10. The decline in cash flows from operations for both periods reflected changes in working capital more than offsetting higher earnings year over year.

Share Repurchase Program and Cash Dividend

  • In April 2011, the company’s Board of Directors replaced its previous share repurchase authorization with a new authorization for share repurchases of up to $1 billion. During 2Q11, the company repurchased 2,549,200 of its outstanding shares at an average price per share of $78.51. As of June 30, 2011, approximately $800 million of the April 2011 share repurchase authorization was remaining, with an expiration date of June 30, 2013.
  • In April 2011, the company’s Board of Directors also initiated a quarterly cash dividend policy. An initial cash dividend payment of $41.5 million, or $0.25 per share, for stockholders of record as of June 30, 2011, was paid on July 28, 2011.

Footnotes

(a) During 2Q10, the company recognized an impairment of deferred acquisition cost (DAC) assets associated with its Individual Major Medical line of business of $147.5 million. The related DAC included amounts associated with commissions, underwriting and other policy issuance costs. Given then impending changes to this business associated with health insurance reform, a substantial portion of the DAC was determined to be not recoverable from future income.

(b) Actuarial standards require the use of assumptions based on moderately adverse experience, which generally results in favorable reserve development, or reserves that are considered redundant. When the Company recognizes a release of the redundancy, we disclose the amount that is not in the ordinary course of business.

(c) The Company has included certain financial measures that are not in accordance with Generally Accepted Accounting Principles (GAAP) in its summary of financial results within this earnings press release. The company believes that these non-GAAP measures, when presented in conjunction with comparable GAAP measures, are useful to both management and its investors in analyzing the company's ongoing business and operating performance. Internally, management uses these non-GAAP financial measures as indicators of business performance, as well as for operational planning and decision making purposes. Non-GAAP financial measures should be considered in addition to, but not as a substitute for, or superior to, financial measures prepared in accordance with GAAP.

(d) The company provides a full range of insured specialty products including dental, vision and other supplemental products. Members included in these products may not be unique to each product since members have the ability to enroll in multiple products. Other supplemental benefits include life, disability, and fixed benefit products including cancer and critical illness policies.

Conference Call & Virtual Slide Presentation

Humana will host a conference call, as well as a virtual slide presentation, at 9:00 a.m. eastern time today to discuss its financial results for the quarter and the company’s expectations for future earnings. A live virtual presentation (audio with slides) may be accessed via Humana’s Investor Relations page at www.humana.com. The company suggests web participants sign on at least 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.

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 at least ten minutes in advance of the call. For those unable to participate in the live event, the virtual presentation archive may be accessed via the Historical Webcasts & Presentations section of the Investor Relations page at www.humana.com.

Cautionary Statement

This news release includes forward-looking statements 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,” “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:

  • Health insurance reform legislation, including The Patient Protection and Affordable Care Act and The Health Care and Education Reconciliation Act of 2010, could have a material adverse effect on Humana’s results of operations, including restricting revenue, enrollment and premium growth in certain products and market segments, increasing the company's medical and administrative costs by, among other things, requiring a minimum benefit ratio, lowering the company’s Medicare payment rates and increasing the company’s expenses associated with a non-deductible federal premium tax; financial position, including the company's ability to maintain the value of its goodwill; and cash flows. In addition, if the new non-deductible federal premium tax is imposed as enacted, and if Humana is unable to adjust its business model to address this new tax, there can be no assurance that the non-deductible federal premium tax would not have a material adverse effect on the company’s results of operations, financial position, and cash flows.
  • If Humana does not design and price its products properly and competitively, if the premiums Humana charges are insufficient to cover the cost of health care services delivered to its members, or if its estimates of benefit expenses 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. These estimates, however, involve extensive judgment, and have considerable inherent variability that is extremely sensitive to payment patterns and medical cost trends.
  • If Humana fails to effectively implement its operational and strategic initiatives, including its Medicare initiatives, the company’s business may be materially adversely affected, which is of particular importance given the concentration of the company’s revenues in the Medicare business.
  • If Humana fails to properly maintain the integrity of its data, to strategically implement new information systems, or to protect Humana’s proprietary rights to its systems, the company’s business may be materially adversely affected.
  • Humana is involved in various legal actions and governmental and internal investigations, including without limitation, an ongoing internal investigation related to certain aspects of its Florida subsidiary operations, the outcome of any of which could result in substantial monetary damages, penalties, fines or other sanctions. Increased litigation or regulatory action and any related negative publicity could increase the company’s cost of doing business.
  • Humana’s business activities are subject to substantial government regulation and related audits for compliance, including, among others, existing audits regarding Medicare risk adjustment data. New laws or regulations, or changes in existing laws or regulations or their manner of application, including the methodology that may be used by the government in implementing results of risk adjustment audits, could increase the company’s cost of doing business and may adversely affect the company’s business, profitability and financial condition. In addition, as a government contractor, Humana is exposed to additional risks that may adversely affect the company’s business or the company’s willingness to participate in government health care programs.
  • On February 25, 2011, the Department of Defense TRICARE Management Activity, or TMA, awarded the TRICARE South Region contract to Humana. On March 7, 2011, the competing bidder filed a protest of the award with the Government Accountability Office. Also on March 7, 2011, as provided in the Federal Acquisition Regulations, TMA issued a stop work order to Humana in connection with the award. On June 14, 2011, the GAO upheld the award of the contract to Humana and TMA subsequently lifted the stop work order. On June 21, 2011, the competing bidder filed a complaint in the United States Court of Federal Claims objecting to the award of the contract to Humana. That case is currently pending before the Court. As a result of the award of the TRICARE South Region contract to the company, Humana no longer expects a goodwill impairment to occur during the second half of 2011. Ultimate disposition of the contract award is, however, subject to the resolution of the complaint filed by the unsuccessful bidder.
  • Any failure to manage administrative costs could hamper Humana’s profitability.
  • Any failure by Humana to manage acquisitions and other significant transactions successfully may have a material adverse effect on its 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 home-delivery pharmacy business is highly competitive and subjects it to regulations in addition to those the company faces with its core health benefits businesses.
  • Changes in the prescription drug industry pricing benchmarks may adversely affect Humana’s financial performance.
  • If Humana does not continue to earn and retain purchase discounts and volume rebates from pharmaceutical manufacturers at current levels, Humana’s gross margins may decline.
  • Humana’s ability to obtain funds from its 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.
  • Federal government contracts account for a substantial portion of Humana’s revenue and earnings. A delay by Congress in raising the federal government’s debt ceiling, should it occur, could lead to a reduction, suspension or cancellation of federal government spending that could, in turn, have a material adverse effect on Humana’s business and profitability.
  • Changes in economic conditions could adversely affect Humana’s business and results of operations.
  • The securities and credit markets may experience volatility and disruption, which may adversely affect Humana’s business.
  • Given the current economic climate, Humana’s stock and the stock of other companies in the insurance industry may be increasingly subject to stock price and trading volume volatility.

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, 2010;
  • Form 10-Q for the quarter ended March 31, 2011;
  • Form 8-Ks filed during 2011.

About Humana

Humana Inc., headquartered in Louisville, Kentucky, is a leading health care company that offers a wide range of insurance products and health and wellness services that incorporate an integrated approach to lifelong well-being. By leveraging the strengths of its core businesses, Humana believes it can better explore opportunities for existing and emerging adjacencies in health care that can further enhance wellness opportunities for the millions of people across the nation with whom the company has relationships.

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

  • Annual reports to stockholders;
  • Securities and Exchange Commission filings;
  • Most recent investor conference presentations;
  • Quarterly earnings news releases;
  • Replays of most recent earnings release conference calls;
  • Calendar of events (including upcoming earnings conference call dates and times, as well as planned interaction with research analysts and institutional investors);
  • Corporate Governance information
 
 
 
 
 
 

Humana Inc. – Earnings Guidance Points as of August 1, 2011

 
(in accordance with Generally     For the year ending December 31, 2011     Comments
Accepted Accounting Principles)            
Diluted earnings per common share Full year 2011: $7.50 to $7.60 Excludes the impact of future share
(EPS) Third quarter 2011: $1.95 to $2.05 repurchases
Anticipates 169 million weighted average
shares outstanding
Reflects income tax rate of approximately
           

36.5%

Revenues Consolidated revenues: $36.5 billion to $37.0 billion Includes expected investment income in the
range of $355 million to $365 million
 
Total revenues: Segment-level revenues include
Retail Segment: $21.0 billion to $21.5 billion intersegment amounts that eliminate in
Employer Group Segment: $9.0 billion to $9.5 billion consolidation
Health and Well-Being Services Segment: $11.0 billion to $11.3 billion
      Other Businesses: $4.75 billion to $5.25 billion      
Ending medical membership versus Retail Segment:
prior year end Medicare Advantage: Up 130,000 to 140,000
Medicare stand-alone PDPs: Up 800,000 to 850,000
Employer Group Segment:
Medicare Advantage: Up approximately 10,000
Commercial Fully Insured: Down 75,000 to 85,000
      Commercial ASO: Down 160,000 to 170,000      
Benefit ratios Retail Segment: 82.5% to 83.5% Benefit expenses as a percent of premiums
      Employer Group Segment: 82.5% to 83.5%      
Consolidated operating cost ratio 14.0% to 14.5% Operating costs as a percent of total
            revenues excluding investment income
Consolidated depreciation and $300 million to $310 million Approximately $35 million is expected to
amortization (cash flows) be included in benefits expense on the
            income statement
Consolidated interest expense     $110 million to $115 million      
Detailed pretax results Retail Segment: $1.25 billion to $1.35 billion
Employer Group Segment: $180 million to $210 million
      Health and Well-Being Services Segment: $340 million to $370 million      
Cash flows from operations     $2.0 billion to $2.2 billion      
Capital expenditures     Approximately $280 million      
 
 
 
 
 
 
 

Humana Inc.

Statistical Schedules

And

Supplementary Information

2Q11 Earnings Release

 
 
 

S-1

 
 
 
 
 
 
 
Humana Inc.
Statistical Schedules and Supplementary Information
2Q11 Earnings Release
   
Contents
 

Page

Description

 
S-3-4 Consolidated Statements of Income
S-5 2Q11 Segment Financial Information
S-6 2Q10 Segment Financial Information
S-7 Consolidated Balance Sheets
S-8-9 Consolidated Statements of Cash Flows
S-10 Key Income Statement Ratios and Segment Operating Results
S-11 Membership Detail
S-12-13 Premiums and Services Revenue Detail
S-14 Investments
S-15-17 Benefits Payable
S-18 Footnotes
 
 
 

S-2

 
 
 
 
 
 
 
Humana Inc.
Consolidated Statements of Income
In thousands, except per common share results
           
Three Months Ended June 30,
  Dollar Percentage
2011   2010 Change   Change
Revenues:
Premiums $ 8,849,376 $ 8,376,751 $ 472,625 5.6 %
Services 343,509 132,702 210,807 158.9 %
Investment income   91,246     79,790   11,456 14.4 %
Total revenues   9,284,131     8,589,243   694,888 8.1 %
Operating expenses:
Benefits 7,269,768 6,869,096 400,672 5.8 %
Operating costs 1,192,405 1,093,690 98,715 9.0 %
Depreciation and amortization   67,781     64,381   3,400 5.3 %
Total operating expenses   8,529,954     8,027,167   502,787 6.3 %
Income from operations 754,177 562,076 192,101 34.2 %
Interest expense   27,663     26,222   1,441 5.5 %
Income before income taxes 726,514 535,854 190,660 35.6 %
Provision for income taxes   266,227     195,778   70,449 36.0 %
Net income $ 460,287   $ 340,076 $ 120,211 35.3 %
 
Basic earnings per common share $ 2.76 $ 2.02 $ 0.74 36.6 %
Diluted earnings per common share $ 2.71 $ 2.00 $ 0.71 35.5 %
 
Shares used in computing basic earnings per common share (000's) 167,021 168,472
Shares used in computing diluted earnings per common share (000's) 169,560 170,229
 
 
 

S-3

       
 
 
 
 
 
 
Humana Inc.
Consolidated Statements of Income
In thousands, except per common share results
     
Six Months Ended June 30,
Dollar Percentage
2011   2010 Change   Change
Revenues:
Premiums $ 17,615,667 $ 16,538,614 $ 1,077,053 6.5 %
Services 678,451 265,722 412,729 155.3 %
Investment income   180,731     165,245   15,486 9.4 %
Total revenues   18,474,849     16,969,581   1,505,268 8.9 %
Operating expenses:
Benefits 14,614,522 13,686,478 928,044 6.8 %
Operating costs 2,448,248 2,154,547 293,701 13.6 %
Depreciation and amortization   133,890     123,240   10,650 8.6 %
Total operating expenses   17,196,660     15,964,265   1,232,395 7.7 %
Income from operations 1,278,189 1,005,316 272,873 27.1 %
Interest expense   54,891     52,536   2,355 4.5 %
Income before income taxes 1,223,298 952,780 270,518 28.4 %
Provision for income taxes   447,835     353,936   93,899 26.5 %
Net income $ 775,463   $ 598,844 $ 176,619 29.5 %
 
Basic earnings per common share $ 4.64 $ 3.56 $ 1.08 30.3 %
Diluted earnings per common share $ 4.57 $ 3.52 $ 1.05 29.8 %
 
Shares used in computing basic earnings per common share (000's) 167,146 168,336
Shares used in computing diluted earnings per common share (000's) 169,547 170,154
 
 
 

S-4

 
 
 
 
 
 
 
Humana Inc.
2Q11 Segment Financial Information
In thousands
          Health and            
Employer Well-Being Other Eliminations/
Retail Group Services Businesses Corporate Consolidated
 
Revenues - external customers
Premiums:
Medicare Advantage $ 4,555,163 $ 764,595 $ - $ - $ - $ 5,319,758
Medicare stand-alone PDP     601,345       1,911       -       77,184       -       680,440  
Total Medicare     5,156,508       766,506       -       77,184       -       6,000,198  
Fully-insured 206,291 1,216,601 - - - 1,422,892
Specialty 29,580 233,233 - - - 262,813
Military services - - - 934,738 - 934,738
Medicaid and other (A)     -       -       -       228,735       -       228,735  
Total premiums     5,392,379       2,216,340       -       1,240,657       -       8,849,376  
Services revenue:
Provider - - 222,401 - - 222,401
ASO and other (B) 3,894 86,657 - 27,945 - 118,496
Pharmacy     -       -       2,612       -       -       2,612  
Total services revenue     3,894       86,657       225,013       27,945       -       343,509  
Total revenues - external customers     5,396,273       2,302,997       225,013       1,268,602       -       9,192,885  
 
Intersegment revenues
Services - 3,317 2,073,686 - (2,077,003 ) -
Products     -       -       433,869       -       (433,869 )     -  
Total intersegment revenues     -       3,317       2,507,555       -       (2,510,872 )     -  
Investment income     18,949       11,793       -       13,371       47,133       91,246  
Total revenues     5,415,222       2,318,107       2,732,568       1,281,973       (2,463,739 )     9,284,131  
 
Operating expenses:
Benefits 4,390,146 1,799,711 - 1,149,320 (69,409 ) 7,269,768
Operating costs 490,133 386,925 2,625,168 110,617 (2,420,438 ) 1,192,405
Depreciation and amortization     31,875       23,062       19,597       2,644       (9,397 )     67,781  
Total operating expenses     4,912,154       2,209,698       2,644,765       1,262,581       (2,499,244 )     8,529,954  
Income from operations 503,068 108,409 87,803 19,392 35,505 754,177
Interest expense     -       -       -       -       27,663       27,663  
Income before income taxes   $ 503,068     $ 108,409     $ 87,803     $ 19,392     $ 7,842     $ 726,514  
 
Benefit ratio 81.4 % 81.2 % 92.6 % 82.2 %
Operating cost ratio 9.1 % 16.8 % 96.1 % 8.7 % 13.0 %

 

 

 

S-5

 
 
 
 
 
 
 
Humana Inc.
2Q10 Segment Financial Information
In thousands
          Health and            
Employer Well-Being Other Eliminations/
Retail Group Services Businesses Corporate Consolidated
 
Revenues - external customers
Premiums:
Medicare Advantage $ 4,106,667 $ 778,542 $ - $ - $ - $ 4,885,209
Medicare stand-alone PDP     504,296       1,154       -       194,772       -       700,222  
Total Medicare     4,610,963       779,696       -       194,772       -       5,585,431  
Fully-insured 183,261 1,300,759 - - - 1,484,020
Specialty 19,668 224,093 - - - 243,761
Military services - - - 885,368 - 885,368
Medicaid and other (A)     -       -       -       178,171       -       178,171  
Total premiums     4,813,892       2,304,548       -       1,258,311       -       8,376,751  
Services revenue:
Provider - - 2,891 - - 2,891
ASO and other (B) 2,540 100,234 - 27,037 - 129,811
Pharmacy     -       -       -       -       -       -  
Total services revenue     2,540       100,234       2,891       27,037       -       132,702  
Total revenues - external customers     4,816,432       2,404,782       2,891       1,285,348       -       8,509,453  
 
Intersegment revenues
Services - 3,279 1,923,802 - (1,927,081 ) -
Products     -       -       306,983       -       (306,983 )     -  
Total intersegment revenues     -       3,279       2,230,785       -       (2,234,064 )     -  
Investment income     19,529       10,207       -       10,027       40,027       79,790  
Total revenues     4,835,961       2,418,268       2,233,676       1,295,375       (2,194,037 )     8,589,243  
 
Operating expenses:
Benefits 3,923,278 1,870,910 - 1,127,876 (52,968 ) 6,869,096
Operating costs 555,035 414,505 2,176,392 115,248 (2,167,490 ) 1,093,690
Depreciation and amortization     31,710       25,097       6,411       3,129       (1,966 )     64,381  
Total operating expenses     4,510,023       2,310,512       2,182,803       1,246,253       (2,222,424 )     8,027,167  
Income from operations 325,938 107,756 50,873 49,122 28,387 562,076
Interest expense     -       -       -       -       26,222       26,222  
Income before income taxes   $ 325,938     $ 107,756     $ 50,873     $ 49,122     $ 2,165     $ 535,854  
 
Benefit ratio 81.5 % 81.2 % 89.6 % 82.0 %
Operating cost ratio 11.5 % 17.2 % 97.4 % 9.0 % 12.9 %
 
 
 

S-6

 
 
 
 
 
 
 
Humana Inc.
Consolidated Balance Sheets
Dollars in thousands, except share amounts        
  June 30, December 31, Sequential Change
2011   2010 Dollar   Percent
Assets  
Current assets:
Cash and cash equivalents $ 1,567,824 $ 1,673,137
Investment securities 7,609,737 6,872,767
Receivables, net 1,546,392 959,018
Securities lending invested collateral 29,737 49,636
Other   721,537       583,141  
Total current assets 11,475,227 10,137,699 $ 1,337,528 13.2 %
 
Property and equipment, net 822,611 815,337
Long-term investment securities 1,592,919 1,499,672
Goodwill 2,577,511 2,567,809
Other   1,126,637       1,082,736  
Total assets   17,594,905       16,103,253   $ 1,491,652 9.3 %
 
Liabilities and Stockholders' Equity
Current liabilities:
Benefits payable 3,953,185 3,469,306
Trade accounts payable and accrued expenses 1,944,897 1,624,832
Book overdraft 217,287 409,385
Securities lending payable 35,536 55,693
Unearned revenues   204,859       185,410  
Total current liabilities 6,355,764 5,744,626 $ 611,138 10.6 %
 
Long-term debt 1,664,015 1,668,849
Future policy benefits payable 1,560,668 1,492,855
Other long-term liabilities   427,741       272,867  
Total liabilities   10,008,188       9,179,197   $ 828,991 9.0 %
 
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; 192,739,787 issued at June 30, 2011

32,123 31,707
Capital in excess of par value 1,897,852 1,737,207
Retained earnings 6,262,943 5,529,001
Accumulated other comprehensive income 189,030 120,584
Treasury stock, at cost, 25,910,263 shares at June 30, 2011   (795,231 )     (494,443 )
Total stockholders' equity   7,586,717       6,924,056   $ 662,661 9.6 %
Total liabilities and stockholders' equity $ 17,594,905     $ 16,103,253   $ 1,491,652 9.3 %
 
Debt-to-total capitalization ratio 18.0 % 19.4 %
 
 
 

S-7

 
 
 
 
 
 
 
Humana Inc.
Consolidated Statements of Cash Flows
Dollars in thousands        
  Three Months Ended June 30,
  Dollar Percentage
2011   2010 Change   Change
Cash flows from operating activities
Net income $ 460,287 $ 340,076

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization 75,092 69,290
Net realized capital (gains) losses (1,183 ) 718
Stock-based compensation 11,203 12,288
Benefit from deferred income taxes (5,934 ) (60,405 )

Changes in operating assets and liabilities excluding the effects of acquisitions:

Receivables (327,045 ) (220,504 )
Other assets (63,880 ) 102,860
Benefits payable 13,127 122,690
Other liabilities (2,107 ) (26,905 )
Unearned revenues (14,145 ) (26,238 )
Other   15,798       11,441  
Net cash provided by operating activities   161,213       325,311   ($164,098 ) -50.4 %
 
Cash flows from investing activities
Acquisitions, net of cash acquired (5,952 ) (1,669 )
Purchases of property and equipment (58,700 ) (52,399 )
Purchases of investment securities (715,509 ) (1,233,819 )
Proceeds from maturities of investment securities 332,404 580,244
Proceeds from sales of investment securities 278,174 546,116
Change in securities lending collateral   1,461       16,603  
Net cash used in investing activities   (168,122 )     (144,924 ) ($23,198 ) -16.0 %
 
Cash flows from financing activities
Receipts from CMS contract deposits 640,938 442,144
Withdrawals from CMS contract deposits (635,529 ) (377,327 )
Change in book overdraft (34,786 ) 3,878
Change in securities lending payable (1,461 ) (16,603 )
Common stock repurchases (211,884 ) (50,199 )
Excess tax benefit from stock-based compensation 6,156 530
Proceeds from stock option exercises and other   55,258       2,179  
Net cash (used in) provided by financing activities   (181,308 )     4,602   ($185,910 ) -4039.8 %
 
(Decrease) increase in cash and cash equivalents (188,217 ) 184,989
Cash and cash equivalents at beginning of period   1,756,041       1,813,993  
 
Cash and cash equivalents at end of period $ 1,567,824     $ 1,998,982  
 
 
 

S-8

 
 
 
 
 
 
 
Humana Inc.
Consolidated Statements of Cash Flows
Dollars in thousands        
  Six Months Ended June 30,
  Dollar Percentage
2011   2010 Change Change
Cash flows from operating activities
Net income $ 775,463 $ 598,844

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization 150,583 132,046
Net realized capital gains (5,109 ) (7,976 )
Stock-based compensation 40,978 39,627
Provision for (benefit from) deferred income taxes 21,418 (81,267 )

Changes in operating assets and liabilities excluding the effects of acquisitions:

Receivables (587,374 ) (501,482 )
Other assets (174,800 ) 73,683
Benefits payable 483,879 607,149
Other liabilities 202,069 219,163
Unearned revenues 19,449 (19,471 )
Other   30,109       19,646  
Net cash provided by operating activities   956,665       1,079,962   ($123,297 ) -11.4 %
 
Cash flows from investing activities
Acquisitions, net of cash acquired (10,952 ) (1,669 )
Purchases of property and equipment (129,181 ) (91,427 )
Purchases of investment securities (1,902,083 ) (2,759,168 )
Proceeds from maturities of investment securities 731,204 1,014,032
Proceeds from sales of investment securities 432,006 1,091,282
Change in securities lending collateral   20,157       74,809  
Net cash used in investing activities   (858,849 )     (672,141 ) ($186,708 ) -27.8 %
 
Cash flows from financing activities
Receipts from CMS contract deposits 1,254,847 880,252
Withdrawals from CMS contract deposits (1,066,478 ) (643,976 )
Change in book overdraft (192,098 ) (134,548 )
Change in securities lending payable (20,157 ) (74,809 )
Common stock repurchases (300,788 ) (57,869 )
Excess tax benefit from stock-based compensation 11,287 1,264
Proceeds from stock option exercises and other   110,258       7,259  
Net cash used in financing activities   (203,129 )     (22,427 ) ($180,702 ) -805.7 %
 
(Decrease) increase in cash and cash equivalents (105,313 ) 385,394
Cash and cash equivalents at beginning of period   1,673,137       1,613,588  
 
Cash and cash equivalents at end of period $ 1,567,824     $ 1,998,982  
 
 
 

S-9

 
 
 
 
 
 
 
Humana Inc.
Key Income Statement Ratios and Segment Operating Results
Dollars in thousands
               
Three Months Ended June 30, Six Months Ended June 30,
Percentage Percentage
2011 2010 Difference Change 2011 2010 Difference Change
Benefit ratio
Retail 81.4 % 81.5 % -0.1 % 83.6 % 82.7 % 0.9 %
Employer Group 81.2 % 81.2 % 0.0 % 79.9 % 81.7 % -1.8 %
Other Businesses 92.6 % 89.6 % 3.0 % 91.4 % 89.5 % 1.9 %
Consolidated 82.2 % 82.0 % 0.2 % 83.0 % 82.8 % 0.2 %
 
Operating cost ratio (C)
Retail 9.1 % 11.5 % -2.4 % 9.5 % 11.0 % -1.5 %
Employer Group 16.8 % 17.2 % -0.4 % 17.5 % 17.5 % 0.0 %
Health and Well-Being Services 96.1 % 97.4 % -1.3 % 95.9 % 97.5 % -1.6 %
Other Businesses 8.7 % 9.0 % -0.3 % 9.1 % 9.6 % -0.5 %
Consolidated 13.0 % 12.9 % 0.1 % 13.4 % 12.8 % 0.6 %
 
Detail of pretax income
Retail $ 503,068 $ 325,938 $ 177,130 54.3 % $ 720,058 $ 590,720 $ 129,338 21.9 %
Employer Group $ 108,409 $ 107,756 $ 653 0.6 % $ 247,164 $ 181,233 $ 65,931 36.4 %
Health and Well-Being Services $ 87,803 $ 50,873 $ 36,930 72.6 % $ 184,176 $ 99,100 $ 85,076 85.8 %
Other Businesses $ 19,392 $ 49,122 ($29,730 ) -60.5 % $ 54,583 $ 86,346 ($31,763 ) -36.8 %
Consolidated $ 726,514 $ 535,854 $ 190,660 35.6 % $ 1,223,298 $ 952,780 $ 270,518 28.4 %
 
 
 

S-10

 
 
 
 
 
 
 
Humana Inc.
Membership Detail
In thousands                
    Ending

Average

Ending Year-over-year Change Ending Sequential Change
June 30, 2011  

2Q11

  June 30, 2010 Amount   Percent March 31, 2011 Amount   Percent
Medical Membership:    
Retail
Medicare Advantage 1,602.5 1,600.1 1,462.9 139.6 9.5 % 1,594.8 7.7 0.5 %
Medicare stand-alone PDPs 2,408.7 2,389.7 1,708.0 700.7 41.0 % 2,353.1 55.6 2.4 %
Medicare Supplement 52.9 51.8 35.6 17.3 48.6 % 49.9 3.0 6.0 %
Individual 403.7   398.1   371.5 32.2   8.7 % 382.9 20.8   5.4 %
Total Retail 4,467.8   4,439.7   3,578.0 889.8   24.9 % 4,380.7 87.1   2.0 %
 
Employer Group
Medicare Advantage 282.0 281.5 269.5 12.5 4.6 % 280.7 1.3 0.5 %
Medicare Advantage ASO 27.7 27.8 28.7 (1.0 ) -3.5 % 27.9 (0.2 ) -0.7 %
Medicare stand-alone PDPs 4.1 4.1 2.4 1.7 70.8 % 4.1 - 0.0 %
Fully-insured medical 1,186.2 1,185.1 1,295.4 (109.2 ) -8.4 % 1,178.5 7.7 0.7 %
ASO 1,313.6   1,316.1   1,582.6 (269.0 ) -17.0 % 1,319.3 (5.7 ) -0.4 %
Total Employer Group 2,813.6   2,814.6   3,178.6 (365.0 ) -11.5 % 2,810.5 3.1   0.1 %
 
Other Businesses
Military Services 3,015.2 3,013.6 3,030.7 (15.5 ) -0.5 % 3,012.9 2.3 0.1 %
Medicaid and other 619.2 618.3 453.7 165.5 36.5 % 619.3 (0.1 ) 0.0 %
LI-NET 87.0   92.3   83.0 4.0   4.8 % 98.5 (11.5 ) -11.7 %
Total Other Businesses 3,721.4   3,724.2   3,567.4 154.0   4.3 % 3,730.7 (9.3 ) -0.2 %
 
Total Medical Membership 11,002.8   10,978.5   10,324.0 678.8   6.6 % 10,921.9 80.9   0.7 %
 
 
Specialty Membership:
Retail
Dental - fully-insured 512.5 491.6 326.7 185.8 56.9 % 444.4 68.1 15.3 %
Vision 70.8 67.8 44.8 26.0 58.0 % 61.2 9.6 15.7 %
Other supplemental benefits (D) 97.2   93.0   68.9 28.3   41.1 % 84.9 12.3   14.5 %
Total Retail 680.5   652.4   440.4 240.1   54.5 % 590.5 90.0   15.2 %
 
Employer Group
Dental - fully-insured 2,250.3 2,246.4 2,350.8 (100.5 ) -4.3 % 2,252.5 (2.2 ) -0.1 %
Dental - ASO 1,220.7 1,224.0 1,211.6 9.1 0.8 % 1,229.8 (9.1 ) -0.7 %
Vision 2,227.0 2,216.7 2,397.3 (170.3 ) -7.1 % 2,194.1 32.9 1.5 %
Other supplemental benefits (D) 971.6   974.5   847.2 124.4   14.7 % 960.4 11.2   1.2 %
Total Employer Group 6,669.6   6,661.6   6,806.9 (137.3 ) -2.0 % 6,636.8 32.8   0.5 %
 
Total Specialty Membership 7,350.1   7,314.0   7,247.3 102.8   1.4 % 7,227.3 122.8   1.7 %
 
 
 

S-11

 
 
 
 
 
 
 
Humana Inc.
Premiums and Services Revenue Detail
Dollars in thousands, except per member per month
                 
 

Per Member per Month (E)

Three Months Ended June 30, Three Months Ended June 30,
Dollar Percentage  
2011   2010 Change   Change 2011   2010
 
Premiums and Services Revenue
Retail:
Medicare Advantage $ 4,555,163 $ 4,106,667 $ 448,496 10.9 % $ 949 $ 936
Medicare stand-alone PDPs 601,345 504,296 97,049 19.2 % $ 84 $ 98
Individual 181,423 165,937 15,486 9.3 % $ 152 $ 149
Medicare Supplemental 24,868 17,324 7,544 43.5 % $ 160 $ 165
Specialty 29,580 19,668 9,912 50.4 % $ 15 $ 15
Services   3,894     2,540   1,354   53.3 %
Total Retail   5,396,273     4,816,432   579,841   12.0 %
 
Employer Group:
Medicare Advantage 764,595 778,542 (13,947 ) -1.8 % $ 905 $ 966
Medicare stand-alone PDPs 1,911 1,154 757 65.6 % $ 155 $ 160
Fully-insured medical 1,216,601 1,300,759 (84,158 ) -6.5 % $ 342 $ 331
Specialty 233,233 224,093 9,140 4.1 % $ 14 $ 13
Services   86,657     100,234   (13,577 ) -13.5 %
Total Employer Group   2,302,997     2,404,782   (101,785 ) -4.2 %
 
Health and Well-Being Services:
Pharmacy solutions 2,405,309 2,146,170 259,139 12.1 %
Primary care services 264,216 34,662 229,554 662.3 %
Home care services 18,346 7,963 10,383 130.4 %
Integrated wellness services   44,697     44,881   (184 ) -0.4 %
Total Health and Well-Being Services   2,732,568     2,233,676   498,892   22.3 %
 
Other Businesses:
Military services (F) 958,562 907,911 50,651 5.6 % $ 179 $ 168
LI-NET 77,184 194,772 (117,588 ) -60.4 % $ 279 $ 414
Medicaid and other (G)   232,856     182,665   50,191   27.5 % $ 123 $ 131
Total Other Businesses   1,268,602     1,285,348   (16,746 ) -1.3 %
 
 
 

S-12

 
 
 
 
 
 
 
Humana Inc.
Premiums and Services Revenue Detail
Dollars in thousands, except per member per month          
         
  Per Member per Month (E)
Six Months Ended June 30, Six Months Ended June 30,
Dollar Percentage
2011   2010 Change   Change 2011   2010
 
Premiums and Services Revenue
Retail:
Medicare Advantage $ 9,079,789 $ 8,165,834 $ 913,955 11.2 % $ 948 $ 938
Medicare stand-alone PDPs 1,158,817 1,007,809 151,008 15.0 % $ 82 $ 97
Individual 358,827 328,435 30,392 9.3 % $ 155 $ 148
Medicare Supplemental 48,352 33,643 14,709 43.7 % $ 160 $ 164
Specialty 55,355 37,190 18,165 48.8 % $ 15 $ 15
Services   6,767     5,341   1,426   26.7 %
Total Retail   10,707,907     9,578,252   1,129,655   11.8 %
 
Employer Group:
Medicare Advantage 1,561,349 1,536,355 24,994 1.6 % $ 927 $ 959
Medicare stand-alone PDPs 3,728 2,290 1,438 62.8 % $ 152 $ 159
Fully-insured medical 2,415,191 2,628,760 (213,569 ) -8.1 % $ 341 $ 329
Specialty 462,884 446,241 16,643 3.7 % $ 14 $ 13
Services   179,203     199,357   (20,154 ) -10.1 %
Total Employer Group   4,622,355     4,813,003   (190,648 ) -4.0 %
 
Health and Well-Being Services:
Pharmacy solutions 4,862,375 4,257,396 604,979 14.2 %
Primary care services 518,922 69,990 448,932 641.4 %
Home care services 34,925 15,239 19,686 129.2 %
Integrated wellness services   89,630     89,055   575   0.6 %
Total Health and Well-Being Services   5,505,852     4,431,680   1,074,172   24.2 %
 
Other Businesses:
Military services (F) 1,900,767 1,775,203 125,564 7.1 % $ 177 $ 164
LI-NET 153,080 269,148 (116,068 ) -43.1 % $ 265 $ 355
Medicaid and other (G)   467,743     362,676   105,067   29.0 % $ 124 $ 131
Total Other Businesses   2,521,590     2,407,027   114,563   4.8 %
 
 
 

S-13

 
 
 
 
 
 
 
 
Humana Inc. Fair value
Investments    

Dollars in thousands

      6/30/2011   3/31/2011   12/31/2010
Investment Portfolio:
Cash & cash equivalents $ 1,567,824 $ 1,756,041 $ 1,673,137
Investment securities 7,609,737 7,420,959 6,872,767
Long-term investments   1,592,919     1,568,090     1,499,672
Total investment portfolio $ 10,770,480   $ 10,745,090   $ 10,045,576
         
Duration (H)   3.84     3.88     3.96
Average Credit Rating AA-   AA-   AA
         
Securities Lending Invested Collateral Portfolio:
Cash & cash equivalents $ 29,737 $ 31,139 $ 24,638
Asset-backed securities   -     -     24,998
$ 29,737   $ 31,139   $ 49,636
         
Average Credit Rating AAA   AAA   AAA
         
Investment Portfolio Detail:          
Cash and cash equivalents $ 1,567,824   $ 1,756,041   $ 1,673,137
U.S. Government and agency obligations
U.S. Treasury and agency obligations 822,787 759,581 711,613
U.S. Government residential mortgage-backed 1,794,099 1,914,896 1,634,014
U.S. Government commercial mortgage-backed   29,937     28,999     29,165
Total U.S. Government and agency obligations   2,646,823     2,703,476     2,374,792
Tax-exempt municipal securities
Pre-refunded 329,598 333,889 343,913
Insured 628,344 590,676 597,165
Other 1,510,888 1,432,022 1,440,450
Auction rate securities   21,053     51,323     51,806
Total tax-exempt municipal securities   2,489,883     2,407,910     2,433,334
Residential mortgage-backed
Prime residential mortgages 46,684 49,044 52,474
Alt-A residential mortgages 2,002 2,080 2,178
Sub-prime residential mortgages   1,063     1,147     1,235
Total residential mortgage-backed   49,749     52,271     55,887
Commercial mortgage-backed   414,963     380,174     321,031
Asset-backed securities   117,385     142,605     149,751
Corporate securities
Financial services 984,504 939,511 891,390
Other   2,494,016     2,357,769     2,140,921
Total corporate securities 3,478,520 3,297,280 3,032,311
Redeemable preferred stocks   5,333     5,333     5,333
Total investment portfolio $ 10,770,480   $ 10,745,090   $ 10,045,576
 
 
 

S-14

 
 
 
 
 
 
 
Humana Inc.
Detail of Benefits Payable Balance and Year-to-Date Changes
Dollars in thousands
       
June 30, March 31, December 31,
2011   2011   2010
Detail of benefits payable
IBNR and other benefits payable (I) $ 2,907,995 $ 2,859,977 $ 2,753,141
Unprocessed claim inventories (J) 409,900 481,700 373,800
Processed claim inventories (K) 161,246 136,252 65,283
Payable to pharmacy benefit administrator (L)   142,046       160,963       21,902  
Benefits payable, excluding military services 3,621,187 3,638,892 3,214,126
 
Military services benefits payable (M)   331,998       301,166       255,180  
Total Benefits Payable $ 3,953,185     $ 3,940,058     $ 3,469,306  
 
 
 
Six Months Ended Six Months Ended Year Ended
June 30, 2011   June 30, 2010   December 31, 2010

Year-to-date changes in benefits payable, excluding military services (N)

 
Balances at January 1 $ 3,214,126 $ 2,943,379 $ 2,943,379
 
Incurred related to:
Current year 13,158,496 12,457,889 24,185,717
Prior years (O)   (284,256 )     (345,310 )     (434,015 )
Total incurred   12,874,240       12,112,579       23,751,702  
 
Paid related to:
Current year (10,611,994 ) (9,702,944 ) (21,671,345 )
Prior years   (1,855,185 )     (1,825,022 )     (1,809,610 )
Total paid   (12,467,179 )     (11,527,966 )     (23,480,955 )
 
Balances at end of period $ 3,621,187     $ 3,527,992     $ 3,214,126  
 
 
 
Six Months Ended Six Months Ended Year Ended
June 30, 2011   June 30, 2010   December 31, 2010
Summary of Consolidated Benefit Expense:
Total benefit expense incurred, per above $ 12,874,240 $ 12,112,579 $ 23,751,702
Military services benefit expense 1,670,738 1,536,428 3,059,492
Future policy benefit expense (P)   69,544       37,471       305,875  
Consolidated Benefit Expense $ 14,614,522     $ 13,686,478     $ 27,117,069  
 
 
 

S-15

 
 
 
 
 
 
 
Humana Inc.
Benefits Payable Statistics (Q)
                 
 
Receipt Cycle Time (R)
2011     2010     Change     Percentage Change
1st Quarter Average 13.8 13.8 0.0 0.0 %
2nd Quarter Average 13.8 13.9 (0.1 ) -0.7 %
3rd Quarter Average - 13.9 n/a n/a
4th Quarter Average -       13.6       n/a   n/a
Full Year Average 13.8       13.8       0.0   0.0 %
 
 
 
Unprocessed Claims Inventories
 
Date    

Estimated Valuation

(000's)

   

Claim Item

Counts

   

Number of Days

on Hand

6/30/2009 $258,000 709,900 4.0
9/30/2009 $317,100 856,500 4.9
12/31/2009 $323,000 775,500 4.3
3/31/2010 $426,200 1,091,700 5.6
6/30/2010 $433,800 1,009,200 4.9
9/30/2010 $428,900 1,064,200 5.2
12/31/2010 $373,800 980,900 5.0
3/31/2011     $481,700       1,196,700       6.0  
6/30/2011     $409,900       1,092,600       5.1  
 
 
 

S-16

 
 
 
 
 
 
 
Humana Inc.
Benefits Payable Statistics (Continued) (Q)
                         
 
Days in Claims Payable (S)
 
Quarter Ended    

Days in Claims

Payable (DCP)

   

Change Last 4

Quarters

   

Percentage

Change

   

DCP Excluding

Capitation

   

Change Last 4

Quarters

   

Percentage

Change

6/30/2009 56.1 (1.1 ) -1.9 % 61.5 (1.8 ) -2.8 %
9/30/2009 56.2 (1.9 ) -3.3 % 62.7 (2.4 ) -3.7 %
12/31/2009 55.4 (4.0 ) -6.7 % 62.1 (4.4 ) -6.6 %
3/31/2010 54.2 (0.4 ) -0.7 % 60.8 (0.1 ) -0.2 %
6/30/2010 57.0 0.9 1.6 % 64.3 2.8 4.6 %
9/30/2010 57.8 1.6 2.8 % 64.5 1.8 2.9 %
12/31/2010 53.5 (1.9 ) -3.4 % 60.0 (2.1 ) -3.4 %
3/31/2011     55.5       1.3       2.4 %     61.8       1.0       1.6 %
6/30/2011     56.0       (1.0 )     -1.8 %     62.0       (2.3 )     -3.6 %
 
Year-to-Date Change in Days in Claims Payable (T)
2011     2010
DCP - beginning of period 53.5 55.4
Components of change in DCP:
Change in unprocessed claims inventories 0.4 0.8
Change in processed claims inventories 1.5 0.3
Change in pharmacy payment cutoff 0.6 (2.9 )
All other -       (0.1 )
DCP - end of period 56.0       53.5  
 
 
 

S-17

 
 
 
 
 
 
 
Humana Inc.
Footnotes to Statistical Schedules and Supplementary Information
2Q11 Earnings Release
 
(A) The Medicaid and other category includes the company’s Medicaid business as well as the closed block of long-term care.
(B) The ASO and other category is comprised of primarily ASO fees, with other ancillary services fees that each constitute one percent or less of the total.
(C) The operating cost ratio is defined as operating costs as a percent of total revenues excluding investment income.
(D) Other supplemental benefits include life, disability, and fixed benefit products including cancer and critical illness policies.
(E) Computed based on average membership for the period (i.e., monthly ending membership during the period divided by the number of months in the period).
(F) Military services revenues are generally not contracted on a per-member basis.
(G) Includes premiums associated with Medicaid and the closed block of long-term care as well as services revenue.
(H) Duration is the time-weighted average of the present value of the bond portfolio cash flows.
(I) IBNR represents an estimate of benefit expenses payable for claims incurred but not reported (IBNR) at the balance sheet date. The level of IBNR is primarily
impacted by membership levels, benefit 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). Other benefits payable includes amounts payable to
providers under capitation arrangements.
(J) Unprocessed claim inventories represent the estimated valuation of claims received but not yet fully processed.
(K) 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.
(L) The balance due to the company's pharmacy benefit administrator fluctuates as a result of the number of business days in the last payment cycle of the month.

Payment cycles are every 8 days (8th, 16th, and 24th of month) and the last day of the month.

(M) Military services benefits payable primarily consist of IBNR and to a lesser extent risk share payables to the Department of Defense and liabilities to
subcontractors.
(N) The table excludes activity associated with military services benefits payable, because the federal government bears a substantial portion of the risk
associated with financing the cost of health benefits. More specifically, the risk-sharing provisions of the military services contracts with the federal
government and with subcontractors effectively limit profits and losses when actual claim experience varies from the targeted claim amount negotiated annually.
As a result of these contract provisions, the impact of changes in estimates for prior year military services benefits payable are substantially offset by the
associated changes in estimates of revenue from health care services reimbursements. As such, any impact on the company's results of operations is reduced
substantially, whether positive or negative.
(O) Amounts incurred related to prior years vary from previously estimated liabilities as the claims ultimately are settled. Negative amounts reported for
incurred related to prior years result from claims being ultimately settled for amounts less than originally estimated (favorable development). There were no
changes in the approach used to determine the company's estimate of claim reserves during the quarter.
(P) Future policy benefit expense has a related liability classified as a long-term liability on the balance sheet.
(Q) Benefits reserves statistics represents fully-insured medical claims data and excludes military services claims data and specialty benefits.
(R) The receipt cycle time measures the average length of time between when a claim was initially incurred and when the claim form was received. Receipt cycle
time data for the company's largest claim processing platforms represent approximately 92% of the company's fully-insured medical claims volume. Pharmacy and
specialty claims, including dental, vision and other supplemental benefits, are excluded from this measurement.
(S) A common metric for monitoring benefits payable levels relative to the benefit expense is days in claims payable, or DCP, which represents the benefits
payable at the end of the period divided by average benefit expenses per day in the quarterly period. Since the company has some providers under capitation
payment arrangements (which do not require a benefits payable IBNR reserve), the company has also summarized this metric excluding capitation expense. In
addition, this calculation excludes the impact of the company's military services and stand-alone PDP business.
(T) DCP fluctuates due to a number of issues, the more significant of which are detailed in this rollforward. Growth in certain product lines can also impact DCP
for the quarter since a provision for claims would not have been recorded for members that had not yet enrolled earlier in the quarter, yet those members would
have a provision and corresponding reserve recorded upon enrollment later in the quarter. This analysis excludes the impact of military services and Medicare
stand-alone PDPs upon DCP.
 
 

 

S-18

 
 
 
 



CONTACT:

Humana Inc.
Investor Relations:
Regina Nethery, 502-580-3644
[email protected]
or
Corporate Communications:
Tom Noland, 502-580-3674
[email protected]

KEYWORDS:   United States  North America  Kentucky

INDUSTRY KEYWORDS:   Health  Hospitals  Other Health  Professional Services  Insurance  Nursing  General Health  Managed Care

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