Humana Reports Detailed First Quarter 2011 Financial Results

  • First quarter EPS of $1.86
  • Full-year EPS projected to be $6.70 to $6.90
  • First quarter cash flows from operations of $795 million

LOUISVILLE, Ky.--(BUSINESS WIRE)-- Humana Inc. (NYSE: HUM) today reported diluted earnings per common share (EPS) for the quarter ended March 31, 2011 (1Q11) of $1.86, compared to $1.52 per share for the quarter ended March 31, 2010 (1Q10). Higher year-over-year earnings in the company’s Employer Group and Health and Well-Being Services business segments were partially offset by lower earnings in the company’s Retail business segment. EPS for 1Q11 and 1Q10 were positively impacted by $0.31 per share and $0.37 per share, respectively, as a result of favorable development of prior-period medical claims reserves.

“Our favorable first-quarter results reflect operational discipline in our core businesses and a growing focus on a broader array of businesses designed to help people achieve lifelong well-being,” said Michael B. McCallister, Humana’s chairman of the board and chief executive officer. “Humana’s financial strength allows us to begin a more aggressive capital deployment program while still fully supporting the continued execution of our corporate strategy overall.”

On April 26, 2011, the company raised EPS guidance for the year ending December 31, 2011 (FY11) to a range of $6.70 to $6.90 versus its previous estimate of $5.95 to $6.15. This increase in FY11 EPS guidance primarily reflects favorable prior-period claims development in the first quarter, lower projected benefit expense ratios in the company’s Retail and Employer Group Segments and higher projected earnings for the company’s Health and Well-Being Services Segment.

Consolidated Highlights

Revenues – 1Q11 consolidated revenues were $9.19 billion, an increase of 10 percent from $8.38 billion in 1Q10, with total premiums and services revenue up 10 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 our Retail and Health and Well-Being Services segments, partially offset by a decline in Employer Group revenues. Increases in Retail revenues were driven primarily by an 11 percent increase in average membership in the company’s Medicare Advantage plans. Increases in Health and Well-Being Services revenues were driven primarily by the acquisition of Concentra in December 2010. The decrease in Employer Group revenues resulted from lower average commercial group medical membership.

Benefit expenses – The 1Q11 consolidated benefit ratio (benefit expenses as a percent of premiums) of 83.8 percent increased from 83.5 percent for the prior year’s quarter due primarily to a higher year-over-year benefit ratio for the Retail Segment, partially offset by a lower year-over-year benefit ratio for the Employer Group Segment.

Operating costs – The consolidated operating cost ratio (operating costs as a percent of total revenues less investment income) of 13.8 percent for 1Q11 compares to 12.8 percent in 1Q10. This higher year-over-year ratio primarily reflects the greater percentage 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.

Retail Segment Highlights

Pretax results:

  • Retail Segment pretax income of $217.0 million in 1Q11 compares to $264.8 million in 1Q10. This decrease was primarily due to lower favorable prior-period medical claims reserve development in 1Q11 than in the prior year’s quarter and the impact of health insurance reform on our HumanaOne® business. The segment’s pretax income for 1Q11 included the beneficial impact of $40 million in favorable development of prior-period medical claims reserves versus $92 million in 1Q10.

Enrollment:

  • Individual Medicare Advantage membership was 1,594,800 at March 31, 2011, an increase of 134,100 members, or 9 percent from 1,460,700 at December 31, 2010 due to a successful enrollment season associated with the 2011 plan year. Membership increased by 148,700, or 10 percent, compared with the prior year’s quarter.
  • Membership in the company’s individual stand-alone Prescription Drug Plans (PDPs) totaled 2,353,100 at March 31, 2011 compared to 1,670,300 at December 31, 2010 and 1,733,700 at March 31, 2010. This increase resulted primarily from higher gross sales year over year, particularly for the company’s low-price-point Humana-Walmart plan offering.
  • HumanaOne medical membership increased to 382,900 at March 31, 2011, an increase of 10,600 or 3 percent, from 372,300 at December 31, 2010 and an increase of 12,400, or 3 percent, from 370,500 at March 31, 2010.
  • Membership in individual specialty products(a) of 590,500 at March 31, 2011 increased 16 percent from 510,000 at December 31, 2010 driven primarily by increased sales in dental and vision offerings. Membership increased 191,800, or 48 percent, from 398,700 at March 31, 2010.

Premiums and services revenue:

  • 1Q11 premiums and services revenue for the Retail Segment were $5.31 billion, an increase of 12 percent from $4.76 billion in 1Q10. The increase was primarily the result of higher average Medicare Advantage membership year over year.

Benefit expenses:

  • The 1Q11 benefit ratio for the Retail Segment was 85.8 percent, an increase of 190 basis points from 83.9 percent in 1Q10. The increase was primarily the result of lower favorable development of prior-period medical claims reserves in 1Q11 than in the prior year’s quarter together with a higher benefit ratio for the HumanaOne product as a result of health insurance reform.

Operating costs:

  • The Retail Segment’s operating cost ratio of 10.0 percent in 1Q11 decreased 40 basis points from 10.4 percent in 1Q10 reflecting scale efficiencies associated with higher year-over-year membership in every line of the segment’s business.

Employer Group Segment Highlights

Pretax results:

  • Employer Group Segment pretax income of $138.8 million in 1Q11 compares to $73.5 million in 1Q10. This increase was primarily due to higher favorable prior-period development of medical claims reserves in 1Q11 versus the prior year’s quarter. The segment’s pretax income for 1Q11 included the beneficial impact of $41 million in favorable development of prior-period medical claims reserves versus only $8 million in 1Q10.

Enrollment:

  • Group Medicare Advantage membership was 280,700 at March 31, 2011, an increase of 7,600 members, or 3 percent, from 273,100 at December 31, 2010. Membership increased 13,500, or 5 percent, from 267,200 at March 31, 2010.
  • Group fully-insured commercial medical membership declined to 1,178,500 at March 31, 2011, a decrease of 73,700 or 6 percent, from 1,252,200 at December 31, 2010 and a decrease of 160,300, or 12 percent, from 1,338,800 at March 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 ASO commercial medical membership declined to 1,319,300 at March 31, 2011, a decrease of 134,300 or 9 percent, from 1,453,600 at December 31, 2010 and a decrease of 269,200, or 17 percent, from 1,588,500 at March 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 (a) of 6,636,800 at March 31, 2011 increased 2 percent from 6,517,500 at December 31, 2010 and decreased 152,100, or 2 percent, from 6,788,900 at March 31, 2010, reflecting recent gains associated with the cross-selling of these products to employer groups.

Premiums and services revenue:

  • 1Q11 premiums and services revenue for the Employer Group Segment were $2.32 billion, a decrease of 4 percent from $2.41 billion in 1Q10. The decrease was primarily the result of lower average commercial group medical membership year over year.

Benefit expenses:

  • 1Q11 benefit ratio for the Employer Group Segment was 78.7 percent, a decrease of 350 basis points from 82.2 percent in 1Q10. The decrease was primarily the result of higher prior-period favorable development of medical claims reserves in 1Q11 than in 1Q10 and lower 1Q11 utilization of benefits 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 18.3 percent in 1Q11 increased from 17.8 percent in 1Q10 reflecting a heavier mix of small group membership, which generally carries a higher operating cost ratio than that for larger accounts.

Health and Well-Being Services Segment Highlights

Pretax results:

  • Health and Well-Being Services Segment pretax income of $96.4 million in 1Q11 compares to $48.2 million in 1Q10 reflecting growth in the company’s pharmacy solutions business as well as the addition of the Concentra business acquired in December 2010.

Services revenue:

  • Services revenue of $2.77 billion in 1Q11 for the Health and Well-Being Services Segment increased from $2.20 billion in 1Q10. 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 95.8 percent in 1Q11 declined 180 basis points from 97.6 percent in 1Q10 reflecting scale efficiencies associated with growth in the company’s pharmacy solutions business together with the addition of operating costs for the company’s newly acquired Concentra operations.

Balance Sheet

  • At March 31, 2011, the company had cash, cash equivalents, and investment securities of $10.75 billion, up 7 percent from $10.05 billion at December 31, 2010.
  • Parent company cash and investments of $367.8 million at March 31, 2011 decreased $185.8 million from $553.6 million at December 31, 2010, primarily reflecting the timing of subsidiary capital contributions in 1Q11 ahead of dividends from subsidiaries expected in the second quarter of 2011. Parent company cash and investments was also lower from share repurchases during 1Q11.
  • Debt-to-total capitalization at March 31, 2011 was 18.7 percent, down 70 basis points compared to 19.4 percent at December 31, 2010 primarily driven by higher capitalization associated with first quarter earnings.

Cash Flows from Operations

Cash flows provided by operations for 1Q11 totaled $795.5 million compared to cash flows provided by operations of $754.7 million in 1Q10 primarily due to higher net income, year over year.

Share Repurchase Program and Cash Dividend

  • In December 2009, the company’s Board of Directors renewed its authorization for the use of up to $250 million for the repurchase of Humana common shares. During 1Q11, the company repurchased 825,000 of its outstanding shares at an average price per share of $63.73.
  • 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. The new share repurchase authorization expires June 30, 2013.
  • In April 2011, the company’s Board of Directors also initiated a quarterly cash dividend to stockholders, declaring a cash dividend of $0.25 per share for stockholders of record as of June 30, 2011, payable on July 28, 2011.

Footnote

(a) 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 offeror protested the award to 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. 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 any protests that may be filed by unsuccessful bidders.
  • 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.
  • 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 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 May 2, 2011

 

(in accordance with Generally Accepted Accounting Principles)

      For the year ending December 31, 2011       Comments
Diluted earnings per common share (EPS)       Full year 2011: $6.70 to $6.90       EPS estimates:
Second quarter 2011: $2.00 to $2.10 - Exclude the impact of future share
repurchases
- Anticipate 171 million shares
outstanding
- Reflect income tax rate of
                approximately 37%
Revenues Consolidated revenues: $36.5 billion to $37.0 billion Includes expected investment income in the
Total revenues: range of $355 million to $365 million
Retail Segment:$20.5 billion to $21.5 billion
Employer Group Segment: $9.0 billion to $10.0 billion Segment-level revenues include
Health and Well-Being Services Segment: $11.0 billion to $12.0 billion intersegment amounts that eliminate in
        Other Businesses: $4.5 billion to $5.5 billion       consolidation
Ending medical membership versus prior year end Retail Segment:
Medicare Advantage: Up 117,000 to 127,000
Medicare stand-alone PDPs: Up 720,000 to 730,000
Employer Group Segment:
Medicare Advantage: Up approximately 8,000
Commercial Fully Insured: Down 70,000 to 80,000
        Commercial ASO: Down 140,000 to 150,000        
Benefit ratios Retail Segment: 84.0% to 85.0% Benefit expenses as a percent of premiums
        Employer Group Segment: 83.0% to 84.0%        
Consolidated operating cost ratio 13.75% to 14.25% Operating costs as a percent of total
                revenues excluding investment income
Consolidated depreciation and amortization (cash $300 million to $310 million Approximately $35 million is expected to be
flows) included in benefits expense on the
                income statement
Consolidated interest expense       $110 million to $115 million        
Detailed pretax results Retail Segment: $1.1 billion to $1.2 billion
Employer Group Segment: $135 million to $150 million
        Health and Well-Being Services Segment: $370 million to $410 million        
Cash flows from operations       $1.8 billion to $2.0 billion        
Capital expenditures       Approximately $280 million        
 
 
 
 
 
 
 

Humana Inc.

Statistical Schedules

And

Supplementary Information

1Q11 Earnings Release

 
 
 
 

S-1

     
 
 
 
 
 
 
Humana Inc.
Statistical Schedules and Supplementary Information
1Q11 Earnings Release
 
Contents
 
Page       Description
     
S-3 Consolidated Statements of Income
S-4 1Q11 Segment Financial Information
S-5 1Q10 Segment Financial Information
S-6 Consolidated Balance Sheets
S-7 Consolidated Statements of Cash Flows
S-8 Key Income Statement Ratios and Segment Operating Results
S-9 Membership Detail
S-10 Premiums and Services Revenue Detail
S-11 Investments
S-12-14 Benefits Payable
S-15 Footnotes
 
 
 

S-2

 
 
 
 
 
 
 
Humana Inc.
Consolidated Statements of Income
In thousands, except per common share results
                 
Three Months Ended March 31,
    Dollar Percentage
2011 2010 Change Change
Revenues:
Premiums $ 8,766,291 $ 8,161,863 $ 604,428 7.4 %
Services 334,942 133,020 201,922 151.8 %
Investment income   89,485   85,455   4,030 4.7 %
Total revenues   9,190,718   8,380,338   810,380 9.7 %
Operating expenses:
Benefits 7,344,754 6,817,382 527,372 7.7 %
Operating costs 1,255,843 1,060,857 194,986 18.4 %
Depreciation and amortization   66,109   58,859   7,250 12.3 %
Total operating expenses   8,666,706   7,937,098   729,608 9.2 %
Income from operations 524,012 443,240 80,772 18.2 %
Interest expense   27,228   26,314   914 3.5 %
Income before income taxes 496,784 416,926 79,858 19.2 %
Provision for income taxes   181,608   158,158   23,450 14.8 %
Net income $ 315,176 $ 258,768 $ 56,408 21.8 %
 
Basic earnings per common share $ 1.88 $ 1.54 $ 0.34 22.1 %
Diluted earnings per common share $ 1.86 $ 1.52 $ 0.34 22.4 %
 
Shares used in computing basic earnings per common share (000's) 167,271 168,200
Shares used in computing diluted earnings per common share (000's) 169,534 170,080
 
 
 

S-3

 
 
 
 
 
 
 
Humana Inc.
1Q11 Segment Financial Information
In thousands
                Health and                  
Employer Well-Being Other Eliminations/
Retail Group Services Businesses Corporate Consolidated
 
Revenues - external customers
Premiums:
Medicare Advantage $ 4,524,626 $ 796,754 $ - $ - $ - $ 5,321,380
Medicare stand-alone PDP     557,472       1,817       -       75,896       -       635,185  
Total Medicare     5,082,098       798,571       -       75,896       -       5,956,565  
Fully-insured 200,888 1,198,590 - - - 1,399,478
Specialty 25,775 229,651 - - - 255,426
Military services - - - 923,277 - 923,277
Medicaid and other (A)     -       -       -       231,545       -       231,545  
Total premiums     5,308,761       2,226,812       -       1,230,718       -       8,766,291  
Services revenue:
Provider - - 215,046 - - 215,046
ASO and other (B) 2,873 92,546 - 22,270 - 117,689
Pharmacy     -       -       2,207       -       -       2,207  
Total services revenue     2,873       92,546       217,253       22,270       -       334,942  
Total revenues - external customers     5,311,634       2,319,358       217,253       1,252,988       -       9,101,233  
 
Intersegment revenues
Services - 3,281 2,121,391 - (2,124,672 ) -
Products     -       -       434,640       -       (434,640 )     -  
Total intersegment revenues     -       3,281       2,556,031       -       (2,559,312 )     -  
Investment income     18,996       11,615       -       12,304       46,570       89,485  
Total revenues     5,330,630       2,334,254       2,773,284       1,265,292       (2,512,742 )     9,190,718  
 
Operating expenses:
Benefits 4,554,243 1,751,404 - 1,109,439 (70,332 ) 7,344,754
Operating costs 532,412 423,907 2,656,282 118,954 (2,475,712 ) 1,255,843
Depreciation and amortization     26,985       20,188       20,629       1,708       (3,401 )     66,109  
Total operating expenses     5,113,640       2,195,499       2,676,911       1,230,101       (2,549,445 )     8,666,706  
Income from operations 216,990 138,755 96,373 35,191 36,703 524,012
Interest expense     -       -       -       -       27,228       27,228  
Income before income taxes   $ 216,990     $ 138,755     $ 96,373     $ 35,191     $ 9,475     $ 496,784  
 
Benefit ratio 85.8 % 78.7 % 90.1 % 83.8 %
Operating cost ratio 10.0 % 18.3 % 95.8 % 9.5 % 13.8 %
 
 
 

S-4

 
 
 
 
 
 
 
Humana Inc.
1Q10 Segment Financial Information
In thousands
                Health and                  
Employer Well-Being Other Eliminations/
Retail Group Services Businesses Corporate Consolidated
 
Revenues - external customers
Premiums:
Medicare Advantage $ 4,059,167 $ 757,813 $ - $ - $ - $ 4,816,980
Medicare stand-alone PDP     503,513       1,136       -       74,376       -       579,025  
Total Medicare     4,562,680       758,949       -       74,376       -       5,396,005  
Fully-insured 178,817 1,328,001 - - - 1,506,818
Specialty 17,522 222,148 - - - 239,670
Military services - - - 844,994 - 844,994
Medicaid and other (A)     -       -       -       174,376       -       174,376  
Total premiums     4,759,019       2,309,098       -       1,093,746       -       8,161,863  
Services revenue:
Provider - - 3,163 - - 3,163
ASO and other (B) 2,801 99,123 - 27,933 - 129,857
Pharmacy     -       -       -       -       -       -  
Total services revenue     2,801       99,123       3,163       27,933       -       133,020  
Total revenues - external customers     4,761,820       2,408,221       3,163       1,121,679       -       8,294,883  
 
Intersegment revenues
Services - 3,389 1,907,928 - (1,911,317 ) -
Products     -       -       286,913       -       (286,913 )     -  
Total intersegment revenues     -       3,389       2,194,841       -       (2,198,230 )     -  
Investment income     21,208       11,040       -       9,854       43,353       85,455  
Total revenues     4,783,028       2,422,650       2,198,004       1,131,533       (2,154,877 )     8,380,338  
 
Operating expenses:
Benefits 3,994,049 1,896,931 - 976,606 (50,204 ) 6,817,382
Operating costs 496,706 428,824 2,144,696 114,812 (2,124,181 ) 1,060,857
Depreciation and amortization     27,491       23,418       5,081       2,891       (22 )     58,859  
Total operating expenses     4,518,246       2,349,173       2,149,777       1,094,309       (2,174,407 )     7,937,098  
Income from operations 264,782 73,477 48,227 37,224 19,530 443,240
Interest expense     -       -       -       -       26,314       26,314  
Income before income taxes   $ 264,782     $ 73,477     $ 48,227     $ 37,224     $ (6,784 )   $ 416,926  
 
Benefit ratio 83.9 % 82.2 % 89.3 % 83.5 %
Operating cost ratio 10.4 % 17.8 % 97.6 % 10.2 % 12.8 %
 
 
 

S-5

               
 
 
 
 
 
 
Humana Inc.
Consolidated Balance Sheets
Dollars in thousands, except share amounts  
  March 31, December 31, Sequential Change
2011 2010 Dollar Percent
Assets
Current assets:
Cash and cash equivalents $ 1,756,041 $ 1,673,137
Investment securities 7,420,959 6,872,767
Receivables, net 1,219,347 959,018
Securities lending invested collateral 31,139 49,636
Other   669,288     583,141  
Total current assets 11,096,774 10,137,699 $ 959,075 9.5 %
 
Property and equipment, net 819,729 815,337
Long-term investment securities 1,568,090 1,499,672
Goodwill 2,576,208 2,567,809
Other   1,099,259     1,082,736  
Total assets $ 17,160,060   $ 16,103,253   $ 1,056,807 6.6 %
 
Liabilities and Stockholders' Equity
Current liabilities:
Benefits payable $ 3,940,058 $ 3,469,306
Trade accounts payable and accrued expenses 1,916,602 1,624,832
Book overdraft 252,073 409,385
Securities lending payable 36,997 55,693
Unearned revenues   219,004     185,410  
Total current liabilities 6,364,734 5,744,626 $ 620,108 10.8 %
 
Long-term debt 1,666,447 1,668,849
Future policy benefits payable 1,530,064 1,492,855
Other long-term liabilities   371,837     272,867  
Total liabilities   9,933,082     9,179,197   $ 753,885 8.2 %
 
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; 191,607,107 issued at March 31, 2011

31,935 31,707
Capital in excess of par value 1,825,405 1,737,207
Retained earnings 5,844,177 5,529,001
Accumulated other comprehensive income 108,808 120,584
Treasury stock, at cost, 23,212,730 shares at March 31, 2011   (583,347 )   (494,443 )
Total stockholders' equity   7,226,978     6,924,056   $ 302,922 4.4 %
Total liabilities and stockholders' equity $ 17,160,060   $ 16,103,253   $ 1,056,807 6.6 %
 
Debt-to-total capitalization ratio 18.7 % 19.4 %
 
 
 

S-6

 
 
 
 
 
 
 
Humana Inc.
Consolidated Statements of Cash Flows
Dollars in thousands              
  Three Months Ended March 31,
    Dollar Percentage
2011 2010 Change Change
Cash flows from operating activities
Net income $ 315,176 $ 258,768

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

 

Depreciation and amortization 75,491 62,756
Net realized capital gains (3,926 ) (8,694 )
Stock-based compensation 29,775 27,339
Provision for (benefit from) deferred income taxes 27,352 (20,862 )

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

Receivables (260,329 ) (280,978 )
Other assets (110,920 ) (29,177 )
Benefits payable 470,752 484,459
Other liabilities 204,176 246,068
Unearned revenues 33,594 6,767
Other   14,311     8,205  
Net cash provided by operating activities   795,452     754,651   $ 40,801 5.4 %
 
Cash flows from investing activities
Acquisitions, net of cash acquired (5,000 ) -
Purchases of property and equipment (70,481 ) (39,028 )
Purchases of investment securities (1,186,574 ) (1,525,349 )
Proceeds from maturities of investment securities 398,800 433,788
Proceeds from sales of investment securities 153,832 545,166
Change in securities lending collateral   18,696     58,206  
Net cash used in investing activities   (690,727 )   (527,217 )

$

(163,510

) -31.0 %
 
Cash flows from financing activities
Receipts from CMS contract deposits 613,909 438,108
Withdrawals from CMS contract deposits (430,949 ) (266,649 )
Change in book overdraft (157,312 ) (138,426 )
Change in securities lending payable (18,696 ) (58,206 )
Common stock repurchases (88,904 ) (7,670 )
Excess tax benefit from stock-based compensation 5,131 734
Proceeds from stock option exercises and other   55,000     5,080  
Net cash used in financing activities   (21,821 )   (27,029 ) $ 5,208 19.3 %
 
Increase in cash and cash equivalents 82,904 200,405
Cash and cash equivalents at beginning of period   1,673,137     1,613,588  
 
Cash and cash equivalents at end of period $ 1,756,041   $ 1,813,993  
 
 
 

S-7

 
 
 
 
 
 
 
Humana Inc.
Key Income Statement Ratios and Segment Operating Results
Dollars in thousands
               
Three Months Ended March 31,
   
Percentage
2011 2010 Difference Change
Benefit ratio
Retail 85.8 % 83.9 % 1.9 %
Employer Group 78.7 % 82.2 % -3.5 %
Other Businesses 90.1 % 89.3 % 0.8 %
Consolidated 83.8 % 83.5 % 0.3 %
 
Operating cost ratio (C)
Retail 10.0 % 10.4 % -0.4 %
Employer Group 18.3 % 17.8 % 0.5 %
Health and Well-Being Services 95.8 % 97.6 % -1.8 %
Other Businesses 9.5 % 10.2 % -0.7 %
Consolidated 13.8 % 12.8 % 1.0 %
 
Detail of pretax income
Retail $ 216,990 $ 264,782

$

(47,792

) -18.0 %
Employer Group $ 138,755 $ 73,477 $ 65,278 88.8 %
Health and Well-Being Services $ 96,373 $ 48,227 $ 48,146 99.8 %
Other Businesses $ 35,191 $ 37,224

$

(2,033

) -5.5 %
Consolidated $ 496,784 $ 416,926 $ 79,858 19.2 %
 
 
 

S-8

 
 
 
 
 
 
 
Humana Inc.
Membership Detail
In thousands                            
  Ending

Average

Ending Year-over-year Change Ending Sequential Change
March 31, 2011

1Q11

    March 31, 2010 Amount     Percent December 31, 2010 Amount Percent
Medical Membership:
Retail
Medicare Advantage 1,594.8 1,593.2 1,446.1 148.7 10.3 % 1,460.7 134.1 9.2 %
Medicare stand-alone PDPs 2,353.1 2,328.4 1,733.7 619.4 35.7 % 1,670.3 682.8 40.9 %
Medicare Supplement 49.9 49.0 33.7 16.2 48.1 % 38.9 11.0 28.3 %
Individual 382.9 375.1     370.5 12.4   3.3 % 372.3 10.6   2.8 %
Total Retail 4,380.7 4,345.7     3,584.0 796.7   22.2 % 3,542.2 838.5   23.7 %
 
Employer Group
Medicare Advantage 280.7 279.8 267.2 13.5 5.1 % 273.1 7.6 2.8 %
Medicare Advantage ASO 27.9 28.0 29.0 (1.1 ) -3.8 % 28.2 (0.3 ) -1.1 %
Medicare stand-alone PDPs 4.1 4.1 2.4 1.7 70.8 % 2.4 1.7 70.8 %
Fully-insured medical 1,178.5 1,177.1 1,338.8 (160.3 ) -12.0 % 1,252.2 (73.7 ) -5.9 %
ASO 1,319.3 1,320.1     1,588.5 (269.2 ) -16.9 % 1,453.6 (134.3 ) -9.2 %
Total Employer Group 2,810.5 2,809.1     3,225.9 (415.4 ) -12.9 % 3,009.5 (199.0 ) -6.6 %
 
Other Businesses
Military Services 3,012.9 3,016.6 3,031.4 (18.5 ) -0.6 % 3,027.8 (14.9 ) -0.5 %
Medicaid 619.3 618.1 448.9 170.4 38.0 % 621.0 (1.7 ) -0.3 %
LI-NET 98.5 99.9     181.0 (82.5 ) -45.6 % 86.1 12.4   14.4 %
Total Other Businesses 3,730.7 3,734.6     3,661.3 69.4   1.9 % 3,734.9 (4.2 ) -0.1 %
 
Total Medical Membership 10,921.9 10,889.4     10,471.2 450.7   4.3 % 10,286.6 635.3   6.2 %
 
 
Specialty Membership:
Retail
Dental - fully-insured 444.4 424.8 296.0 148.4 50.1 % 383.9 60.5 15.8 %
Vision 61.2 57.3 39.3 21.9 55.7 % 51.7 9.5 18.4 %
Other supplemental benefits (D) 84.9 81.0     63.4 21.5   33.9 % 74.4 10.5   14.1 %
Total Retail 590.5 563.1     398.7 191.8   48.1 % 510.0 80.5   15.8 %
 
Employer Group
Dental - fully-insured 2,252.5 2,250.8 2,360.3 (107.8 ) -4.6 % 2,254.5 (2.0 ) -0.1 %
Dental - ASO 1,229.8 1,230.1 1,213.9 15.9 1.3 % 1,242.3 (12.5 ) -1.0 %
Vision 2,194.1 2,189.5 2,400.2 (206.1 ) -8.6 % 2,134.7 59.4 2.8 %
Other supplemental benefits (D) 960.4 952.7     814.5 145.9   17.9 % 886.0 74.4   8.4 %
Total Employer Group 6,636.8 6,623.1     6,788.9 (152.1 ) -2.2 % 6,517.5 119.3   1.8 %
 
Total Specialty Membership 7,227.3 7,186.2     7,187.6 39.7   0.6 % 7,027.5 199.8   2.8 %
 
 
 

S-9

 
 
 
 
 
 
 
Humana Inc.
Premiums and Services Revenue Detail
Dollars in thousands, except per member per month
                           
  Per Member per Month (E)
Three Months Ended March 31, Three Months Ended March 31,
Dollar Percentage    
2011 2010 Change Change 2011 2010
 
Premiums and Services Revenue
Retail:
Medicare Advantage $ 4,524,626 $ 4,059,167 $ 465,459 11.5 % $ 947 $ 939
Medicare stand-alone PDPs 557,472 503,513 53,959 10.7 % $ 80 $ 96
Individual 177,404 162,498 14,906 9.2 % $ 158 $ 147
Medicare Supplemental 23,484 16,319 7,165 43.9 % $ 160 $ 163
Specialty 25,775 17,522 8,253 47.1 % $ 15 $ 15
Services   2,873   2,801   72   2.6 %
Total Retail   5,311,634   4,761,820   549,814   11.5 %
 
Employer Group:
Medicare Advantage 796,754 757,813 38,941 5.1 % $ 949 $ 952
Medicare stand-alone PDPs 1,817 1,136 681 59.9 % $ 148 $ 158
Fully-insured medical 1,201,871 1,331,390 (129,519 ) -9.7 % $ 339 $ 326
Specialty 229,651 222,148 7,503 3.4 % $ 14 $ 13
Services   92,546   99,123   (6,577 ) -6.6 %
Total Employer Group   2,322,639   2,411,610   (88,971 ) -3.7 %
 
Health and Well-Being Services:
Pharmacy solutions 2,457,066 2,111,226 345,840 16.4 %
Primary care services 254,706 35,328 219,378 621.0 %
Home care services 16,579 7,276 9,303 127.9 %
Integrated wellness services   44,933   44,174   759   1.7 %
Total Health and Well-Being Services   2,773,284   2,198,004   575,280   26.2 %
 
Other Businesses:
Military services (F) 942,205 867,292 74,913 8.6 % $ 176 $ 160
LI-NET 75,896 74,376 1,520 2.0 % $ 253 $ 259
Medicaid and other (G)   234,887   180,011   54,876   30.5 % $ 125 $ 130
Total Other Businesses   1,252,988   1,121,679   131,309   11.7 %
 
 
 

S-10

   
 
 
 
 
 
 
 
Humana Inc. Fair value
Investments    
Dollars in thousands
        3/31/2011   12/31/2010
Investment Portfolio:
Cash & cash equivalents $ 1,756,041 $ 1,673,137
Investment securities 7,420,959 6,872,767
Long-term investment securities   1,568,090   1,499,672
Total investment portfolio $ 10,745,090 $ 10,045,576
   
Duration (H)   3.88   3.96
Average Credit Rating AA- AA
   
Securities Lending Invested Collateral Portfolio:
Cash & cash equivalents $ 31,139 $ 24,638
Asset-backed securities   -   24,998
$ 31,139 $ 49,636
   
Average Credit Rating AAA AAA
   
Investment Portfolio Detail:    
Cash and cash equivalents $ 1,756,041 $ 1,673,137
U.S. Government and agency obligations
U.S. Treasury and agency obligations 759,581 711,613
U.S. Government residential mortgage-backed 1,914,896 1,634,014
U.S. Government commercial mortgage-backed   28,999   29,165
Total U.S. Government and agency obligations   2,703,476   2,374,792
Tax-exempt municipal securities
Pre-refunded 333,889 343,913
Insured 590,676 597,165
Other 1,432,022 1,440,450
Auction rate securities   51,323   51,806
Total tax-exempt municipal securities   2,407,910   2,433,334
Residential mortgage-backed
Prime residential mortgages 49,044 52,474
Alt-A residential mortgages 2,080 2,178
Sub-prime residential mortgages   1,147   1,235
Total residential mortgage-backed   52,271   55,887
Commercial mortgage-backed   380,174   321,031
Asset-backed securities   142,605   149,751
Corporate securities
Financial services 939,511 891,390
Other   2,357,769   2,140,921
Total corporate securities 3,297,280 3,032,311
Redeemable preferred stocks   5,333   5,333
Total investment portfolio $ 10,745,090 $ 10,045,576
 
 
 

S-11

 
 
 
 
 
 
 
Humana Inc.
Detail of Benefits Payable Balance and Year-to-Date Changes
Dollars in thousands
             
March 31, March 31, December 31,
2011 2010     2010
Detail of benefits payable
IBNR and other benefits payable (I) $ 2,859,977 $ 2,755,876 $ 2,753,141
Unprocessed claim inventories (J) 481,700 426,200 373,800
Processed claim inventories (K) 136,252 126,581 65,283
Payable to pharmacy benefit administrator (L)   160,963     136,688         21,902  
Benefits payable, excluding military services 3,638,892 3,445,345 3,214,126
 
Military services benefits payable (M)   301,166     261,688         255,180  
Total Benefits Payable $ 3,940,058   $ 3,707,033       $ 3,469,306  
 
 
 
Three Months Ended Three Months Ended Year Ended
March 31, 2011 March 31, 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 6,731,524 6,354,466 24,185,717
Prior years (O)   (251,457 )   (307,855 )       (434,015 )
Total incurred   6,480,067     6,046,611         23,751,702  
 
Paid related to:
Current year (4,349,388 ) (3,809,389 ) (21,671,345 )
Prior years   (1,705,913 )   (1,735,256 )       (1,809,610 )
Total paid   (6,055,301 )   (5,544,645 )       (23,480,955 )
 
Balances at end of period $ 3,638,892   $ 3,445,345       $ 3,214,126  
 
 
 
Three Months Ended Three Months Ended Year Ended
March 31, 2011 March 31, 2010     December 31, 2010
Summary of Consolidated Benefit Expense:
Total benefit expense incurred, per above $ 6,480,067 $ 6,046,611 $ 23,751,702
Military services benefit expense 826,037 749,300 3,059,492
Future policy benefit expense (P)   38,650     21,471         305,875  
Consolidated Benefit Expense $ 7,344,754   $ 6,817,382       $ 27,117,069  
 
 
 

S-12

   
 
 
 
 
 
 
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 - 13.9 n/a n/a
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

3/31/2009 $258,800 740,600 4.2
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
 
 
 

S-13

 
 
 
 
 
 
 
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

3/31/2009 54.6 (2.3 ) -4.0 % 60.9 (2.4 ) -3.8 %
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 %
 
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 1.1 0.3
Change in pharmacy payment cutoff 0.6 (2.9 )
All other (0.1 ) (0.1 )
DCP - end of period 55.5   53.5  
 
 
 

S-14

 
 
 
 
 
 
 

Humana Inc.

Footnotes to Statistical Schedules and Supplementary Information

1Q11 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 approximately 87 percent 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 98% 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-15

 
 
 



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  Other Health  Professional Services  Insurance  General Health

MEDIA:

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