For the six months ended June 30, 2009 (1H09) the company reported $2.89 in EPS compared to $1.71 for the six months ended June 30, 2008 (1H08), also reflecting a reduction in stand-alone PDP claim expenses year over year.

"Our second quarter results confirm our 2009 financial performance is on track despite pressures from the overall economy," said Michael B. McCallister, Humana's president and chief executive officer. "We're making progress reducing costs and investing in improved health outcomes for our members while we closely monitor events in Washington."

In July 2009 the company was notified that it was not awarded the third generation TRICARE contract for the South Region. Humana has filed a related protest with the Government Accountability Office. The company expects non-GAAP(a) EPS for the year ending December 31, 2009 in the range of $6.10 to $6.20(b) which excludes any potential accounting charges and other costs associated with the military contract loss. This 2009 projection compares to EPS of $3.83 for the year ended December 31, 2008 and is consistent with the company's prior 2009 guidance.

Consolidated Highlights

Revenues -- 2Q09 consolidated revenues rose 7 percent to $7.90 billion from $7.35 billion in 2Q08, with total premium and administrative services fees up 8 percent compared to the prior year's quarter. The increase in premiums and administrative services fees primarily reflects an increase in both average membership and per-member premiums for the company's Medicare Advantage products.

1H09 consolidated revenues rose 9 percent to $15.61 billion from $14.31 billion in 1H08 with total premium and administrative services fees also up 9 percent compared to the prior year's period, also driven primarily by the increases in average Medicare Advantage enrollment and per-member premiums.

Benefit expenses -- The 2Q09 consolidated benefit ratio (benefit expenses as a percent of premium revenues) improved from that for the prior year's quarter, as expected. The 2Q09 consolidated benefit ratio of 83.3 percent compares to 85.0 percent in 2Q08. This 170 basis point improvement was primarily driven by improvements of 220 basis points and 20 basis points in the Government Segment and Commercial Segment benefit ratios, respectively.

The consolidated benefits ratio for 1H09 of 83.6 percent was 220 basis points lower than the 1H08 consolidated benefits ratio of 85.8 percent, also driven by improvements in both of the company's business segments.

Selling, general, & administrative (SG&A) expenses -- The 2Q09 consolidated SG&A expense ratio (SG&A expenses as a percent of premiums, administrative services fees and other revenue) of 12.8 percent increased 20 basis points compared to the 2Q08 ratio of 12.6 percent, primarily due to an increase in the mix of commercial products with traditionally higher administrative cost ratios.

The SG&A expense ratio for 1H09 of 13.4 percent also increased 20 basis points from that for 1H08 of 13.2 percent, primarily due to the effect of the change in the commercial business mix discussed above during both the first and second quarters of 2009.

Government Segment Results

Pretax results:

Government segment pretax income increased by 62 percent to $404.7 million in 2Q09 from $249.4 million in 2Q08 primarily driven by lower PDP claim expenses, a 13 percent increase in average Medicare Advantage membership and the implementation of member premiums for most of the company's Medicare Advantage products.

For 1H09, pretax earnings for the Government Segment of $570.8 million increased by $324.6 million versus 1H08 pretax earnings for the segment of $246.2 million, also primarily reflecting the same factors as those affecting the year-over-year comparisons for 2Q09.

Enrollment:

Medicare Advantage membership grew to 1,499,800 at June 30, 2009, an increase of 154,800 members, or 12 percent, from June 30, 2008, and up 63,900, or 4 percent versus December 31, 2008. The year-over-year increase includes 54,200 members added through acquisitions completed during the second half of 2008. As of June 30, 2009, approximately 62 percent of the company's Medicare Advantage members were in network-based products versus 49 percent at June 30, 2008 and 51 percent at December 31, 2008.

Membership in the company's stand-alone PDPs totaled 1,992,000 at June 30, 2009 compared to 3,105,200 at June 30, 2008 and 3,066,600 at December 31, 2008. Both the year-over-year and year-to-date membership declines resulted primarily from attrition associated with low-income seniors opting to join a competitor plan with a lower or no member premium as well as stand-alone PDP members upgrading themselves to Medicare Advantage plans. For 2009, the company realigned its stand-alone PDP premium and benefit designs to correspond with its prescription drug claims experience.

Military services membership at June 30, 2009 of 3,008,300 was up approximately 2 percent from 2,943,800 at June 30, 2008 and up approximately 1 percent from 2,964,700 at December 31, 2008.

Premiums and administrative services fees:

Medicare Advantage premiums of $4.15 billion in 2Q09 increased 19 percent compared to $3.49 billion in 2Q08, primarily the combined result of a 13 percent increase in average Medicare Advantage membership and the introduction of member premiums for most of the company's Medicare Advantage products.

Medicare stand-alone PDP premiums of $638.8 million in 2Q09 decreased 29 percent compared to $905.1 million in 2Q08, reflecting a 35 percent decline in average membership year over year primarily due to members choosing competitor offerings given the premium and benefit design changes discussed above.

Military services premiums and administrative services fees during 2Q09 increased $123.1 million, or 15 percent, to $947.5 million compared to $824.4 million in 2Q08.

Benefit Expenses:

The Government Segment benefit ratio decreased 220 basis points to 84.1 percent in 2Q09 compared to 86.3 percent in the prior year's quarter, primarily driven by a 240 basis point decline in the Medicare benefit ratio primarily from a substantial decline in the stand-alone PDP benefit ratio.

SG&A Expenses:

The Government Segment's SG&A expense ratio decreased 20 basis points to 9.3 percent in 2Q09 compared to 9.5 percent in the prior year's quarter driven primarily by increased leverage from higher average medical membership in the company's Medicare Advantage plans.

Commercial Segment Results

Pretax results:

Commercial Segment pretax earnings decreased by 53 percent to $35.3 million in 2Q09 compared to $75.6 million in 2Q08 primarily driven by lower investment income together with lower income from the company's small group business.

The segment's 20 percent decrease in pretax earnings for 1H09 ($162.9 million versus $202.7 million in 1H08) was primarily attributable to lower investment income.

Enrollment:

Commercial Segment medical membership declined to 3,447,900 at June 30, 2009, a decrease of 110,600, or 3 percent, from 3,558,500 at June 30, 2008 and a decline of 172,900, or 5 percent, from 3,620,800 at December 31, 2008. The decline during 1H09 primarily reflected the loss of two large ASO accounts totaling approximately 95,400 members on January 1, 2009 as well as the impact of the economy across various of the company's fully-insured group medical lines of business.

The company's individual product line has continued to grow steadily, with membership of 347,200, up 17 percent at June 30, 2009 compared to 297,200 at June 30, 2008 and up 7 percent from 325,100 at December 31, 2008.

Membership in Commercial Segment specialty products(c) of 6,790,400 at June 30, 2009 increased 1 percent from June 30, 2008 and was essentially unchanged from December 31, 2008, including the loss of dental business associated with one of the large ASO accounts referred to above.

Premiums and administrative services fees:

Premiums and administrative services fees for the Commercial Segment increased 1 percent to $1.87 billion in 2Q09 compared to $1.85 billion in the prior year's quarter, reflecting increased premiums associated primarily with acquisitions in the latter half of 2008 partially offset by lower average medical membership.

Commercial Segment medical premiums for fully-insured group accounts increased approximately 6 percent on a per-member basis during 2Q09 compared to 2Q08.

Benefit Expenses:

In 2Q09, the Commercial Segment benefits ratio of 80.8 percent improved 20 basis points versus the 2Q08 benefit ratio of 81.0 percent, as an increase in per-member premiums was partially offset by higher utilization associated with the general economy, most pronounced in the company's small group business.

SG&A Expenses:

The Commercial Segment SG&A expense ratio of 23.5 percent for 2Q09 compares to 21.5 percent in 2Q08, primarily driven by increases in certain of the segment's businesses that carry a higher administrative expense load such as mail-order pharmacy and individual medical products.

Balance Sheet

At June 30, 2009, the company had cash, cash equivalents, and investment securities of $7.41 billion, essentially unchanged from $7.43 billion in such assets at March 31, 2009.

Parent company cash and investments increased to $665.8 at June 30, 2009 from $250.5 at December 31, 2008 primarily reflecting dividends to the parent from operating subsidiaries of $774.1 million and the repayment of $250.0 million in credit facility borrowings.

Days in claims payable of 56.1 at June 30, 2009 reflected an increase of 1.5 days from 54.6 at March 31, 2009.

Debt-to-total capitalization at June 30, 2009 was 25.0 percent, down 430 basis points from 29.3 percent at March 31, 2009 due primarily to the repayment of outstanding credit facility borrowings together with favorable operating results during 2Q09.

Cash Flows from Operations

Cash flows provided by operations for 2Q09 of $161.9 million compared to cash flows provided by operations of $104.0 million in 2Q08 primarily due to higher net income, partially offset by changes in working capital accounts.

Share Repurchase Program

In the third quarter of 2008, the company's Board of Directors authorized the repurchase of up to $250 million of the company's common shares exclusive of shares repurchased in connection with employee stock plans. Due to volatility in the financial markets, the company has not yet repurchased any shares under the third quarter 2008 authorization. The share repurchase program expires on December 31, 2009.

Footnote

(a) Non-GAAP refers to earnings projections not in accordance with Generally Accepted Accounting Principles (GAAP).

(b) Excludes the potential impact upon the company's future operating results of issues associated with the previously announced change in the company's military services contract. This would primarily include such issues as impairment of military services goodwill, potential military services exit costs, possible military services asset sales, and a strategic assessment of ancillary military services businesses. The company cannot yet, using reasonable efforts, determine an estimate of such issues, and thus cannot reconcile to a GAAP estimate.

(c) The Commercial Segment 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 approximately 15 minutes in advance of the call. The company also suggests web participants visit the site well in advance of the call to run a system test and to download any free software needed to view the presentation.

All parties interested in the audio-only portion of the conference call are invited to dial 888-625-7430. No password is required. The company suggests participants dial in approximately ten minutes in advance of the call. 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 our executive officers, the words or phrases like "expects," "anticipates," "believes," "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 our SEC filings, a summary of which includes but is not limited to the following:

If Humana does not design and price its products properly and competitively, if the premiums Humana charges are insufficient to cover the cost of health care services delivered to its members, or if its estimates of benefits payable or future policy benefits payable based upon its estimates of future benefit claims 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 changes in medical cost trends.

If Humana fails to effectively implement its operational and strategic initiatives, including its Medicare initiatives, the company's business could be materially adversely affected.

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 could be materially adversely affected.

Humana is involved in various legal actions, which, if resolved unfavorably to Humana, could result in substantial monetary damages. Increased litigation and negative publicity could increase the company's cost of doing business.

As a government contractor, Humana is exposed to additional risks including reimbursement and payment changes that could adversely affect its business or its willingness to participate in government health care programs.

Humana's industry is currently subject to substantial government regulation, which along with possible increased governmental regulation or legislative change, could increase Humana's cost of doing business and could adversely affect the company's profitability.

Humana is also subject to potential changes in the political environment that can affect public policy and can adversely affect the markets for its products.

Any failure to manage administrative costs could hamper Humana's profitability.

Any failure by Humana to manage acquisitions and other significant transactions successfully could have a material adverse effect on its financial results, business and prospects.

If Humana fails to develop and maintain satisfactory relationships with the providers of care to its members, the company's business could be adversely affected.

Humana's mail order pharmacy business is highly competitive and subjects it to regulations in addition to those the company faces with its core health benefits businesses.

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 cost and availability of funds.

Extreme volatility and disruption in the securities and credit markets may adversely affect Humana's business, results of operations and financial condition.

Changes in economic conditions could adversely affect Humana's business and results of operations.

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 we are 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 December31, 2008;

Form 10-Q for the quarter ended March 31, 2009;

Form 8-Ks filed during 2009.

About Humana

Humana Inc., headquartered in Louisville, Kentucky, is one of the nation's largest publicly traded health and supplemental benefits companies, with approximately 10.3 million medical members. Humana is a full-service benefits solutions company, offering a wide array of health and supplemental benefit plans for employer groups, government programs and individuals.

Over its 48-year history, Humana has consistently seized opportunities to meet changing customer needs. Today, the company is a leader in consumer engagement, providing guidance that leads to lower costs and a better health plan experience throughout its diversified customer portfolio.

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.