(Source: Business Wire)
Humana Inc. (NYSE: HUM) today reported diluted earnings per common share
(EPS) for the quarter ended September 30, 2009 (3Q09) of $1.78,
consistent with management's guidance of $1.75 to $1.80. The company
earned $1.09 per share for the quarter ended September 30, 2008 (3Q08)
which reflected $0.40 per share in realized losses primarily associated
with other-than-temporary impairments in investments and sales of
distressed financial institution securities. The 3Q08 results also
included high stand-alone Prescription Drug Plan (PDP) claim expenses.
For the nine months ended September 30, 2009 (YTD09) the company
reported $4.67 in EPS compared to $2.79 in EPS for the nine months ended
September 30, 2008 (YTD08). The YTD08 results reflected both high
stand-alone PDP claim expenses and lower investment income primarily due
to significant realized losses on investments.
"Our results this quarter reflect continued solid performance in our
Government businesses, offsetting continuing challenges in our
Commercial Segment," said Michael B. McCallister, president and chief
executive officer of Humana. "We continue to anticipate consolidated
results in line with our previous expectations and thus are reaffirming
our 2009 EPS guidance."
The company anticipates EPS of approximately $6.15 for the year ending
December 31, 2009 (FY09). Looking ahead to the year ending December 31,
2010 (FY10), the company projects EPS to be in the range of $5.05 to
$5.25. The 2010 estimate includes military services EPS between
breakeven and $0.10 per share (including the impact of asset write-downs
and other charges) and excludes any potential impact from pending health
legislation or regulatory reform.
"Looking to 2010, we're forecasting substantial net-new Medicare
Advantage member growth, attributable to both large-group and individual
customers," McCallister said. "In addition, as we've said in the past,
we target an overall Medicare pretax operating margin of approximately 5
percent, which next year will include a significant increase in group
membership, a traditionally lower margin business, a moderating margin
for our stand-alone PDPs, and an individual Medicare margin that
approximates the overall target. We also anticipate stabilizing our
Commercial operating results with administrative cost reductions and
continuation of pricing actions."
TRICARE Update
As previously disclosed, on July 22, 2009, Humana Military Healthcare
Services (HMHS), a wholly owned subsidiary of the company, filed a
protest with the Government Accountability Office (GAO) in connection
with the award of the third generation TRICARE program contract for the
South Region to another contractor. In its protest, Humana cited
discrepancies between the award criteria and procedures prescribed in
the request for proposals issued by the Department of Defense (DoD) and
those that appear to have been used by the DoD in making its contractor
selection. On October 28, 2009, the company learned that the GAO had
upheld HMHS' protest. Humana anticipates the GAO will publicly release a
detailed version of its protest decision expeditiously to include the
grounds for the decision and the nature of relief recommended by the GAO
to the DoD. At this time, Humana is not able to determine what actions
the DoD will take in response to recommendations by the GAO, nor can it
determine whether or not the protest decision by the GAO will have any
effect upon the ultimate disposition of the contract award, and
therefore whether or not the protest decision is material.
Consolidated Highlights
Revenues -- 3Q09 consolidated revenues rose 8 percent to $7.72
billion from $7.15 billion in 3Q08, with total premium and
administrative services fees up 7 percent compared to the prior year's
quarter. The increase in premiums and administrative services fees
primarily reflects an increase in both average Medicare Advantage
membership and per-member premiums for these products.
Consolidated revenues for YTD09 rose 9 percent to $23.33 billion from
$21.46 billion for YTD08 with total premiums and administrative services
fees up 8 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 3Q09 consolidated benefit ratio (benefit
expenses as a percent of premium revenues) of 82.1 percent decreased
from 83.1 percent for the prior year's quarter, as expected. This 100
basis point decrease was primarily driven by a decrease of 220 basis
points in the Government Segment, partially offset by a 250 basis point
increase in the Commercial Segment benefit ratio.
The consolidated benefit ratio for YTD09 of 83.1 percent was 180 basis
points lower than the YTD08 consolidated benefit ratio of 84.9 percent,
reflecting a 250 basis point decrease in the Government Segment's
benefit ratio year over year while the Commercial Segment's benefit
ratio was unchanged YTD09 compared to YTD08.
Selling, general, & administrative (SG&A) expenses -- The
3Q09 consolidated SG&A expense ratio (SG&A expenses as a percent of
premiums, administrative services fees and other revenue) of 13.7
percent remained unchanged from 3Q08. The YTD09 consolidated SG&A
expense ratio of 13.5 percent increased 10 basis points from the YTD08
ratio of 13.4 percent.
Government Segment Results
Pretax results:
Government segment pretax income of $474.5 million in 3Q09 compares to
$271.7 million in 3Q08. This increase was primarily driven by lower
PDP claim expenses, an 11 percent increase in average Medicare
Advantage membership, the implementation of member premiums for most
of the company's Medicare Advantage products, and higher investment
income.
Enrollment:
Medicare Advantage membership grew to 1,514,800 at September 30, 2009,
an increase of 146,800 members, or 11 percent, from September 30,
2008, and up 78,900, or 5 percent, versus December 31, 2008. As of
September 30, 2009, approximately 62 percent of the company's Medicare
Advantage members were in network-based products versus 49 percent at
September 30, 2008 and 51 percent at December 31, 2008.
Membership in the company's stand-alone PDPs totaled 1,960,400 at
September 30, 2009 compared to 3,089,000 at September 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 competitor plans
with lower or no member premiums as well as stand-alone PDP members
choosing 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 September 30, 2009 of 3,015,100 was up
approximately 2 percent from 2,953,900 at September 30, 2008 and
2,964,700 at December 31, 2008.
Premiums and administrative services fees:
Medicare Advantage premiums of $4.14 billion in 3Q09 increased 18
percent compared to $3.50 billion in 3Q08, primarily the combined
result of an 11 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 $578.1 million in 3Q09 decreased
26 percent compared to $782.9 million in 3Q08, reflecting a 36 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
3Q09 increased $30.7 million, or 4 percent, to $818.8 million compared
to $788.1 million in 3Q08.
Benefit Expenses:
The Government Segment benefit ratio decreased 220 basis points to
81.9 percent in 3Q09 compared to 84.1 percent in the prior year's
quarter, primarily driven by a 340 basis point decline in the Medicare
benefit ratio with decreases in both the Medicare Advantage and
stand-alone PDP benefit ratios.
SG&A Expenses:
The Government Segment's SG&A expense ratio of 10.2% remained
unchanged from 3Q08.
Commercial Segment Results
Pretax results:
The Commercial Segment had a pretax loss of $5.2 million in 3Q09
compared to pretax income of $11.2 million in 3Q08 primarily driven by
higher benefit expenses as a percent of premiums and lower average
medical membership, partially offset by higher investment income.
Enrollment:
Commercial Segment medical membership declined to 3,426,900 at
September 30, 2009, a decrease of 127,100, or 4 percent, from
3,554,000 at September 30, 2008 and a decline of 193,900, or 5
percent, from 3,620,800 at December 31, 2008. The decline during 2009
primarily reflected the impact of the economic recession and increased
unemployment across various of the company's fully-insured group
medical lines of business as well as the loss of two large ASO
accounts totaling approximately 95,400 members on January 1, 2009.
The company's individual product line has continued to grow steadily,
with membership of 358,800, up 13 percent at September 30, 2009
compared to 316,800 at September 30, 2008 and up 10 percent from
325,100 at December 31, 2008.
Membership in Commercial Segment specialty products (a) of
7,262,900 at September 30, 2009 increased 8 percent from 6,727,400 at
September 30, 2008 and 7 percent from 6,817,000 at December 31, 2008.
Premiums and administrative services fees:
Premiums and administrative services fees for the Commercial Segment
decreased 1 percent to $1.87 billion in 3Q09 compared to $1.88 billion
in the prior year's quarter, reflecting a 4 percent decline in average
medical membership year over year.
Commercial Segment medical premiums for fully-insured group accounts
increased approximately 5 percent on a per-member basis during 3Q09
compared to 3Q08.
Benefit Expenses:
In 3Q09, the Commercial Segment benefits ratio of 82.7 percent
increased 250 basis points versus the 3Q08 benefit ratio of 80.2
percent, as an increase in per-member premiums was more than offset by
higher utilization primarily associated with the general economy
(aging of small group membership, higher utilization prior to
termination, and increased COBRA participation) as well as the impact
of the H1N1 virus.
SG&A Expenses:
The Commercial Segment SG&A expense ratio of 24.0 percent for 3Q09
compares to 23.0 percent in 3Q08, 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 September 30, 2009, the company had cash, cash equivalents, and
investment securities of $8.67 billion, up 17 percent from $7.41
billion in such assets at June 30, 2009.
Debt-to-total capitalization at September 30, 2009 was 23.2 percent,
down 180 basis points from 25.0 percent at June 30, 2009 due primarily
to the favorable operating results during 3Q09.
Cash Flows from Operations
Cash flows provided by operations for 3Q09 of $940.1 million compared to
cash flows provided by operations of $577.3 million in 3Q08 with the
increase primarily due to higher net income as well as the positive
impact of 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
repurchased any shares under the third quarter 2008 authorization. The
share repurchase program expires on December 31, 2009.
Footnote
(a) 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 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 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.
Humana's business activities are subject to substantial government
regulation. New laws or regulations, or changes in existing laws or
regulations or their enforcement, could increase the company's cost of
doing business and could materially affect its business, profitability
and financial condition. In addition, as a government contractor, the
comapny is exposed to additional risks that could adversely affect its
business or its willingness to participate in government health care
programs.
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.
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 could adversely affect the company'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 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 December 31, 2008;
Form 10-Q for the quarters ended March 31, 2009 and June 30, 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 and
approximately 7.3 million specialty-benefit 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.
Humana Inc.