- Committed to ongoing COVID-19 relief efforts to provide
resources and assistance to all constituencies, including proactive
outreach to vulnerable members to address clinical and social
determinants of health needs to minimize the short-term impact amid
the pandemic
- Reports 1Q20 earnings per diluted common share (EPS) of $3.56
on a GAAP basis, $5.40 on an Adjusted basis
- Comments on FY 2020 guidance:
- FY 2020 GAAP EPS expected to be in a range of $16.04 to
$16.54
- Reaffirms FY 2020 Adjusted EPS guidance range of $18.25 to
$18.75 while acknowledging the inherent uncertainty surrounding the
ongoing crisis
- Increases full year expected individual Medicare Advantage
membership growth to 300,000 to 350,000 members from previous range
of 270,000 to 330,000 members, while reaffirming group Medicare
Advantage and stand-alone PDP membership estimates for 2020
- Withdraws additional FY 2020 detailed guidance not noted above
given the likelihood of significant variability of results by
financial statement line item and related ratios
Humana Inc. (NYSE: HUM) moved quickly during the first quarter
of 2020 to ease some of the burden associated with the outbreak of
the novel coronavirus, COVID-19, including assisting its employees
to transition to work at home, alleviating financial and healthcare
concerns for members, and supporting providers. The company has
taken several proactive steps to be a part of the solution,
including waiving costs associated with the diagnostic testing and
treatment of COVID-19, expanding access to telehealth services, and
simplifying and expediting claims processing for providers to
promote the speed of reimbursement payments. In addition, the
company contributed $50 million to the Humana Foundation to advance
COVID-19 relief efforts.
The net financial impact of COVID-19 was not material to
Humana's results of operations during the first quarter of 2020.
With the emergence of stay-at-home and physical distancing orders
and other restrictions on movement and economic activity intended
to reduce the spread of COVID-19 during the second half of March
2020, the company experienced lower hospital admissions and
utilization as members and providers began to defer non-essential
procedures. The deferral of non-essential procedures was offset by
an increase in pharmacy costs as a result of the company's decision
to permit early prescription refills to allow members to prepare
for extended supply needs and the impact of other COVID-19 specific
administrative costs, including the contribution to the Humana
Foundation.
Humana has seen the trend of lower utilization persist into the
second quarter of 2020 and it expects that deferred non-essential
procedures will return in the coming weeks and months, although a
number of significant variables make the timing and impact of this
recovery uncertain. As the progression of the COVID-19 pandemic
continues, Humana will continue to monitor the impact on the
company and all of its stakeholders and adjust its response
accordingly, proactively leveraging its integrated care delivery
model to best serve its members, partnering with federal and state
governments to develop comprehensive and actionable plans for
recovery and re-entry, minimizing the impact on its provider
partners, and advancing the long-term sustainability of the company
and the healthcare system.
“From the outset of the COVID-19 crisis, we’ve been proactive in
assisting our employees, members, and providers by improving access
to healthcare and easing burdens associated with finances and daily
living needs," said Bruce D. Broussard, Humana's President and
Chief Executive Office. "As we begin the re-entry phase, we will
remain focused on serving our vulnerable populations, including
over eight million Medicare beneficiaries, and recognize that
safety, and particularly consumer confidence in the ability to once
again safely begin using the healthcare system, are top of mind
with everyone, and we play a pivotal role in ensuring both. We will
continue to expand our relief efforts, like the proactive outreach
we started last month to our most vulnerable members that, to date,
have included fulfilling orders for over half a million meals and
closing approximately 630,000 gaps in care. Humana stands ready to
be a strong and willing partner to federal, state and local
governments, and community nonprofits, building on what we learned
during the crisis to reshape the healthcare system so it’s ready
and able to provide broader access to care, and to proactively
manage more comprehensive health and lifestyle needs."
Summary of Quarterly
Results
Humana today reported consolidated pretax income and diluted
earnings per common share (EPS) for the quarter ended March 31,
2020 (1Q20) versus the quarter ended March 31, 2019 (1Q19) as
follows.
Consolidated income before income taxes
and equity in earnings (pretax income) In millions
1Q20 (a)
1Q19 (b)
Generally Accepted Accounting
Principles (GAAP)
$717
$746
Amortization associated with identifiable
intangibles
21
18
Put/call valuation adjustments associated
with company's non-consolidating minority interest investments
297
39
Adjusted (non-GAAP)
$1,035
$803
Diluted earnings per common share
(EPS)
1Q20 (a)
1Q19 (b)
GAAP
$3.56
$4.16
Amortization associated with identifiable
intangibles
0.12
0.10
Put/call valuation adjustments associated
with company's non-consolidating minority interest investments
1.72
0.22
Adjusted (non-GAAP)
$5.40
$4.48
The company has included financial
measures throughout this earnings release that are not in
accordance with GAAP. Management believes that these measures, when
presented in conjunction with the comparable GAAP measures, are
useful to both management and its investors in analyzing the
company’s ongoing business and operating performance. Consequently,
management uses these non-GAAP (Adjusted) financial measures as
indicators of the company’s business performance, as well as for
operational planning and decision making purposes. Non-GAAP
(Adjusted) financial measures should be considered in addition to,
but not as a substitute for, or superior to, financial measures
prepared in accordance with GAAP. All financial measures in this
press release are in accordance with GAAP unless otherwise
indicated. Please refer to the footnotes for a detailed description
of each item adjusted out of GAAP financial measures to arrive at a
non-GAAP (Adjusted) financial measure.
GAAP and Adjusted pretax income and EPS results for 1Q20
exceeded management's expectations driven by solid results across
each of the company's segments, led by strong Medicare Advantage
earnings. As noted above, the net financial impact of COVID-19 was
not material to Humana's results of operations during 1Q20.
Please refer to the tables above, as well as the consolidated
and segment highlight sections in the detailed earnings release for
additional discussion of the factors impacting the
year-over-comparisons.
In addition, below is a summary of key consolidated and segment
statistics comparing 1Q20 to 1Q19.
Humana Inc. Summary of Quarterly
Results (dollars in millions, except per share amounts)
1Q20 (a)
1Q19 (b)
Consolidated results:
Revenues - GAAP
$18,935
$16,107
Pretax income - GAAP
$717
$746
Pretax income - Adjusted
$1,035
$803
EPS - GAAP
$3.56
$4.16
EPS - Adjusted
$5.40
$4.48
Benefits expense ratio - GAAP
85.1%
86.2%
Operating cost ratio - GAAP
11.3%
10.4%
Operating cash flows - GAAP
$474
$896
Parent company cash and short term
investments
$2,353
$721
Debt-to-total capitalization
39.2%
36.0%
Retail segment results:
Revenues - GAAP
$16,762
$14,013
Benefits expense ratio - GAAP
86.6%
88.3%
Operating cost ratio - GAAP
9.2%
8.2%
Segment earnings - GAAP
$685
$465
Segment earnings - Adjusted
$689
$469
Group and Specialty segment
results:
Revenues - GAAP
$1,865
$1,887
Benefits expense ratio - GAAP
79.1%
76.4%
Operating cost ratio - GAAP
23.1%
21.9%
Segment earnings - GAAP
$105
$165
Segment earnings - Adjusted
$106
$166
Healthcare Services segment
results:
Revenues - GAAP
$7,085
$6,098
Operating cost ratio - GAAP
96.0%
96.6%
Segment earnings - GAAP
$250
$175
Adjusted earnings before interest, taxes,
depreciation and amortization (Adjusted EBITDA) (c)
$319
$238
2020 Earnings Guidance
Humana is revising its GAAP EPS guidance range for the year
ending December 31, 2020 (FY 2020) to $16.04 to $16.54 from the
previous range of $17.76 to $18.26, reflecting the 1Q20 impact of
the company's non-consolidating minority interest put/call
valuation adjustments. While acknowledging the inherent uncertainty
surrounding the ongoing crisis, Humana is maintaining its FY 2020
Adjusted EPS range of $18.25 to $18.75. For comparison, FY 2020
GAAP and Adjusted EPS guidance is detailed below along with GAAP
and Adjusted results for the year ended December 31, 2019 (FY
2019).
The company is revising its net membership growth estimate for
its individual Medicare Advantage products now expecting growth in
a range of 300,000 to 350,000 members for FY 2020 compared to the
previous guidance growth range of 270,000 to 330,000 members. This
anticipated increase in 2020 represents year-over-year growth of
approximately 9 percent at the midpoint of the guidance range.
The company is also reiterating its expectations for group
Medicare Advantage net membership gains for FY 2020, projecting an
increase of approximately 90,000 members year over year.
For its stand-alone PDP business, Humana continues to estimate a
net membership decline of approximately 550,000 members for FY
2020.
Given the likelihood of significant variability of results by
financial statement line item (and related ratios), Humana is
withdrawing its additional detailed guidance that was initially
provided as part of the company's fourth quarter 2019 earnings
release dated February 5, 2020.
Diluted earnings per common
share
FY 2020 Guidance (d)
FY 2019 (e)
GAAP
$16.04 to $16.54
$20.10
Amortization of identifiable
intangibles
0.49
0.40
Put/call valuation adjustments associated
with company's non-consolidating minority interest investments
1.72
(2.89
)
Charges associated with workforce
optimization
-
0.26
Adjusted (non-GAAP) – FY 2020
projected; FY 2019 reported
$18.25 to $18.75
$17.87
2021 Rate Notice
On April 6, 2020, CMS published its Announcement of Calendar
Year 2021 Medicare Advantage Capitation Rates and Part C and Part D
Payment Policies (the Final Rate Notice). The company expects the
Final Rate Notice to result in a 1.20 percent(f) rate increase for
non end stage renal disease (ESRD) Medicare Advantage business,
excluding the impact of Employer Group Waiver Plan (EGWP) funding
changes. The company’s 1.20 percent rate increase compares to CMS’
estimate for the sector of 1.66 percent on a comparable basis, with
the variance primarily driven by county rebasing and the company's
geographic footprint. CMS also establishes separate rates of
payment for ESRD beneficiaries enrolled in Medicare Advantage
plans. The company expects the Final Rate Notice to result in a 3.7
percent rate increase in 2021 for ESRD beneficiaries. The company’s
estimate of 3.7 percent is slightly higher than CMS’ 3.6 percent
which is also impacted by the company’s geographic footprint.
Detailed Press Release
Humana’s full earnings press release including the statistical
pages has been posted to the company’s Investor Relations site and
may be accessed at https://humana.gcs-web.com/ or via a current
report on Form 8-K filed by the company with the Securities and
Exchange Commission this morning (available at www.sec.gov or on the company’s website).
Conference Call
Humana will host a conference call at 10:00 a.m. Eastern time
today to discuss its financial results for the quarter and the
company’s expectations for future earnings.
All parties interested in the company’s 1Q20 earnings conference
call are invited to dial 888-625-7430. No password is required. The
audio-only webcast of the 1Q20 earnings call may be accessed via
Humana’s Investor Relations page at humana.com. The company suggests participants for
both the conference call and those listening via the web dial in or
sign on at least 15 minutes in advance of the call.
For those unable to participate in the live event, the archive
will be available in the Historical Webcasts and Presentations
section of the Investor Relations page at humana.com, approximately two hours following the
live webcast. Telephone replays will also be available from
approximately 1:15 p.m. Eastern time on April 29, 2020 until 10:59
p.m. Eastern time on June 29, 2020 and can be accessed by dialing
855-859-2056 and providing the conference ID #7592196.
Footnotes
(a) 1Q20 Adjusted results exclude the
following:
- Amortization expense for identifiable intangibles of
approximately $21 million pretax income, or $0.12 per diluted
common share; GAAP measures affected in this release include
consolidated pretax, EPS, and segment earnings (for respective
amortization expense for the Retail and Group and Specialty
segments).
- Put/call valuation adjustments of approximately $297 million,
or $1.72 per diluted common share, associated with Humana’s
non-consolidating minority interest investments. GAAP measures
affected in this release include consolidated pretax and EPS.
(b) 1Q19 Adjusted results exclude the
following:
- Amortization expense for identifiable intangibles of
approximately $18 million pretax, or $0.10 per diluted common
share; GAAP measures affected in this release include consolidated
pretax, EPS, and segment earnings (for respective amortization
expense for the Retail and Group and Specialty segments).
- Put/call valuation adjustments of approximately $39 million, or
$0.22 per diluted common share, associated with Humana’s
non-consolidating minority interest investments. GAAP measures
affected in this release include consolidated pretax and EPS.
(c) The Healthcare Services segment Adjusted EBITDA includes
GAAP segment earnings with adjustments to add back depreciation and
amortization expense, interest expense, and income taxes. The
Adjusted EBITDA includes results from all lines of business within
the segment. The Adjusted EBITDA also includes the impact of
Humana’s 40% minority interest in Kindred at Home and the strategic
partnership with Welsh, Carson, Anderson & Stowe (WCAS) to
develop and operate senior-focused, payor-agnostic, primary care
centers.
(d) FY 2020 Adjusted EPS projections
exclude the following:
- Amortization expense for identifiable intangibles of
approximately $0.49 per diluted common share.
- Put/call valuation adjustments of $1.72 per diluted common
share related to Humana's non-consolidating minority interest
investments. FY20 GAAP EPS guidance excludes the impact of future
value changes of put/call options related to Humana’s
non-consolidating minority interest investments. The future value
change of these put/call options cannot be estimated.
(e) FY 2019 Adjusted results exclude the
following:
- Amortization expense for identifiable intangibles of
approximately $70 million pretax income, or $0.40 per diluted
common share.
- Put/call valuation adjustments of approximately $506 million,
or $2.89 per diluted common share, associated with Humana’s
non-consolidating minority interest investments.
- Expense associated with involuntary workforce reduction of
approximately $47 million pretax, or $0.26 per diluted common
share.
(f) Excludes estimates of changes in revenues associated with
increased accuracy of risk coding.
Cautionary Statement
This news release includes forward-looking statements regarding
Humana 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,”
“believes,” “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:
- If Humana does not design and price its products properly and
competitively, if the premiums Humana receives are insufficient to
cover the cost of healthcare services delivered to its members, if
the company is unable to implement clinical initiatives to provide
a better healthcare experience for its members, lower costs and
appropriately document the risk profile of its members, or if its
estimates of benefits expense 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. The company
continually reviews estimates of future payments relating to
benefit expenses for services incurred in the current and prior
periods and makes necessary adjustments to its reserves, including
premium deficiency reserves, where appropriate. These estimates,
however, involve extensive judgment, and have considerable inherent
variability because they are extremely sensitive to changes in
claim payment patterns and medical cost trends, so any reserves the
company may establish, including premium deficiency reserves, may
be insufficient.
- If Humana fails to effectively implement its operational and
strategic initiatives, particularly its Medicare initiatives and
state-based contract strategy, the company’s business may be
materially adversely affected, which is of particular importance
given the concentration of the company’s revenues in these
products. In addition, there can be no assurances that the company
will be successful in maintaining or improving its Star ratings in
future years.
- If Humana fails to properly maintain the integrity of its data,
to strategically implement new information systems, to protect
Humana’s proprietary rights to its systems, or to defend against
cyber-security attacks or prevent other privacy or data security
incidents that result in security breaches that disrupt our
operations or in the unintended dissemination of sensitive personal
information or proprietary or confidential information, the
company’s business may be materially adversely affected.
- Humana is involved in various legal actions, or disputes that
could lead to legal actions (such as, among other things, provider
contract disputes and qui tam litigation brought by individuals on
behalf of the government), governmental and internal
investigations, and routine internal review of business processes
any of which, if resolved unfavorably to the company, could result
in substantial monetary damages or changes in its business
practices. Increased litigation and negative publicity could also
increase the company’s cost of doing business.
- As a government contractor, Humana is exposed to risks that may
materially adversely affect its business or its willingness or
ability to participate in government healthcare programs including,
among other things, loss of material government contracts,
governmental audits and investigations, potential inadequacy of
government determined payment rates, potential restrictions on
profitability, including by comparison of profitability of the
company’s Medicare Advantage business to non-Medicare Advantage
business, or other changes in the governmental programs in which
Humana participates. Changes to the risk-adjustment model utilized
by CMS to adjust premiums paid to Medicare Advantage, or MA, plans
according to the health status of covered members, including
proposed changes to the methodology used by CMS for risk adjustment
data validation audits that fail to address adequately the
statutory requirement of actuarial equivalence, if implemented,
could have a material adverse effect on our operating results,
financial position and cash flows.
- Humana's business activities are subject to substantial
government regulation. New laws or regulations, or legislative,
judicial, or regulatory changes in existing laws or regulations or
their manner of application could increase the company's cost of
doing business and have a material adverse effect on Humana’s
results of operations (including restricting revenue, enrollment
and premium growth in certain products and market segments,
restricting the company’s ability to expand into new markets,
increasing the company’s medical and operating costs by, among
other things, requiring a minimum benefit ratio on insured
products, lowering the company’s Medicare payment rates and
increasing the company’s expenses associated with a non-deductible
health insurance industry fee and other assessments); the company’s
financial position (including the company’s ability to maintain the
value of its goodwill); and the company’s cash flows.
- Humana’s failure to manage acquisitions, divestitures and other
significant transactions successfully may have a material adverse
effect on the company’s 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 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 certain of its licensed
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.
- The securities and credit markets may experience volatility and
disruption, which may adversely affect Humana’s business.
- The spread of, and response to, the novel coronavirus, or
COVID-19, underscores certain risks Humana faces, including those
discussed above, and the rapid development and fluidity of this
situation precludes any prediction as to the ultimate adverse
impact to Humana of COVID-19. In December 2019, a novel strain of
coronavirus (COVID-19) was reported to have surfaced in Wuhan,
China. COVID-19 has since spread to over 200 countries, including
every state in the United States. On March 11, 2020 the World
Health Organization declared COVID-19 a pandemic, and on March 13,
2020 the United States declared a national emergency with respect
to COVID-19. Governmental and non-governmental organizations may
not effectively combat the spread and severity of COVID-19,
increasing the potential for harm for Humana’s members. If the
spread of COVID-19 is not contained, the premiums the company
charges may prove to be insufficient to cover the cost of health
care services delivered to its members, which may increase
significantly as a result of higher utilization rates of medical
facilities and services and other increases in associated hospital
and pharmaceutical costs. Over time, Humana may also experience
increased costs or decreased revenues if, as a result of the
company’s members being unable to see their providers due to
actions taken to mitigate the spread of COVID-19, Humana is unable
to implement clinical initiatives to manage health care costs and
chronic conditions of its members, and appropriately document their
risk profiles. In addition, Humana is offering its members expanded
benefit coverage, such as providing full coverage for COVID-19
diagnostic testing and treatment, certain additional coverages have
been mandated by governmental action, and Humana is taking actions
designed to help provide financial and administrative relief for
the health care provider community. Such measures and any further
steps taken by Humana, or governmental action, to expand or
otherwise modify the services delivered to its members, provide
relief for the health care provider community, or in connection
with the relaxation of stay-at-home and physical distancing orders
and other restrictions on movement and economic activity intended
to reduce the spread of COVID-19, including the potential for
widespread testing as a component of lifting these measures, could
adversely impact the company’s profitability. The spread of
COVID-19, or actions taken to mitigate this spread, could have
material and adverse effects on Humana’s ability to operate
effectively, including as a result of the complete or partial
closure of facilities or labor shortages. Disruptions in public and
private infrastructure, including communications, financial
services and supply chains, could materially and adversely disrupt
the company’s normal business operations. Humana has transitioned a
significant subset of its employee population to a remote work
environment in an effort to mitigate the spread of COVID-19, as
have a number of the company’s third-party service providers, which
may exacerbate certain risks to Humana’s business, including an
increased demand for information technology resources, increased
risk of phishing and other cybersecurity attacks, and increased
risk of unauthorized dissemination of sensitive personal
information or proprietary or confidential information about the
company or its members or other third-parties. The outbreak of
COVID-19 has severely impacted global economic activity, including
the businesses of some of Humana’s commercial customers, and caused
significant volatility and negative pressure in the financial
markets. In addition to disrupting Humana’s operations, these
developments may adversely affect the timing of commercial customer
premium collections and corresponding claim payments as well as the
value of the company’s investment portfolio. The rapid development
and fluidity of this situation precludes any prediction as to the
ultimate adverse impact to Humana of COVID-19. Humana is continuing
to monitor the spread of COVID-19, changes to the company’s benefit
coverages, the ongoing costs and business impacts of dealing with
COVID-19, including the potential costs associated with lifting
restrictions on movement and economic activity and ultimately a
vaccine, and related risks. The magnitude and duration of the
pandemic and its impact on Humana’s business, results of
operations, financial position, and cash flows is uncertain as this
continues to evolve globally, but such impacts could be material to
the company’s business, results of operations, financial position
and cash flows.
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, 2019; and
- Form 8-Ks filed during 2020.
About Humana
Humana Inc. (NYSE: HUM) is committed to helping our millions of
medical and specialty members achieve their best health. Our
successful history in care delivery and health plan administration
is helping us create a new kind of integrated care with the power
to improve health and well-being and lower costs. Our efforts are
leading to a better quality of life for people with Medicare,
families, individuals, military service personnel, and communities
at large.
To accomplish that, we support physicians and other health care
professionals as they work to deliver the right care in the right
place for their patients, our members. Our range of clinical
capabilities, resources and tools – such as in-home care,
behavioral health, pharmacy services, data analytics and wellness
solutions – combine to produce a simplified experience that makes
health care easier to navigate and more effective.
More information regarding Humana is available to investors via
the Investor Relations page of the company’s website at
humana.com, including copies of:
- Annual reports to stockholders
- Securities and Exchange Commission filings
- Most recent investor conference presentations
- Quarterly earnings news releases and conference calls
- Calendar of events
- Corporate Governance information
View source
version on businesswire.com: https://www.businesswire.com/news/home/20200429005220/en/
Amy Smith Humana Investor Relations (502) 580-2811 e-mail:
Amysmith@humana.com Kelley Murphy Humana Corporate Communications
(502) 224-1755 e-mail: Kmurphy26@humana.com
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