Exhibit 99.2

 

n e w s r e l e a s e		Humana Inc.
		500 West Main Street
		P.O. Box 1438
		Louisville, KY 40201-1438
		http://www.humana.com

FOR MORE INFORMATION CONTACT:

 

Regina Nethery Humana Investor Relations (502) 580-3644 e-mail: Rnethery@humana.com

Tom Noland

Humana Corporate Communications

(502) 580-3674

e-mail: Tnoland@humana.com

Humana Reports Third Quarter 2013 Financial Results;

Issues 2014 Guidance

 

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3Q13 EPS of $2.31, full-year 2013 EPS of $8.65 to $8.75 reiterated

 

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2014 EPS guidance of $7.25 to $7.75 includes $0.50 to $0.90 for investments in and startup expenses of the company’s state-based contracts and health care exchange businesses

 

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Consolidated revenues expected to exceed $43 billion in 2014

 

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Medicare Advantage membership projected to grow in 2014 by 260,000 to 305,000

 

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Steven McCulley elected as Interim Chief Financial Officer effective January 1, 2014

LOUISVILLE, KY (November 6, 2013) – Humana Inc. (NYSE: HUM) today reported diluted earnings per common share (EPS) for the quarter ended September 30, 2013 (3Q13) of $2.31, compared to $2.62 per share for the quarter ended September 30, 2012 (3Q12). Results for 3Q13 reflected improved year-over-year results for the company’s Employer Group and Healthcare Services Segments, which were more than offset by lower results for the Retail Segment and Other Businesses.

For the nine months ended September 30, 2013 (YTD13) the company reported EPS of $7.90 compared to $6.27 in the nine months ended September 30, 2012 (YTD12). YTD13 performance reflected improved operating results for each of the company’s business segments compared to YTD12.

The company continues to anticipate EPS for the year ending December 31, 2013 (FY13) to be in the range of $8.65 to $8.75.

Looking ahead to the year ending December 31, 2014 (FY14), the company projects EPS to be in the range of $7.25 to $7.75 reflecting expected solid performance from the company’s existing businesses as well as $0.50 to $0.90 per share in investment spending and startup expenses for the company’s newer state-based contracts^(a) and health care exchange businesses.

 

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“We are pleased that our operating results continue to show the strength of our base business,” said Bruce D. Broussard, President and Chief Executive Officer of Humana. “Additionally, we believe our integrated care delivery model capabilities, like value-based provider contracting, chronic care management and advanced data analytics, provide a successful platform for the emerging opportunities and the challenges of the Medicare payment pressures in the coming years.”

CONSOLIDATED HIGHLIGHTS

Consolidated revenues

The 3Q13 consolidated revenues were $10.32 billion, an increase of 6.9 percent from $9.65 billion in 3Q12, with total premiums and services revenue up 7.0 percent compared to the prior year’s quarter. The year-over-year increase in premiums and services revenue was primarily driven by higher Retail and Employer Group segment revenues resulting from higher average individual and group Medicare membership, partially offset by the impact of sequestration.

The YTD13 consolidated revenues rose $1.56 billion, or 5.3 percent, to $31.13 billion from $29.57 billion in YTD12, with total premiums and services revenue of $30.85 billion up 5.4 percent, increasing $1.57 billion from $29.28 billion in the prior year period. These revenue increases were driven primarily by higher average individual and group Medicare membership, partially offset by the impact of sequestration and a change in TRICARE contract accounting, which beginning on April 1, 2012 is accounted for as self-funded versus fully-insured for the previous contract.

Consolidated benefits expense

The 3Q13 consolidated benefit ratio (benefits expense as a percent of premiums) of 83.3 percent increased by 110 basis points from 82.2 percent for the prior year’s quarter due to an increase in the Retail benefit ratio, partially offset by a decrease in the Employer Group benefit ratio. The company experienced favorable prior-year medical claims reserve development of approximately $66 million in 3Q13 compared to $54 million in 3Q12.

The YTD13 consolidated benefit ratio of 83.2 percent decreased by 50 basis points from 83.7 percent in YTD12 primarily due to a year-to-date decline in the Employer Group benefit ratio, along with the beneficial effect in the 2013 period of a favorable settlement of contract claims with the Department of Defense (DoD) primarily associated with litigation settled in 2012. The company experienced favorable prior-year medical claims reserve development of approximately $432 million in YTD13 compared to $235 million in YTD12.

Consolidated operating expenses

The consolidated operating cost ratio (operating costs as a percent of total revenues less investment income) of 15.1 percent for 3Q13 increased from 14.7 percent in 3Q12, primarily reflecting a higher Healthcare Services ratio, partially offset by improved operating leverage in the Retail and Employer Group segments.

 

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The YTD13 consolidated operating cost ratio of 14.4 percent increased from 14.3 percent in YTD12, reflecting the same factors that impacted the quarterly year-over-year comparison, along with the negative impact of the most recent TRICARE South Region contract being accounted for as an administrative services only (ASO) arrangement and costs associated with the previously disclosed impending exit of the Puerto Rico Medicaid business.

Balance sheet

At September 30, 2013, the company had cash, cash equivalents, and investment securities of $11.25 billion, up $409 million from $10.85 billion at June 30, 2013, reflecting normal cash management activities.

Parent company cash and short-term investments of $676 million at September 30, 2013 decreased $207 million from $883 million at June 30, 2013, primarily reflecting the previously disclosed acquisition of American Eldercare Inc., share repurchases, capital expenditures, and payment of a cash dividend to shareholders during 3Q13.

Days in claims payable of 49.5 at September 30, 2013 decreased 1.2 days from 50.7 days at June 30, 2013.

Debt-to-total capitalization at September 30, 2013 was 21.3 percent, down 50 basis points from 21.8 percent at June 30, 2013 primarily driven by higher capitalization associated with 3Q13 earnings.

In July 2013, the company amended and restated its 5-year $1.0 billion unsecured revolving credit agreement, which was set to expire in November 2016, and replaced it on favorable terms with a new 5-year $1.0 billion unsecured revolving credit agreement expiring in July 2018.

Cash flows from operations

Cash flows provided by operations for 3Q13 were $1.15 billion compared to cash flows used in operations of $1.33 billion in 3Q12. For YTD13, cash flows provided by operations totaled $1.73 billion versus $1.72 billion in cash flows from operations during YTD12. The company also evaluates operating cash flows on a non-GAAP basis:

 

Net cash provided by (used in) operating activities (in millions)		3Q13				3Q12				YTD13				YTD12
GAAP		$	1,147			$	(1,334	)		$	1,732			$	1,718
Timing of premium payment from CMS (b)			—				2,133				—				—
Non-GAAP (c)		$	1,147			$	799			$	1,732			$	1,718

The 3Q13 year-over-year increase in the non-GAAP cash flows from operations is due primarily to the effect on cash flows of changes in working capital accounts. The YTD13 increase reflects higher net income and the timing of working capital items.

 

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Share repurchases and cash dividends

During 3Q13, the company executed share repurchases of $90 million, or approximately 950,800 of its outstanding shares, at an average price of $95.04 per share. In April 2013, the Board of Directors replaced its previous share repurchase authorization (of which approximately $557 million remained unused) with a new $1 billion repurchase authorization. As of November 6, 2013, $781 million of the current repurchase authorization was remaining, with an expiration date of June 30, 2015.

During 3Q13, the company paid cash dividends to its stockholders totaling approximately $42 million.

CFO search update

Steven E. McCulley, currently Vice President, Controller and Principal Accounting Officer, has been elected by the company’s Board of Directors as Interim Chief Financial Officer effective January 1, 2014. As previously announced, James H. Bloem, currently Senior Vice President, Chief Financial Officer and Treasurer will retire from that position December 31, 2013. Effective with this transition, McCulley will assume all the responsibilities currently held by Bloem until a Chief Financial Officer has been elected. Bloem was also elected as Advisor to the Office of Chief Financial Officer effective January 1, 2014.

RETAIL SEGMENT

This segment consists of Medicare and commercial fully-insured medical and specialty health insurance benefits, including dental, vision, and other supplemental health and financial protection products, marketed directly to individuals, and includes the company’s contract with CMS to administer the LI-NET program and contracts with various states to provide Medicaid, dual eligible, and Long-Term Support Services benefits.

Retail Segment Highlights

Pretax results:

 

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Retail Segment pretax income of $338 million in 3Q13 compared to $418 million in 3Q12, a decrease of $80 million, primarily reflecting the segment’s higher benefit ratio in the 2013 quarter.

 

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For YTD13, pretax earnings for the Retail Segment of $1.11 billion increased by $193 million from YTD12 pretax earnings of $913 million. The year-to-date increase reflects membership growth and a lower operating cost ratio in the 2013 period.

Enrollment:

 

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Individual Medicare Advantage membership was 2,044,400 as of September 30, 2013, an increase of 132,600 members, or 6.9 percent, from 1,911,800 at September 30, 2012 and up 116,800, or 6.1 percent, from 1,927,600 at December 31, 2012, primarily due to a successful enrollment season associated with the 2013 plan year as well as year-to-date sales to newly-eligible Medicare beneficiaries.

 

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Individual Medicare Advantage net membership growth during 2013 included the divestiture of 12,600 members acquired with the March 2012 Arcadian Management Services, Inc. transaction, in accordance with the company’s previously disclosed agreement with the United States Department of Justice.

 

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Membership in the company’s individual stand-alone Prescription Drug Plans (PDPs) was 3,255,100 at September 30, 2013, up 234,000, or 7.7 percent compared to 3,021,100 at September 30, 2012 and up 202,400, or 6.6 percent, from 3,052,700 at December 31, 2012. These increases resulted primarily from growth in the company’s innovative Humana-Walmart plan offering.

 

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Individual commercial membership increased to 492,800 at September 30, 2013, an increase of 49,400, or 11.1 percent, from 443,400 at September 30, 2012, while also increasing 48,800, or 11.0 percent, from 444,000 at December 31, 2012. Membership growth reflects net new sales in 2013.

 

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Medical membership in state-based Medicaid plans increased to 80,000 at September 30, 2013, an increase of 30,400, or 61.3 percent, from 49,600 at September 30, 2012 and up 27,900, or 53.6 percent, from 52,100 at December 31, 2012, primarily driven by the addition of the company’s Kentucky Medicaid contract effective on January 1, 2013.

 

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Membership in individual specialty products(d) of 1,039,900 at September 30, 2013 increased 99,100, or 10.5 percent, from 940,800 at September 30, 2012 and increased 91,200, or 9.6 percent, from 948,700 at December 31, 2012, primarily driven by increased membership in dental and vision offerings.

Premiums and services revenue:

 

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The 3Q13 premiums and services revenue for the Retail Segment was $6.72 billion, an increase of 7.4 percent from $6.26 billion in 3Q12. The increase was primarily the result of a 6.9 percent increase in average individual Medicare Advantage membership year-over-year, partially offset by lower per-member premiums in the quarter which reflected the impact of sequestration beginning April 1, 2013.

Benefits expense:

 

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The 3Q13 benefit ratio for the Retail Segment of 84.1 percent increased 170 basis points from 82.4 percent in 3Q12, primarily due to unfavorable weekday seasonality (the number of business days in the period) and a change in the seasonal prescription drug utilization pattern for the company’s Medicare stand-alone PDP plans caused by an increase in the percentage mix of low-income beneficiaries and corresponding higher utilization for these members. Retail Segment benefits expense for 3Q13 included the beneficial effect of $54 million in favorable prior-year development compared to $38 million in 3Q12.

Operating costs:

 

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The Retail Segment’s operating cost ratio of 10.7 percent in 3Q13 decreased 10 basis points from 10.8 percent in 3Q12. The decrease was primarily the result of cost efficiencies associated with higher average membership as well as the company’s continued focus on operating cost reductions, partially offset by investment spending for state-based contracts(a) and health care exchanges.

 

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EMPLOYER GROUP SEGMENT

This segment consists of Medicare and commercial fully-insured medical and specialty health insurance benefits, including dental, vision, and other supplemental health and financial protection products, as well as ASO products and health and wellness solutions businesses primarily marketed to employer groups.

Employer Group Segment Highlights

Pretax results:

 

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Employer Group Segment pretax income of $69 million in 3Q13 compares to pretax income of $47 million in 3Q12, reflecting the company’s improved operating performance over the prior year driven by group Medicare membership growth and lower benefit and operating cost ratios for the segment.

 

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For YTD13, pretax earnings for the Employer Group Segment of $401 million increased by $108 million versus YTD12 pretax earnings of $293 million. The year to date increase reflects the same factors impacting the 3Q13 year-over-year comparison.

Enrollment:

 

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Fully-insured group Medicare Advantage membership was 425,400 at September 30, 2013, an increase of 57,500 members, or 15.6 percent, from 367,900 at September 30, 2012 and up 54,600, or 14.7 percent, from 370,800 at December 31, 2012, primarily due to the January 2013 addition of a new large group retirement account.

 

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On January 1, 2013, the company lost its sole ASO group Medicare Advantage account which had 27,800 members at September 30, 2012 and 27,700 members at December 31, 2012.

 

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Group fully-insured commercial medical membership was 1,198,600 at September 30, 2013, roughly flat to September 30, 2012 levels and down 13,200, or 1.1 percent, from 1,211,800 at December 31, 2012, as higher small group business membership was generally offset by lower membership in large group accounts. Approximately 61 percent of group fully-insured commercial medical membership was in small group accounts at September 30, 2013 versus 58 percent at September 30, 2012 and 59 percent at December 31, 2012.

 

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Group ASO commercial medical membership declined to 1,161,000 at September 30, 2013, a decrease of 70,100, or 5.7 percent, from 1,231,100 at September 30, 2012 and down 76,700, or 6.2 percent, from 1,237,700 at December 31, 2012. This decline reflected continued discipline in pricing services for self-funded accounts amid a highly competitive environment.

 

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Membership in Employer Group specialty products(d) rose to 7,207,300 at September 30, 2013, an increase of 118,700, or 1.7 percent, from 7,088,600 at September 30, 2012 and was up 71,100, or 1.0 percent, from 7,136,200 at December 31, 2012. This increase primarily resulted from increased cross-sales of the company’s specialty products to its medical membership and growth in stand-alone specialty product sales.

 

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Premiums and services revenue:

 

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The 3Q13 premiums and services revenue for the Employer Group Segment was $2.85 billion, up approximately 7.6 percent from $2.65 billion in 3Q12, primarily reflecting the impacts of higher average group Medicare Advantage membership.

Benefits expense:

 

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The 3Q13 benefit ratio for the Employer Group Segment was 84.3 percent, a decrease of 70 basis points from 85.0 percent for 3Q12. The year-over-year decrease in the benefit ratio primarily reflected a lower benefit ratio in the company’s large group fully-insured business.

Operating costs:

 

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The Employer Group Segment’s operating cost ratio was 15.8 percent in 3Q13, a decline of 10 basis points from 15.9 percent in 3Q12, primarily reflecting cost savings associated with operating cost reduction initiatives and a higher percentage of members in group Medicare Advantage plans (which carry a lower operating cost ratio than commercial fully-insured group accounts), partially offset by investment spending in technological capabilities.

HEALTHCARE SERVICES SEGMENT

This segment includes services offered to the company’s health plan members as well as to third parties including pharmacy solutions, provider services, home care services, and integrated behavioral health services.

Healthcare Services Segment Highlights

Pretax results:

 

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Healthcare Services Segment pretax income of $156 million in 3Q13 increased from $144 million in 3Q12, as revenue growth and increased profit contribution from the Metropolitan Health Networks, Inc. (Metropolitan) acquisition and the home care services business were generally offset by previously-planned investment spending associated with the integration and build-out of provider practices and chronic care centers.

 

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For YTD13, pretax earnings for the Healthcare Services Segment of $412 million increased by $15 million from YTD12 pretax earnings of $397 million, reflecting the same factors impacting the third quarter year-over-year comparison.

Revenues:

 

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Revenues of $3.99 billion in 3Q13 for the Healthcare Services Segment increased $814 million, or 25.6 percent, from $3.18 billion in 3Q12, primarily due to growth in the company’s pharmacy solutions and provider services businesses and its 2012 acquisition of Metropolitan.

 

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Operating costs:

 

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The Healthcare Services Segment’s operating cost ratio was 95.2 percent in 3Q13, an increase of 40 basis points from 94.8 percent in 3Q12, primarily reflecting previously planned investment spending.

OTHER BUSINESSES

The Other Businesses category consists of the company’s military services, Puerto Rico Medicaid, and closed-block long-term care businesses. The military services business consists primarily of the company’s TRICARE South Region contract.

Other Businesses Highlights

Pretax results:

 

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Other Businesses reported pretax income of $23 million in 3Q13 versus pretax income of $56 million in 3Q12, primarily reflecting higher revenues in 3Q12 associated with risk sharing arrangements under the previous TRICARE South Region contract.

 

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For YTD13, Other Businesses reported pretax income of $51 million compared to pretax income of $5 million in YTD12. YTD13 results include the beneficial effect of the favorable settlement of contract claims with the DoD discussed above, partially offset by costs associated with the loss of Medicaid contracts in Puerto Rico, as previously disclosed.

Footnotes

 

(a)	State-based contracts include the company’s operations and membership associated with Medicaid benefits provided for dual-eligible, Temporary Assistance for Needy Families (TANF), and Long-Term Support Services (LTSS) programs.

(b)	Generally, when the first day of a month falls on a weekend or holiday, with the exception of January 1 (New Year’s Day), the company receives this payment on the last business day of the previous month.

(c)

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

(d)

The company provides a full range of insured specialty products including dental, vision and other supplemental health and financial protection 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.

 

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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,” “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:

 

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If Humana does not design and price its products properly and competitively, if the premiums Humana receives are insufficient to cover the cost of health care services delivered to its members, if the company is unable to implement clinical initiatives to provide a better health care 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. These estimates, however, involve extensive judgment, and have considerable inherent variability because they are extremely sensitive to changes in payment patterns and medical cost trends.

 

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If Humana fails to effectively implement its operational and strategic initiatives, particularly its Medicare initiatives (given the concentration of the company’s revenues in the Medicare business), the company’s business may be materially adversely affected.

 

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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, the company’s business may be materially adversely affected.

 

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Humana’s business may be materially adversely impacted by CMS’s adoption of a new coding set for diagnoses (commonly known as ICD-10).

 

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Humana is involved in various legal actions, or disputes that could lead to legal actions (such as, among other things, provider contract disputes relating to rate adjustments resulting from the Balanced Budget and Emergency Deficit Control Act of 1985, as amended, commonly referred to as “sequestration”; other provider contract disputes; and qui tam litigation brought by individuals on behalf of the government) and governmental and internal investigations, any of which, if resolved unfavorably to the company, could result in substantial monetary damages. Increased litigation and negative publicity could also increase the company’s cost of doing business.

 

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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 health care programs including, among other things, loss of material government contracts, governmental audits and investigations, potential inadequacy of government-determined payment rates or other changes in the governmental programs in which Humana participates.

 

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The Health Care Reform Law, 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, 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; financial position, including the company’s ability to maintain the value of its goodwill; and cash flows. In addition, if Humana is unable to adjust its business model to address the non-deductible health insurance industry fee and other assessments, including the three-year commercial reinsurance fee, such as through the reduction of the company’s operating costs, there can be no assurance that the non-deductible health insurance industry fee and other assessments would not have a material adverse effect on the company’s results of operations, financial position, and cash flows.

 

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Our participation in, and the operational functionality of, the new federal and state health insurance exchanges, which have experienced certain technical difficulties in their early implementation and which entail uncertainties associated with mix and volume of business, could adversely affect our results of operations, financial position, and cash flows.

 

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Humana’s business activities are subject to substantial government regulation. New laws or regulations, or changes in existing laws or regulations or their manner of application could increase the company’s cost of doing business and may adversely affect the company’s business, profitability and cash flows.

 

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Any failure to manage operating costs could hamper Humana’s profitability.

 

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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.

 

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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.

 

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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.

 

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Changes in the prescription drug industry pricing benchmarks may adversely affect Humana’s financial performance.

 

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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.

 

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Humana’s ability to obtain funds from its subsidiaries is restricted by state insurance regulations.

 

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Downgrades in Humana’s debt ratings, should they occur, may adversely affect its business, results of operations, and financial condition.

 

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

 

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Federal government contracts account for a substantial portion of our revenue and earnings. A delay by Congress in raising the federal government’s debt ceiling, should it occur, could lead to a delay, reduction, suspension or cancellation of federal government spending that could, in turn, have a material adverse effect on our business, cash flows, and profitability.

 

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The securities and credit markets may experience volatility and disruption, which may adversely affect Humana’s business.

 

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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:

 

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Form 10-K for the year ended December 31, 2012 (as amended by the Form 10-K/A filed on April 12, 2013);

 

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Form 10-Q for the quarters ended March 31, 2013 and June 30, 2013;

 

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Form 8-Ks filed during 2013.

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.

 

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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:

 

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Annual reports to stockholders;

 

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Securities and Exchange Commission filings;

 

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Most recent investor conference presentations;

 

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Quarterly earnings news releases;

 

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Replays of most recent earnings release conference calls;

 

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Calendar of events (including upcoming earnings conference call dates and times, as well as planned interaction with research analysts and institutional investors);

 

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Corporate Governance information.

 

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Humana Inc. – Earnings Guidance Points as of November 6, 2013

 

(in accordance with Generally Accepted Accounting Principles)		For the year ending December 31, 2013 (FY13)		For the year ending December 31, 2014 (FY14)		Comments
Diluted earnings per common share		$8.65 to $8.75		$7.25 to $7.75		FY14 includes $0.50 to $0.90 per share in investment spending for state-based contracts(a) and individual health care exchange businesses
Revenues
Consolidated		$40.75 billion to $41.25 billion		$43.5 billion to $46.5 billion		Revenues include expected interest income
Segments
Retail Segment		$26.75 billion to $27.25 billion		$29 billion to $32 billion		Segment-level revenues include intersegment amounts that eliminate in consolidation.
Employer Group Segment		$11.0 billion to $11.5 billion		$12 billion to $13 billion
Healthcare Services Segment		$15.5 billion to $15.7 billion		$16 billion to $16.5 billion
Consolidated interest income		$365 million to $385 million		$350 million to $400 million		Interest income is included in revenue guidance above.
Change in ending medical membership
Retail Segment
Medicare Advantage (MA)		Up 120,000 to 130,000		Up 210,000 to 235,000		Includes MA membership sold directly to individuals as well as approximately 25,000 dual-eligible MA members from state-based contracts(a) in FY14.
						FY13 estimate includes the January 1, 2013 disposition of 12,600 Medicare Advantage members acquired in the March 2012 Arcadian transaction in accordance with the company’s previously disclosed agreement with the United States Department of Justice.
Medicare stand-alone PDPs		Up 190,000 to 210,000		Up 75,000 to 125,000		Medicare stand-alone PDP membership excludes LI-NET
State-based Medicaid		Up 20,000 to 25,000		Up 225,000 to 275,000		Includes Medicaid Temporary Assistance for Needy Families (TANF) which are generally reinsured through partnering relationships, and Long-Term Support Services (LTSS) membership from state-based contracts(a) .
Individual commercial		Up 50,000 to 60,000		Down 100,000 to Up 100,000		FY14 individual commercial includes membership expectations for both on-exchange and off-exchange enrollment
Medicare Supplement		Up 15,000 to 25,000		Up 20,000 to 40,000
Employer Group Segment
Medicare Advantage		Up 50,000 to 60,000		Up 50,000 to 70,000		Medicare Advantage fully-insured only
Commercial fully-insured		Relatively unchanged		Down 20,000 to 50,000
Commercial ASO		Down 70,000 to 80,000		Down 40,000 to 75,000

 

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Humana Inc. – Earnings Guidance Points as of November 6, 2013

 

(in accordance with Generally Accepted Accounting Principles)		For the year ending December 31, 2013 (FY13)		For the year ending December 31, 2014 (FY14)		Comments
Benefit ratios						Benefits expense as a percent of premiums.
Retail Segment		84.0% to 84.5%		83.0% to 85.0%
Employer Group Segment		83.5% to 84.0%		83.75% to 84.25%
Operating cost ratios						Operating costs as a percent of total revenues excluding investment income
Consolidated		15.0% to 15.5%		15.4% to 16.0%
Healthcare Services Segment		95.5% to 96.0%		95.5% to 96.0%
Consolidated depreciation and amortization (D&A)						Certain D&A is included in benefits expense on the income statement but shown as a non-cash item on the cash flows statement
Income statement		$325 million to $345 million		$340 million to $360 million
Cash flows statement		$415 million to $435 million		$445 million to $465 million
Consolidated interest expense		$140 million to $145 million		$140 million to $145 million
Pretax results						Segment-level pretax results include the impact of net investment income
Retail Segment		$1.25 billion to $1.35 billion		$1.35 billion to $1.45 billion
Employer Group Segment		$290 million to $310 million		$250 million to $300 million
Healthcare Services Segment		$525 million to $545 million		$500 million to $550 million
Effective Tax Rate		Approximately 36%		45% to 47%		Increase reflects the non-deductibility of the industry fee that becomes effective in FY14.
Diluted shares		Approximately 160 million		Approximately 161 million		Projections exclude the impact of future share repurchases
Cash flows from operations		$2.0 billion to $2.2 billion		$1.8 billion to $2.0 billion
Capital expenditures		$425 million to $450 million		$500 million to $550 million

 

13

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Humana Inc. – Earnings Guidance Points as of November 6, 2013

 

Key Assumptions Affecting 2014 Guidance*		* Expectation mid-points used for simplicity

Dollars in millions except per share amounts

 

		Pretax Income
		Retail				Employer Group				Healthcare Services				Other				Consolidated				EPS
FY13 Guidance		$	1,300			$	300			$	535			$	35			$	2,170			$	8.70
Changes in core operating margins			275				(10	)			(10	)			2				257				1.01
Membership growth			70				25				—				—				95				0.38
2013 items not expected to recur in 2014:
Prior period development			(70	)			(40	)			—				—				(110	)			(0.43	)
1Q13 settlement with DoD			—				—				—				(48	)			(48	)			(0.19	)
2Q13 Puerto Rico Medicaid exit costs			—				—				—				31				31				0.12
Investments in state-based contracts and health care exchange businesses, primarily start-up costs			(175	)			—				—				—				(175	)			(0.70	)
Increase in effective tax rate																							(1.39	)
FY14 Guidance		$	1,400			$	275			$	525			$	20			$	2,220			$	7.50

 

14

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Humana Inc.

Statistical Schedules

And

Supplementary Information

3Q13 Earnings Release

 

 

S-1

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Humana Inc.

Statistical Schedules and Supplementary Information

3Q13 Earnings Release

Contents

 

Page		Description
S-3-4		Consolidated Statements of Income
S-5-6		Quarterly Segment Financial Information
S-7-8		YTD Segment Financial Information
S-9		Consolidated Balance Sheets
S-10-11		Consolidated Statements of Cash Flows
S-12		Key Income Statement Ratios and Segment Operating Results
S-13-15		Healthcare Services Segment Metrics
S-16		Membership Detail
S-17-18		Premiums and Services Revenue Detail
S-19		Medicare Summary
S-20		Investments
S-21-23		Benefits Payable Detail and Statistics
S-24		Footnotes

 

S-2

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Humana Inc.

Consolidated Statements of Income

Dollars in millions, except per common share results

 

		Three Months Ended September 30,
										Dollar				Percentage
		2013				2012				Change				Change
Revenues:
Premiums		$	9,698			$	9,088			$	610				6.7	%
Services			528				467				61				13.1	%
Investment income			93				96				(3	)			-3.1	%
Total revenues			10,319				9,651				668				6.9	%
Operating expenses:
Benefits			8,075				7,467				608				8.1	%
Operating costs			1,540				1,408				132				9.4	%
Depreciation and amortization			83				75				8				10.7	%
Total operating expenses			9,698				8,950				748				8.4	%
Income from operations			621				701				(80	)			-11.4	%
Interest expense			35				26				9				34.6	%
Income before income taxes			586				675				(89	)			-13.2	%
Provision for income taxes			218				249				(31	)			-12.4	%
Net income		$	368			$	426			$	(58	)			-13.6	%
Basic earnings per common share		$	2.34			$	2.65			$	(0.31	)			-11.7	%
Diluted earnings per common share		$	2.31			$	2.62			$	(0.31	)			-11.8	%
Shares used in computing basic earnings per common share (000’s)			157,187				160,639
Shares used in computing diluted earnings per common share (000’s)			158,907				162,418

 

S-3

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Humana Inc.

Consolidated Statements of Income

Dollars in millions, except per common share results

 

		Nine Months Ended September 30,
										Dollar				Percentage
		2013				2012				Change				Change
Revenues:
Premiums		$	29,267			$	28,029			$	1,238				4.4	%
Services			1,581				1,251				330				26.4	%
Investment income			278				289				(11	)			-3.8	%
Total revenues			31,126				29,569				1,557				5.3	%
Operating expenses:
Benefits			24,361				23,469				892				3.8	%
Operating costs			4,447				4,175				272				6.5	%
Depreciation and amortization			243				218				25				11.5	%
Total operating expenses			29,051				27,862				1,189				4.3	%
Income from operations			2,075				1,707				368				21.6	%
Interest expense			105				78				27				34.6	%
Income before income taxes			1,970				1,629				341				20.9	%
Provision for income taxes			709				599				110				18.4	%
Net income		$	1,261			$	1,030			$	231				22.4	%
Basic earnings per common share		$	7.98			$	6.34			$	1.64				25.9	%
Diluted earnings per common share		$	7.90			$	6.27			$	1.63				26.0	%
Shares used in computing basic earnings per common share (000’s)			158,026				162,391
Shares used in computing diluted earnings per common share (000’s)			159,611				164,382

 

S-4

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Humana Inc.

3Q13 Segment Financial Information

In millions

 

						Employer				Healthcare				Other				Eliminations/
		Retail				Group				Services				Businesses				Corporate				Consolidated
Revenues - external customers
Premiums:
Medicare Advantage		$	5,552			$	1,193			$	—			$	—			$	—			$	6,745
Medicare stand-alone PDP			740				2				—				—				—				742
Total Medicare			6,292				1,195				—				—				—				7,487
Fully-insured			292				1,278				—				—				—				1,570
Specialty			54				273				—				—				—				327
Military services			—				—				—				6				—				6
Medicaid and other (A)			76				—				—				232				—				308
Total premiums			6,714				2,746				—				238				—				9,698
Services revenue:
Provider			—				5				311				—				—				316
ASO and other (B)			3				84				—				108				—				195
Pharmacy			—				—				17				—				—				17
Total services revenue			3				89				328				108				—				528
Total revenues - external customers			6,717				2,835				328				346				—				10,226
Intersegment revenues
Services			—				14				2,949				—				(2,963	)			—
Products			—				—				716				—				(716	)			—
Total intersegment revenues			—				14				3,665				—				(3,679	)			—
Investment income			19				10				—				15				49				93
Total revenues			6,736				2,859				3,993				361				(3,630	)			10,319
Operating expenses:
Benefits			5,647				2,316				—				230				(118	)			8,075
Operating costs			718				449				3,800				103				(3,530	)			1,540
Depreciation and amortization			33				25				37				5				(17	)			83
Total operating expenses			6,398				2,790				3,837				338				(3,665	)			9,698
Income from operations			338				69				156				23				35				621
Interest expense			—				—				—				—				35				35
Income before income taxes		$	338			$	69			$	156			$	23			$	—			$	586
Benefit ratio			84.1	%			84.3	%							96.6	%							83.3	%
Operating cost ratio			10.7	%			15.8	%			95.2	%			29.8	%							15.1	%

 

S-5

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Humana Inc.

3Q12 Segment Financial Information (Recast) (C)

In millions

 

						Employer				Healthcare				Other				Eliminations/
		Retail				Group				Services				Businesses				Corporate				Consolidated
Revenues—external customers
Premiums:
Medicare Advantage		$	5,203			$	1,023			$	—			$	—			$	—			$	6,226
Medicare stand-alone PDP			699				2				—				—				—				701
Total Medicare			5,902				1,025				—				—				—				6,927
Fully-insured			255				1,256				—				—				—				1,511
Specialty			45				271				—				—				—				316
Military services			—				—				—				69				—				69
Medicaid and other (A)			47				—				—				218				—				265
Total premiums			6,249				2,552				—				287				—				9,088
Services revenue:
Provider			—				3				268				—				—				271
ASO and other (B)			6				88				—				99				—				193
Pharmacy			—				—				3				—				—				3
Total services revenue			6				91				271				99				—				467
Total revenues—external customers			6,255				2,643				271				386				—				9,555
Intersegment revenues
Services			1				5				2,306				—				(2,312	)			—
Products			—				—				602				—				(602	)			—
Total intersegment revenues			1				5				2,908				—				(2,914	)			—
Investment income			19				11				—				14				52				96
Total revenues			6,275				2,659				3,179				400				(2,862	)			9,651
Operating expenses:
Benefits			5,150				2,168				—				232				(83	)			7,467
Operating costs			675				421				3,013				108				(2,809	)			1,408
Depreciation and amortization			32				23				22				4				(6	)			75
Total operating expenses			5,857				2,612				3,035				344				(2,898	)			8,950
Income from operations			418				47				144				56				36				701
Interest expense			—				—				—				—				26				26
Income before income taxes		$	418			$	47			$	144			$	56			$	10			$	675
Benefit ratio			82.4	%			85.0	%							80.8	%							82.2	%
Operating cost ratio			10.8	%			15.9	%			94.8	%			28.0	%							14.7	%

 

S-6

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Humana Inc.

YTD 3Q13 Segment Financial Information

In millions

 

						Employer				Healthcare				Other				Eliminations/
		Retail				Group				Services				Businesses				Corporate				Consolidated
Revenues—external customers
Premiums:
Medicare Advantage		$	16,860			$	3,543			$	—			$	—			$	—			$	20,403
Medicare stand-alone PDP			2,286				6				—				—				—				2,292
Total Medicare			19,146				3,549				—				—				—				22,695
Fully-insured			856				3,819				—				—				—				4,675
Specialty			155				823				—				—				—				978
Military services			—				—				—				22				—				22
Medicaid and other (A)			227				—				—				670				—				897
Total premiums			20,384				8,191				—				692				—				29,267
Services revenue:
Provider			—				13				930				—				—				943
ASO and other (B)			7				250				—				342				—				599
Pharmacy			—				—				39				—				—				39
Total services revenue			7				263				969				342				—				1,581
Total revenues—external customers			20,391				8,454				969				1,034				—				30,848
Intersegment revenues
Services			—				37				8,556				—				(8,593	)			—
Products			—				—				2,050				—				(2,050	)			—
Total intersegment revenues			—				37				10,606				—				(10,643	)			—
Investment income			55				31				—				45				147				278
Total revenues			20,446				8,522				11,575				1,079				(10,496	)			31,126
Operating expenses:
Benefits			17,272				6,728				—				668				(307	)			24,361
Operating costs			1,971				1,318				11,054				347				(10,243	)			4,447
Depreciation and amortization			97				75				109				13				(51	)			243
Total operating expenses			19,340				8,121				11,163				1,028				(10,601	)			29,051
Income from operations			1,106				401				412				51				105				2,075
Interest expense			—				—				—				—				105				105
Income before income taxes		$	1,106			$	401			$	412			$	51			$	—			$	1,970
Benefit ratio			84.7	%			82.1	%							96.5	%							83.2	%
Operating cost ratio			9.7	%			15.5	%			95.5	%			33.6	%							14.4	%

 

S-7

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Humana Inc.

YTD 3Q12 Segment Financial Information (Recast) (C)

In millions

 

						Employer				Healthcare				Other				Eliminations/
		Retail				Group				Services				Businesses				Corporate				Consolidated
Revenues—external customers
Premiums:
Medicare Advantage		$	15,604			$	3,059			$	—			$	—			$	—			$	18,663
Medicare stand-alone PDP			2,170				6				—				—				—				2,176
Total Medicare			17,774				3,065				—				—				—				20,839
Fully-insured			749				3,745				—				—				—				4,494
Specialty			125				793				—				—				—				918
Military services			—				—				—				1,006				—				1,006
Medicaid and other (A)			138				—				—				634				—				772
Total premiums			18,786				7,603				—				1,640				—				28,029
Services revenue:
Provider			—				7				742				—				—				749
ASO and other (B)			17				266				—				208				—				491
Pharmacy			—				—				11				—				—				11
Total services revenue			17				273				753				208				—				1,251
Total revenues—external customers			18,803				7,876				753				1,848				—				29,280
Intersegment revenues
Services			2				22				7,130				—				(7,154	)			—
Products			—				—				1,777				—				(1,777	)			—
Total intersegment revenues			2				22				8,907				—				(8,931	)			—
Investment income			58				31				—				43				157				289
Total revenues			18,863				7,929				9,660				1,891				(8,774	)			29,569
Operating expenses:
Benefits			15,905				6,284				—				1,549				(269	)			23,469
Operating costs			1,950				1,285				9,202				325				(8,587	)			4,175
Depreciation and amortization			95				67				61				12				(17	)			218
Total operating expenses			17,950				7,636				9,263				1,886				(8,873	)			27,862
Income from operations			913				293				397				5				99				1,707
Interest expense			—				—				—				—				78				78
Income before income taxes		$	913			$	293			$	397			$	5			$	21			$	1,629
Benefit ratio			84.7	%			82.7	%							94.5	%							83.7	%
Operating cost ratio			10.4	%			16.3	%			95.3	%			17.6	%							14.3	%

 

S-8

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Humana Inc.

Consolidated Balance Sheets

Dollars in millions, except share amounts

 

		September 30, 2013				December 31, 2012				YTD Change
										Dollar				Percent
Assets
Current assets:
Cash and cash equivalents		$	1,255			$	1,306
Investment securities			8,262				8,001
Receivables, net			824				733
Other current assets			2,232				1,670
Total current assets			12,573				11,710			$	863				7.4	%
Property and equipment, net			1,180				1,098
Long-term investment securities			1,737				1,846
Goodwill			3,716				3,640
Other long-term assets			1,697				1,685
Total assets			20,903				19,979			$	924				4.6	%
Liabilities and Stockholders’ Equity
Current liabilities:
Benefits payable			4,070				3,779
Trade accounts payable and accrued expenses			2,010				2,042
Book overdraft			273				324
Unearned revenues			198				230
Total current liabilities			6,551				6,375			$	176				2.8	%
Long-term debt			2,603				2,611
Future policy benefits payable			1,827				1,858
Other long-term liabilities			316				288
Total liabilities			11,297				11,132			$	165				1.5	%
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; 196,119,727 issued at September 30, 2013			32				32
Capital in excess of par value			2,242				2,101
Retained earnings			9,014				7,881
Accumulated other comprehensive income			196				386
Treasury stock, at cost, 40,206,428 shares at September 30, 2013			(1,878	)			(1,553	)
Total stockholders’ equity			9,606				8,847			$	759				8.6	%
Total liabilities and stockholders’ equity		$	20,903			$	19,979			$	924				4.6	%
Debt-to-total capitalization ratio			21.3	%			22.8	%
Return on Invested Capital (ROIC) - trailing 12 months			12.9	%			11.5	%

 

S-9

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Humana Inc.

Consolidated Statements of Cash Flows

Dollars in millions

 

		Three Months Ended September 30,
										Dollar Change				Percentage Change
		2013				2012
Cash flows from operating activities
Net income		$	368			$	426
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization			106				78
Net realized capital gains			(4	)			(6	)
Stock-based compensation			22				14
Provision for deferred income taxes			39				3
Changes in operating assets and liabilities, net of effect of businesses acquired:
Receivables			771				259
Other assets			(57	)			14
Benefits payable			(91	)			(39	)
Other liabilities			(28	)			70
Unearned revenues			5				(2,172	)
Other, net			16				19
Net cash provided by (used in) operating activities			1,147				(1,334	)		$	2,481				186.0	%
Cash flows from investing activities
Acquisitions, net of cash acquired			(149	)			(212	)
Purchases of property and equipment			(123	)			(119	)
Purchases of investment securities			(1,280	)			(802	)
Maturities of investment securities			304				354
Proceeds from sales of investment securities			253				365
Net cash used in investing activities			(995	)			(414	)		($	581	)			-140.3	%
Cash flows from financing activities
Receipts (withdrawals) from contract deposits, net			(333	)			(499	)
Change in book overdraft			27				17
Common stock repurchases			(94	)			(235	)
Excess tax benefit from stock-based compensation			6				—
Dividends paid			(42	)			(42	)
Proceeds from stock option exercises and other			20				1
Net cash used in financing activities			(416	)			(758	)		$	342				45.1	%
Decrease in cash and cash equivalents			(264	)			(2,506	)
Cash and cash equivalents at beginning of period			1,519				3,869
Cash and cash equivalents at end of period		$	1,255			$	1,363

 

S-10

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Humana Inc.

Consolidated Statements of Cash Flows

Dollars in millions

 

		Nine Months Ended September 30,
										Dollar Change				Percentage Change
		2013				2012
Cash flows from operating activities
Net income		$	1,261			$	1,030
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization			312				238
Net realized capital gains			(14	)			(20	)
Stock-based compensation			73				68
Provision (benefit) for deferred income taxes			31				(6	)
Changes in operating assets and liabilities, net of effect of businesses acquired:
Receivables			(89	)			436
Other assets			(165	)			(236	)
Benefits payable			287				131
Other liabilities			24				121
Unearned revenues			(32	)			(95	)
Other, net			44				51
Net cash provided by operating activities			1,732				1,718			$	14				0.8	%
Cash flows from investing activities
Acquisitions, net of cash acquired			(161	)			(288	)
Purchases of property and equipment			(310	)			(304	)
Proceeds from sale of business			33				—
Purchases of investment securities			(2,665	)			(2,166	)
Maturities of investment securities			853				1,111
Proceeds from sales of investment securities			1,107				894
Net cash used in investing activities			(1,143	)			(753	)		($	390	)			-51.8	%
Cash flows from financing activities
Receipts (withdrawals) from contract deposits, net			(201	)			(347	)
Repayment of long-term debt			—				(36	)
Change in book overdraft			(51	)			(29	)
Common stock repurchases			(325	)			(513	)
Excess tax benefit from stock-based compensation			6				21
Dividends paid			(125	)			(124	)
Proceeds from stock option exercises and other			56				49
Net cash used in financing activities			(640	)			(979	)		$	339				34.6	%
Decrease in cash and cash equivalents			(51	)			(14	)
Cash and cash equivalents at beginning of period			1,306				1,377
Cash and cash equivalents at end of period		$	1,255			$	1,363

 

S-11

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Humana Inc.

Key Income Statement Ratios and Segment Operating Results

Dollars in millions

 

		Three Months Ended September 30,																Nine Months Ended September 30,
														Percentage																Percentage
		2013				2012				Difference				Change				2013				2012				Difference				Change
Benefit ratio
Retail			84.1	%			82.4	%			1.7	%							84.7	%			84.7	%			0.0	%
Employer Group			84.3	%			85.0	%			-0.7	%							82.1	%			82.7	%			-0.6	%
Other Businesses			96.6	%			80.8	%			15.8	%							96.5	%			94.5	%			2.0	%
Consolidated			83.3	%			82.2	%			1.1	%							83.2	%			83.7	%			-0.5	%
Operating cost ratio
Retail			10.7	%			10.8	%			-0.1	%							9.7	%			10.4	%			-0.7	%
Employer Group			15.8	%			15.9	%			-0.1	%							15.5	%			16.3	%			-0.8	%
Healthcare Services			95.2	%			94.8	%			0.4	%							95.5	%			95.3	%			0.2	%
Other Businesses			29.8	%			28.0	%			1.8	%							33.6	%			17.6	%			16.0	%
Consolidated			15.1	%			14.7	%			0.4	%							14.4	%			14.3	%			0.1	%
Detail of pretax income
Retail		$	338			$	418				($80	)			-19.1	%		$	1,106			$	913			$	193				21.1	%
Employer Group		$	69			$	47			$	22				46.8	%		$	401			$	293			$	108				36.9	%
Healthcare Services		$	156			$	144			$	12				8.3	%		$	412			$	397			$	15				3.8	%
Other Businesses		$	23			$	56				($33	)			-58.9	%		$	51			$	5			$	46				920.0	%
Consolidated		$	586			$	675				($89	)			-13.2	%		$	1,970			$	1,629			$	341				20.9	%

 

S-12

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Humana Inc.

Healthcare Services Segment Metrics

 

		Quarter Ended				Quarter Ended												Quarter Ended
		September 30, 2013				September 30, 2012				Difference								June 30, 2013				Difference
Primary Care Providers:
Risk (D)
Owned / JV			2,900				1,200				1,700				141.7	%			2,900				—				0.0	%
Contracted			8,200				6,700				1,500				22.4	%			7,900				300				3.8	%
Path-to-Risk (E)			21,900				17,500				4,400				25.1	%			21,800				100				0.5	%
Care Management Professionals:
Employed			4,800				2,600				2,200				84.6	%			3,600				1,200				33.3	%
Contracted			6,400				3,200				3,200				100.0	%			5,400				1,000				18.5	%
Total			11,200				5,800				5,400				93.1	%			9,000				2,200				24.4	%
Care Management Statistics:
Number of members with complex chronic conditions in Humana Chronic Care Program			248,000				138,000				110,000								212,000				36,000
Number of high-risk discharges enrolled in Humana Transitions Program			11,500				—				11,500								5,500				6,000

 

S-13

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Humana Inc.

Healthcare Services Segment Metrics (Continued)

Script volume in thousands

 

		Quarter Ended				Quarter Ended				Year-over-Year								Quarter Ended				Sequential
		September 30, 2013				September 30, 2012				Difference								June 30, 2013				Difference
Pharmacy:
Generic Dispense Rate
Retail			86.2	%			85.3	%			0.9	%							86.4	%			-0.2	%
Employer Group			79.8	%			77.2	%			2.6	%							79.4	%			0.4	%
Total			85.5	%			84.5	%			1.0	%							85.6	%			-0.1	%
Mail-Order Penetration
Retail			23.3	%			23.0	%			0.3	%							22.6	%			0.7	%
Employer Group			14.5	%			15.2	%			-0.7	%							14.2	%			0.3	%
Total			22.3	%			22.2	%			0.1	%							21.6	%			0.7	%
														Percentage												Percentage
										Difference				Change								Difference				Change
Script volume
Retail			61,800				53,100				8,700				16.4	%			60,000				1,800				3.0	%
Employer Group			7,900				6,900				1,000				14.5	%			7,800				100				1.3	%
Total			69,700				60,000				9,700				16.2	%			67,800				1,900				2.8	%

 

S-14

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Humana Inc.

Healthcare Services Segment Metrics (Continued)

Script volume in thousands

 

		Nine Months Ended				Nine Months Ended				Year-over-Year
		September 30, 2013				September 30, 2012				Difference
Pharmacy:
Generic Dispense Rate
Retail			86.3	%			84.0	%			2.3	%
Employer Group			79.7	%			75.6	%			4.1	%
Total			85.6	%			83.1	%			2.5	%
Mail-Order Penetration
Retail			22.9	%			23.1	%			-0.2	%
Employer Group			14.5	%			15.6	%			-1.1	%
Total			22.0	%			22.3	%			-0.3	%
														Percentage
										Difference				Change
Script volume
Retail			180,500				157,600				22,900				14.5	%
Employer Group			23,300				19,500				3,800				19.5	%
Total			203,800				177,100				26,700				15.1	%

 

S-15

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Humana Inc.

Membership Detail

In thousands

 

		Ending				Average				Ending				Year-over-Year Change								Ending				YTD Change
		September 30, 2013				3Q13				September 30, 2012				Amount				Percent				December 31, 2012				Amount				Percent
Medical Membership:
Retail
Medicare Advantage			2,044.4				2,039.5				1,911.8				132.6				6.9	%			1,927.6				116.8				6.1	%
Medicare stand-alone PDPs			3,255.1				3,243.2				3,021.1				234.0				7.7	%			3,052.7				202.4				6.6	%
Individual commercial			492.8				487.2				443.4				49.4				11.1	%			444.0				48.8				11.0	%
State-based Medicaid			80.0				74.0				49.6				30.4				61.3	%			52.1				27.9				53.6	%
Medicare Supplement			92.5				92.1				75.2				17.3				23.0	%			77.4				15.1				19.5	%
Total Retail			5,964.8				5,936.0				5,501.1				463.7				8.4	%			5,553.8				411.0				7.4	%
Employer Group
Medicare Advantage fully-insured			425.4				423.8				367.9				57.5				15.6	%			370.8				54.6				14.7	%
Medicare Advantage ASO			—				—				27.8				(27.8	)			-100.0	%			27.7				(27.7	)			-100.0	%
Medicare stand-alone PDPs			4.2				4.2				4.4				(0.2	)			-4.5	%			4.4				(0.2	)			-4.5	%
Fully-insured medical commercial			1,198.6				1,193.2				1,204.5				(5.9	)			-0.5	%			1,211.8				(13.2	)			-1.1	%
ASO commercial			1,161.0				1,162.0				1,231.1				(70.1	)			-5.7	%			1,237.7				(76.7	)			-6.2	%
Total Employer Group			2,789.2				2,783.2				2,835.7				(46.5	)			-1.6	%			2,852.4				(63.2	)			-2.2	%
Other Businesses
Military services			3,103.5				3,099.3				3,124.6				(21.1	)			-0.7	%			3,123.9				(20.4	)			-0.7	%
Puerto Rico Medicaid and other			556.2				558.1				557.5				(1.3	)			-0.2	%			558.7				(2.5	)			-0.4	%
Total Other Businesses			3,659.7				3,657.4				3,682.1				(22.4	)			-0.6	%			3,682.6				(22.9	)			-0.6	%
Total Medical Membership			12,413.7				12,376.6				12,018.9				394.8				3.3	%			12,088.8				324.9				2.7	%
Specialty Membership:
Retail
Dental - fully-insured			741.2				735.8				685.3				55.9				8.2	%			691.5				49.7				7.2	%
Vision			154.2				151.3				113.8				40.4				35.5	%			118.7				35.5				29.9	%
Other supplemental benefits (F)			144.5				143.8				141.7				2.8				2.0	%			138.5				6.0				4.3	%
Total Retail			1,039.9				1,030.9				940.8				99.1				10.5	%			948.7				91.2				9.6	%
Employer Group
Dental - fully-insured			2,496.1				2,499.7				2,431.0				65.1				2.7	%			2,446.4				49.7				2.0	%
Dental - ASO			872.1				868.1				863.1				9.0				1.0	%			868.3				3.8				0.4	%
Vision			2,496.7				2,524.6				2,515.5				(18.8	)			-0.7	%			2,525.0				(28.3	)			-1.1	%
Other supplemental benefits (F)			1,342.4				1,346.1				1,279.0				63.4				5.0	%			1,296.5				45.9				3.5	%
Total Employer Group			7,207.3				7,238.5				7,088.6				118.7				1.7	%			7,136.2				71.1				1.0	%
Total Specialty Membership			8,247.2				8,269.4				8,029.4				217.8				2.7	%			8,084.9				162.3				2.0	%

 

S-16

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Humana Inc.

Premiums and Services Revenue Detail

Dollars in millions, except per member per month

 

																		Per Member per Month (G)
		Three Months Ended September 30,								Dollar				Percentage				Three Months Ended September 30,
		2013				2012				Change				Change				2013				2012
Premiums and Services Revenue
Retail:
Medicare Advantage		$	5,552			$	5,203			$	349				6.7	%		$	907			$	909
Medicare stand-alone PDPs			740				699				41				5.9	%			76				78
Individual commercial			246				219				27				12.3	%			168				165
State-based Medicaid			76				47				29				61.7	%			342				324
Medicare Supplemental			46				36				10				27.8	%			166				162
Specialty			54				45				9				20.0	%			17				16
ASO & other services (B)			3				7				(4	)			-57.1	%
Total Retail			6,717				6,256				461				7.4	%
Employer Group:
Medicare Advantage fully-insured			1,193				1,023				170				16.6	%			938				929
Medicare stand-alone PDPs			2				2				—				0.0	%
Fully-insured medical commercial			1,278				1,256				22				1.8	%			357				348
Specialty			273				271				2				0.7	%			14				15
ASO & other services (B)			103				96				7				7.3	%
Total Employer Group			2,849				2,648				201				7.6	%
Healthcare Services:
Pharmacy solutions			3,347				2,770				577				20.8	%
Provider services			502				311				191				61.4	%
Home care services			111				62				49				79.0	%
Integrated behavioral health			33				36				(3	)			-8.3	%
Total Healthcare Services			3,993				3,179				814				25.6	%
Other Businesses:
Military services (H)			91				155				(64	)			-41.3	%
Puerto Rico Medicaid and other (I)			255				231				24				10.4	%			139				130
Total Other Businesses		$	346			$	386			$	(40	)			-10.4	%

 

S-17

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Humana Inc.

Premiums and Services Revenue Detail

Dollars in millions, except per member per month

 

																		Per Member per Month (G)
		Nine Months Ended September 30,								Dollar				Percentage				Nine Months Ended September 30,
		2013				2012				Change				Change				2013				2012
Premiums and Services Revenue
Retail:
Medicare Advantage		$	16,860			$	15,604			$	1,256				8.0	%		$	925			$	923
Medicare stand-alone PDPs			2,286				2,170				116				5.3	%			79				81
Individual commercial			723				645				78				12.1	%			171				162
State-based Medicaid			227				138				89				64.5	%			342				323
Medicare Supplemental			133				104				29				27.9	%			165				165
Specialty			155				125				30				24.0	%			17				16
ASO & other services (B)			7				19				(12	)			-63.2	%
Total Retail			20,391				18,805				1,586				8.4	%
Employer Group:
Medicare Advantage fully-insured			3,543				3,059				484				15.8	%			944				941
Medicare stand-alone PDPs			6				6				—				0.0	%
Fully-insured medical commercial			3,819				3,745				74				2.0	%			354				349
Specialty			823				793				30				3.8	%			14				14
ASO & other services (B)			300				295				5				1.7	%
Total Employer Group			8,491				7,898				593				7.5	%
Healthcare Services:
Pharmacy solutions			9,666				8,536				1,130				13.2	%
Provider services			1,524				884				640				72.4	%
Home care services			289				140				149				106.4	%
Integrated behavioral health			96				100				(4	)			-4.0	%
Total Healthcare Services			11,575				9,660				1,915				19.8	%
Other Businesses:
Military services (H)			302				1,191				(889	)			-74.6	%
Puerto Rico Medicaid and other (I)			732				657				75				11.4	%			134				126
Total Other Businesses		$	1,034			$	1,848			$	(814	)			-44.0	%

 

S-18

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Humana Inc.

Medicare Summary

Premiums in millions, except per member per month

Membership in thousands

 

																		Per Member per Month (G)
		Three Months Ended September 30,								Year-over-year Change								Three Months Ended September 30,
		2013				2012				Amount				Percent				2013				2012
Premiums
Medicare Advantage		$	6,745			$	6,226			$	519				8.3	%		$	913			$	913
Medicare stand-alone PDPs			742				701				41				5.8	%			76			$	78
Total Medicare		$	7,487			$	6,927			$	560				8.1	%
																		Per Member per Month (G)
		Nine Months Ended September 30,								Year-over-year Change								Nine Months Ended September 30,
		2013				2012				Amount				Percent				2013				2012
Premiums
Medicare Advantage		$	20,403			$	18,663			$	1,740				9.3	%		$	928			$	926
Medicare stand-alone PDPs			2,292				2,176				116				5.3	%			79				82
Total Medicare		$	22,695			$	20,839			$	1,856				8.9	%
		Ending				Ending				Year-over-year Change
		September 30, 2013				September 30, 2012				Amount				Percent
Fully-Insured Membership
Medicare Advantage			2,469.8				2,279.7				190.1				8.3	%
Medicare stand-alone PDPs			3,259.3				3,025.5				233.8				7.7	%
Total Medicare			5,729.1				5,305.2				423.9				8.0	%
										Member Mix
		Ending September 30, 2013				Ending September 30, 2012				September 30, 2013				September 30, 2012
Retail Segment Detail
Medicare Advantage Membership
HMO			1,038.7				925.2				50.8	%			48.4	%
PPO			1,005.7				986.6				49.2	%			51.6	%
Total Individual Medicare			2,044.4				1,911.8				100.0	%			100.0	%
Medicare Advantage Membership
Risk (D)			550.6				504.9				26.9	%			26.4	%
Path-to-Risk (E)			434.2				341.6				21.2	%			17.9	%
Other			1,059.6				1,065.3				51.9	%			55.7	%
Total Individual Medicare			2,044.4				1,911.8				100.0	%			100.0	%

 

S-19

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Humana Inc.

Investments

Dollars in millions

 

		Fair value
		9/30/2013				6/30/2013				12/31/2012
Investment Portfolio:
Cash & cash equivalents		$	1,255			$	1,519			$	1,306
Investment securities			8,262				7,556				8,001
Long-term investment securities			1,737				1,770				1,846
Total investment portfolio		$	11,254			$	10,845			$	11,153
Duration (J)			4.25				4.13				4.02
Average Credit Rating			AA-				AA-				AA-
Investment Portfolio Detail:
Cash and cash equivalents		$	1,255			$	1,519			$	1,306
U.S. Government and agency obligations
U.S. Treasury and agency obligations			623				571				618
U.S. Government residential mortgage-backed			1,775				1,407				1,569
U.S. Government commercial mortgage-backed			32				33				34
Total U.S. Government and agency obligations			2,430				2,011				2,221
Tax-exempt municipal securities
Pre-refunded			290				310				311
Insured			578				602				627
Other			2,149				2,103				2,120
Auction rate securities			13				13				13
Total tax-exempt municipal securities			3,030				3,028				3,071
Residential mortgage-backed
Prime residential mortgages			30				26				32
Alt-A residential mortgages			1				1				1
Sub-prime residential mortgages			1				1				1
Total residential mortgage-backed			32				28				34
Commercial mortgage-backed			710				573				659
Asset-backed securities			77				53				68
Corporate securities
Financial services			879				863				864
Other			2,841				2,770				2,930
Total corporate securities			3,720				3,633				3,794
Total investment portfolio		$	11,254			$	10,845			$	11,153

 

S-20

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Humana Inc.

Detail of Benefits Payable Balance and Year-to-Date Changes

Dollars in millions

 

		September 30,				September 30,				December 31,
		2013				2012				2012
Detail of benefits payable
IBNR and other benefits payable (K)		$	3,277			$	3,097			$	3,158
Unprocessed claim inventories (L)			404				380				302
Processed claim inventories (M)			234				339				230
Payable to pharmacy benefit administrator (N)			155				127				85
Benefits payable, excluding military services			4,070				3,943				3,775
Military services benefits payable (O)			—				15				4
Total Benefits Payable		$	4,070			$	3,958			$	3,779
		Nine Months Ended				Nine Months Ended				Year Ended
		September 30, 2013				September 30, 2012				December 31, 2012
Year-to-date changes in benefits payable, excluding military services (P)
Balances at January 1		$	3,775			$	3,415			$	3,415
Acquisitions			—				73				66
Incurred related to:
Current year			24,738				22,686				30,198
Prior years (Q)			(432	)			(235	)			(257	)
Total incurred			24,306				22,451				29,941
Paid related to:
Current year			(21,000	)			(19,171	)			(26,738	)
Prior years			(3,011	)			(2,825	)			(2,909	)
Total paid			(24,011	)			(21,996	)			(29,647	)
Balances at end of period		$	4,070			$	3,943			$	3,775
		Nine Months Ended				Nine Months Ended				Year Ended
		September 30, 2013				September 30, 2012				December 31, 2012
Summary of Consolidated Benefit Expense:
Total benefit expense incurred, per above		$	24,306			$	22,451			$	29,941
Military services benefit expense			(31	)			908				908
Future policy benefit expense (R)			86				110				136
Consolidated Benefit Expense		$	24,361			$	23,469			$	30,985

 

S-21

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Humana Inc.

Benefits Payable Statistics (S)

Receipt Cycle Time (T)

 

		2013				2012				Change				Percentage Change
1st Quarter Average			12.5				13.0				(0.5	)			-3.8	%
2nd Quarter Average			13.1				13.7				(0.6	)			-4.4	%
3rd Quarter Average			13.4				13.0				0.4				3.1	%
4th Quarter Average			n/a				12.8				n/a				n/a
Full Year Average			13.0				13.1				(0.1	)			-0.8	%

Unprocessed Claims Inventories

 

Date				Estimated Valuation (millions)				Claim Item Counts (000s)				Number of Days on Hand
9/30/2011				$	419				1,272				5.7
12/31/2011				$	280				599				2.8
3/31/2012				$	376				1,028				4.2
6/30/2012				$	310				1,077				4.2
9/30/2012				$	380				1,440				5.7
12/31/2012				$	302				1,061				4.1
3/31/2013				$	327				1,247				4.7
6/30/2013				$	380				1,274				4.7
9/30/2013				$	404				1,879				7.4

 

S-22

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Humana Inc.

Benefits Payable Statistics (Continued) (S)

Days in Claims Payable (U)

 

Quarter Ended				Days in Claims Payable (DCP)				Change Last 4 Quarters				Percentage Change
9/30/2011					54.2				(3.6	)			-6.2	%
12/31/2011					52.5				(1.0	)			-1.9	%
3/31/2012					50.1				(5.4	)			-9.7	%
6/30/2012					51.0				(5.0	)			-8.9	%
9/30/2012					51.6				(2.6	)			-4.8	%
12/31/2012					48.5				(4.0	)			-7.6	%
3/31/2013					49.0				(1.1	)			-2.2	%
6/30/2013					50.7				(0.3	)			-0.6	%
9/30/2013					49.5				(2.1	)			-4.1	%

Year-to-Date Change in Days in Claims Payable (V)

 

		2013				FY 2012
DCP—beginning of period			48.5				52.5
Components of change in DCP:
Change in unprocessed claims inventories			1.2				(0.1	)
Change in processed claims inventories			—				0.3
Change in pharmacy payment cutoff			0.1				(0.1	)
Change in capitation/provider settlements			(0.4	)			(4.3	)
All other			0.1				0.2
DCP—end of period			49.5				48.5

 

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Humana Inc.

Footnotes to Statistical Schedules and Supplementary Information

3Q13 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 primarily comprised of ASO fees and other ancillary services fees.

(C)	Beginning on January 1, 2013, the company reclassified certain businesses and renamed its Health and Well-Being Services segment as Healthcare Services. Prior periods were recast to conform to the current presentation.

(D)

In certain circumstances, the company contracts with providers to accept financial risk for a defined set of Medicare Advantage membership. In transferring this risk, the company prepays these providers a monthly fixed-fee per member to coordinate substantially all of the medical care for their Medicare Advantage members assigned or attributed to their provider panel, including some health benefit administrative functions and claims processing. For these capitated arrangements, the company generally agrees to payment rates that target a benefit expense ratio. The result is a high level of engagement on the part of the provider.

(E)

A path-to-risk provider is one who has a high level of engagement and participates in one of Humana’s pay-for-performance programs (Model Practice or Medical Home) or has a risk contract in place with a trigger (future date or membership threshold) which has not yet been met. In addition to earning incentives, these providers may also have a shared savings component by which they can share in achieved surpluses when the actual cost of the medical services provided to patients assigned or attributed to their panel is less than the agreed upon medical expense target.

(F)	Other supplemental benefits include life, disability, and fixed benefit products including cancer and critical illness policies.

(G)	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).

(H)	Military services revenues are generally not contracted on a per-member basis.

(I)	Includes premiums associated with Puerto Rico Medicaid and the closed block of long-term care as well as services revenue.

(J)	Duration is the time-weighted average of the present value of the fixed income portfolio cash flows.

(K)

IBNR represents an estimate of benefits expense 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.

(L)	Unprocessed claim inventories represent the estimated valuation of claims received but not yet fully processed.

(M)	Processed claim inventories represent the estimated valuation of processed claims that are in the post-claim-adjudication process, which consists of operating functions such as audit and check batching and handling.

(N)	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.

(O)	Military services benefits payable primarily consist of IBNR related to the company’s previous contract that expired on March 31, 2012.

(P)	The table excludes activity associated with military services benefits payable related to the previous contract that expired March 31, 2012.

(Q)

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 medical claim reserves during the quarter.

(R)	Future policy benefit expense has a related liability classified as a long-term liability on the balance sheet.

(S)	Benefits payable statistics represents fully-insured medical claims data and exclude military services claims data and specialty benefits.

(T)

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 94% 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.

(U)	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 benefits expense per day in the quarterly period.

(V)

DCP fluctuates due to a number of factors, the more significant of which are detailed in this roll forward. 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 medical claims reserve recorded upon enrollment later in the quarter. This analysis excludes the impact upon DCP of military services and Medicare stand-alone PDPs.

 

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