Exhibit 99.2

 

news release				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 Fourth Quarter and Full Year 2013 Financial Results;

Reaffirms 2014 Financial Guidance

 

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2014 EPS guidance of $7.25 to $7.75 reaffirmed

 

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2014 Medicare Advantage membership growth estimate raised to 370,000 to 410,000

 

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2014 Medicare stand-alone PDP membership growth estimates raised to 450,000 to 500,000

 

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2014 health care exchange enrollment applications currently exceed 200,000

 

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2013 EPS of $7.73 up 3 percent over the prior year (includes $0.99 per share of benefits expense for closed block long-term care reserves strengthening)

LOUISVILLE, KY (February 5, 2014) – Humana Inc. (NYSE: HUM) today reported a loss per share for the quarter ended December 31, 2013 (4Q13) of $0.19, compared to diluted earnings per common share (EPS) of $1.19 for the quarter ended December 31, 2012 (4Q12). For the year ended December 31, 2013 (FY13) the company reported EPS of $7.73 compared to $7.47 for the year ended December 31, 2012 (FY12).

 

$ in millions except EPS		FY13 GAAP				FY13 Non-GAAP(a)				FY12 GAAP				Year-over- year Change
Pretax Results:
Retail Segment		$	1,283			$	1,283			$	1,161				11	%
Employer Group Segment		$	322			$	322			$	277				16	%
Healthcare Services Segment		$	549			$	549			$	463				19	%
Other Businesses			($193	)		$	50				($18	)
Consolidated		$	1,921			$	2,164			$	1,911				13	%
EPS		$	7.73			$	8.72			$	7.47				17	%

Full-year pretax results rose year over year for each of the company’s business segments. The full-year pretax loss for Other Businesses included incremental pretax benefits expense of $243 million ($0.99 per share) ^(b) in 4Q13 for reserve strengthening in the company’s closed block of long-term care insurance policies as described further below.

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The company reaffirmed its estimate for EPS for the year ending December 31, 2014 (FY14) to be in the range of $7.25 to $7.75. The company’s 2014 EPS estimate reflects a continuing expectation of solid performance from the company’s existing businesses as well as the previously disclosed $0.50 to $0.90 per share in investment spending and startup expenses for the company’s newer state-based contracts^(c) and health care exchange businesses.

“We are pleased that all of Humana’s business segments showed improved results year over year in 2013,” said Bruce D. Broussard, President and Chief Executive Officer of Humana. “Although we continue to have confidence in our 2014 earnings projections given the strength of our integrated care delivery model and better-than-expected Medicare membership growth, continued growth in 2015 and beyond will be driven by the degree of headwinds presented by public policy surrounding government programs.”

CONSOLIDATED HIGHLIGHTS

Consolidated revenues

The 4Q13 consolidated revenues were $10.19 billion, an increase of 7 percent from $9.56 billion in 4Q12, with total premiums and services revenue also up 7 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.

FY13 consolidated revenues rose $2.19 billion, or 6 percent, to $41.31 billion from $39.13 billion in FY12, with total premiums and services revenue of $40.94 billion up 6 percent, increasing $2.20 billion from $38.74 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 4Q13 consolidated benefit ratio (benefits expense as a percent of premiums) of 85.8 percent increased by 210 basis points from 83.7 percent for the prior year’s quarter due primarily to $243 million in incremental pretax benefits expense for the reserves strengthening in the company’s closed block of long-term care insurance policies described below. The company experienced favorable prior-year medical claims reserve development of $42 million in 4Q13 compared to $22 million in 4Q12.

The FY13 consolidated benefit ratio of 83.9 percent increased by 20 basis points from 83.7 percent in FY12 also due primarily to the 4Q13 long-term care reserve strengthening. The company experienced favorable prior-year medical claims reserve development of approximately $474 million in FY13 compared to $257 million in FY12.

 

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Consolidated operating expenses

The consolidated operating cost ratio (operating costs as a percent of total revenues less investment income) of 18.9 percent for 4Q13 increased from 17.5 percent in 4Q12, primarily reflecting higher Retail and Employer Group ratios, partially offset by improved operating leverage in the Healthcare Services segment.

The FY13 consolidated operating cost ratio of 15.5 percent increased from 15.1 percent in FY12, due to the impact of the accounting treatment for the company’s TRICARE South Region contract as described above, partially offset by improved operating leverage in our Retail, Employer Group, and Healthcare Services segments.

Closed block of long-term care insurance policies

In connection with its strategic acquisition of KMG America in 2007, the company acquired a non-strategic closed block of long-term care insurance policies. These policies were sold between 1995 and 2005, of which 33,300 remained in force as of December 31, 2013. During 4Q13 the company recorded a reserve strengthening of $243 million pretax, or $0.99 per share^(b), for this closed block of policies as it determined that the present value of future premiums, together with its existing reserves were not adequate to provide for future policy benefits. This adjustment was driven primarily by an increase in policyholder longevity and persistency, increases in home health care utilization and a lower interest rate environment. The effect on statutory surplus for the impacted insurance subsidiary was significantly offset by the utilization of tax loss carry-forwards. As a result, there is no significant impact expected on subsidiary dividends or parent cash flows for 2014.

Balance sheet

At December 31, 2013, the company had cash, cash equivalents, and investment securities of $10.94 billion, down $215 million from $11.15 billion at December 31, 2012, reflecting lower net unrealized gains due to the increase in market interest rates during 2013, partially offset by higher balances associated with increased revenues for FY13 versus FY12.

Parent company cash and short-term investments of $508 million at December 31, 2013 decreased $168 million from $676 million at September 30, 2013, primarily reflecting share repurchases, capital expenditures, and payment of a cash dividend to shareholders during 4Q13. Cash and short-term investments at the parent increased $162 million year over year from $346 million at December 31, 2012, due primarily to a higher profit contribution by non-regulated businesses and lower subsidiary capital contributions, partially offset by higher share repurchase activity.

Days in claims payable of 47.8 at December 31, 2013 decreased 1.7 days from 49.5 days at September 30, 2013 due to a reduction in claims inventories.

 

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Debt-to-total capitalization at December 31, 2013 was 21.8 percent, up 50 basis points from 21.3 percent at September 30, 2013, and down 100 basis points from 22.8 percent at December 31, 2012. The year-over-year decline reflects higher net income for the full year, while the sequential increase results primarily from the reserve strengthening in the closed block of long-term care insurance policies discussed above.

Cash flows from operations

Cash flows used in operations for 4Q13 were $16 million compared to cash flows provided by operations of $205 million in 4Q12. For FY13, cash flows provided by operations totaled $1.72 billion versus $1.92 billion during FY12. The 4Q13 year-over-year decrease in cash flows from operations primarily reflects increased marketing and distribution costs in 4Q13 associated with higher-than-projected sales from the recently completed Annual Election Period (AEP) for Medicare beneficiaries together with investment spending for health care exchanges and state-based contracts^(c). The FY13 year-over-year decrease reflected the same items impacting the fourth quarter year-over-year comparison as well as the payment of Part D risk corridors settlements for prior years.

Share repurchases and cash dividends

During 4Q13, the company executed share repurchases of $201 million, or approximately 1,994,800 of its outstanding shares, at an average price of $100.56 per share. For the full year, the company executed repurchases of $502 million, or approximately 5,774,500 shares, at an average price of $86.97 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 February 5, 2014, approximately $580 million of the current repurchase authorization was remaining, with an expiration date of June 30, 2015.

The company paid cash dividends to its stockholders totaling $43 million in 4Q13 and $168 million in FY13.

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 $177 million in 4Q13 compared to $248 million in 4Q12, a decrease of $71 million, primarily reflecting an increase in the segment’s operating cost ratio.

 

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For FY13, pretax earnings for the Retail segment of $1.28 billion increased by $122 million from FY12 pretax earnings of $1.16 billion. The year-to-date increase resulted primarily from membership growth and a decline in the segment’s operating cost ratio.

Enrollment:

 

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Individual Medicare Advantage membership was 2,068,700 as of December 31, 2013, an increase of 141,100, or 7 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 sales to newly-eligible Medicare beneficiaries throughout the year.

 

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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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January 2014 individual Medicare Advantage membership approximated 2,319,000, up approximately 250,000 or 12 percent from December 31, 2013, reflecting net membership additions meaningfully above the company’s expectations for the recently completed AEP for Medicare beneficiaries.

 

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Membership in the company’s individual stand-alone Prescription Drug Plans (PDPs) was 3,271,700 at December 31, 2013, up 219,000 or 7 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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January 2014 individual stand-alone PDP membership grew to approximately 3,684,000, an increase of approximately 412,000 or 13 percent from December 31, 2012, also meaningfully above the company’s expectations for net additions during the AEP.

 

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Individual commercial membership increased to 505,400 at December 31, 2013, an increase of 61,400 or 14 percent, from 444,000 at December 31, 2012. This membership growth reflects net new sales in 2013.

 

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Enrollment applications for the company’s 2014 health care exchange offerings totaled approximately 202,000 through January 31, 2014. The health care exchange open enrollment process began on October 1, 2013 and continues through March 31, 2014.

 

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Medical membership in state-based Medicaid plans increased to 85,500 at December 31, 2013, an increase of 33,400 or 64 percent, from 52,100 at December 31, 2012. This increase was primarily driven by the addition of Medicaid Temporary Assistance for Needy Families (TANF) and Long-Term Support Services (LTSS) membership from state-based contracts in Kentucky and Florida.

 

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Membership in individual specialty products(d) of 1,042,500 at December 31, 2013 increased 93,800 or 10 percent from 948,700 at December 31, 2012, primarily due to increased membership in dental and vision offerings.

Premiums and services revenue:

 

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The 4Q13 premiums and services revenue for the Retail segment was $6.83 billion, an increase of 10 percent from $6.22 billion in 4Q12. The increase resulted primarily from a 7 percent increase in average individual Medicare Advantage membership year over year that more than offset the impact of sequestration.

 

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Benefits expense:

 

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The 4Q13 benefit ratio for the Retail segment of 82.7 percent decreased slightly from 82.8 percent in 4Q12. Retail segment benefits expense for 4Q13 included the beneficial effect of $28 million in favorable prior-year development compared to $14 million in 4Q12.

Operating costs:

 

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The Retail segment’s operating cost ratio of 14.5 percent in 4Q13 increased 140 basis points from 13.1 percent in 4Q12. The increase resulted primarily from investment spending for state-based contracts(c) and health care exchanges, along with higher marketing and distribution costs associated with higher-than-projected sales from the recently completed Medicare AEP, partially offset by cost efficiencies associated with higher average membership as well as the company’s continued focus on operating cost reductions.

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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The 4Q13 Employer Group segment pretax loss of $79 million compared to a pretax loss of $16 million in 4Q12, reflecting higher benefit and operating cost ratios for the segment.

 

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For FY13, pretax earnings for the Employer Group segment of $322 million increased by $45 million from FY12 pretax earnings of $277 million. The full year increase reflects 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.

Enrollment:

 

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Fully-insured group Medicare Advantage membership was 429,100 at December 31, 2013, an increase of 58,300 members or 16 percent, from 370,800 at December 31, 2012, primarily reflecting 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 27,700 members at December 31, 2012.

 

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Group fully-insured commercial medical membership was 1,237,000 at December 31, 2013, an increase of 25,200 or 2 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 December 31, 2013 compared to 59 percent at December 31, 2012.

 

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Group ASO commercial medical membership decreased to 1,162,800 at December 31, 2013, compared to 1,237,700 at December 31, 2012. This decline reflected continued discipline in pricing of services for self-funded accounts amid a highly competitive environment.

 

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Membership in Employer Group specialty products(d) declined to 6,780,800 at December 31, 2013, a decrease of 355,400 or 5 percent, from 7,136,200 at December 31, 2012. This decrease resulted from a decline in vision membership related to the company’s planned discontinuance of certain unprofitable product distribution partnerships.

 

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Membership in the HumanaVitality® wellness rewards program of 2,831,000 at December 31, 2013 rose 66 percent from 1,705,400 at December 31, 2012.

Premiums and services revenue:

 

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The 4Q13 premiums and services revenue for the Employer Group segment was $2.85 billion, up approximately 8 percent from $2.64 billion in 4Q12, primarily reflecting the impacts of higher average group Medicare Advantage membership.

Benefits expense:

 

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The 4Q13 benefit ratio for the Employer Group segment was 87.5 percent, an increase of 120 basis points from 86.3 percent for 4Q12. The year-over-year increase in the benefit ratio primarily resulted from a higher benefit ratio in the company’s large group fully-insured business. Employer Group segment benefits expense for 4Q13 included the beneficial effect of $14 million in favorable prior-year development compared to $7 million in 4Q12.

Operating costs:

 

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The Employer Group segment’s operating cost ratio was 18.1 percent in 4Q13, an increase of 70 basis points from 17.4 percent in 4Q12, primarily reflecting growth in commercial fully-insured small group accounts (which carry a higher operating cost ratio than group Medicare Advantage plans), partially offset by cost savings associated with operating cost reduction initiatives.

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 based services, integrated behavioral health services, and predictive modeling and informatics services.

Healthcare Services Segment Highlights

Pretax results:

 

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Healthcare Services segment pretax income of $137 million in 4Q13 increased from $66 million in 4Q12, as revenue growth and increased profit contribution from the pharmacy solutions business, the Metropolitan Health Networks, Inc. (Metropolitan) acquisition, and the home based services business were partially offset by previously-planned investment spending associated with the integration and build-out of provider practices. The growth in pretax income associated with our home based services business reflects the increase in home based services provided to our Medicare Advantage members.

 

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For FY13, pretax earnings for the Healthcare Services segment of $549 million increased by $86 million from FY12 pretax earnings of $463 million, reflecting the same factors impacting the fourth quarter year over year comparison.

Revenues:

 

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Revenues of $4.18 billion in 4Q13 for the Healthcare Services segment increased $900 million, or 27 percent, from $3.28 billion in 4Q12, primarily due to growth in the company’s pharmacy solutions and provider services businesses and its 2012 acquisition of Metropolitan.

Operating costs:

 

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The Healthcare Services segment’s operating cost ratio was 95.8 percent in 4Q13, a decrease of 140 basis points from 97.2 percent in 4Q12, primarily reflecting acquisition costs related to Metropolitan incurred in 2012 that did not recur in 2013.

Operating statistics:

 

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Primary care providers in risk arrangements of approximately 11,300 at December 31, 2013 increased 23 percent from 9,200 at December 31, 2012 primarily driven by the company’s focus on increasing the number of members served through these risk arrangements.

 

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Membership in the Humana Chronic Care Program rose to 280,200 at December 31, 2013, up 86 percent from 151,000 at December 31, 2012 reflecting enhanced predictive modeling capabilities and focus on proactive clinical outreach and member engagement, particularly for our Medicare Advantage membership.

 

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Pharmacy script volumes of 274.3 million for the year ended December 31, 2013 increased 15 percent compared to 238.2 million for the year ended December 31, 2012 driven primarily by higher average membership in the company’s Medicare Advantage and stand-alone PDP offerings.

OTHER BUSINESSES

The Other Businesses category consists of the company’s military services, Puerto Rico Medicaid, and closed-block long-term care insurance policies. 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 a pretax loss of $244 million in 4Q13 versus pretax loss of $23 million in 4Q12, primarily reflecting the $243 million(b) of reserves strengthening for the company’s closed block of long-term care insurance policies described above.

 

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For FY13, Other Businesses reported a pretax loss of $193 million compared to a pretax loss of $18 million in FY12, primarily reflecting the impact of the reserves strengthening noted above partially offset by the beneficial effect of the previously-disclosed favorable settlement of contract claims with the Department of Defense.

Premium revenue:

 

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Premium revenue for Other Businesses declined substantially in 4Q13 compared to 4Q12 due to the previously announced exit from the company’s Puerto Rico Medicaid business effective September 30, 2013.

Footnotes

 

(a)

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. Reconciliation of GAAP to non-GAAP amounts are as follows:

 

in millions, except for EPS		Other Businesses Pretax FY 2013				Consolidated Pretax FY 2013				EPS
GAAP			($193	)		$	1,921			$	7.73
Reserve strengthening for closed block of long-term care insurance policies (b)			243				243				0.99
Non-GAAP		$	50			$	2,164			$	8.72

 

(b)

During the fourth quarter of 2013, the company strengthened future policy benefit reserves related to our closed block of long-term care insurance policies in the amount of $243 million, net of reinsurance. This closed block of policies was acquired in connection with our acquisition of KMG America in late 2007. No policies in this block have been sold since 2005.

(c)	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.

(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 claim 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, state-based contract strategy, and its participation in the new health insurance exchanges, 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.

 

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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; the company’s financial position, including the company’s ability to maintain the value of its goodwill; and the company’s 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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Humana’s participation in, and the operational functionality of, the new federal and state health care 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 the company’s 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 certain of its licensed 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);

 

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

 

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Form 8-Ks filed during 2013 and 2014.

About Humana

Humana Inc., headquartered in Louisville, Kentucky, is a leading health care company that offers a wide range of insurance products and health and wellness services that incorporate an integrated approach to lifelong well-being. By leveraging the strengths of its core businesses, Humana believes it can better explore opportunities for existing and emerging adjacencies in health care that can further enhance wellness opportunities for the millions of people across the nation with whom the company has relationships.

More information regarding Humana is available to investors via the Investor Relations page of the company’s web site at www.humana.com, including copies of:

 

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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 February 5, 2014

 

(in accordance with Generally Accepted Accounting Principles)		For the year ending December 31, 2014		Comments
Diluted earnings per common share		$7.25 to $7.75		Includes $0.50 to $0.90 per share in investment spending for state-based contracts(c) and individual health care exchange businesses.
Revenues
Consolidated		$46 billion to $48 billion		Revenues include expected interest income.
Segments				Segment-level revenues include intersegment amounts that eliminate in consolidation.
Retail segment		$31 billion to $33 billion
Employer Group segment		$12 billion to $13 billion
Healthcare Services segment		$17.5 billion to $18.5 billion
Consolidated interest expense		$350 million to $400 million		Interest income is included in revenue guidance above.
Change in ending medical membership
Retail segment
Medicare Advantage (MA)		Up 320,000 to 340,000		Includes MA membership sold directly to individuals as well as dual-eligible MA members from state-based contracts(c).
Medicare stand-alone PDPs		Up 450,000 to 500,000		Medicare stand-alone PDP membership excludes LI-NET
State-based Medicaid		Up 225,000 to 275,000		Includes Medicaid Temporary Assistance for Needy Families (TANF) which contracts are generally reinsured through partnering relationships, and Long-Term Support Services (LTSS) membership from state-based contracts(c).
Individual commercial		Flat to Up 100,000		FY14 individual commercial includes membership expectations for both on-exchange and off-exchange enrollment.
Medicare Supplement		Up 20,000 to 40,000
Employer Group segment
Medicare Advantage		Up 50,000 to 70,000
Commercial fully-insured		Down 20,000 to 50,000
Commercial ASO		Down 40,000 to 75,000
Benefit ratios				Benefits expense as a percent of premiums.
Retail segment		83.0% to 85.0%
Employer Group segment		83.75% to 84.25%
Operating cost ratios				Operating costs as a percent of total revenues excluding investment income.
Consolidated		15.4% to 16.0%
Healthcare Services segment		95.5% to 96.0%

 

12

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Humana Inc. – Earnings Guidance Points as of February 5, 2014

 

(in accordance with Generally Accepted Accounting Principles)		For the year ending December 31, 2014		Comments
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		$340 million to $360 million
Cash flows statement		$445 million to $465 million
Consolidated interest expense		$140 million to $145 million
Pretax results				Segment-level pretax results include the impact of net investment income.
Retail segment		$1.35 billion to $1.45 billion
Employer Group segment		$250 million to $300 million
Healthcare Services segment		$500 million to $550 million
Effective Tax Rate		45% to 47%		Reflects the non-deductibility of the industry fee effective in FY14.
Diluted shares		Approximately 158.5 to 159.5 million		Projections exclude the impact of future share repurchases.
Cash flows from operations		$1.4 billion to $1.7 billion		Includes anticipated FY13 receivables of $250 million to $450 million related to health care exchange risk adjustment, reinsurance, and risk corridor provisions.
Capital expenditures		$525 million to $575 million

 

13

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Humana Inc.

Statistical Schedules

And

Supplementary Information

4Q13 Earnings Release

 

S-1

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Humana Inc.

Statistical Schedules and Supplementary Information

4Q13 Earnings Release

Contents

 

Page		Description
S-3-4		Consolidated Statements of Income
S-5-6		Quarterly Segment Financial Information
S-7-8		FY 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 December 31,								Dollar				Percentage
		2013				2012				Change				Change
Revenues:
Premiums		$	9,562			$	8,980			$	582				6.5	%
Services			528				475				53				11.2	%
Investment income			97				102				(5	)			-4.9	%
Total revenues			10,187				9,557				630				6.6	%
Operating expenses:
Benefits			8,203				7,516				687				9.1	%
Operating costs			1,908				1,655				253				15.3	%
Depreciation and amortization			90				77				13				16.9	%
Total operating expenses			10,201				9,248				953				10.3	%
(Loss) income from operations			(14	)			309				(323	)			-104.5	%
Interest expense			35				27				8				29.6	%
(Loss) income before income taxes			(49	)			282				(331	)			-117.4	%
(Benefit) provision for income taxes			(19	)			90				(109	)			-121.1	%
Net (loss) income		$	(30	)		$	192			$	(222	)			-115.6	%
Basic (loss) earnings per common share		$	(0.19	)		$	1.21			$	(1.40	)			-115.7	%
Diluted (loss) earnings per common share		$	(0.19	)		$	1.19			$	(1.38	)			-116.0	%
Shares used in computing basic earnings per common share (000’s)			155,933				158,764
Shares used in computing diluted earnings per common share (000’s)			155,933				160,682

 

S-3

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Humana Inc.

Consolidated Statements of Income

Dollars in millions, except per common share results

 

		Year Ended December 31,								Dollar				Percentage
		2013				2012				Change				Change
Revenues:
Premiums		$	38,829			$	37,009			$	1,820				4.9	%
Services			2,109				1,726				383				22.2	%
Investment income			375				391				(16	)			-4.1	%
Total revenues			41,313				39,126				2,187				5.6	%
Operating expenses:
Benefits			32,564				30,985				1,579				5.1	%
Operating costs			6,355				5,830				525				9.0	%
Depreciation and amortization			333				295				38				12.9	%
Total operating expenses			39,252				37,110				2,142				5.8	%
Income from operations			2,061				2,016				45				2.2	%
Interest expense			140				105				35				33.3	%
Income before income taxes			1,921				1,911				10				0.5	%
Provision for income taxes			690				689				1				0.1	%
Net income		$	1,231			$	1,222			$	9				0.7	%
Basic earnings per common share		$	7.81			$	7.56			$	0.25				3.3	%
Diluted earnings per common share		$	7.73			$	7.47			$	0.26				3.5	%
Shares used in computing basic earnings per common share (000’s)			157,503				161,484
Shares used in computing diluted earnings per common share (000’s)			159,151				163,457

 

S-4

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Humana Inc.

4Q13 Segment Financial Information

In millions

 

						Employer				Healthcare				Other				Eliminations/
		Retail				Group				Services				Businesses				Corporate				Consolidated
Revenues—external customers
Premiums:
Medicare Advantage		$	5,621			$	1,167			$	—			$	—			$	—			$	6,788
Medicare stand-alone PDP			739				2				—				—				—				741
Total Medicare			6,360				1,169				—				—				—				7,529
Fully-insured			304				1,298				—				—				—				1,602
Specialty			55				272				—				—				—				327
Military services			—				—				—				3				—				3
Medicaid and other (A)			101				—				—				—				—				101
Total premiums			6,820				2,739				—				3				—				9,562
Services revenue:
Provider			—				6				293				—				—				299
ASO and other (B)			9				88				—				112				—				209
Pharmacy			—				—				20				—				—				20
Total services revenue			9				94				313				112				—				528
Total revenues—external customers			6,829				2,833				313				115				—				10,090
Intersegment revenues
Services			—				14				3,112				—				(3,126	)			—
Products			—				—				753				—				(753	)			—
Total intersegment revenues			—				14				3,865				—				(3,879	)			—
Investment income			19				11				—				14				53				97
Total revenues			6,848				2,858				4,178				129				(3,826	)			10,187
Operating expenses:
Benefits			5,642				2,396				—				267				(102	)			8,203
Operating costs			992				514				4,003				99				(3,700	)			1,908
Depreciation and amortization			37				27				38				7				(19	)			90
Total operating expenses			6,671				2,937				4,041				373				(3,821	)			10,201
Income (loss) from operations			177				(79	)			137				(244	)			(5	)			(14	)
Interest expense			—				—				—				—				35				35
Income (loss) before income taxes		$	177			$	(79	)		$	137			$	(244	)		$	(40	)		$	(49	)
Benefit ratio			82.7	%			87.5	%							nm								85.8	%
Operating cost ratio			14.5	%			18.1	%			95.8	%			86.1	%							18.9	%

nm-not meaningful

 

S-5

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Humana Inc.

4Q12 Segment Financial Information (Recast) (C)

In millions

 

						Employer				Healthcare				Other				Eliminations/
		Retail				Group				Services				Businesses				Corporate				Consolidated
Revenues—external customers
Premiums:
Medicare Advantage		$	5,184			$	1,005			$	—			$	—			$	—			$	6,189
Medicare stand-alone PDP			683				2				—				—				—				685
Total Medicare			5,867				1,007				—				—				—				6,874
Fully-insured			255				1,251				—				—				—				1,506
Specialty			46				277				—				—				—				323
Military services			—				—				—				11				—				11
Medicaid and other (A)			47				—				—				219				—				266
Total premiums			6,215				2,535				—				230				—				8,980
Services revenue:
Provider			—				5				266				—				—				271
ASO and other (B)			7				92				—				100				—				199
Pharmacy			—				—				5				—				—				5
Total services revenue			7				97				271				100				—				475
Total revenues—external customers			6,222				2,632				271				330				—				9,455
Intersegment revenues
Services			—				9				2,442				—				(2,451	)			—
Products			—				—				565				—				(565	)			—
Total intersegment revenues			—				9				3,007				—				(3,016	)			—
Investment income			21				11				—				15				55				102
Total revenues			6,243				2,652				3,278				345				(2,961	)			9,557
Operating expenses:
Benefits			5,143				2,187				—				253				(67	)			7,516
Operating costs			817				459				3,186				111				(2,918	)			1,655
Depreciation and amortization			35				22				26				4				(10	)			77
Total operating expenses			5,995				2,668				3,212				368				(2,995	)			9,248
Income (loss) from operations			248				(16	)			66				(23	)			34				309
Interest expense			—				—				—				—				27				27
Income (loss) before income taxes		$	248			$	(16	)		$	66			$	(23	)		$	7			$	282
Benefit ratio			82.8	%			86.3	%							110.0	%							83.7	%
Operating cost ratio			13.1	%			17.4	%			97.2	%			33.6	%							17.5	%

 

S-6

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Humana Inc.

FY 13 Segment Financial Information

In millions

 

						Employer				Healthcare				Other				Eliminations/
		Retail				Group				Services				Businesses				Corporate				Consolidated
Revenues—external customers
Premiums:
Medicare Advantage		$	22,481			$	4,710			$	—			$	—			$	—			$	27,191
Medicare stand-alone PDP			3,025				8				—				—				—				3,033
Total Medicare			25,506				4,718				—				—				—				30,224
Fully-insured			1,160				5,117				—				—				—				6,277
Specialty			210				1,095				—				—				—				1,305
Military services			—				—				—				25				—				25
Medicaid and other (A)			328				—				—				670				—				998
Total premiums			27,204				10,930				—				695				—				38,829
Services revenue:
Provider			—				19				1,223				—				—				1,242
ASO and other (B)			16				338				—				454				—				808
Pharmacy			—				—				59				—				—				59
Total services revenue			16				357				1,282				454				—				2,109
Total revenues—external customers			27,220				11,287				1,282				1,149				—				40,938
Intersegment revenues
Services			—				51				11,848				—				(11,899	)			—
Products			—				—				2,803				—				(2,803	)			—
Total intersegment revenues			—				51				14,651				—				(14,702	)			—
Investment income			74				42				—				59				200				375
Total revenues			27,294				11,380				15,933				1,208				(14,502	)			41,313
Operating expenses:
Benefits			22,914				9,124				—				935				(409	)			32,564
Operating costs			2,963				1,832				15,237				446				(14,123	)			6,355
Depreciation and amortization			134				102				147				20				(70	)			333
Total operating expenses			26,011				11,058				15,384				1,401				(14,602	)			39,252
Income (loss) from operations			1,283				322				549				(193	)			100				2,061
Interest expense			—				—				—				—				140				140
Income (loss) before income taxes		$	1,283			$	322			$	549			$	(193	)		$	(40	)		$	1,921
Benefit ratio			84.2	%			83.5	%							134.5	%							83.9	%
Operating cost ratio			10.9	%			16.2	%			95.6	%			38.8	%							15.5	%

 

S-7

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Humana Inc.

FY 12 Segment Financial Information (Recast) (C)

In millions

 

		Retail				Employer Group				Healthcare Services				Other Businesses				Eliminations/ Corporate				Consolidated
Revenues—external customers
Premiums:
Medicare Advantage		$	20,788			$	4,064			$	—			$	—			$	—			$	24,852
Medicare stand-alone PDP			2,853				8				—				—				—				2,861
Total Medicare			23,641				4,072				—				—				—				27,713
Fully-insured			1,004				4,996				—				—				—				6,000
Specialty			171				1,070				—				—				—				1,241
Military services			—				—				—				1,017				—				1,017
Medicaid and other (A)			185				—				—				853				—				1,038
Total premiums			25,001				10,138				—				1,870				—				37,009
Services revenue:
Provider			—				12				1,008				—				—				1,020
ASO and other (B)			24				358				—				308				—				690
Pharmacy			—				—				16				—				—				16
Total services revenue			24				370				1,024				308				—				1,726
Total revenues—external customers			25,025				10,508				1,024				2,178				—				38,735
Intersegment revenues
Services			2				31				9,720				—				(9,753	)			—
Products			—				—				2,342				—				(2,342	)			—
Total intersegment revenues			2				31				12,062				—				(12,095	)			—
Investment income			79				42				—				58				212				391
Total revenues			25,106				10,581				13,086				2,236				(11,883	)			39,126
Operating expenses:
Benefits			21,048				8,471				—				1,802				(336	)			30,985
Operating costs			2,767				1,744				12,536				436				(11,653	)			5,830
Depreciation and amortization			130				89				87				16				(27	)			295
Total operating expenses			23,945				10,304				12,623				2,254				(12,016	)			37,110
Income (loss) from operations			1,161				277				463				(18	)			133				2,016
Interest expense			—				—				—				—				105				105
Income (loss) before income taxes		$	1,161			$	277			$	463			$	(18	)		$	28			$	1,911
Benefit ratio			84.2	%			83.6	%							96.4	%							83.7	%
Operating cost ratio			11.1	%			16.5	%			95.8	%			20.0	%							15.1	%

 

S-8

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Humana Inc.

Consolidated Balance Sheets

Dollars in millions, except share amounts

 

		December 31,				December 31,				YTD Change
		2013				2012				Dollar				Percent
Assets
Current assets:
Cash and cash equivalents		$	1,138			$	1,306
Investment securities			8,090				8,001
Receivables, net			950				733
Other current assets			2,122				1,670
Total current assets			12,300				11,710			$	590				5.0	%
Property and equipment, net			1,218				1,098
Long-term investment securities			1,710				1,846
Goodwill			3,733				3,640
Other long-term assets			1,774				1,685
Total assets			20,735				19,979			$	756				3.8	%
Liabilities and Stockholders’ Equity
Current liabilities:
Benefits payable			3,893				3,779
Trade accounts payable and accrued expenses			1,821				2,042
Book overdraft			403				324
Unearned revenues			206				230
Total current liabilities			6,323				6,375			$	(52	)			-0.8	%
Long-term debt			2,600				2,611
Future policy benefits payable			2,207				1,858
Other long-term liabilities			289				288
Total liabilities			11,419				11,132			$	287				2.6	%
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; 196,275,506 issued at December 31, 2013			33				32
Capital in excess of par value			2,267				2,101
Retained earnings			8,942				7,881
Accumulated other comprehensive income			158				386
Treasury stock, at cost, 42,245,097 shares at December 31, 2013			(2,084	)			(1,553	)
Total stockholders’ equity			9,316				8,847			$	469				5.3	%
Total liabilities and stockholders’ equity		$	20,735			$	19,979			$	756				3.8	%
Debt-to-total capitalization ratio			21.8	%			22.8	%
Return on Invested Capital (ROIC)—trailing 12 months			10.5	%			11.5	%

 

S-9

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Humana Inc.

Consolidated Statements of Cash Flows

Dollars in millions

 

		Three Months Ended December 31,								Dollar				Percentage
		2013				2012				Change				Change
Cash flows from operating activities
Net (loss) income		$	(30	)		$	192
Adjustments to reconcile net income to net cash (used in) provided by operating activities:
Depreciation and amortization			114				100
Net realized capital gains			(8	)			(13	)
Stock-based compensation			19				14
Provision (benefit) for deferred income taxes			11				(74	)
Changes in operating assets and liabilities, net of effect of businesses acquired:
Receivables			(125	)			(84	)
Other assets			(165	)			(17	)
Benefits payable			(178	)			(172	)
Other liabilities			289				179
Unearned revenues			8				52
Other, net			49				28
Net cash (used in) provided by operating activities			(16	)			205				($221	)			-107.8	%
Cash flows from investing activities
Acquisitions, net of cash acquired			(26	)			(947	)
Purchases of property and equipment			(127	)			(106	)
Proceeds from sale of business			1				—
Purchases of investment securities			(596	)			(1,055	)
Maturities of investment securities			224				386
Proceeds from sales of investment securities			485				510
Net cash used in investing activities			(39	)			(1,212	)		$	1,173				96.8	%
Cash flows from financing activities
Receipts (withdrawals) from contract deposits, net			51				(50	)
Proceeds from issuance of senior notes, net			—				990
Change in book overdraft			130				47
Common stock repurchases			(206	)			(5	)
Excess tax benefit from stock-based compensation			2				1
Dividends paid			(43	)			(41	)
Proceeds from stock option exercises and other			4				8
Net cash used in financing activities			(62	)			950				($1,012	)			-106.5	%
Decrease in cash and cash equivalents			(117	)			(57	)
Cash and cash equivalents at beginning of period			1,255				1,363
Cash and cash equivalents at end of period		$	1,138			$	1,306

 

S-10

---

Humana Inc.

Consolidated Statements of Cash Flows

Dollars in millions

 

		Year Ended December 31,								Dollar				Percentage
		2013				2012				Change				Change
Cash flows from operating activities
Net income		$	1,231			$	1,222
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization			426				338
Net realized capital gains			(22	)			(33	)
Stock-based compensation			92				82
Provision (benefit) for deferred income taxes			42				(80	)
Changes in operating assets and liabilities, net of effect of businesses acquired:
Receivables			(214	)			352
Other assets			(330	)			(253	)
Benefits payable			109				(41	)
Other liabilities			313				300
Unearned revenues			(24	)			(43	)
Other, net			93				79
Net cash provided by operating activities			1,716				1,923				($207	)			-10.8	%
Cash flows from investing activities
Acquisitions, net of cash acquired			(187	)			(1,235	)
Purchases of property and equipment			(437	)			(410	)
Proceeds from sale of business			34				—
Purchases of investment securities			(3,261	)			(3,221	)
Maturities of investment securities			1,077				1,497
Proceeds from sales of investment securities			1,592				1,404
Net cash used in investing activities			(1,182	)			(1,965	)		$	783				39.8	%
Cash flows from financing activities
Receipts (withdrawals) from contract deposits, net			(150	)			(397	)
Repayment of long-term debt			—				(36	)
Proceeds from issuance of senior notes, net			—				990
Change in book overdraft			79				18
Common stock repurchases			(531	)			(518	)
Excess tax benefit from stock-based compensation			8				22
Dividends paid			(168	)			(165	)
Proceeds from stock option exercises and other			60				57
Net cash used in financing activities			(702	)			(29	)			($673	)			-2320.7	%
Decrease in cash and cash equivalents			(168	)			(71	)
Cash and cash equivalents at beginning of period			1,306				1,377
Cash and cash equivalents at end of period		$	1,138			$	1,306

 

S-11

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Humana Inc.

Key Income Statement Ratios and Segment Operating Results

Dollars in millions

 

		Three Months Ended December 31,												Percentage				Year Ended December 31,												Percentage
		2013				2012				Difference				Change				2013				2012				Difference				Change
Benefit ratio
Retail			82.7	%			82.8	%			-0.1	%							84.2	%			84.2	%			0.0	%
Employer Group			87.5	%			86.3	%			1.2	%							83.5	%			83.6	%			-0.1	%
Other Businesses			nm				110.0	%			nm								134.5	%			96.4	%			38.1	%
Consolidated			85.8	%			83.7	%			2.1	%							83.9	%			83.7	%			0.2	%
Operating cost ratio
Retail			14.5	%			13.1	%			1.4	%							10.9	%			11.1	%			-0.2	%
Employer Group			18.1	%			17.4	%			0.7	%							16.2	%			16.5	%			-0.3	%
Healthcare Services			95.8	%			97.2	%			-1.4	%							95.6	%			95.8	%			-0.2	%
Other Businesses			86.1	%			33.6	%			52.5	%							38.8	%			20.0	%			18.8	%
Consolidated			18.9	%			17.5	%			1.4	%							15.5	%			15.1	%			0.4	%
Detail of pretax income (loss)
Retail		$	177			$	248				($71	)			-28.6	%		$	1,283			$	1,161			$	122				10.5	%
Employer Group			($79	)			($16	)			($63	)			-393.8	%		$	322			$	277			$	45				16.2	%
Healthcare Services		$	137			$	66			$	71				107.6	%		$	549			$	463			$	86				18.6	%
Other Businesses			($244	)			($23	)			($221	)			-960.9	%			($193	)			($18	)			($175	)			-972.2	%
Consolidated			($49	)		$	282				($331	)			-117.4	%		$	1,921			$	1,911			$	10				0.5	%

nm-not meaningful

 

S-12

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Humana Inc.

Healthcare Services Segment Metrics

 

		Quarter Ended				Quarter Ended												Quarter Ended
		December 31, 2013				December 31, 2012				Difference								September 30, 2013				Difference
Primary Care Providers:
Risk (D)
Owned / JV			2,900				2,600				300				11.5	%			2,900				—				0.0	%
Contracted			8,400				6,600				1,800				27.3	%			8,200				200				2.4	%
Path-to-Risk (E)			22,300				18,200				4,100				22.5	%			21,900				400				1.8	%
Care Management Professionals:
Employed			5,500				3,300				2,200				66.7	%			4,800				700				14.6	%
Contracted			7,200				3,400				3,800				111.8	%			6,400				800				12.5	%
Total			12,700				6,700				6,000				89.6	%			11,200				1,500				13.4	%
Care Management Statistics:
Number of members with complex chronic conditions in Humana Chronic Care Program			280,200				151,000				129,200								248,000				32,200
Number of high-risk discharges enrolled in Humana Transitions Program			18,500				1,300				17,200								11,500				7,000

 

S-13

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Humana Inc.

Healthcare Services Segment Metrics (Continued)

Script volume in thousands

 

		Quarter Ended				Quarter Ended												Quarter Ended
		December 31, 2013				December 31, 2012				Year-over-Year Difference								September 30, 2013				Sequential Difference
Pharmacy:
Generic Dispense Rate
Retail			86.2	%			85.9	%			0.3	%							86.2	%			0.0	%
Employer Group			79.8	%			78.1	%			1.7	%							79.8	%			0.0	%
Total			85.5	%			85.0	%			0.5	%							85.5	%			0.0	%
Mail-Order Penetration
Retail			23.3	%			22.2	%			1.1	%							23.3	%			0.0	%
Employer Group			14.1	%			14.6	%			-0.5	%							14.5	%			-0.4	%
Total			22.2	%			21.3	%			0.9	%							22.3	%			-0.1	%
										Difference				Percentage Change								Difference				Percentage Change
Script volume
Retail			62,700				54,100				8,600				15.9	%			61,800				900				1.5	%
Employer Group			8,200				7,200				1,000				13.9	%			7,900				300				3.8	%
Total			70,900				61,300				9,600				15.7	%			69,700				1,200				1.7	%

 

S-14

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Humana Inc.

Healthcare Services Segment Metrics (Continued)

Script volume in thousands

 

		Year Ended				Year Ended				Year-over-Year
		December 31, 2013				December 31, 2012				Difference
Pharmacy:
Generic Dispense Rate
Retail			86.4	%			84.5	%			1.9	%
Employer Group			79.8	%			76.3	%			3.5	%
Total			85.6	%			83.6	%			2.0	%
Mail-Order Penetration
Retail			23.0	%			23.0	%			0.0	%
Employer Group			14.4	%			15.3	%			-0.9	%
Total			22.0	%			22.2	%			-0.2	%
														Percentage
										Difference				Change
Script volume
Retail			242,900				211,600				31,300				14.8	%
Employer Group			31,400				26,600				4,800				18.0	%
Total			274,300				238,200				36,100				15.2	%

 

S-15

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Humana Inc.

Membership Detail

In thousands

 

		Ending December 31,				Average				Ending December 31,				Year-over-Year Change								Ending September 30,				Sequential Change
		2013				4Q13				2012				Amount				Percent				2013				Amount				Percent
Medical Membership:
Retail
Medicare Advantage			2,068.7				2,058.8				1,927.6				141.1				7.3	%			2,044.4				24.3				1.2	%
Medicare stand-alone PDPs			3,271.7				3,269.1				3,052.7				219.0				7.2	%			3,255.1				16.6				0.5	%
Individual commercial			505.4				497.6				444.0				61.4				13.8	%			492.8				12.6				2.6	%
State-based Medicaid (F)			85.5				82.9				52.1				33.4				64.1	%			80.0				5.5				6.9	%
Medicare Supplement			94.7				94.2				77.4				17.3				22.4	%			92.5				2.2				2.4	%
Total Retail			6,026.0				6,002.6				5,553.8				472.2				8.5	%			5,964.8				61.2				1.0	%
Employer Group
Medicare Advantage fully-insured			429.1				428.0				370.8				58.3				15.7	%			425.4				3.7				0.9	%
Medicare Advantage ASO			—				—				27.7				(27.7	)			-100.0	%			—				—				—
Medicare stand-alone PDPs			4.2				4.2				4.4				(0.2	)			-4.5	%			4.2				—				0.0	%
Fully-insured medical commercial			1,237.0				1,221.5				1,211.8				25.2				2.1	%			1,198.6				38.4				3.2	%
ASO commercial			1,162.8				1,162.2				1,237.7				(74.9	)			-6.1	%			1,161.0				1.8				0.2	%
Total Employer Group			2,833.1				2,815.9				2,852.4				(19.3	)			-0.7	%			2,789.2				43.9				1.6	%
Other Businesses
Military services			3,101.8				3,102.4				3,123.9				(22.1	)			-0.7	%			3,103.5				(1.7	)			-0.1	%
Puerto Rico Medicaid and other			23.4				23.6				558.7				(535.3	)			-95.8	%			556.2				(532.8	)			-95.8	%
Total Other Businesses			3,125.2				3,126.0				3,682.6				(557.4	)			-15.1	%			3,659.7				(534.5	)			-14.6	%
Total Medical Membership			11,984.3				11,944.5				12,088.8				(104.5	)			-0.9	%			12,413.7				(429.4	)			-3.5	%
Specialty Membership:
Retail
Dental—fully-insured			739.3				740.2				691.5				47.8				6.9	%			741.2				(1.9	)			-0.3	%
Vision			156.5				155.8				118.7				37.8				31.8	%			154.2				2.3				1.5	%
Other supplemental benefits (G)			146.7				145.3				138.5				8.2				5.9	%			144.5				2.2				1.5	%
Total Retail			1,042.5				1,041.3				948.7				93.8				9.9	%			1,039.9				2.6				0.3	%
Employer Group
Dental—fully-insured			2,513.5				2,507.7				2,446.4				67.1				2.7	%			2,496.1				17.4				0.7	%
Dental—ASO			873.0				872.5				868.3				4.7				0.5	%			872.1				0.9				0.1	%
Vision			2,035.8				2,250.8				2,525.0				(489.2	)			-19.4	%			2,496.7				(460.9	)			-18.5	%
Other supplemental benefits (G)			1,358.5				1,353.8				1,296.5				62.0				4.8	%			1,342.4				16.1				1.2	%
Total Employer Group			6,780.8				6,984.8				7,136.2				(355.4	)			-5.0	%			7,207.3				(426.5	)			-5.9	%
Total Specialty Membership			7,823.3				8,026.1				8,084.9				(261.6	)			-3.2	%			8,247.2				(423.9	)			-5.1	%

 

S-16

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Humana Inc.

Premiums and Services Revenue Detail

Dollars in millions, except per member per month

 

		Three Months Ended December 31,								Dollar				Percentage				Per Member per Month (H) Three Months Ended December 31,
		2013				2012				Change				Change				2013				2012
Premiums and Services Revenue
Retail:
Medicare Advantage		$	5,621			$	5,184			$	437				8.4	%		$	910			$	899
Medicare stand-alone PDPs			739				683				56				8.2	%			75				75
Individual commercial			257				216				41				19.0	%			172				162
State-based Medicaid (F)			101				47				54				114.9	%			406				305
Medicare Supplemental			47				39				8				20.5	%			166				170
Specialty			55				46				9				19.6	%			18				16
ASO & other services (B)			9				7				2				28.6	%
Total Retail			6,829				6,222				607				9.8	%
Employer Group:
Medicare Advantage fully-insured			1,167				1,005				162				16.1	%			909				905
Medicare stand-alone PDPs			2				2				—				0.0	%
Fully-insured medical commercial			1,298				1,251				47				3.8	%			354				345
Specialty			272				277				(5	)			-1.8	%			15				15
ASO & other services (B)			108				106				2				1.9	%
Total Employer Group			2,847				2,641				206				7.8	%
Healthcare Services:
Pharmacy solutions			3,472				2,832				640				22.6	%
Provider services			543				345				198				57.4	%
Home care services			131				67				64				95.5	%
Integrated behavioral health			32				34				(2	)			-5.9	%
Total Healthcare Services			4,178				3,278				900				27.5	%
Other Businesses:
Military services (I)			96				97				(1	)			-1.0	%
Puerto Rico Medicaid and other (J)			19				233				(214	)			-91.8	%			—				131
Total Other Businesses		$	115			$	330			$	(215	)			-65.2	%

 

S-17

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Humana Inc.

Premiums and Services Revenue Detail

Dollars in millions, except per member per month

 

		Year Ended December 31,								Dollar				Percentage				Per Member per Month (H) Year Ended December 31,
		2013				2012				Change				Change				2013				2012
Premiums and Services Revenue
Retail:
Medicare Advantage		$	22,481			$	20,788			$	1,693				8.1	%		$	921			$	917
Medicare stand-alone PDPs			3,025				2,853				172				6.0	%			78				80
Individual commercial			980				861				119				13.8	%			171				162
State-based Medicaid (F)			328				185				143				77.3	%			360				318
Medicare Supplemental			180				143				37				25.9	%			165				166
Specialty			210				171				39				22.8	%			17				16
ASO & other services (B)			16				26				(10	)			-38.5	%
Total Retail			27,220				25,027				2,193				8.8	%
Employer Group:
Medicare Advantage fully-insured			4,710				4,064				646				15.9	%			935				932
Medicare stand-alone PDPs			8				8				—				0.0	%
Fully-insured medical commercial			5,117				4,996				121				2.4	%			354				348
Specialty			1,095				1,070				25				2.3	%			14				15
ASO & other services (B)			408				401				7				1.7	%
Total Employer Group			11,338				10,539				799				7.6	%
Healthcare Services:
Pharmacy solutions			13,138				11,368				1,770				15.6	%
Provider services			2,247				1,377				870				63.2	%
Home care services			420				207				213				102.9	%
Integrated behavioral health			128				134				(6	)			-4.5	%
Total Healthcare Services			15,933				13,086				2,847				21.8	%
Other Businesses:
Military services (I)			398				1,288				(890	)			-69.1	%
Puerto Rico Medicaid and other (J)			751				890				(139	)			-15.6	%			132				128
Total Other Businesses		$	1,149			$	2,178			$	(1,029	)			-47.2	%

 

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 (H)
		Three Months Ended December 31,								Year-over-year Change								Three Months Ended December 31,
		2013				2012				Amount				Percent				2013				2012
Premiums
Medicare Advantage		$	6,788			$	6,189			$	599				9.7	%		$	910			$	900
Medicare stand-alone PDPs			741				685				56				8.2	%			75			$	75
Total Medicare		$	7,529			$	6,874			$	655				9.5	%
																		Per Member per Month (H)
		Year Ended December 31,								Year-over-year Change								Year Ended December 31,
		2013				2012				Amount				Percent				2013				2012
Premiums
Medicare Advantage		$	27,191			$	24,852			$	2,339				9.4	%		$	924			$	919
Medicare stand-alone PDPs			3,033				2,861				172				6.0	%			78				80
Total Medicare		$	30,224			$	27,713			$	2,511				9.1	%
		Ending				Ending				Year-over-year Change
		December 31, 2013				December 31, 2012				Amount				Percent
Fully-Insured Membership
Medicare Advantage			2,497.8				2,298.4				199.4				8.7	%
Medicare stand-alone PDPs			3,275.9				3,057.1				218.8				7.2	%
Total Medicare			5,773.7				5,355.5				418.2				7.8	%
										Member Mix
		Ending				Ending				December 31,				December 31,
		December 31, 2013				December 31, 2012				2013				2012
Retail Segment Detail
Medicare Advantage Membership
HMO			1,059.7				935.8				51.2	%			48.5	%
PPO			1,009.0				991.8				48.8	%			51.5	%
Total Individual Medicare			2,068.7				1,927.6				100.0	%			100.0	%
Medicare Advantage Membership
Risk (D)			561.5				511.7				27.1	%			26.5	%
Path-to-Risk (E)			464.4				363.9				22.4	%			18.9	%
Other			1,042.8				1,052.0				50.5	%			54.6	%
Total Individual Medicare			2,068.7				1,927.6				100.0	%			100.0	%

 

S-19

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Humana Inc.

Investments

Dollars in millions

 

		Fair value
		12/31/2013				9/30/2013				12/31/2012
Investment Portfolio:
Cash & cash equivalents		$	1,138			$	1,255			$	1,306
Investment securities			8,090				8,262				8,001
Long-term investment securities			1,710				1,737				1,846
Total investment portfolio		$	10,938			$	11,254			$	11,153
Duration (K)			4.33				4.25				4.02
Average Credit Rating			AA-				AA-				AA-
Investment Portfolio Detail:
Cash and cash equivalents		$	1,138			$	1,255			$	1,306
U.S. Government and agency obligations
U.S. Treasury and agency obligations			584				623				618
U.S. Government residential mortgage-backed			1,792				1,775				1,569
U.S. Government commercial mortgage-backed			28				32				34
Total U.S. Government and agency obligations			2,404				2,430				2,221
Tax-exempt municipal securities
Pre-refunded			222				290				311
Insured			548				578				627
Other			2,188				2,149				2,120
Auction rate securities			13				13				13
Total tax-exempt municipal securities			2,971				3,030				3,071
Residential mortgage-backed
Prime residential mortgages			21				30				32
Alt-A residential mortgages			1				1				1
Sub-prime residential mortgages			—				1				1
Total residential mortgage-backed			22				32				34
Commercial mortgage-backed			673				710				659
Asset-backed securities			63				77				68
Corporate securities
Financial services			825				879				864
Other			2,842				2,841				2,930
Total corporate securities			3,667				3,720				3,794
Total investment portfolio		$	10,938			$	11,254			$	11,153

 

S-20

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Humana Inc.

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

Dollars in millions

 

		December 31,				September 30,				December 31,
		2013				2013				2012
Detail of benefits payable
IBNR and other benefits payable (L)		$	3,199			$	3,277			$	3,158
Unprocessed claim inventories (M)			313				404				302
Processed claim inventories (N)			202				234				230
Payable to pharmacy benefit administrator (O)			179				155				85
Benefits payable, excluding military services			3,893				4,070				3,775
Military services benefits payable (P)			—				—				4
Total Benefits Payable		$	3,893			$	4,070			$	3,779
		Year Ended				Nine Months Ended				Year Ended
		December 31, 2013				September 30, 2013				December 31, 2012
Year-to-date changes in benefits payable, excluding military services (Q)
Balances at January 1		$	3,775			$	3,775			$	3,415
Acquisitions			—				—				66
Incurred related to:
Current year			32,711				24,738				30,198
Prior years (R)			(474	)			(432	)			(257	)
Total incurred			32,237				24,306				29,941
Paid related to:
Current year			(29,098	)			(21,000	)			(26,738	)
Prior years			(3,021	)			(3,011	)			(2,909	)
Total paid			(32,119	)			(24,011	)			(29,647	)
Balances at end of period		$	3,893			$	4,070			$	3,775
		Year Ended				Nine Months Ended				Year Ended
		December 31, 2013				September 30, 2013				December 31, 2012
Summary of Consolidated Benefit Expense:
Total benefit expense incurred, per above		$	32,237			$	24,306			$	29,941
Military services benefit expense			(27	)			(31	)			908
Future policy benefit expense (S)			354				86				136
Consolidated Benefit Expense		$	32,564			$	24,361			$	30,985

 

S-21

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Humana Inc.

Benefits Payable Statistics (T)

Receipt Cycle Time (U)

 

		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			13.4				12.8				0.6				4.7	%
Full Year Average			13.1				13.1				0.0				0.0	%

Unprocessed Claims Inventories

 

Date		Estimated Valuation (millions)				Claim Item Counts (000s)				Number of Days on Hand
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
12/31/2013		$	313				1,240				4.5

 

S-22

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Humana Inc.

Benefits Payable Statistics (Continued) (T)

Days in Claims Payable (V)

 

Quarter Ended		Days in Claims Payable (DCP)				Change Last 4 Quarters				Percentage Change
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	%
12/31/2013			47.8				(0.7	)			-1.4	%

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

 

		2013				2012
DCP—beginning of period			48.5				52.5
Components of change in DCP:
Change in unprocessed claims inventories			0.1				(0.1	)
Change in processed claims inventories			(0.4	)			0.3
Change in pharmacy payment cutoff			0.1				(0.1	)
Change in capitation/provider settlements			(0.3	)			(4.3	)
All other			(0.2	)			0.2
DCP—end of period			47.8				48.5

 

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Humana Inc.

Footnotes to Statistical Schedules and Supplementary Information

4Q13 Earnings Release

 

(A)	The Medicaid and other category includes the company’s Medicaid business as well as the closed block of long-term care insurance policies.

(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)	Includes Medicaid Temporary Assistance for Needy Families (TANF), which contracts are generally reinsured through partnering relationships, and Long-Term Support Services (LTSS) from state-based contracts.

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

(H)	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).

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

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

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

(L)

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.

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

(N)	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.

(O)	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.

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

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

(R)

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.

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

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

(U)

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.

(V)

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. This metric excludes military services, Medicare stand-alone PDPs, and incremental benefits expense associated with changes in future policyholder benefits.

(W)

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 metric excludes military services, Medicare stand-alone PDPs, and incremental benefits expense associated with changes in future policyholder benefits.

 

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