Humana Inc. (ticker: HUM, exchange: New York Stock Exchange (.N))
News Release -
31-Oct-2000
Humana Reports Third Quarter Results
LOUISVILLE, Ky., Oct. 31 /PRNewswire/ -- Humana Inc. (NYSE: HUM) today
reported operating earnings of $.14 per diluted share for the third quarter
ended September 30, 2000.
These results compare to operating earnings of $.13 per diluted share for
the third quarter of 1999. (Third quarter 1999 earnings per diluted share
were $.05 excluding the beneficial effects from previously established premium
deficiency charges and favorable development in the company's workers'
compensation liabilities.)
Net income for the third quarter of 2000 was $23 million, compared to
earnings of $22 million for the same period in the prior year. Weighted
average shares outstanding (assuming dilution) were 165,690,000 in the third
quarter 2000 versus 168,030,000 in the prior year's quarter due to the impact
of treasury stock transactions during the most recent quarter.
"While we are generally pleased with our earnings improvement, Humana's
associates and leaders understand that our turnaround is far from complete,"
said Michael B. McCallister, Humana's president and chief executive officer.
"With our operating results heading in the right direction, we can devote more
of our attention to the next phase of our turnaround -- growing our core
business."
Revenue and Membership
Revenue in the third quarter increased 2.3 percent from the year ago
quarter to $2.62 billion versus $2.56 billion in 1999.
Commercial premium yields averaged 13.5 percent for the third quarter,
compared to 6.7 percent for the same period in the prior year. Due to the
impact that premium increases had on member retention, Humana's commercial
membership was 2,639,600, a 7.2 percent decline sequentially.
Medicare premium yields rose to 5.5 percent in the third quarter of 2000
versus 4.0 percent for the prior year quarter, the result of a new pricing
component -- member premiums -- implemented in the first quarter of 2000 and a
change in the mix of members in markets with higher HCFA reimbursement rates.
On June 30, 2000, the company announced its intent to exit 45 Medicare
counties January 1, 2001, affecting approximately 80,000 members.
Medical and Administrative Expenses
The company's medical expense ratio for the third quarter was
84.2 percent, versus ratios of 85.0 percent for the same period in 1999 and
85.0 percent in the second quarter of 2000.
Planned spending on infrastructure and technology initiatives combined
with a lower ratio of members to employees resulted in a sequential increase
of 50 basis points in the company's administrative expense ratio, to
15.5 percent. This compares to 15.0 percent in the second quarter of 2000 and
14.6 percent from the year-ago quarter.
"We are closely monitoring our administrative expenses given our reduced
membership base. At the same time we are investing the resources needed to
position our core business for growth and improving our business model for the
future," stated McCallister.
The company's effective tax rate of 21 percent for the third quarter of
2000 was unchanged from that reported for the first and second quarters of
2000 and compares to 35 percent for the third quarter of 1999. The lower
effective tax rate for 2000 results from the implementation of certain tax
planning strategies related to the disposition of the company's workers'
compensation business.
Cash flows
Excluding the timing of the receipt of the Medicare premium payment from
HCFA, cash flows provided by operations totaled $49 million in the third
quarter of 2000. Cash flows during the quarter include the impact of a
10 percent reduction in claims liabilities.
The claims liability reduction reflects a conscious effort by the company,
as it strives to become more efficient. "The benefits of our claim inventory
reductions are many," McCallister noted. "Provider and member satisfaction
increases as claims are processed more expeditiously. Correspondingly, claim
resubmission levels decline and customer service associates can spend a
greater amount of time assisting our customers and members."
In addition, the company is working diligently to increase the amount of
claims submitted electronically, resulting in quicker and more efficient
processing of such claims. "This is an important step in our ongoing progress
towards a fully electronically-enabled environment," McCallister said. "By
harnessing the speed and convenience of electronic technology, including the
Internet, we expect to make our health plans more customer-focused, more
physician-friendly, and obviously more efficient."
Claim inventory reductions accounted for 2.3 days of the sequential
decline in days in claims payable for the quarter. The run-off of claims
related to terminated membership lowered the days by nearly two more days.
Highlights from Operating Divisions
Health Plan Division
Large Group Commercial
* Membership declined 6.6 percent to 1,278,500 from 1,369,000 at
June 30, 2000. Excluding the third quarter loss of 47,000 members
related to the State of Texas account, membership declined 3.2 percent
sequentially.
Medicare
* Membership declined sequentially 1.7 percent or 9,100 members to 513,100
as of September 30, 2000, as the company experienced some attrition
related to Medicare counties it will be exiting January 1, 2001.
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Medical cost trends were in the 7 to 8 percent range in the third
quarter of 2000 compared to a range of 7 to 8 percent for the second
quarter of 2000 and 5 to 6 percent for the third quarter of 1999.
Excluding counties that the company intends to exit on January 1, 2001,
medical cost trends approximated 6 to 7 percent. Increased utilization
in the 2001 exit counties contributed approximately 100 basis points to
the cost trends in this line of business.
Small Group Division
Small Group Commercial
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Premium yields were in the 16 to 17 percent range in the third quarter
of 2000 compared to a range of 13 to 14 percent in the second quarter of
2000. The third quarter premium yield includes the impact of focal
increases in Colorado and Texas.
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Membership declined sequentially approximately 114,400 or 7.8 percent,
with a significant portion of the decline in those markets where focal
rate increases were introduced.
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Medical cost trends were in the 9 to 10 percent range in the third
quarter of 2000 compared to 11 to 12 percent in the second quarter of
2000 and 10 to 11 percent in the third quarter of 1999. The progressive
implementation of Humana's three-tier pharmacy benefit helped drive
lower cost trends in the third quarter.
Humana Inc., headquartered in Louisville, Kentucky, is one of the nation's
largest publicly traded health services companies, with approximately
5.4 million medical members located primarily in 15 states and Puerto Rico.
Humana offers coordinated health insurance coverage through a variety of plans
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health maintenance organizations, preferred provider organizations, point-
of-service-plans and administrative service products -- to employer groups,
government-sponsored plans and individuals.
More information regarding Humana is available via the Internet at
www.humana.com, including on-line:
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Copies of annual report to shareholders, Form 10-K, Form 10-Qs, and
proxy statement;
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Copy of most recent investor presentation;
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Copies of quarterly earnings press releases;
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Audio archive of the most recent earnings release conference call;
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Calendar of events (includes upcoming earnings release date, related
conference call access number, and planned participation in investor
conferences).
This news release contains forward-looking statements. The forward-
looking statements made in this news release are made pursuant to the safe
harbor provisions of the Private Securities Litigation Reform Act of 1995.
Forward-looking statements may be significantly impacted by certain risks and
uncertainties described in the following documents, as filed with the
Securities and Exchange Commission:
Summary of operating results for the three months ended September 30:
2000 1999
Revenues $ 2,616,000,000 $ 2,557,000,000
Income before income taxes $ 29,000,000 $ 34,000,000 (a)
Net income $ 23,000,000 $ 22,000,000 (a)
Basic earnings per common share $ .14 $ .13 (a)
Diluted earnings per common share $ .14 $ .13 (a)
Shares used in basic earnings per
common share computation 165,380,000 167,571,000
Shares used in diluted earnings
per common share computation 165,690,000 168,030,000
(a) Includes $22 million ($14 million after tax, $.08 per diluted share)
related to the beneficial effects of the previously established
premium deficiency charge and favorable liability development in the
company's run-off workers' compensation business.
Summary of operating results for the nine months ended September 30:
2000 1999 (b)
Revenues $ 7,954,000,000 $ 7,539,000,000
Income before income taxes $ 80,000,000 $ 53,000,000 (c)
Net income $ 63,000,000 $ 34,000,000 (c)
Basic earnings per common share $ .38 $ .20 (c)
Diluted earnings per common share $ .38 $ .20 (c)
Shares used in basic earnings per
common share computation 166,957,000 167,569,000
Shares used in diluted earnings
per common share computation 167,094,000 168,326,000
(b) Includes additional medical claims expense of $90 million ($58 million
after tax, or $.34 per diluted share) and a $12 million ($8 million
after tax, or $.04 per diluted share) gain on the sale of a tangible
asset.
(c) Includes $74 million ($48 million after tax, $.28 per diluted share)
related to the beneficial effects of the previously established
premium deficiency and severance charges, favorable liability
development in the company's run-off workers' compensation business
and non-recurring investment gains.
Humana Inc.
Dollars in millions, except per share results
Summarized Operating Results
Three months ended Nine months ended
September 30, September 30,
2000 1999 2000 1999(a)
Revenues:
Premiums $ 2,588 $ 2,527 $ 7,865 $ 7,416
Interest 26 29 82 103
Other income 2 1 7 20
Total revenues 2,616 2,557 7,954 7,539
Operating expenses:
Medical 2,179 2,148 6,664 6,378
Selling, general and
administrative 363 338 1,079 992
Depreciation and
amortization 38 30 109 91
Total operating
expenses 2,580 2,516 7,852 7,461
Income from operations 36 41 102 78
Interest expense 7 7 22 25
Income before income
taxes 29 34 80 53
Provision for income
taxes 6 12 17 19
Net income $ 23 $ 22 $ 63 $ 34
Basic earnings per
common share $ 0.14 $ 0.13 $ 0.38 $ 0.20
Diluted earnings per
common share $ 0.14 $ 0.13 $ 0.38 $ 0.20
Shares used in basic
earnings per share
computation (000) 165,380 167,571 166,957 167,569
Shares used in diluted
earnings per share
computation (000) 165,690 168,030 167,094 168,326
Medical expense ratio 84.2% 85.0% 84.7% 86.0%
Administrative expense
ratio 15.5% 14.6% 15.1% 14.6%
(a) Includes medical expenses of $90 million ($58 million after tax, or
$.34 per diluted share) primarily related to premium deficiency and
medical reserve strengthening and a $12 million ($8 million after
tax, or $.04 per diluted share) gain on the sale of a tangible asset.
Premiums
Health Plans:
Large group
commercial $ 589 $ 581 $ 1,796 $ 1,765
Medicare HMO 828 738 2,468 2,184
Medicaid 156 158 515 451
TRICARE 238 236 671 638
Other 12 27 66 82
Total Health Plans 1,823 1,740 5,516 5,120
Small Group:
Small group commercial 705 730 2,167 2,129
Specialty 60 57 182 167
Total Small Group 765 787 2,349 2,296
Total premiums $ 2,588 $ 2,527 $ 7,865 $ 7,416
September 30, December 31,
Financial Position 2000 1999
Assets:
Cash and investments $ 1,980 $ 2,738
Property and equipment, net 429 418
Other assets 1,507 1,744
Total assets $ 3,916 $ 4,900
Liabilities and equity:
Medical expenses payable, current portion $ 1,216 $ 1,432(b)
Other liabilities 1,379 2,200
Equity 1,321 1,268
Total liabilities and equity $ 3,916 $ 4,900
(b) Excluding the current portion of workers' compensation liabilities,
medical expenses payable would have been $1,324 at December 31, 1999.
Humana Inc.
Dollars in millions, except per share results
Summarized Operating Results (excluding non-recurring items)
Three months ended Nine months ended
September 30, September 30,
2000 1999 2000 1999(c)
Revenues:
Premiums $ 2,588 $ 2,527 $ 7,865 $ 7,416
Interest 26 29 82 103
Other income 2 1 7 8
Total revenues 2,616 2,557 7,954 7,527
Operating expenses:
Medical 2,179 2,148 6,664 6,288
Selling, general and
administrative 363 338 1,079 992
Depreciation and
amortization 38 30 109 91
Total operating
expenses 2,580 2,516 7,852 7,371
Income from operations 36 41 102 156
Interest expense 7 7 22 25
Income before income taxes 29 34 80 131
Provision for income
taxes 6 12 17 48
Net income $ 23 $ 22 $ 63 $ 83
Basic earnings per
common share $ 0.14 $ 0.13 $ 0.38 $ 0.50
Diluted earnings per
common share $ 0.14 $ 0.13 $ 0.38 $ 0.50
Shares used in basic
earnings per share
computation (000) 165,380 167,571 166,957 167,569
Shares used in diluted
earnings per share
computation (000) 165,690 168,030 167,094 168,326
Medical expense ratio 84.2% 85.0% 84.7% 84.8%
Administrative expense
ratio 15.5% 14.6% 15.1% 14.6%
(c) Excludes medical expenses of $90 million ($58 million after tax, or
$.34 per diluted share) primarily related to premium deficiency and
medical reserve strengthening and a $12 million ($8 million after tax,
or $.04 per diluted share) gain on the sale of a tangible asset.
Operating Cash Flows
Three months ended Nine months ended
September 30, September 30,
2000 1999 2000 1999
Net income $ 23 $ 22 $ 63 $ 34
Adjustments to reconcile
net income to net
cash (used in) provided
by operating activities:
Depreciation and
amortization 38 30 109 91
Deferred income tax
provision 17 15 18 18
Gain on sale of a
tangible asset -- -- -- (12)
Gain on sale of
marketable securities -- -- (1) (12)
Payment for government
audit settlement -- -- (15) --
Changes in operating assets
and liabilities excluding
effects of acquisitions
and divestitures:
Premiums receivable 47 (37) 8 (39)
Other assets 3 26 (13) 26
Medical and other
expenses payable (126) (13) (145) (61)
Workers' compensation
run out claims
reduction -- (39) (30) (115)
Trade accounts payable
and accrued expenses 54 28 (8) 1
Unearned premium
revenues (307) 5 (259) (222)
Income taxes payable 26 18 34 56
Other 4 (7) -- (6)
Net cash (used in)
provided by operating
activities $ (221) $ 48 $ (239) $ (241)
Timing of Medicare
premium payment 270 -- 251 235
Workers' compensation
liability payments -- 31 30 92
Pro forma net cash
provided by operating
activities $ 49 $ 79 $ 42 $ 86
Humana Inc.
In thousands
Ending Medical Membership
September 30, Percent
2000 1999 Difference Change
Health Plans:
Large group
commercial 1,278.5 1,424.4 (145.9) (10.2)
Medicare HMO 513.1 489.3 23.8 4.9
Medicaid 584.4(d) 648.7 (64.3) (9.9)
TRICARE 1,063.2 1,065.5 (2.3) (0.2)
Administrative services 647.3(e) 641.0 6.3 1.0
Medicare supplement --(e) 46.3 (46.3) (100.0)
Total Health Plans 4,086.5 4,315.2 (228.7) (5.3)
Small Group:
Small group commercial 1,361.1 1,706.8 (345.7) (20.3)
Total ending medical
membership 5,447.6 6,022.0 (574.4) (9.5)
Ending Specialty Membership
September 30, Percent
2000 1999 Difference Change
Health Plans:
Workers' compensation -- 445.8 (445.8) (100.0)
TRICARE dental 28.6 28.5 0.1 0.4
Total Health Plans 28.6 474.3 (445.7) (94.0)
Small Group:
Dental 1,647.3 1,523.0 124.3 8.2
Group Life 685.1 831.9 (146.8) (17.6)
Other 33.5 60.9 (27.4) (45.0)
Total Small Group 2,365.9 2,415.8 (49.9) (2.1)
Total ending specialty
membership 2,394.5 2,890.1 (495.6) (17.1)
Average Medical Membership
Three months ended Nine months ended
September 30, September 30,
2000 1999 2000 1999
Health Plans:
Large group
commercial 1,318.8 1,437.7 1,362.8 1,479.3
Medicare HMO 517.3 486.5 514.9 483.1
Medicaid 585.1 651.8 632.8 650.7
TRICARE 1,063.2 1,065.3 1,058.0 1,073.6
Administrative
services 661.6 639.8 656.3 626.6
Medicare supplement -- 46.9 40.9 50.2
Total Health Plans 4,146.0 4,328.0 4,265.7 4,363.5
Small Group:
Small group
commercial 1,406.0 1,698.0 1,507.7 1,686.6
Total average medical
membership 5,552.0 6,026.0 5,773.4 6,050.1
(d) 96,300 North Florida Medicaid members were transferred on July 1, 2000
effective with the sale of this business to HealthEase of Florida,
Inc., an affiliate of Well Care HMO Inc.
(e) Medicare Supplement members were transferred to Administrative
services on July 1, 2000 effective with the reinsurance of this
business to United Teacher Associates Insurance Company.
SOURCE Humana Inc.
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Humana Inc.
