Humana Inc. (NYSE: HUM) moved quickly during the first quarter of 2020 to ease some of the burden associated with the outbreak of the novel coronavirus, COVID-19, including assisting its employees to transition to work at home, alleviating financial and healthcare concerns for members, and supporting providers. The company has taken several proactive steps to be a part of the solution, including waiving costs associated with the diagnostic testing and treatment of COVID-19, expanding access to telehealth services, and simplifying and expediting claims processing for providers to promote the speed of reimbursement payments. In addition, the company contributed $50 million to the Humana Foundation to advance COVID-19 relief efforts.
The net financial impact of COVID-19 was not material to Humana's results of operations during the first quarter of 2020. With the emergence of stay-at-home and physical distancing orders and other restrictions on movement and economic activity intended to reduce the spread of COVID-19 during the second half of March 2020, the company experienced lower hospital admissions and utilization as members and providers began to defer non-essential procedures. The deferral of non-essential procedures was offset by an increase in pharmacy costs as a result of the company's decision to permit early prescription refills to allow members to prepare for extended supply needs and the impact of other COVID-19 specific administrative costs, including the contribution to the Humana Foundation.
Humana has seen the trend of lower utilization persist into the second quarter of 2020 and it expects that deferred non-essential procedures will return in the coming weeks and months, although a number of significant variables make the timing and impact of this recovery uncertain. As the progression of the COVID-19 pandemic continues, Humana will continue to monitor the impact on the company and all of its stakeholders and adjust its response accordingly, proactively leveraging its integrated care delivery model to best serve its members, partnering with federal and state governments to develop comprehensive and actionable plans for recovery and re-entry, minimizing the impact on its provider partners, and advancing the long-term sustainability of the company and the healthcare system.
"From the outset of the COVID-19 crisis, we've been proactive in assisting our employees, members, and providers by improving access to healthcare and easing burdens associated with finances and daily living needs," said Bruce D. Broussard, Humana's President and Chief Executive Office. "As we begin the re-entry phase, we will remain focused on serving our vulnerable populations, including over eight million Medicare beneficiaries, and recognize that safety, and particularly consumer confidence in the ability to once again safely begin using the healthcare system, are top of mind with everyone, and we play a pivotal role in ensuring both. We will continue to expand our relief efforts, like the proactive outreach we started last month to our most vulnerable members that, to date, have included fulfilling orders for over half a million meals and closing approximately 630,000 gaps in care. Humana stands ready to be a strong and willing partner to federal, state and local governments, and community nonprofits, building on what we learned during the crisis to reshape the healthcare system so it's ready and able to provide broader access to care, and to proactively manage more comprehensive health and lifestyle needs."
Summary of Quarterly Results
Humana today reported consolidated pretax income and diluted earnings per common share (EPS) for the quarter ended March 31, 2020 (1Q20) versus the quarter ended March 31, 2019 (1Q19) as follows.
Consolidated income before income taxes and equity in earnings (pretax income) In millions
Generally Accepted Accounting Principles (GAAP)
Amortization associated with identifiable intangibles
Put/call valuation adjustments associated with company's non-consolidating minority interest investments
Diluted earnings per common share (EPS)
The company has included financial measures throughout this earnings release that are not in accordance with GAAP. Management believes that these measures, when presented in conjunction with the comparable GAAP measures, are useful to both management and its investors in analyzing the company's ongoing business and operating performance. Consequently, management uses these non-GAAP (Adjusted) financial measures as indicators of the company's business performance, as well as for operational planning and decision making purposes. Non-GAAP (Adjusted) financial measures should be considered in addition to, but not as a substitute for, or superior to, financial measures prepared in accordance with GAAP. All financial measures in this press release are in accordance with GAAP unless otherwise indicated. Please refer to the footnotes for a detailed description of each item adjusted out of GAAP financial measures to arrive at a non-GAAP (Adjusted) financial measure.
GAAP and Adjusted pretax income and EPS results for 1Q20 exceeded management's expectations driven by solid results across each of the company's segments, led by strong Medicare Advantage earnings. As noted above, the net financial impact of COVID-19 was not material to Humana's results of operations during 1Q20.
Please refer to the tables above, as well as the consolidated and segment highlight sections in the detailed earnings release for additional discussion of the factors impacting the year-over-comparisons.
In addition, below is a summary of key consolidated and segment statistics comparing 1Q20 to 1Q19.
Humana Inc. Summary of Quarterly Results
(dollars in millions, except per share amounts)
Revenues - GAAP
Pretax income - GAAP
Pretax income - Adjusted
EPS - GAAP
EPS - Adjusted
Benefits expense ratio - GAAP
Operating cost ratio - GAAP
Operating cash flows - GAAP
Parent company cash and short term investments
Retail segment results:
Segment earnings - GAAP
Segment earnings - Adjusted
Group and Specialty segment results:
Healthcare Services segment results:
Adjusted earnings before interest, taxes, depreciation and amortization (Adjusted EBITDA) (c)
2020 Earnings Guidance
Humana is revising its GAAP EPS guidance range for the year ending December 31, 2020 (FY 2020) to $16.04 to $16.54 from the previous range of $17.76 to $18.26, reflecting the 1Q20 impact of the company's non-consolidating minority interest put/call valuation adjustments. While acknowledging the inherent uncertainty surrounding the ongoing crisis, Humana is maintaining its FY 2020 Adjusted EPS range of $18.25 to $18.75. For comparison, FY 2020 GAAP and Adjusted EPS guidance is detailed below along with GAAP and Adjusted results for the year ended December 31, 2019 (FY 2019).
The company is revising its net membership growth estimate for its individual Medicare Advantage products now expecting growth in a range of 300,000 to 350,000 members for FY 2020 compared to the previous guidance growth range of 270,000 to 330,000 members. This anticipated increase in 2020 represents year-over-year growth of approximately 9 percent at the midpoint of the guidance range.
The company is also reiterating its expectations for group Medicare Advantage net membership gains for FY 2020, projecting an increase of approximately 90,000 members year over year.
For its stand-alone PDP business, Humana continues to estimate a net membership decline of approximately 550,000 members for FY 2020.
Given the likelihood of significant variability of results by financial statement line item (and related ratios), Humana is withdrawing its additional detailed guidance that was initially provided as part of the company's fourth quarter 2019 earnings release dated February 5, 2020.
Diluted earnings per common share
FY 2019 (e)
$16.04 to $16.54
Amortization of identifiable intangibles
Charges associated with workforce optimization
Adjusted (non-GAAP) - FY 2020 projected; FY 2019 reported
$18.25 to $18.75
2021 Rate Notice
On April 6, 2020, CMS published its Announcement of Calendar Year 2021 Medicare Advantage Capitation Rates and Part C and Part D Payment Policies (the Final Rate Notice). The company expects the Final Rate Notice to result in a 1.20 percent(f) rate increase for non end stage renal disease (ESRD) Medicare Advantage business, excluding the impact of Employer Group Waiver Plan (EGWP) funding changes. The company's 1.20 percent rate increase compares to CMS' estimate for the sector of 1.66 percent on a comparable basis, with the variance primarily driven by county rebasing and the company's geographic footprint. CMS also establishes separate rates of payment for ESRD beneficiaries enrolled in Medicare Advantage plans. The company expects the Final Rate Notice to result in a 3.7 percent rate increase in 2021 for ESRD beneficiaries. The company's estimate of 3.7 percent is slightly higher than CMS' 3.6 percent which is also impacted by the company's geographic footprint.
Detailed Press Release
Humana's full earnings press release including the statistical pages has been posted to the company's Investor Relations site and may be accessed at https://humana.gcs-web.com/ or via a current report on Form 8-K filed by the company with the Securities and Exchange Commission this morning (available at www.sec.gov or on the company's website).
Humana will host a conference call at 10:00 a.m. Eastern time today to discuss its financial results for the quarter and the company's expectations for future earnings.
All parties interested in the company's 1Q20 earnings conference call are invited to dial 888-625-7430. No password is required. The audio-only webcast of the 1Q20 earnings call may be accessed via Humana's Investor Relations page at humana.com. The company suggests participants for both the conference call and those listening via the web dial in or sign on at least 15 minutes in advance of the call.
For those unable to participate in the live event, the archive will be available in the Historical Webcasts and Presentations section of the Investor Relations page at humana.com, approximately two hours following the live webcast. Telephone replays will also be available from approximately 1:15 p.m. Eastern time on April 29, 2020 until 10:59 p.m. Eastern time on June 29, 2020 and can be accessed by dialing 855-859-2056 and providing the conference ID #7592196.
(a) 1Q20 Adjusted results exclude the following:
(b) 1Q19 Adjusted results exclude the following:
(c) The Healthcare Services segment Adjusted EBITDA includes GAAP segment earnings with adjustments to add back depreciation and amortization expense, interest expense, and income taxes. The Adjusted EBITDA includes results from all lines of business within the segment. The Adjusted EBITDA also includes the impact of Humana's 40% minority interest in Kindred at Home and the strategic partnership with Welsh, Carson, Anderson & Stowe (WCAS) to develop and operate senior-focused, payor-agnostic, primary care centers.
(d) FY 2020 Adjusted EPS projections exclude the following:
(e) FY 2019 Adjusted results exclude the following:
(f) Excludes estimates of changes in revenues associated with increased accuracy of risk coding.
This news release includes forward-looking statements regarding Humana within the meaning of the Private Securities Litigation Reform Act of 1995. When used in investor presentations, press releases, Securities and Exchange Commission (SEC (News - Alert)) 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:
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:
Humana Inc. (NYSE: HUM) is committed to helping our millions of medical and specialty members achieve their best health. Our successful history in care delivery and health plan administration is helping us create a new kind of integrated care with the power to improve health and well-being and lower costs. Our efforts are leading to a better quality of life for people with Medicare, families, individuals, military service personnel, and communities at large.
To accomplish that, we support physicians and other health care professionals as they work to deliver the right care in the right place for their patients, our members. Our range of clinical capabilities, resources and tools - such as in-home care, behavioral health, pharmacy services, data analytics and wellness solutions - combine to produce a simplified experience that makes health care easier to navigate and more effective.
More information regarding Humana is available to investors via the Investor Relations page of the company's website at humana.com, including copies of:
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