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Humana Reports Fourth Quarter 2011 Financial Results, Updates 2012 Financial Guidance
  • 2012 EPS guidance raised to a range of $7.50 to $7.70
  • Successful 2012 annual enrollment period results in increased full-year membership expectations for Medicare Advantage
  • FY11 consolidated revenues grew 10 percent
  • FY11 EPS of $8.46, up 31 percent from prior year
  • FY11 cash flows from operations of $2.1 billion

LOUISVILLE, Ky.--(BUSINESS WIRE)--Feb. 6, 2012-- Humana Inc. (NYSE: HUM) today reported diluted earnings per common share (EPS) for the quarter ended December 31, 2011 (4Q11) of $1.20, compared to $0.63 per share for the quarter ended December 31, 2010 (4Q10). The year-over-year increase of $0.57 per share was primarily due to expenses incurred in 4Q10 that did not recur in 4Q11 together with higher favorable medical claims reserves development in 4Q11 than in 4Q10. The 4Q10 expenses were due to reserves strengthening for the company’s closed block of long-term care business.

Comparison of operating results for the quarter is affected by the items noted below:

 
Consolidated Results of Operations

($ in millions except EPS)

 

4Q11

Pretax

Income

 

4Q10

Pretax

Income

  4Q11 EPS   4Q10 EPS
GAAP   $ 313     $ 174     $ 1.20     $ 0.63  

Reserve strengthening for long-term care business (closed book)(d)

    -       139       -       0.52  

Favorable prior-period medical claims reserve development(a)

    (54 )     (38 )     (0.21 )     (0.14 )
Humana Foundation contribution     35       35       0.13       0.13  

Non-GAAP(b)

  $ 294     $ 310     $ 1.12     $ 1.14  
       

The year-over-year decline in the company’s fourth quarter consolidated results of operations on a non-GAAP(b) basis primarily reflected the impact of lower earnings in the company’s Employer Group Segment, partially offset by higher earnings in the Retail and Health and Well-Being Services Segments.

For the year ended December 31, 2011 (FY11) the company reported $8.46 in EPS compared to $6.47 for the year ended December 31, 2010 (FY10). The FY11 improved results reflected a lower year-over-year benefit ratio in the company’s Retail Segment, higher average Medicare membership and higher earnings in the company’s Health and Well-Being Services Segment.

Comparison of operating results for the full year is affected by the items noted below:

 
Consolidated Results of Operations

($ in millions except EPS)

 

FY11

Pretax

Income

 

FY10

Pretax

Income

  FY11 EPS   FY10 EPS
GAAP   $ 2,235     $ 1,749     $ 8.46     $ 6.47  

Favorable prior-year medical claims reserve development(a)

    (205 )     (231 )     (0.77 )     (0.86 )

Write-down of certain deferred acquisition costs, or DAC(c)

    -       147       -       0.55  

Reserve strengthening for long-term care business (closed book)(d)

    -       139       -       0.52  
Humana Foundation contribution     35       35       0.13       0.13  

Non-GAAP(b)

  $ 2,065     $ 1,839     $ 7.82     $ 6.81  
       

The FY11 consolidated EPS on a non-GAAP (b) basis rose 15 percent from FY10, primarily reflecting similar year-over-year increases in earnings for the company’s Retail and Health and Well-Being Services Segments more than offsetting lower earnings in the company’s Employer Group Segment. Share-repurchase activity during FY11 also contributed to the year-over-year increase in EPS.

“Humana’s ongoing operating discipline and attractive Medicare value proposition bode well for a future of favorable senior demographics and the growing need to rein in national health-care spending – especially in Medicare,” said Michael B. McCallister, Humana’s Chairman of the Board and Chief Executive Officer. “For 2012, we see further growth opportunities in Medicare and, more broadly, in our continuing expansion into adjacencies related to lifelong well-being.”

The company now anticipates EPS for the year ending December 31, 2012 (FY12) in the range of $7.50 to $7.70 versus its previous estimate of $7.40 to $7.60. This increase in FY12 EPS guidance primarily reflects an approximately 40,000-member net increase to the company’s previous expectation for Medicare Advantage membership based upon the recent annual election period for seniors.

Consolidated Highlights

Revenues – 4Q11 consolidated revenues were $9.06 billion, an increase of 9 percent from $8.28 billion in 4Q10, with total premiums and services revenue also up 9 percent compared to the prior year’s quarter. The year-over-year increase in premiums and services revenue was primarily driven by an increase in the company’s Retail and Health and Well-Being Services Segments partially offset by lower premiums and services revenue in the company’s Employer Group Segment.

FY11 consolidated revenues increased 10 percent to $36.83 billion from $33.60 billion in FY10 with total premiums and services revenue also up 10 percent compared to the prior year’s period, as a result of similar segment-level changes as those affecting the fourth quarter year-over-year change.

Benefit expenses – The 4Q11 consolidated benefit ratio (benefit expenses as a percent of premiums) of 81.8 percent decreased by 270 basis points from 84.5 percent for the prior year’s quarter due primarily to a decline in the Retail Segment benefit ratio as described below.

The consolidated benefit ratio for FY11 of 82.1 percent decreased by 80 basis points from the FY10 consolidated benefit ratio of 82.9 percent primarily due to the decline in the benefit ratio for the Retail Segment.

The consolidated benefit ratio year-over-year comparisons were impacted as follows:

 
Consolidated Benefit Ratio   4Q11   4Q10   FY11   FY10
GAAP   81.8 %   84.5 %   82.1 %   82.9 %

Favorable prior-period medical claims reserve development(a)

  0.6 %   0.4 %   0.6 %   0.7 %

Reserve strengthening for long-term care business (closed book)(d)

  -     (1.8 %)   -     (0.4 %)

Non-GAAP(b)

  82.4 %   83.1 %   82.7 %   83.2 %
       

Operating expenses – The consolidated operating cost ratio (operating costs as a percent of total revenues less investment income) of 17.7 percent for 4Q11 compares to 14.9 percent in 4Q10 primarily reflecting increases in this metric for the company’s Retail and Employer Group Segments. A full year of operating expenses for Concentra Inc. (acquired in 4Q10) also contributed to the higher year-over-year ratio since this business carries a higher-than-average operating cost ratio.

The FY11 consolidated operating cost ratio of 14.8 percent increased 160 basis points from 13.2 percent for FY10 primarily due to the same factors impacting the fourth quarter year-over-year comparison together with those described as follows:

 
Consolidated operating cost ratio   4Q11   4Q10   FY11   FY10
GAAP   17.7 %   14.9 %   14.8 %   13.2 %

Write-down of certain DAC(c)

  -     -     -     (0.5 %)
Humana Foundation contribution   (0.4 %)   (0.4 %)   (0.1 %)   (0.1 %)

Non-GAAP(b)

  17.3 %   14.5 %   14.7 %   12.6 %
       

Retail Segment Highlights

Pretax results:

  • Retail Segment pretax income of $326 million in 4Q11 compares to $250 million in 4Q10. This increase was primarily due to increased average individual Medicare membership and a lower benefit ratio partially offset by a higher operating cost ratio.
  • For FY11, pretax earnings for the Retail Segment of $1.59 billion increased by $298 million from FY10 pretax earnings of $1.29 billion. Comparison of operating results for these periods was also affected by the items noted below:
 
Retail Segment Results

($ in millions)

 

4Q11

Pretax

Income

 

4Q10

Pretax

Income

 

FY11

Pretax

Income

 

FY10

Pretax

Income

GAAP   $ 326     $ 250     $ 1,587     $ 1,289  

Write-down of certain DAC(c)

    -       -       -       147  

Favorable prior-period medical claims reserve development(a)

    (43 )     (34 )     (147 )     (198 )

Non-GAAP(b)

  $ 283     $ 216     $ 1,440     $ 1,238  
       

Enrollment:

  • Individual Medicare Advantage membership was 1,640,300 at December 31, 2011, an increase of 179,600 members, or 12 percent from 1,460,700 at December 31, 2010 primarily due to a successful enrollment season associated with the 2011 plan year as well as age-in enrollment throughout the year. Year-end 2011 membership included approximately 12,100 members associated with the company’s acquisition of MD Care on December 30, 2011.
  • January 2012 individual Medicare Advantage membership approximated 1,813,000, up approximately 173,000 from December 31, 2011 reflecting higher-than-anticipated net membership additions from the recently completed 2012 annual election period.
  • Membership in the company’s individual stand-alone Prescription Drug Plans (PDPs) was 2,540,400 at December 31, 2011, up 870,100 or 52 percent compared to 1,670,300 at December 31, 2010. These increases resulted from higher gross sales primarily during the 2011 enrollment season, particularly for the company’s innovative Humana-Walmart plan offering, supplemented by dual-eligible and age-in enrollments throughout the year.
  • January 2012 individual stand-alone PDP membership grew to approximately 2,825,000, an increase of approximately 285,000 from December 31, 2011, in the range of the company’s expectations.
  • HumanaOne® medical membership increased to 433,600 at December 31, 2011, an increase of 61,300, or 16 percent, from 372,300 at December 31, 2010.
  • Membership in individual specialty products(e) of 782,500 at December 31, 2011 increased 53 percent from 510,000 at December 31, 2010 driven primarily by increased sales in dental offerings.

Premiums and services revenue:

  • 4Q11 premiums and services revenue for the Retail Segment was $5.31 billion, an increase of 13 percent from $4.69 billion in 4Q10. The increase was primarily the result of 11 percent higher average Medicare Advantage membership year over year.

Benefit expenses:

  • The 4Q11 benefit ratio for the Retail Segment was 79.0 percent, a decrease of 270 basis points from 81.7 percent in 4Q10. The year-over-year decrease in the benefit ratio is primarily due to continued progress with cost-reduction and outcome-enhancing strategies, including care coordination and disease management, combined with an increased percent of Retail membership from stand-alone PDPs that carry a lower benefit ratio. Favorable prior-period reserve development impacted the year-over-year comparison of the benefit ratio for this segment as follows:
 
Retail Segment Benefit Ratio   4Q11   4Q10
GAAP   79.0 %   81.7 %

Favorable prior-period medical claims reserve development(a)

  0.8 %   0.7 %

Non-GAAP(b)

  79.8 %   82.4 %
   

Operating costs:

  • The Retail Segment’s operating cost ratio of 14.7 percent in 4Q11 increased 190 basis points from 12.8 percent in 4Q10. The increase was primarily the result of expenses incurred in preparation for anticipated higher year-over-year Medicare membership additions associated with the 2012 plan year together with a higher percentage of average membership in stand-alone PDP offerings that carry a higher operating cost ratio than other Medicare products.

Employer Group Segment Highlights

Pretax results:

  • Employer Group Segment pretax loss of $51 million in 4Q11 compares to a pretax income of $29 million in 4Q10 due primarily to higher year-over-year benefit and operating cost ratios.
  • For FY11, pretax earnings for the Employer Group Segment of $242 million decreased by $46 million versus FY10 pretax earnings of $288 million. Favorable prior-period reserve development impacted the year-over-year comparisons of the pretax results for this segment as follows:
 
Employer Group Segment Results

($ in millions)

 

4Q11

Pretax

Loss

 

4Q10

Pretax

Income

 

FY11

Pretax

Income

 

FY10

Pretax

Income

GAAP   ($51 )   $ 29     $ 242     $ 288  

Favorable prior-period medical claims reserve development(a)

  (10 )     (4 )     (52 )     (33 )

Non-GAAP(b)

  ($61 )   $ 25     $ 190     $ 255  
       

Enrollment:

  • Group Medicare Advantage membership was 318,200 at December 31, 2011, an increase of 16,900 members, or 6 percent, from 301,300 at December 31, 2010.
  • January 2012 group Medicare Advantage membership approximated 386,000, up approximately 68,000 members from December 31, 2011.
  • Group fully-insured commercial medical membership declined to 1,180,200 at December 31, 2011, a decrease of 72,000 or 6 percent, from 1,252,200 at December 31, 2010. This decline primarily reflected continued dedication to pricing discipline in a highly competitive environment for large group business partially offset by small group business membership gains. Approximately 56 percent of group fully-insured commercial medical membership was in small group accounts at December 31, 2011 versus 48 percent at December 31, 2010.
  • Group administrative services only (ASO) commercial medical membership declined to 1,292,300 at December 31, 2011, a decrease of 161,300, or 11 percent, from 1,453,600 at December 31, 2010. This decline reflected a continuation of discipline in pricing services for self-funded accounts amid a highly competitive environment.
  • Membership in Employer Group specialty products(e) of 6,532,600 at December 31, 2011 remained essentially flat from 6,517,500 at December 31, 2010.

Premiums and services revenue:

  • 4Q11 premiums and services revenue for the Employer Group Segment were $2.30 billion, down approximately 2 percent from $2.35 billion in 4Q10 primarily reflecting the impacts of reduced group commercial fully-insured membership and rebates associated with minimum medical loss ratio regulatory requirements which became effective in 2011. Rebates result in the recognition of lower premium revenues, as amounts are set aside for payments to commercial customers during the following year.

Benefit expenses:

  • 4Q11 benefit ratio for the Employer Group Segment was 86.4 percent, an increase of 200 basis points, from 84.4 percent for 4Q10. The year-over-year increase in the benefit ratio primarily reflects rebates associated with minimum medical loss ratio regulatory requirements which became effective in 2011, together with a higher percentage of members in group Medicare Advantage plans (which carry a higher benefit ratio than commercial fully-insured accounts). These items were partially offset by the impact of prior-period reserve development, which impacted the year-over-year comparison of the benefit ratio for this segment as follows:
 
Employer Group Segment Benefit Ratio   4Q11   4Q10
GAAP   86.4 %   84.4 %

Favorable prior-period medical claims reserve development(a)

  0.5 %   0.2 %

Non-GAAP(b)

  86.9 %   84.6 %
   

Operating costs:

  • The Employer Group Segment’s operating cost ratio was 18.8 percent in 4Q11, an increase of 130 basis points from 17.5 percent in 4Q10 primarily reflecting the impact of lower premium revenues due to rebates associated with minimum medical loss ratio requirements which became effective in 2011.

Health and Well-Being Services Segment Highlights

Pretax results:

  • Health and Well-Being Services Segment pretax income of $85 million in 4Q11 increased 93 percent compared to $44 million in 4Q10 reflecting growth in the company’s pharmacy solutions business as well as the addition of the Concentra business acquired in December 2010.
  • For FY11, pretax earnings for the Health and Well-Being Services Segment of $353 million increased by $134 million from FY10 pretax earnings of $219 million, reflecting the same factors as those affecting the quarterly year-over-year comparisons.

Revenues:

  • Revenues of $2.90 billion in 4Q11 for the Health and Well-Being Services Segment increased 32 percent from $2.20 billion in 4Q10. This increase was primarily due to growth in the company’s pharmacy solutions business together with the addition of the Concentra business acquired in December 2010.

Operating costs:

  • The Health and Well-Being Services Segment’s operating cost ratio of 96.3 percent in 4Q11 decreased by 140 basis points from 97.7 percent in 4Q10 primarily due to scale efficiencies related to growth in the pharmacy solutions business.

Balance Sheet

  • At December 31, 2011, the company had cash, cash equivalents, and investment securities of $10.83 billion, up 8 percent from $10.05 billion at December 31, 2010 reflecting higher balances associated with increased earnings for FY11 versus FY10.
  • Parent company cash and investments of $494 million at December 31, 2011 decreased $140 million from $634 million at September 30, 2011, primarily reflecting cash dividends to stockholders and acquisition activity during 4Q11. Cash and investments at the parent decreased $59 million year over year compared to $553 million held at the parent at December 31, 2010 as increased dividends from subsidiaries during FY11 were more than offset by share repurchases, cash dividends to stockholders and acquisition activity.
  • Days in claims payable of 52.5 at December 31, 2011 decreased 1.7 days from 54.2 days at September 30, 2011 primarily due to a significant decline in unprocessed claims inventories. The days unprocessed claims on hand declined to 2.8 days at December 31, 2011 from 5.7 days at September 30, 2011.
  • Debt-to-total capitalization at December 31, 2011 was 17.1 percent, down 40 basis points from 17.5 percent at September 30, 2011, and down 230 basis points compared to 19.4 percent at December 31, 2010 primarily driven by higher earnings for FY11 versus FY10.

Cash Flows from Operations

Cash flows used in operations for 4Q11 were $1.80 billion compared to cash flows used in operations of $47 million in 4Q10. The company also evaluates operating cash flows on a non-GAAP basis:

 
Net cash from operating activities

(in millions)

  4Q11

Cash Flows

  4Q10

Cash Flows

GAAP use of cash   ($1,797 )   ($47 )

Timing of premium payment from CMS(f)

  1,796    

--

 

Non-GAAP (b) use of cash

  ($1 )   ($47 )
   

The year-over-year increase in the non-GAAP (b) cash flows from operations is due to the effect on cash flows of changes in working capital accounts, including higher net income year over year.

FY11 cash flows from operations of $2.08 billion compared to $2.24 billion for FY10 primarily due to changes in working capital accounts partially offset by higher net income year over year.

Share Repurchase Program and Cash Dividend

  • In April 2011, the company’s Board of Directors replaced its previous share repurchase authorization with a new authorization for share repurchases of up to $1 billion. During FY11, the company repurchased 6,755,400 of its outstanding shares at an average price per share of $72.75. As of December 31, 2011, approximately $561 million of the April 2011 share repurchase authorization was remaining, with an expiration date of June 30, 2013.
  • In April 2011, the company’s Board of Directors also initiated a quarterly cash dividend policy. A cash dividend payment of approximately $41 million, or $0.25 per share, for stockholders of record as of December 30, 2011, was paid on January 31, 2012. Stockholders received cash dividend payments of approximately $82 million in 2011.

Footnotes

(a) Actuarial standards require the use of assumptions based on moderately adverse experience, which generally results in favorable reserve development, or reserves that are considered redundant. When the Company recognizes a release of the redundancy, we disclose the amount that is not in the ordinary course of business.

(b) 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.

(c) During the second quarter of 2010, the company recognized an impairment of deferred acquisition cost (DAC) assets associated with its Individual Major Medical line of business of $147 million. The related DAC included amounts associated with commissions, underwriting and other policy issuance costs. Given then impending changes to this business associated with health insurance reform, a substantial portion of the DAC was determined to be not recoverable from future income.

(d) During the fourth quarter of 2010, the company strengthened future policy benefit reserves related to our closed block of long-term care policies in the amount of $139 million. This block of 35,000 policies was acquired in connection with our acquisition of KMG America in late 2007. No policies in this block have been sold since 2005.

(e) 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.

(f) Generally, when the first day of a month falls on a weekend or holiday, with the exception of January 1 (New Year’s Day), the company receives this payment at the end of the previous month. Therefore, 4Q11 included two monthly Medicare payments compared to three monthly Medicare payments during 4Q10.

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.

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,” “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:

  • Health insurance reform legislation, 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, increasing the company's medical and administrative costs by, among other things, requiring a minimum benefit ratio on insured products (and particularly how the ratio may apply to Medicare plans), lowering the company’s Medicare payment rates and increasing the company’s expenses associated with a non-deductible federal premium tax; financial position, including the company's ability to maintain the value of its goodwill; and cash flows. In addition, if the new non-deductible federal premium tax is imposed as enacted, and if Humana is unable to adjust its business model to address this new tax, there can be no assurance that the non-deductible federal premium tax would not have a material adverse effect on the company’s results of operations, financial position, and cash flows.
  • If Humana does not design and price its products properly and competitively, if the premiums Humana charges are insufficient to cover the cost of health care services delivered to its members, or if its estimates of benefit expenses 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 that is extremely sensitive to payment patterns and medical cost trends.
  • If Humana fails to effectively implement its operational and strategic initiatives, including its Medicare initiatives, the company’s business may be materially adversely affected, which is of particular importance given the concentration of the company’s revenues in the Medicare business.
  • 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.
  • Humana is involved in various legal actions and governmental and internal investigations, including without limitation, an ongoing internal investigation and litigation and government requests for information related to certain aspects of its Florida subsidiary operations, the outcome of any of which could result in substantial monetary damages, penalties, fines or other sanctions. Increased litigation or regulatory action and any related negative publicity could increase the company’s cost of doing business.
  • Humana’s business activities are subject to substantial government regulation and related audits for compliance, including, among others, existing audits regarding Medicare risk adjustment data. New laws or regulations, or changes in existing laws or regulations or their manner of application, including the methodology that may be used by the government in implementing results of risk adjustment audits, could increase the company’s cost of doing business and may adversely affect the company’s business, profitability and financial condition. In addition, as a government contractor, Humana is exposed to additional risks that may adversely affect the company’s business or the company’s willingness to participate in government health care programs.
  • Any failure to manage administrative costs could hamper Humana’s profitability.
  • 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.
  • If Humana fails to develop and maintain satisfactory relationships with the providers of care to its members, the company’s business may be adversely affected.
  • Humana’s mail order pharmacy business is highly competitive and subjects it to regulations in addition to those the company faces with its core health benefits businesses.
  • Changes in the prescription drug industry pricing benchmarks may adversely affect Humana’s financial performance.
  • If Humana does not continue to earn and retain purchase discounts and volume rebates from pharmaceutical manufacturers at current levels, Humana’s gross margins may decline.
  • Humana’s ability to obtain funds from its subsidiaries is restricted by state insurance regulations.
  • Downgrades in Humana’s debt ratings, should they occur, may adversely affect its business, results of operations, and financial condition.
  • Federal government contracts account for a substantial portion of Humana’s revenue and earnings. A delay by Congress in raising the federal government’s debt ceiling, should it occur, could lead to a reduction, suspension or cancellation of federal government spending that could, in turn, have a material adverse effect on Humana’s business and profitability.
  • Changes in economic conditions could adversely affect Humana’s business and results of operations.
  • The securities and credit markets may experience volatility and disruption, which may adversely affect Humana’s business.
  • 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:

  • Form 10-K for the year ended December 31, 2010;
  • Form 10-Q for the quarters ended March 31, 2011, June 30, 2011, and September 30, 2011;
  • Form 8-Ks filed during 2011 and 2012.

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:

  • Annual reports to stockholders;
  • Securities and Exchange Commission filings;
  • Most recent investor conference presentations;
  • Quarterly earnings news releases;
  • Replays of most recent earnings release conference calls;
  • Calendar of events (including upcoming earnings conference call dates and times, as well as planned interaction with research analysts and institutional investors);
  • Corporate Governance information

Humana Inc. – Earnings Guidance Points as of February 6, 2012

 

(in accordance with

For the year ending December 31, 2012 Comments

Generally Accepted

(see key assumptions below) (excludes impact of pending acquisitions)

Accounting Principles)

     
Diluted earnings per common Full year 2012: $7.50 to $7.70 Excludes the impact of future share
share (EPS) First quarter 2012: $1.35 to $1.45 repurchases
Anticipates weighted average shares
      outstanding of 167 million
Revenues Consolidated revenues: $38.75 billion to $39.25 billion Includes expected investment income in the
range of $375 million to $395 million
 
Total revenues: Segment-level revenues include investment
Retail Segment: $24.25 billion to $24.75 billion income and intersegment amounts that
Employer Group Segment: $10.50 billion to $11.00 billion eliminate in consolidation
Health and Well-Being Services Segment: $13.25 billion to $13.75
billion
  Other Businesses: $2.50 billion to $2.75 billion    
Ending medical membership Retail Segment:
versus prior year end Medicare Advantage: Up 185,000 to 195,000
Medicare stand-alone PDPs: Up 500,000 to 600,000
HumanaOne: Up approximately 45,000
Medicare supplement: Up 30,000 to 40,000
Employer Group Segment:
Medicare Advantage: Up approximately 65,000 to 75,000
Commercial medical fully-insured: Up 50,000 to 60,000
  Commercial medical ASO: Down 60,000 to 70,000    
Benefit ratios Retail Segment: 83.5% to 84.5% Benefit expenses as a percent of premiums
  Employer Group Segment: 85.0% to 86.0%    
Operating cost ratios Consolidated: 14.25% to 14.75% Operating costs as a percent of total
Health & Well-Being Services Segment: 95.75% to 96.25% revenues excluding investment income
Consolidated ratio assumes new TRICARE
South Region contract will be accounted
      for on an ASO basis

Consolidated depreciation

$320 million to $340 million Approximately $40 million is expected to be

and amortization (cash

included in benefits expense on the income

flows statement)

    statement

Consolidated interest expense 

$105 million to $110 million    
Detailed pretax results and Retail Segment: $1.30 billion to $1.35 billion; 5.3% to 5.5% pretax Segment-level pretax results and margins
margins margin include the impact of investment income
Employer Group Segment: $125 million to $175 million; 1.3% to 1.5%
pretax margin
Health and Well-Being Services Segment: $425 million to $475 million;
  3.0% to 3.5% pretax margin    
Effective Tax Rate 36.0% to 36.5%    
Cash flows from operations $1.8 billion to $2.0 billion    
Capital expenditures Approximately $350 million    

 
 
 
 
 

Humana Inc.

Statistical Schedules

And

Supplementary Information

4Q11 Earnings Release

 
 
 

S-1

 
 
 
 
 
 

Humana Inc.

Statistical Schedules and Supplementary Information

4Q11 Earnings Release

 

Contents

 

Page

   

Description

 
S-3-4 Consolidated Statements of Income
S-5 4Q11 Segment Financial Information
S-6 FY11 Segment Financial Information
S-7 4Q10 Segment Financial Information
S-8 FY10 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 Membership Detail
S-14-15 Premiums and Services Revenue Detail
S-16 Medicare Summary
S-17 Investments
S-18-20 Benefits Payable
S-21 Footnotes
 
 
 

S-2

       
 
 
 
 
 
Humana Inc.
Consolidated Statements of Income
In millions, except per common share results
     
Three Months Ended December 31,
Dollar Percentage
2011   2010 Change Change
Revenues:
Premiums $ 8,638 $ 8,039 $ 599 7.5 %
Services 325 161 164 101.9 %
Investment income   93     76   17 22.4 %
Total revenues   9,056     8,276   780 9.4 %
Operating expenses:
Benefits 7,062 6,789 273 4.0 %
Operating costs 1,585 1,224 361 29.5 %
Depreciation and amortization   69     62   7 11.3 %
Total operating expenses   8,716     8,075   641 7.9 %
Income from operations 340 201 139 69.2 %
Interest expense   27     27   0 0.0 %
Income before income taxes 313 174 139 79.9 %
Provision for income taxes   114     67   47 70.1 %
Net income $ 199   $ 107 $ 92 86.0 %
 
Basic earnings per common share $ 1.22 $ 0.64 $ 0.58 90.6 %
Diluted earnings per common share $ 1.20 $ 0.63 $ 0.57 90.5 %
 
Shares used in computing basic earnings per common share (000's) 163,238 166,883
Shares used in computing diluted earnings per common share (000's) 165,632 169,303
 
 
 

S-3

       
 
 
 
 
 
Humana Inc.
Consolidated Statements of Income
In millions, except per common share results
     
Year Ended December 31,
Dollar Percentage
2011   2010 Change Change
Revenues:
Premiums $ 35,106 $ 32,712 $ 2,394 7.3 %
Services 1,360 555 805 145.0 %
Investment income   366     329   37 11.2 %
Total revenues   36,832     33,596   3,236 9.6 %
Operating expenses:
Benefits 28,823 27,117 1,706 6.3 %
Operating costs 5,395 4,380 1,015 23.2 %
Depreciation and amortization   270     245   25 10.2 %
Total operating expenses   34,488     31,742   2,746 8.7 %
Income from operations 2,344 1,854 490 26.4 %
Interest expense   109     105   4 3.8 %
Income before income taxes 2,235 1,749 486 27.8 %
Provision for income taxes   816     650   166 25.5 %
Net income $ 1,419   $ 1,099 $ 320 29.1 %
 
Basic earnings per common share $ 8.58 $ 6.55 $ 2.03 31.0 %
Diluted earnings per common share $ 8.46 $ 6.47 $ 1.99 30.8 %
 
Shares used in computing basic earnings per common share (000's) 165,413 167,782
Shares used in computing diluted earnings per common share (000's) 167,827 169,798
 
 
 

S-4

                       
 
 
 
 
 
Humana Inc.
4Q11 Segment Financial Information
In millions
Health and
Employer Well-Being Other Eliminations/
Retail Group Services Businesses Corporate Consolidated
 
Revenues - external customers
Premiums:
Medicare Advantage $ 4,454 $ 789 $ - $ - $ - $ 5,243
Medicare stand-alone PDP     580       2       -       57       -       639  
Total Medicare     5,034       791       -       57       -       5,882  
Fully-insured 233 1,181 - - - 1,414
Specialty 35 237 - - - 272
Military services - - - 814 - 814
Medicaid and other (A)     -       -       -       256       -       256  
Total premiums     5,302       2,209       -       1,127       -       8,638  
Services revenue:
Provider - - 222 - - 222
ASO and other (B) 4 87 - 9 - 100
Pharmacy     -       -       3       -       -       3  
Total services revenue     4       87       225       9       -       325  
Total revenues - external customers   5,306       2,296       225       1,136       -       8,963  
 
Intersegment revenues
Services - 4 2,185 - (2,189 ) -
Products     -       -       490       -       (490 )     -  
Total intersegment revenues     -       4       2,675       -       (2,679 )     -  
Investment income     19       12       -       14       48       93  
Total revenues     5,325       2,312       2,900       1,150       (2,631 )     9,056  
 
Operating expenses:
Benefits 4,190 1,909 - 1,036 (73 ) 7,062
Operating costs 779 433 2,794 110 (2,531 ) 1,585
Depreciation and amortization     30       21       21       3       (6 )     69  
Total operating expenses     4,999       2,363       2,815       1,149       (2,610 )     8,716  
Income from operations 326 (51 ) 85 1 (21 ) 340
Interest expense     -       -       -       -       27       27  
Income (loss) before income taxes   $ 326     $ (51 )   $ 85     $ 1     $ (48 )   $ 313  
 
Benefit ratio 79.0 % 86.4 % 91.9 % 81.8 %
Operating cost ratio 14.7 % 18.8 % 96.3 % 9.7 % 17.7 %
 
 
 

S-5

                       
 
 
 
 
 
Humana Inc.
FY11 Segment Financial Information
In millions
Health and
Employer Well-Being Other Eliminations/
Retail Group Services Businesses Corporate Consolidated
 
Revenues - external customers
Premiums:
Medicare Advantage $ 18,100 $ 3,152 $ - $ - $ - $ 21,252
Medicare stand-alone PDP     2,317       8       -       253       -       2,578  
Total Medicare     20,417       3,160       -       253       -       23,830  
Fully-insured 861 4,782 - - - 5,643
Specialty 124 935 - - - 1,059
Military services - - - 3,616 - 3,616
Medicaid and other (A)     -       -       -       958       -       958  
Total premiums     21,402       8,877       -       4,827       -       35,106  
Services revenue:
Provider - - 892 - - 892
ASO and other (B) 16 356 - 85 - 457
Pharmacy     -       -       11       -       -       11  
Total services revenue     16       356       903       85       -       1,360  
Total revenues - external customers   21,418       9,233       903       4,912       -       36,466  
 
Intersegment revenues
Services - 14 8,510 - (8,524 ) -
Products     -       -       1,820       -       (1,820 )     -  
Total intersegment revenues     -       14       10,330       -       (10,344 )     -  
Investment income     76       48       -       54       188       366  
Total revenues     21,494       9,295       11,233       4,966       (10,156 )     36,832  
 
Operating expenses:
Benefits 17,383 7,318 - 4,411 (289 ) 28,823
Operating costs 2,405 1,650 10,798 461 (9,919 ) 5,395
Depreciation and amortization     119       85       82       10       (26 )     270  
Total operating expenses     19,907       9,053       10,880       4,882       (10,234 )     34,488  
Income from operations 1,587 242 353 84 78 2,344
Interest expense     -       -       -       -       109       109  
Income (loss) before income taxes   $ 1,587     $ 242     $ 353     $ 84     $ (31 )   $ 2,235  
 
Benefit ratio 81.2 % 82.4 % 91.4 % 82.1 %
Operating cost ratio 11.2 % 17.8 % 96.1 % 9.4 % 14.8 %
 
 
 

S-6

                       
 
 
 
 
 
 
Humana Inc.
4Q10 Segment Financial Information
In millions
Health and
Employer Well-Being Other Eliminations/
Retail Group Services Businesses Corporate Consolidated
 
Revenues - external customers
Premiums:
Medicare Advantage $ 4,024 $ 761 $ - $ - $ - $ 4,785
Medicare stand-alone PDP     447       2       -       13       -       462  
Total Medicare     4,471       763       -       13       -       5,247  
Fully-insured 194 1,264 - - - 1,458
Specialty 22 222 - - - 244
Military services - - - 858 - 858
Medicaid and other (A)     -       -       -       232       -       232  
Total premiums     4,687       2,249       -       1,103       -       8,039  
Services revenue:
Provider - - 24 - - 24
ASO and other (B) 3 101 - 33 - 137
Pharmacy     -       -       -       -       -       -  
Total services revenue     3       101       24       33       -       161  
Total revenues - external customers   4,690       2,350       24       1,136       -       8,200  
 
Intersegment revenues
Services - 3 1,819 - (1,822 ) -
Products     -       -       355       -       (355 )     -  
Total intersegment revenues     -       3       2,174       -       (2,177 )     -  
Investment income     18       10       -       11       37       76  
Total revenues     4,708       2,363       2,198       1,147       (2,140 )     8,276  
 
Operating expenses:
Benefits 3,828 1,899 - 1,127 (65 ) 6,789
Operating costs 600 412 2,148 127 (2,063 ) 1,224
Depreciation and amortization     30       23       6       3       -       62  
Total operating expenses     4,458       2,334       2,154       1,257       (2,128 )     8,075  
Income from operations 250 29 44 (110 ) (12 ) 201
Interest expense     -       -       -       -       27       27  
Income (loss) before income taxes   $ 250     $ 29     $ 44     $ (110 )   $ (39 )   $ 174  
 
Benefit ratio 81.7 % 84.4 % 102.2 % 84.5 %
Operating cost ratio 12.8 % 17.5 % 97.7 % 11.2 % 14.9 %
 
 
 

S-7

                       
 
 
 
 
 
Humana Inc.
FY10 Segment Financial Information
In millions
Health and
Employer Well-Being Other Eliminations/
Retail Group Services Businesses Corporate Consolidated
 
Revenues - external customers
Premiums:
Medicare Advantage $ 16,265 $ 3,021 $ - $ - $ - $ 19,286
Medicare stand-alone PDP     1,959       5       -       355       -       2,319  
Total Medicare     18,224       3,026       -       355       -       21,605  
Fully-insured 746 5,169 - - - 5,915
Specialty 82 885 - - - 967
Military services - - - 3,462 - 3,462
Medicaid and other (A)     -       -       -       763       -       763  
Total premiums     19,052       9,080       -       4,580       -       32,712  
Services revenue:
Provider - - 34 - - 34
ASO and other (B) 11 395 - 115 - 521
Pharmacy     -       -       -       -       -       -  
Total services revenue     11       395       34       115       -       555  
Total revenues - external customers     19,063       9,475       34       4,695       -       33,267  
 
Intersegment revenues
Services - 12 7,494 - (7,506 ) -
Products     -       -       1,292       -       (1,292 )     -  
Total intersegment revenues     -       12       8,786       -       (8,798 )     -  
Investment income     80       42       -       43       164       329  
Total revenues     19,143       9,529       8,820       4,738       (8,634 )     33,596  
 
Operating expenses:
Benefits 15,624 7,486 - 4,253 (246 ) 27,117
Operating costs 2,113 1,662 8,575 475 (8,445 ) 4,380
Depreciation and amortization     117       93       26       12       (3 )     245  
Total operating expenses     17,854       9,241       8,601       4,740       (8,694 )     31,742  
Income from operations 1,289 288 219 (2 ) 60 1,854
Interest expense     -       -       -       -       105       105  
Income (loss) before income taxes   $ 1,289     $ 288     $ 219     $ (2 )   $ (45 )   $ 1,749  
 
Benefit ratio 82.0 % 82.4 % 92.9 % 82.9 %
Operating cost ratio 11.1 % 17.5 % 97.2 % 10.1 % 13.2 %
 
 
 

S-8

       
 
 
 
 
 
 
Humana Inc.
Consolidated Balance Sheets
Dollars in millions, except share amounts  
  December 31, December 31, Sequential Change
2011   2010 Dollar   Percent
Assets
Current assets:
Cash and cash equivalents $ 1,377 $ 1,673
Investment securities 7,743 6,873
Receivables, net 1,034 959
Other   1,027       632  
Total current assets 11,181 10,137 $ 1,044 10.3   %
 
Property and equipment, net 912 815
Long-term investment securities 1,710 1,500
Goodwill 2,740 2,568
Other   1,165       1,083  
Total assets   17,708       16,103   $ 1,605 10.0 %
 
Liabilities and Stockholders' Equity
Current liabilities:
Benefits payable 3,754 3,469
Trade accounts payable and accrued expenses 1,783 1,681
Book overdraft 306 409
Unearned revenues   213       185  
Total current liabilities 6,056 5,744 $ 312 5.4 %
 
Long-term debt 1,659 1,669
Future policy benefits payable 1,663 1,493
Other long-term liabilities   267       273  
Total liabilities   9,645       9,179   $ 466 5.1 %
 
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; 193,230,310 issued at December 31, 2011

32 32
Capital in excess of par value 1,938 1,737
Retained earnings 6,825 5,529
Accumulated other comprehensive income 303 120
Treasury stock, at cost, 29,225,996 shares at December 31, 2011   (1,035 )     (494 )
Total stockholders' equity   8,063       6,924   $ 1,139 16.5 %
Total liabilities and stockholders' equity $ 17,708     $ 16,103   $ 1,605 10.0 %
 
Debt-to-total capitalization ratio 17.1 % 19.4 %
 
 
 

S-9

       
 
 
 
 
 
Humana Inc.
Consolidated Statements of Cash Flows
Dollars in millions  
  Three Months Ended December 31,
Dollar Percentage
2011   2010 Change   Change
Cash flows from operating activities
Net income $ 199 $ 107

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization 78 66
Net realized capital (gains) losses (4 ) 7
Stock-based compensation 14 11
Provision for (benefit from) deferred income taxes 10 (83 )

Changes in operating assets and liabilities excluding the effects of acquisitions:

Receivables 2 (42 )
Other assets 22 (39 )
Benefits payable (143 ) (258 )
Other liabilities (198 ) 201
Unearned revenues (1,794 ) (31 )
Other   17       14  
Net cash used in operating activities   (1,797 )     (47 ) ($1,750 ) nm
 
Cash flows from investing activities
Acquisitions, net of cash acquired (212 ) (822 )
Purchases of property and equipment (120 ) (70 )
Purchases of investment securities (1,011 ) (1,007 )
Proceeds from maturities of investment securities 485 257
Proceeds from sales of investment securities 634 714
Change in securities lending collateral   9       (18 )
Net cash used in investing activities   (215 )     (946 ) $ 731 -77.3 %
 
Cash flows from financing activities
Receipts from CMS contract deposits 382 437
Withdrawals from CMS contract deposits (985 ) (877 )
Change in book overdraft 7 168
Change in securities lending payable (11 ) 18
Excess tax benefit from stock-based compensation 3 -
Dividends paid (41 ) -
Proceeds from stock option exercises and other   15       (3 )
Net cash used in financing activities   (630 )     (257 ) ($373 ) 145.1 %
 
Decrease in cash and cash equivalents (2,642 ) (1,250 )
Cash and cash equivalents at beginning of period   4,019       2,923  
 
Cash and cash equivalents at end of period $ 1,377     $ 1,673  
 
 
 

S-10

       
 
 
 
 
 
Humana Inc.
Consolidated Statements of Cash Flows
Dollars in millions  
  Year Ended December 31,
Dollar Percentage
2011   2010 Change   Change
Cash flows from operating activities
Net income $ 1,419 $ 1,099

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization 303 263
Net realized capital gains (11 ) (6 )
Stock-based compensation 67 63
Provision for (benefit from) deferred income taxes 22 (199 )

Changes in operating assets and liabilities excluding the effects of acquisitions:

Receivables (75 ) (27 )
Other assets (183 ) 81
Benefits payable 256 247
Other liabilities 194 722
Unearned revenues 26 (46 )
Other   61       45  
Net cash provided by operating activities   2,079       2,242   ($163 ) -7.3 %
 
Cash flows from investing activities
Acquisitions, net of cash acquired (226 ) (833 )
Purchases of property and equipment (336 ) (222 )
Purchases of investment securities (3,678 ) (4,589 )
Proceeds from maturities of investment securities 1,569 1,750
Proceeds from sales of investment securities 1,259 2,012
Change in securities lending collateral   54       71  
Net cash used in investing activities   (1,358 )     (1,811 ) $ 453 -25.0 %
 
Cash flows from financing activities
Receipts from CMS contract deposits 2,517 1,757
Withdrawals from CMS contract deposits (2,895 ) (1,994 )
Change in book overdraft (103 ) 35
Change in securities lending payable (56 ) (71 )
Common stock repurchases (541 ) (108 )
Excess tax benefit from stock-based compensation 15 2
Dividends paid (82 ) -
Proceeds from stock option exercises and other   128       8  
Net cash used in financing activities   (1,017 )     (371 ) ($646 ) 174.1 %
 
(Decrease) increase in cash and cash equivalents (296 ) 60
Cash and cash equivalents at beginning of period   1,673       1,613  
 
Cash and cash equivalents at end of period $ 1,377     $ 1,673  
 
 
 

S-11

               
 
 
 
 
 
Humana Inc.
Key Income Statement Ratios and Segment Operating Results
Dollars in millions
       
Three Months Ended December 31, Year Ended December 31,
Percentage Percentage
2011   2010 Difference   Change 2011   2010 Difference   Change
Benefit ratio
Retail 79.0 % 81.7 % -2.7 % 81.2 % 82.0 % -0.8 %
Employer Group 86.4 % 84.4 % 2.0 % 82.4 % 82.4 % 0.0 %
Other Businesses 91.9 % 102.2 % -10.3 % 91.4 % 92.9 % -1.5 %
Consolidated 81.8 % 84.5 % -2.7 % 82.1 % 82.9 % -0.8 %
 
Operating cost ratio (C)
Retail 14.7 % 12.8 % 1.9 % 11.2 % 11.1 % 0.1 %
Employer Group 18.8 % 17.5 % 1.3 % 17.8 % 17.5 % 0.3 %
Health and Well-Being Services 96.3 % 97.7 % -1.4 % 96.1 % 97.2 % -1.1 %
Other Businesses 9.7 % 11.2 % -1.5 % 9.4 % 10.1 % -0.7 %
Consolidated 17.7 % 14.9 % 2.8 % 14.8 % 13.2 % 1.6 %
 
Detail of pretax income (loss)
Retail $ 326 $ 250 $ 76 30.4 % $ 1,587 $ 1,289 $ 298 23.1 %
Employer Group ($51 ) $ 29 ($80 ) -275.9 % $ 242 $ 288 ($46 ) -16.0 %
Health and Well-Being Services $ 85 $ 44 $ 41 93.2 % $ 353 $ 219 $ 134 61.2 %
Other Businesses $ 1 ($110 ) $ 111

100.9

% $ 84 ($2 ) $ 86 nm
Consolidated $ 313 $ 174 $ 139 79.9 % $ 2,235 $ 1,749 $ 486 27.8 %
 
 
 

S-12

               
 
 
 
 
 
Humana Inc.
Membership Detail
In thousands        
    Ending

Average

Ending Year-over-year Change Ending Sequential Change
December 31, 2011  

4Q11

  December 31, 2010

Amount

 

Percent

September 30, 2011 Amount   Percent
Medical Membership:
Retail
Medicare Advantage 1,640.3 1,621.2 1,460.7 179.6 12.3 % 1,613.4 26.9 1.7 %
Medicare stand-alone PDPs 2,540.4 2,516.3 1,670.3 870.1 52.1 % 2,478.1 62.3 2.5 %
Individual commercial 433.6 430.1 372.3 61.3 16.5 % 424.0 9.6 2.3 %
Medicare Supplement 59.6   58.5   38.9 20.7   53.2 % 56.7   2.9   5.1 %
Total Retail 4,673.9   4,626.1   3,542.2 1,131.7   31.9 % 4,572.2   101.7   2.2 %
 
Employer Group
Medicare Advantage 290.6 289.9 273.1 17.5 6.4 % 287.9 2.7 0.9 %
Medicare Advantage ASO 27.6 27.6 28.2 (0.6 ) -2.1 % 27.6 - 0.0 %
Medicare stand-alone PDPs 4.2 4.2 2.4 1.8 75.0 % 4.2 - 0.0 %
Fully-insured medical commercial 1,180.2 1,178.3 1,252.2 (72.0 ) -5.7 % 1,181.3 (1.1 ) -0.1 %
ASO commercial 1,292.3   1,289.7   1,453.6 (161.3 ) -11.1 % 1,287.0   5.3   0.4 %
Total Employer Group 2,794.9   2,789.7   3,009.5 (214.6 ) -7.1 % 2,788.0   6.9   0.2 %
 
Other Businesses
Military Services 3,028.1 3,024.0 3,027.8 0.3 0.0 % 3,025.9 2.2 0.1 %
Medicaid and other 614.2 616.9 621.0 (6.8 ) -1.1 % 621.5 (7.3 ) -1.2 %
LI-NET (D) 73.5   73.9   86.1 (12.6 ) -14.6 % 74.6   (1.1 ) -1.5 %
Total Other Businesses 3,715.8   3,714.8   3,734.9 (19.1 ) -0.5 % 3,722.0   (6.2 ) -0.2 %
 
Total Medical Membership 11,184.6   11,130.6   10,286.6 898.0   8.7 % 11,082.2   102.4   0.9 %
 
 
Specialty Membership:
Retail
Dental - fully-insured 579.6 576.9 383.9 195.7 51.0 % 564.7 14.9 2.6 %
Vision 83.8 82.9 51.7 32.1 62.1 % 79.3 4.5 5.7 %
Other supplemental benefits (E) 119.1   116.5   74.4 44.7   60.1 % 111.6   7.5   6.7 %
Total Retail 782.5   776.3   510.0 272.5   53.4 % 755.6   26.9   3.6 %
 
Employer Group
Dental - fully-insured 2,283.9 2,278.1 2,254.5 29.4 1.3 % 2,259.5 24.4 1.1 %
Dental - ASO 869.9 869.4 1,242.3 (372.4 ) -30.0 % 876.9 (7.0 ) -0.8 %
Vision 2,329.6 2,308.8 2,134.7 194.9 9.1 % 2,272.8 56.8 2.5 %
Other supplemental benefits (E) 1,049.2   1,039.8   886.0 163.2   18.4 % 1,010.1   39.1   3.9 %
Total Employer Group 6,532.6   6,496.1   6,517.5 15.1   0.2 % 6,419.3   113.3   1.8 %
 
Total Specialty Membership 7,315.1   7,272.4   7,027.5 287.6   4.1 % 7,174.9   140.2   2.0 %
 
 
 

S-13

           
 
 
 
 
 
Humana Inc.
Premiums and Services Revenue Detail
Dollars in millions, except per member per month
       
  Per Member per Month (F)
Three Months Ended December 31, Three Months Ended December 31,
Dollar Percentage
2011   2010 Change   Change 2011   2010
 
Premiums and Services Revenue
Retail:
Medicare Advantage $ 4,454 $ 4,024 $ 430 10.7 % $ 916 $ 918
Medicare stand-alone PDPs 580 447 133 29.8 % $ 77 $ 89
Individual commercial 205 175 30 17.1 % $ 159 $ 157
Medicare Supplemental 28 19 9 47.4 % $ 160 $ 164
Specialty 35 22 13 59.1 % $ 15 $ 15
ASO & other services (B)   4     3   1   33.3 %
Total Retail   5,306     4,690   616   13.1 %
 
Employer Group:
Medicare Advantage 789 761 28 3.7 % $ 907 $ 927
Medicare stand-alone PDPs 2 2 - 0.0 %
Fully-insured medical commercial 1,181 1,264 (83 ) -6.6 % $ 334 $ 337
Specialty 237 222 15 6.8 % $ 14 $ 14
ASO & other services (B)   91     104   (13 ) -12.5 %
Total Employer Group   2,300     2,353   (53 ) -2.3 %
 
Health and Well-Being Services:
Pharmacy solutions 2,550 2,074 476 23.0 %
Primary care services 268 66 202 306.1 %
Home care services 29 14 15 107.1 %
Integrated wellness services   53     44   9   20.5 %
Total Health and Well-Being Services   2,900     2,198   702   31.9 %
 
Other Businesses:
Military services (G) 821 876 (55 ) -6.3 % $ 157 $ 163
LI-NET (D) 57 13 44 338.5 % $ 257 $ 51
Medicaid and other (H)   258     247   11   4.5 % $ 138 $ 125
Total Other Businesses   1,136     1,136   -   0.0 %
 
 
 

S-14

           
 
 
 
 
 
Humana Inc.
Premiums and Services Revenue Detail
Dollars in millions, except per member per month
       
  Per Member per Month (F)
Year Ended December 31, Year Ended December 31,
Dollar Percentage
2011   2010 Change   Change 2011   2010
 
Premiums and Services Revenue
Retail:
Medicare Advantage $ 18,100 $ 16,265 $ 1,835 11.3 % $ 939 $ 930
Medicare stand-alone PDPs 2,317 1,959 358 18.3 % $ 80 $ 96
Individual commercial 757 676 81 12.0 % $ 156 $ 152
Medicare Supplemental 104 70 34 48.6 % $ 161 $ 162
Specialty 124 82 42 51.2 % $ 15 $ 15
ASO & other services (B)   16     11   5   45.5 %
Total Retail   21,418     19,063   2,355   12.4 %
 
Employer Group:
Medicare Advantage 3,152 3,021 131 4.3 % $ 923 $ 931
Medicare stand-alone PDPs 8 5 3 60.0 %
Fully-insured medical commercial 4,782 5,169 (387 ) -7.5 % $ 338 $ 332
Specialty 935 885 50 5.6 % $ 14 $ 14
ASO & other services (B)   370     407   (37 ) -9.1 %
Total Employer Group   9,247     9,487   (240 ) -2.5 %
 
Health and Well-Being Services:
Pharmacy solutions 9,897 8,410 1,487 17.7 %
Primary care services 1,065 191 874 457.6 %
Home care services 84 39 45 115.4 %
Integrated wellness services   187     180   7   3.9 %
Total Health and Well-Being Services   11,233     8,820   2,413   27.4 %
 
Other Businesses:
Military services (G) 3,690 3,547 143 4.0 % $ 173 $ 164
LI-NET (D) 253 355 (102 ) -28.7 % $ 247 $ 275
Medicaid and other (H)   969     793   176   22.2 % $ 129 $ 129
Total Other Businesses   4,912     4,695   217   4.6 %
 
 
 

S-15

           
 
 
 
 
 
Humana Inc.
Medicare Summary
Premiums in millions
Membership in thousands  
          Per Member per Month (F)
Three Months Ended December 31, Year-over-year Change Three Months Ended December 31,
2011   2010 Amount   Percent 2011   2010
Premiums
Medicare Advantage $ 5,243 $ 4,785 $ 458 9.6 % $ 914 $

920

Medicare stand-alone PDPs   639     462   177 38.3 % $ 82 $

87

Total Medicare $ 5,882   $ 5,247 $ 635 12.1 %
 
 
    Per Member per Month (F)
Year Ended December 31, Year-over-year Change Year Ended December 31,
2011   2010 Amount   Percent 2011   2010
Premiums
Medicare Advantage $ 21,252 $ 19,286 $ 1,966 10.2 % $ 937 $

931

Medicare stand-alone PDPs   2,578     2,319   259 11.2 % $ 86 $

106

Total Medicare $ 23,830   $ 21,605 $ 2,225 10.3 %
 
 
Ending Ending Year-over-year Change
December 31, 2011   December 31, 2010 Amount   Percent
Fully-Insured Membership
Medicare Advantage 1,930.9 1,733.8 197.1 11.4 %
Medicare stand-alone PDPs   2,618.1     1,758.8   859.3 48.9 %
Total Medicare   4,549.0     3,492.6   1,056.4 30.2 %
 
 
 

S-16

       
 
 
 
 
 
Humana Inc. Fair value
Investments
Dollars in millions
    12/31/2011   9/30/2011   12/31/2010
Investment Portfolio:
Cash & cash equivalents $ 1,377 $ 4,019 $ 1,673
Investment securities 7,743 7,865 6,873
Long-term investments   1,710     1,696     1,500
Total investment portfolio $ 10,830   $ 13,580   $ 10,046
 
Duration (I)   3.94     3.10     3.96
Average Credit Rating AA-   AA   AA
 
Securities Lending Invested Collateral Portfolio:
Cash & cash equivalents - $ 5 $ 25
Asset-backed securities   -     -     25
  -   $ 5   $ 50
 
Investment Portfolio Detail:
Cash and cash equivalents $ 1,377   $ 4,019   $ 1,673
U.S. Government and agency obligations
U.S. Treasury and agency obligations 725 881 712
U.S. Government residential mortgage-backed 1,751 1,768 1,635
U.S. Government commercial mortgage-backed   33     33     29
Total U.S. Government and agency obligations   2,509     2,682     2,376
Tax-exempt municipal securities
Pre-refunded 332 329 344
Insured 634 633 597
Other 1,874 1,742 1,440
Auction rate securities   16     22     52
Total tax-exempt municipal securities   2,856     2,726     2,433
Residential mortgage-backed
Prime residential mortgages 41 45 53
Alt-A residential mortgages 2 2 2
Sub-prime residential mortgages   1     1     1
Total residential mortgage-backed   44     48     56
Commercial mortgage-backed   381     388     321
Asset-backed securities   83     108     150
Corporate securities
Financial services 692 898 891
Other   2,888     2,706     2,141
Total corporate securities 3,580 3,604 3,032
Redeemable preferred stocks   -     5     5
Total investment portfolio $ 10,830   $ 13,580   $ 10,046
 
 
 

S-17

 
 
 
 
 
 
Humana Inc.
Detail of Benefits Payable Balance and Year-to-Date Changes    
Dollars in millions  
 
December 31, September 30, December 31,
2011   2011   2010
Detail of benefits payable
IBNR and other benefits payable (J) $ 2,849 $ 2,822 $ 2,753
Unprocessed claim inventories (K) 280 419 374
Processed claim inventories (L) 119 94 65
Payable to pharmacy benefit administrator (M)   167       157       22  
Benefits payable, excluding military services 3,415 3,492 3,214
 
Military services benefits payable (N)   339       376       255  
Total Benefits Payable $ 3,754     $ 3,868     $ 3,469  
 
 
Year Ended Nine Months Ended Year Ended
December 31, 2011   September 30, 2011   December 31, 2010

Year-to-date changes in benefits payable, excluding military services (O)

 
Balances at January 1 $ 3,214 $ 3,214 $ 2,943
 
Acquisitions 29
 
Incurred related to:
Current year 25,821 19,476 24,186
Prior years (P)   (372 )     (318 )     (434 )
Total incurred   25,449       19,158       23,752  
 
Paid related to:
Current year (22,729 ) (16,301 ) (21,269 )
Prior years   (2,548 )     (2,579 )     (2,212 )
Total paid   (25,277 )     (18,880 )     (23,481 )
 
Balances at end of period $ 3,415     $ 3,492     $ 3,214  
 
 
Year Ended Nine Months Ended Year Ended
December 31, 2011   September 30, 2011   December 31, 2010
Summary of Consolidated Benefit Expense:
Total benefit expense incurred, per above $ 25,449 $ 19,158 $ 23,752
Military services benefit expense 3,247 2,512 3,059
Future policy benefit expense (Q)   127       91       306  
Consolidated Benefit Expense $ 28,823     $ 21,761     $ 27,117  
 
 
 

S-18

 
 
 
 
 
 
Humana Inc.
Benefits Payable Statistics (R)
       
 
Receipt Cycle Time (S)
2011   2010   Change     Percentage Change
1st Quarter Average 13.8 13.8 0.0 0.0 %
2nd Quarter Average 13.8 13.9 (0.1 ) -0.7 %
3rd Quarter Average 13.6 13.9 (0.3 ) -2.2 %
4th Quarter Average   14.0   13.6   0.4   2.9 %
Full Year Average   13.8   13.8   0.0   0.0 %
 
 
 
Unprocessed Claims Inventories
 
Date  

Estimated Valuation

(millions)

 

Claim Item

Counts (000s)

 

Number of Days

on Hand

12/31/2009 $ 323 776 4.3
3/31/2010 $ 426 1,092 5.6
6/30/2010 $ 434 1,009 4.9
9/30/2010 $ 429 1,064 5.2
12/31/2010 $ 374 981 5.0
3/31/2011 $ 482 1,197 6.0
6/30/2011 $ 410 1,093 5.1
9/30/2011   $ 419   1,272   5.7  
12/31/2011   $ 280   599   2.8  
 
 
 

S-19

           
 
 
 
 
 
Humana Inc.
Benefits Payable Statistics (Continued) (R)
 
 
Days in Claims Payable (T)
Quarter Ended  

Days in Claims

Payable (DCP)

 

Change Last 4

Quarters

 

Percentage

Change

 

DCP Excluding

Capitation

 

Change Last 4

Quarters

 

Percentage

Change

12/31/2009 55.4 (4.0 ) -6.7 % 62.1 (4.4 ) -6.6 %
3/31/2010 54.2 (0.4 ) -0.7 % 60.8 (0.1 ) -0.2 %
6/30/2010 57.0 0.9 1.6 % 64.3 2.8 4.6 %
9/30/2010 57.8 1.6 2.8 % 64.5 1.8 2.9 %
12/31/2010 53.5 (1.9 ) -3.4 % 60.0 (2.1 ) -3.4 %
3/31/2011 55.5 1.3 2.4 % 61.8 1.0 1.6 %
6/30/2011 56.0 (1.0 ) -1.8 % 62.0 (2.3 ) -3.6 %
9/30/2011   54.2   (3.6 )   -6.2 %   59.5     (5.0 )   -7.8 %
12/31/2011   52.5   (1.0 )   -1.9 %   58.3     (1.7 )   -2.8 %
 
Year-to-Date Change in Days in Claims Payable (U)
2011   2010
DCP - beginning of period 53.5 55.4
Components of change in DCP:
Change in unprocessed claims inventories (2.3 ) 0.8
Change in processed claims inventories 0.8 0.3
Change in pharmacy payment cutoff 0.6 (2.9 )
All other (0.1 )   (0.1 )
DCP - end of period 52.5     53.5  
 
 
 

S-20

 
 
 
 
 
 
Humana Inc.
Footnotes to Statistical Schedules and Supplementary Information
4Q11 Earnings Release
 
(A) The Medicaid and other category includes the company’s Medicaid business as well as the closed block of long-term care.
(B) The ASO and other category is primarily comprised of ASO fees and other ancillary services fees.
(C) The operating cost ratio is defined as operating costs as a percent of total revenues excluding investment income.
(D) LI-NET is the CMS Limited Income Newly Eligible Transition program, operated by Humana, to provide Part D prescription drug coverage
for all uncovered Full Duals and SSI-only beneficiaries on a retroactive basis and all uncovered LIS eligible beneficiaries on a current
basis.
(E) Other supplemental benefits include life, disability, and fixed benefit products including cancer and critical illness policies.
(F) 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).
(G) Military services revenues are generally not contracted on a per-member basis.
(H) Includes premiums associated with Medicaid and the closed block of long-term care as well as services revenue.
(I) Duration is the time-weighted average of the present value of the fixed income portfolio cash flows.
(J) IBNR represents an estimate of benefit expenses 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.
(K) Unprocessed claim inventories represent the estimated valuation of claims received but not yet fully processed.
(L) Processed claim inventories represent the estimated valuation of processed claims that are in the post-claim-adjudication process,
which consists of administrative functions such as audit and check batching and handling.
(M) 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 (8(th), 16(th), and 24th of month) and the last day of the month.
(N) Military services benefits payable primarily consist of IBNR and to a lesser extent risk share payables to the Department of Defense
and liabilities to subcontractors.
(O) The table excludes activity associated with military services benefits payable, because the federal government bears a substantial
portion of the risk associated with financing the cost of health benefits. More specifically, the risk-sharing provisions of the
military services contracts with the federal government and with subcontractors effectively limit profits and losses when actual claim
experience varies from the targeted claim amount negotiated annually. As a result of these contract provisions, the impact of changes in
estimates for prior year military services benefits payable are substantially offset by the associated changes in estimates of revenue
from health care services reimbursements. As such, any impact on the company's results of operations is reduced substantially, whether
positive or negative.
(P) 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 claim reserves
during the quarter.
(Q) Future policy benefit expense has a related liability classified as a long-term liability on the balance sheet.
(R) Benefits reserves statistics represents fully-insured medical claims data and excludes military services claims data and specialty
benefits.
(S) 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 92% 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.
(T) 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 benefit expenses per day in the quarterly period. Since the
company has some providers under capitation payment arrangements (which do not require a benefits payable IBNR reserve), the company has
also summarized this metric excluding capitation expense. In addition, this calculation excludes the impact of the company's military
services and stand-alone PDP business.
(U) DCP fluctuates due to a number of issues, the more significant of which are detailed in this rollforward. 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 reserve recorded upon enrollment later in
the quarter. This analysis excludes the impact of military services and Medicare stand-alone PDPs upon DCP.
 
 
 

S-21

 
 
 
 

Source: Humana Inc.

Humana Inc.
Investor Relations:
Regina Nethery, 502-580-3644
Rnethery@humana.com
or
Corporate Communications:
Tom Noland, 502-580-3674
Tnoland@humana.com