Humana Inc. (NYSE: HUM) today reported diluted earnings per common share
(EPS) for the quarter ended December 31, 2009 (4Q09) of $1.48, as
compared to $1.03 per share for the quarter ended December 31, 2008
(4Q08), reflecting lower PDP claim expenses in 4Q09 than in 4Q08.
“Looking ahead, we see multiple revenue growth opportunities across our
spectrum of products for 2010.”
For the year ended December 31, 2009 (FY09) the company reported $6.15
in EPS compared to $3.83 for the year ended December 31, 2008 (FY08).
The FY09 results reflected both substantially lower stand-alone PDP
claim expenses than in FY08 and higher investment income due to
significant realized losses on investments during FY08.
"We completed a successful 2009 despite a challenging environment," said
Michael B. McCallister, president and chief executive officer of Humana.
"Looking ahead, we see multiple revenue growth opportunities across our
spectrum of products for 2010."
The company now anticipates EPS for the year ending December 31, 2010
(FY10) in the range of $5.15 to $5.35 versus its previous estimate of
$5.05 to $5.25. This increase in FY10 EPS guidance primarily reflects
the expected retention of the company’s South Region TRICARE contract
for an additional quarter during FY10.
TRICARE Update
In December 2009, Humana Military Healthcare Services, Inc. (HMHS), a
wholly-owned subsidiary of the company, was notified by the United
States Department of Defense TRICARE Management Activity (TMA) that the
TMA intends to exercise its options to extend HMHS’s administration of
the TRICARE program in TMA’s South Region for Option Period VII and
Option Period VIII. The exercise of these option periods would
effectively extend the TRICARE contract through March 31, 2011.
Additionally in December 2009, the TMA notified the Government
Accountability Office (GAO) of its intent to take corrective action in
response to the GAO’s decision to uphold the company’s protest with
respect to the July 2009 award of the third generation TRICARE program
South Region contract to another contractor. The company is not able to
determine whether the protest resolution will change the ultimate
outcome of the contract award.
Consolidated Highlights
Revenues – 4Q09 consolidated revenues rose 2 percent to $7.63
billion from $7.49 billion in 4Q08, with total premium and
administrative services fees up 2 percent compared to the prior year’s
quarter. The increase in premiums and administrative services fees
primarily reflects an increase in both average Medicare Advantage
membership and per-member premiums substantially offset by declines in
average Commercial medical membership.
Consolidated revenues for FY09 rose 7 percent to $30.96 billion from
$28.95 billion for FY08 with total premiums and administrative services
fees up 7 percent compared to the prior year’s period, also driven
primarily by the increases in average Medicare Advantage enrollment and
per-member premiums.
Benefit expenses – The 4Q09 consolidated benefit ratio (benefit
expenses as a percent of premium revenues) of 81.8 percent decreased
from 83.3 percent for the prior year’s quarter. This 150 basis point
decrease was primarily driven by a decrease of 240 basis points in the
Government Segment benefit ratio, partially offset by a 130 basis point
increase in the Commercial Segment benefit ratio.
The consolidated benefit ratio for FY09 of 82.8 percent was 170 basis
points lower than the FY08 consolidated benefit ratio of 84.5 percent,
reflecting a 240 basis point decrease in the Government Segment’s
benefit ratio year over year, partially offset by an increase in the
Commercial Segment’s benefit ratio of 30 basis points in FY09 compared
to FY08.
Selling, general, & administrative (SG&A) expenses – The
4Q09 consolidated SG&A expense ratio (SG&A expenses as a percent of
premiums, administrative services fees and other revenue) of 14.7
percent for 4Q09 compares to 14.8 percent in 4Q08 as the effect of a 60
basis point improvement in this ratio for the Government Segment was
substantially offset by a 190 basis point increase for the Commercial
Segment.
The SG&A expense ratio for FY09 of 13.8 percent was 10 basis points
higher than that for FY08 of 13.7 percent primarily driven by a 30 basis
point improvement in this ratio for the Government Segment being
substantially offset by a 170 basis point increase in the Commercial
Segment SG&A expense ratio.
Government Segment Results
Pretax results:
-
Government segment pretax income of $452.3 million in 4Q09 compares to
$267.3 million in 4Q08. This increase was primarily driven by lower
PDP claim expenses, a 6 percent increase in average Medicare Advantage
membership, the implementation of member premiums for most of the
company’s Medicare Advantage products, and higher net investment
income.
-
For FY09, pretax income for the Government Segment of $1.50 billion
compares favorably to FY08 pretax income for the segment of $785.2
million. The net increase reflects improved stand-alone PDP operating
results, higher operating earnings in the company’s Medicare Advantage
business and higher net investment income.
Enrollment:
-
Medicare Advantage membership grew to 1,508,500 at December 31, 2009,
an increase of 72,600 members, or 5 percent from 1,435,900 at December
31, 2008, and relatively unchanged from 1,514,800 at September 30,
2009.
-
January 2010 Medicare Advantage membership approximated 1,729,000 with
71 percent of fully-insured members in network-based products, up from
63 percent of Medicare Advantage membership in such products at
December 31, 2009 reflecting growth in both PPO and HMO products.
-
Membership in the company’s stand-alone PDPs totaled 1,927,900 at
December 31, 2009 compared to 3,066,600 at December 31, 2008 and
1,960,400 at September 30, 2009. Both the year-over-year and
sequential membership declines resulted primarily from attrition
associated with low-income senior members. For 2009, the company
realigned its stand-alone PDP premium and benefit designs to
correspond with its prescription drug claims experience.
-
January 2010 stand-alone PDP membership declined to approximately
1,780,000, a decrease of approximately 148,000 members from December
31, 2009. This decline resulted primarily from the company’s
competitive positioning as it continued to align stand-alone PDP
premium and benefit structures to correspond with its pharmacy claims
experience.
-
Military services membership at December 31, 2009 of 3,034,400 was up
approximately 2 percent from 2,964,700 at December 31, 2008 and
slightly up from 3,015,100 at September 30, 2009.
Premiums and administrative services fees:
-
Medicare Advantage premiums of $4.07 billion in 4Q09 increased 12
percent compared to $3.62 billion in 4Q08, primarily the combined
result of a 6 percent increase in average Medicare Advantage
membership and the introduction of member premiums for most of the
company’s Medicare Advantage products.
-
Medicare stand-alone PDP premiums of $514.8 million in 4Q09 decreased
37 percent compared to $817.5 million in 4Q08, reflecting a 37 percent
decline in average membership year over year primarily due to members
choosing competitor offerings given the premium and benefit design
changes discussed above.
-
Military services premiums and administrative services fees during
4Q09 increased $12.1 million, or 1 percent, to $858.7 million compared
to $846.5 million in 4Q08.
Benefit Expenses:
-
The Government Segment benefit ratio decreased 240 basis points to
80.9 percent in 4Q09 compared to 83.3 percent in the prior year’s
quarter, primarily driven by a 320 basis point decline in the Medicare
benefit ratio primarily from a decrease in the stand-alone PDP benefit
ratio together with improved benefit ratios across the company’s
Medicare Advantage offerings.
SG&A Expenses:
-
The Government Segment SG&A expense ratio decreased 60 basis points to
11.2 percent in 4Q09 compared to 11.8 percent in the prior year’s
quarter primarily driven by increased operating leverage associated
with higher average Medicare Advantage enrollment.
Commercial Segment Results
Pretax results:
-
The Commercial Segment had a pretax loss of $53.6 million in 4Q09
compared to a pretax loss of $6.3 million in 4Q08 primarily reflecting
a higher benefit ratio and increased SG&A expenses year over year,
partially offset by higher net investment income.
-
For FY09, pretax earnings for the Commercial Segment of $104.2 million
were $103.4 million, or 50 percent lower than FY08 pretax earnings for
the segment of $207.6 million driven by higher benefit expenses as a
percent of premiums and lower average medical membership, partially
offset by higher net investment income.
Enrollment: