What did the Spinoff of Galen Health Care mean for Humana?

On March 1, 1993, Humana separated its acute-care hospital and managed care health plan businesses. Stockholders received all outstanding shares of Galen Health Care, Inc., which was later merged into a subsidiary of Columbia Healthcare Corporation. Humana continues to operate only the managed care health plan business and changed its fiscal year end from August 31 to December 31.

How dependent is Humana on Medicare risk business?

Medicare risk premiums were about 40 percent of 1993 premium revenues, and HCFA revenues were approximately $1.2 billion. One Florida HCFA contract covering about 210,000 members accounted for $1 billion, or 80 percent of HCFA revenues. The filing states that termination of that contract would have a material adverse effect on revenues, profitability and business prospects.

What were the main drivers of the improvement in 1993 results?

Management attributed the improved medical loss ratio of 83.8 percent, down from 86.3 percent, to Medicare premium rate increases, improved hospital utilization, and favorable other medical services costs in the Commercial and Medicare risk products. The administrative cost ratio also improved to 13.2 percent from 14.1 percent. Total 1993 income before income taxes was $143 million.

Does Humana plan to pay dividends or make acquisitions?

Management stated it has no current plans to initiate dividend payments and intends to retain operating cash flows and available cash for acquisition and expansion opportunities. The company had about $247 million of unrestricted cash, cash equivalents and marketable securities, plus a new $200 million credit line, and it acquired an HMO in Washington, D.C. for $55 million in February 1994.

What significant litigation and regulatory risks does the filing disclose?

In the Forsyth/Cade class action in Nevada, summary judgment was entered in favor of plaintiffs on January 28, 1994, with damages still to be determined, and management believes the final resolution will not have a material adverse effect. A shareholder derivative suit over stock option amendments is pending. On health care reform, Congress was evaluating proposals, with legislative reform not expected before late 1994, and Florida enacted reform creating Community Health Purchasing Alliances.

HUM 10-K FY1993 Annual Report — Revenue, Net Income, EPS

01—Abstract

Summary

Summary of the 10-K filed March 29, 1994. Cited figures are marked; the original filing is the authoritative source.

Humana Inc., a Delaware corporation headquartered in Louisville, Kentucky, filed this 10-K for the year ended December 31, 1993.

The filing describes a managed care business that was separated from its acute-care hospital business on March 1, 1993, when Galen Health Care, Inc. was spun off to stockholders. The company operates ten HMOs and offers PPO products, with 1993 total premium revenues of $3.1 billion^a (Commercial HMO premiums about $1.4 billion, 43 percent of premiums). Medicare risk products produced about $1.2 billion of HCFA revenues, or 40 percent of premium revenues, and one Florida HCFA contract accounted for $1 billion, or 80 percent of HCFA revenues.

The filing states that termination of that Florida contract would have a material adverse effect on revenues, profitability and business prospects. Financially, net income for 1993 was $89 million^b, or $.56 per share, compared with a net loss of $107 million in 1992, which included $171 million of restructuring and unusual charges. Total revenues were $3.195 billion, the medical loss ratio improved to 83.8 percent from 86.3 percent, and the administrative cost ratio was 13.2 percent.

Cash, cash equivalents and marketable securities totaled $1.134 billion^c at year end, shareholders' equity was $889 million, and the company had approximately $247 million of unrestricted cash and securities. In January 1994 it entered a $200 million revolving credit agreement, and it acquired a Washington, D.C. HMO with about 125,000 members for $55 million on February 28, 1994.

Management stated it has no current plans to pay dividends, intending to retain cash for acquisitions and expansion. The filing also notes ongoing litigation, including the Forsyth/Cade class action in Nevada, where summary judgment was entered for plaintiffs on January 28, 1994, with damages still to be determined.

Management believes the final resolution will not have a material adverse effect. The company also reports changing its fiscal year end from August 31 to December 31 and faces possible health care reform, with legislative action not expected before late 1994.

02—Key points

Key Highlights

Net income of $89 million, or $.56 per share, for 1993, compared with a net loss of $107 million in 1992
Total premium revenues of $3.1 billion, with Commercial HMO premiums of about $1.4 billion (43 percent) and Commercial PPO premiums of $357 million (11 percent)
Medicare risk HCFA revenues of about $1.2 billion (40 percent of premium revenues), with a single Florida HCFA contract accounting for $1 billion
Medical loss ratio improved to 83.8 percent in 1993 from 86.3 percent in 1992; administrative cost ratio was 13.2 percent
Total membership of 1,638,400 at December 31, 1993, down from 1,685,000, mainly due to Medicare supplement declines
Liquidity: $1.134 billion in cash, equivalents and marketable securities; $200 million credit line entered January 12, 1994; no current dividend plans
Acquired a Washington, D.C. HMO with about 125,000 members for $55 million on February 28, 1994

03—Questions

Frequently Asked Questions

What did the Spinoff of Galen Health Care mean for Humana?
On March 1, 1993, Humana separated its acute-care hospital and managed care health plan businesses. Stockholders received all outstanding shares of Galen Health Care, Inc., which was later merged into a subsidiary of Columbia Healthcare Corporation. Humana continues to operate only the managed care health plan business and changed its fiscal year end from August 31 to December 31.
How dependent is Humana on Medicare risk business?
Medicare risk premiums were about 40 percent of 1993 premium revenues, and HCFA revenues were approximately $1.2 billion. One Florida HCFA contract covering about 210,000 members accounted for $1 billion, or 80 percent of HCFA revenues. The filing states that termination of that contract would have a material adverse effect on revenues, profitability and business prospects.
What were the main drivers of the improvement in 1993 results?
Management attributed the improved medical loss ratio of 83.8 percent, down from 86.3 percent, to Medicare premium rate increases, improved hospital utilization, and favorable other medical services costs in the Commercial and Medicare risk products. The administrative cost ratio also improved to 13.2 percent from 14.1 percent. Total 1993 income before income taxes was $143 million.
Does Humana plan to pay dividends or make acquisitions?
Management stated it has no current plans to initiate dividend payments and intends to retain operating cash flows and available cash for acquisition and expansion opportunities. The company had about $247 million of unrestricted cash, cash equivalents and marketable securities, plus a new $200 million credit line, and it acquired an HMO in Washington, D.C. for $55 million in February 1994.
What significant litigation and regulatory risks does the filing disclose?
In the Forsyth/Cade class action in Nevada, summary judgment was entered in favor of plaintiffs on January 28, 1994, with damages still to be determined, and management believes the final resolution will not have a material adverse effect. A shareholder derivative suit over stock option amendments is pending. On health care reform, Congress was evaluating proposals, with legislative reform not expected before late 1994, and Florida enacted reform creating Community Health Purchasing Alliances.

04—Continue

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