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Humana Annual Report, Year Ended Dec 31, 1996

Filing Date
Filed March 28, 1997
Period End
December 31, 1996
Security
HUM
In the record · 2016–202610-K1110-Q328-K199

HUM filed 11 annual reports (10-K), 32 quarterly reports (10-Q) and 199 current reports (8-K) between 2016 and 2026.

  1. Material agreement8-K · May ’17May ’17
  2. Material agreement8-K · Aug ’19Aug ’19
  3. Leadership change8-K · Mar ’22Mar ’22
  4. Leadership change8-K · Dec ’25Dec ’25

01—Abstract

Summary

Summary of the 10-K filed March 28, 1997. Cited figures are marked; the original filing is the authoritative source.

Humana Inc., a Delaware corporation headquartered in Louisville, Kentucky, operates managed health care products, primarily HMOs and PPOs, serving Commercial, Medicare, Medicaid, and CHAMPUS populations.

At December 31, 1996, the Company reported 4,851,000 total medical members, including 2,814,800 fully insured Commercial customers, 364,500 Medicare risk members, and 1,103,000 CHAMPUS beneficiaries, with CHAMPUS services beginning July 1, 1996 under a potential five-year Department of Defense contract. Financially, 1996 was a difficult year. Total revenues rose to $6.79 billiona from $4.70 billion, driven largely by the October 1995 EMPHESYS acquisition ($650 million purchase price) and the CHAMPUS contract.

However, the Company recorded special charges of $215 millionb pretax ($140 million after tax, or $.86 per share), and net income fell to $12 million, or $.07 per share, from $190 million, or $1.17 per share, in 1995. Excluding the special charges, net income was $152 million, or $.93 per share. The medical loss ratio rose to 84.3% reported (82.7% excluding special charges) from 81.7%, and the administrative cost ratio was 15.5% reported.

Investors should note the concentration of risk in Medicare risk contracts: one HCFA contract covering about 227,500 Florida members produced roughly $1.3 billionc in premium revenues, or 19% of total premium revenues, and management believes its termination would have a material adverse effect. The Company also disclosed the sale of its Washington, D.C., health plan (completed January 31, 1997) and a definitive agreement to sell its Alabama operations, both of which management said would not have a material impact.

02—Key points

Key Highlights

  1. Total revenues of $6.79 billion in 1996, up from $4.70 billion in 1995, driven by the EMPHESYS acquisition and CHAMPUS contract start.
  2. Net income fell to $12 million ($.07 per share) from $190 million ($1.17 per share) after $215 million in pretax special charges.
  3. Medical loss ratio of 84.3% reported (82.7% excluding special charges), up from 81.7% in 1995.
  4. Total medical membership of 4,851,000 at December 31, 1996, including 1,103,000 CHAMPUS beneficiaries.
  5. One Florida HCFA Medicare risk contract accounted for about 19% of total premium revenues, a concentration management says would be materially adverse if terminated.
  6. Stockholders' equity of $1.29 billion and total assets of $3.15 billion at year-end 1996; cash and investments of $1.73 billion.
  7. Sale of the Washington, D.C., health plan completed January 31, 1997, and a definitive agreement to sell Alabama operations signed January 16, 1997.

03—Questions

Frequently Asked Questions

  1. Why did Humana's earnings fall so sharply in 1996?

    The Company recorded special charges of $215 million pretax ($140 million after tax, or $.86 per share) related to restructuring the Washington, D.C., health plan, provisions for expected future losses on insurance contracts, closing 13 service areas, discontinuing unprofitable products, a litigation settlement, and planned workforce reductions. Net income was $12 million, or $.07 per share, versus $190 million, or $1.17 per share, in 1995. Excluding the charges, net income was $152 million, or $.93 per share.

  2. How much of Humana's revenue depends on Medicare risk contracts?

    Medicare risk premiums were approximately 29% of total premium revenues in 1996. One HCFA contract covering about 227,500 members in Florida accounted for roughly $1.3 billion of premium revenues, or 19% of total premium revenues. HCFA Contracts renew annually each December 31 unless terminated 90 days prior, and management believes termination of the Florida contract would have a material adverse effect.

  3. What is the CHAMPUS contract and how large is it?

    Humana began providing managed care to approximately 1.1 million CHAMPUS beneficiaries on July 1, 1996, under a potential five-year Department of Defense contract structured as a one-year contract renewable annually for up to four additional years. CHAMPUS premium revenues were approximately $351 million for July 1 through December 31, 1996, or 5% of total premium revenues for 1996.

  4. Did the company change its footprint or divest businesses in early 1997?

    Yes. On January 31, 1997, Humana completed the sale of its Washington, D.C., health plan to Kaiser Foundation Health Plan of the Mid-Atlantic States, Inc. On January 16, 1997, it signed a definitive agreement to sell its Alabama operations to PrimeHealth of Alabama, Inc., excluding the small group business and Alabama CHAMPUS operations. The Company stated these transactions would not have a material impact on its financial position, results of operations, or cash flows.

  5. What is the outlook for premium rates and medical costs in 1997?

    The Company expects 1997 Commercial premium rates to increase approximately 2 to 3 percent and Medicare risk premium rates to increase approximately 4 to 5 percent, compared with a roughly 6 percent statutory increase. Management expects modest improvement in the medical loss ratio during 1997, while the administrative cost ratio may increase modestly, particularly in the first half of the year.

04—Continue

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