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Humana Annual Report, Year Ended Dec 31, 1997

Filing Date
Filed March 31, 1998
Period End
December 31, 1997
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 31, 1998. Cited figures are marked; the original filing is the authoritative source.

Humana Inc. (Louisville, Kentucky) reported 1997 total revenues of $8.04 billiona, up from $6.79 billion in 1996, with net income of $173 million, or $1.05 per diluted share, compared with $12 million in 1996.

The 1996 results included $215 millionb of pretax special charges, and excluding them, 1997 net income of $173 million compared with $152 million in 1996. Premium revenues rose to $7.88 billion, driven by the full-year TRICARE contract, the PCA and ChoiceCare acquisitions, and higher premium rates. Medical membership reached 6,206,800 at year-end 1997, up from 4,851,000, and the medical loss ratio was 82.8 percent versus 84.3 percent in 1996.

The company made significant acquisitions in 1997, including Physician Corporation of America for $411 millionc in cash and ChoiceCare Corporation for approximately $250 million, both funded through commercial paper. Total debt and other long-term obligations rose to $1.06 billion from $361 million, and stockholders' equity was $1.50 billion. Management noted that the Medicare risk, Medicaid and TRICARE lines represented about 43 percent of 1997 premium revenues, and that the loss of the Medicare risk contract covering about 249,000 Florida members would have a material adverse effect on the company.

Key forward-looking items include 1998 Commercial premium rate increases of approximately 4 to 5 percent, an expected Medicare risk rate increase of about 2 percent, and Year 2000 costs estimated at $12 to $15 milliond. The filing also flags regulatory uncertainty from the Balanced Budget Act of 1997, and a pending class action tied to PCA's workers' compensation business, which management believes is without merit.

02—Key points

Key Highlights

  1. Total revenues of $8.04 billion for 1997, up from $6.79 billion in 1996; net income of $173 million, or $1.05 per diluted share, versus $12 million in 1996 (which included $215 million of pretax special charges).
  2. Premium revenues rose to $7.88 billion, with TRICARE premiums of about $764 million and Medicare risk premiums of about $2.4 billion.
  3. Acquisitions of PCA ($411 million cash) and ChoiceCare (about $250 million cash) added to medical membership, which reached 6,206,800 at December 31, 1997.
  4. Medical loss ratio of 82.8 percent in 1997, compared with 84.3 percent in 1996; administrative cost ratio of 15.5 percent in both years.
  5. Total debt and other long-term obligations increased to $1.06 billion from $361 million, largely to fund the acquisitions.
  6. Florida Medicare risk contract covering about 249,000 members accounted for 19 percent of total premium revenues; its termination would have a material adverse effect, per management.
  7. Expected 1998 Commercial premium rate increases of 4 to 5 percent, with Medicare risk rates up about 2 percent; Year 2000 costs estimated at $12 to $15 million.

03—Questions

Frequently Asked Questions

  1. How did Humana perform financially in 1997 compared with 1996?

    Net income was $173 million, or $1.05 per diluted share, in 1997, compared with $12 million in 1996. The 1996 results included $215 million of pretax special charges. Excluding those charges, 1997 net income was $173 million versus $152 million in 1996.

  2. What drove the growth in premium revenues?

    Premiums increased to $7.88 billion from $6.68 billion, primarily due to the full-year impact of the TRICARE contract, the acquisitions of PCA and ChoiceCare, and increased premium rates. Same-plan Commercial and Medicare risk premium rates rose 4.2 percent and 4.3 percent, respectively.

  3. What is the biggest risk to the company's revenue?

    Medicare risk, Medicaid and TRICARE together represented about 43 percent of 1997 premium revenues. The Medicare risk contract covering roughly 249,000 members in Florida, which produced about $1.5 billion in premium revenues, is renewed annually and could be terminated on 90 days' notice. Management stated its termination would have a material adverse effect on revenues and profitability.

  4. How did the company finance its 1997 acquisitions?

    The PCA and ChoiceCare acquisitions were funded with borrowings under the commercial paper program. Commercial paper borrowings totaled about $589 million at year-end 1997, and a $1.5 billion revolving credit agreement backs the program, with $300 million outstanding under it.

  5. What legal or regulatory matters could affect investors?

    A class action (Forsyth v. Humana) involving coinsurance calculations in Nevada remains pending, and securities class actions were filed against PCA's former management over its workers' compensation business. Management believes the PCA allegations are without merit and does not expect pending legal actions to have a material adverse effect. The Balanced Budget Act of 1997 also creates uncertainty, as HCFA regulations were expected in June 1998 and management could not predict their effect.

04—Continue

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