01—Abstract
Summary
Summary of the 10-K filed February 24, 2012. Cited figures are marked; the original filing is the authoritative source.
Humana Inc. (NYSE: HUM), headquartered in Louisville, Kentucky, reported full-year 2011 net income of $1.42 billiona, or $8.46 per diluted share, up from $1.10 billion, or $6.47 per diluted share, in 2010.
Total revenues rose 9.6% to $36.8 billionb, driven mainly by Retail segment premiums, which grew 12.3% to $21.4 billion on higher individual Medicare Advantage and stand-alone PDP membership. Year-end medical membership was 11.2 million, and 76% of premiums and services revenue came from federal government contracts, including Medicare Advantage in Florida (16%) and TRICARE military services (10%). The benefit ratio improved to 82.1% from 82.9%, while the operating cost ratio rose to 14.8% from 13.2%, reflecting the Concentra acquisition and higher Medicare costs.
Favorable prior-period reserve development of about $205 millionc benefited 2011 results. The company initiated a quarterly cash dividend of $0.25 per share in 2011 and repurchased $492 million of shares during the year, with $561 million remaining under its $1 billion authorization as of February 6, 2012.
Cash and investments totaled $10.8 billiond and stockholders' equity was $8.06 billion at year-end. Management flags material risks, including a CMS Risk-Adjustment Data Validation (RADV) audit methodology it considers flawed, the Health Insurance Reform Legislation, the expected decline in TRICARE revenue when the new South Region contract takes effect on April 1, 2012, and an ongoing internal investigation of Florida subsidiary operations that has been self-reported to CMS and the Department of Justice.
02—Key points
Key Highlights
- Net income rose 29.1% to $1.42 billion; diluted EPS increased to $8.46 from $6.47.
- Total revenues reached $36.83 billion, up 9.6% year over year, with premiums of $35.11 billion.
- Individual Medicare Advantage membership grew to 1,640,300 and stand-alone PDP membership to 2,540,400 at December 31, 2011, driven by the Humana Walmart-Preferred Rx Plan.
- Benefit ratio improved to 82.1% from 82.9%, while the operating cost ratio increased to 14.8% from 13.2%.
- Health and Well-Being Services segment pretax income rose 61.2% to $353 million, supported by the December 2010 Concentra acquisition.
- Board initiated a quarterly dividend of $0.25 per share; the company repurchased $492 million of stock in 2011 and had $561 million of authorization remaining in February 2012.
- Approximately 76% of premiums and services revenue came from federal government contracts, creating concentration risk tied to CMS and TRICARE policy.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2011filed February 24, 2012Financial Statements
FY2011 against FY2010
| Line item | FY2011FY2010 | Change |
|---|---|---|
| Revenue | $36.83B$33.60B | +9.6% |
| SG&A Expenses | $5.39B$4.38B | +23.2% |
| Operating Income | $2.34B$1.85B | +26.4% |
| Interest Expense | $109.00M$105.00M | +3.8% |
| Net Income | $1.42B$1.10B | +29.1% |
| EPS (Basic) | $8.58$6.55 | +31.0% |
| EPS (Diluted) | $8.46$6.47 | +30.8% |
| Shares Outstanding (Basic) | 165.41M167.78M | −1.4% |
| Shares Outstanding (Diluted) | 167.83M169.80M | −1.2% |
05—Questions
Frequently Asked Questions
How concentrated is Humana's revenue in government programs?
In 2011, 76% of premiums and services revenue came from federal government contracts. Medicare Advantage contracts in Florida accounted for about 16% of consolidated premiums and services revenue, and the TRICARE military services business for about 10%. The filing describes the loss of these contracts or unfavorable changes in government reimbursement as potentially materially adverse.
What is the status of the TRICARE South Region contract?
The Department of Defense awarded Humana a new five-year TRICARE South Region contract on February 25, 2011, which the company expects to take effect April 1, 2012 and run through March 31, 2017. Humana expects to account for revenue under the new contract net of estimated health care costs, similar to an administrative services fee arrangement, and therefore expects a decline in TRICARE revenues and an increase in its operating cost ratio in 2012.
What regulatory risks does the filing highlight for Medicare Advantage?
The filing describes CMS's proposed RADV audit sampling and payment adjustment methodology, which Humana believes is fundamentally flawed and actuarially unsound, and states that it intends to defend its position vigorously. It also notes that the Health Insurance Reform Legislation will lower Medicare Advantage payment rates in phases beginning in 2012, and that the Budget Control Act of 2011 could trigger automatic Medicare provider payment reductions of up to 2% per fiscal year.
What is the status of the Florida internal investigation?
Humana is conducting an ongoing internal investigation, with outside counsel, of certain aspects of its Florida subsidiary operations and has voluntarily self-reported it to CMS, the U.S. Department of Justice, and the Florida Agency for Health Care Administration. Matters under review include relationships between Florida-based employees and providers, financial support of provider access centers, and loans to physician practices. The filing states that outcomes cannot be predicted and that adverse results could have a material adverse effect on the company.
How much capital did the company return to shareholders in 2011?
Humana paid $82 million in dividends and repurchased 6.7 million shares for $492 million during 2011. The board replaced its $250 million repurchase authorization in April 2011 with a $1 billion authorization expiring June 30, 2013, of which $561 million remained as of February 6, 2012.
06—Continue