01—Abstract
Summary
Summary of the 10-K filed February 18, 2015. Cited figures are marked; the original filing is the authoritative source.
Humana Inc. reported net income of $1.147 billiona, or $7.36 per diluted common share, for 2014, compared with $1.231 billion, or $7.73 per diluted share, in 2013.
Total revenues rose to $48.50 billionb from $41.31 billion, driven mainly by premiums, which increased $7.13 billion, or 18.4%, to $45.96 billion. Retail segment premiums grew 24.8%, reflecting membership growth in individual Medicare Advantage, individual commercial medical and state-based Medicaid. The benefit ratio improved to 83.0% from 83.9%, while the operating cost ratio rose to 15.9% from 15.5%, as the non-deductible health insurance industry fee and other fees mandated by the Health Care Reform Law raised costs.
The effective tax rate increased to 47.2% from 35.9%, which the filing attributes largely to the non-deductible industry fee. Segment results were mixed. Retail pretax income fell 14.4% to $1.10 billionc, reflecting investment spending for health care exchanges and state-based contracts and higher specialty prescription drug costs tied to a new Hepatitis C treatment.
Employer Group pretax income declined 10.3% to $314 milliond, and Healthcare Services pretax income rose 41.8% to $739 million. The filing states that 73% of 2014 premiums and services revenue came from federal government contracts, including 15% from Florida Medicare Advantage contracts with CMS. Management said the 2015 health insurance industry fee is expected to rise 41% and projected 2015 Medicare Advantage funding cuts of approximately 2%.
Balance sheet and capital activity: total assets were $23.47 billion and long-term debt rose to $3.83 billion after the issuance of $1.75 billion face value of senior notes in September 2014, partly used to redeem a $500 million 6.45% note. Stockholders' equity was $9.65 billion.
Management repurchased 5.7 million shares for $730 million in open market transactions in 2014, excluding a $100 million accelerated share repurchase holdback, and the remaining authorization was about $1.37 billion as of February 18, 2015. The quarterly dividend was raised to $0.28 per share.
02—Key points
Key Highlights
- Net income of $1.147 billion, or $7.36 per diluted share, versus $1.231 billion, or $7.73 per diluted share, in 2013.
- Total revenues of $48.50 billion, up from $41.31 billion, with premiums up 18.4% to $45.96 billion.
- Benefit ratio improved to 83.0% from 83.9%, while the operating cost ratio rose to 15.9% from 15.5%.
- Effective tax rate rose to 47.2% from 35.9%, largely due to the non-deductible health insurance industry fee of $562 million paid in 2014.
- Retail segment pretax income fell 14.4% to $1.10 billion; Healthcare Services pretax income rose 41.8% to $739 million.
- Individual Medicare Advantage membership reached 2,446,200 and individual commercial medical membership grew 91.3% to 1,148,100.
- Repurchased 5.7 million shares for $730 million in 2014; $1.37 billion remained under the $2 billion authorization as of February 18, 2015.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2014filed February 18, 2015Financial Statements
FY2014 against FY2013
| Line item | FY2014FY2013 | Change |
|---|---|---|
| Revenue | $48.50B$41.31B | +17.4% |
| SG&A Expenses | $7.64B$6.36B | +20.2% |
| Operating Income | $2.36B$2.06B | +14.6% |
| Interest Expense | $192.00M$140.00M | +37.1% |
| Net Income | $1.15B$1.23B | −6.8% |
| EPS (Basic) | $7.44$7.81 | −4.7% |
| EPS (Diluted) | $7.36$7.73 | −4.8% |
| Shares Outstanding (Basic) | 154.19M157.50M | −2.1% |
| Shares Outstanding (Diluted) | 155.87M159.15M | −2.1% |
05—Questions
Frequently Asked Questions
What drove the growth in Humana's 2014 revenue?
Premiums revenue rose $7.13 billion, or 18.4%, to $45.96 billion, primarily from higher average individual and group Medicare Advantage membership and higher individual commercial medical membership. Retail segment premiums increased 24.8%.
Why did net income decline in 2014 despite higher revenue?
The filing attributes the decline to investment spending for health care exchanges and state-based contracts, higher specialty prescription drug costs associated with a new Hepatitis C treatment, and the non-deductible health insurance industry fee mandated by the Health Care Reform Law. The effective tax rate also rose to 47.2% from 35.9%.
What regulatory pressures does Humana face in Medicare?
Management estimated 2015 Medicare Advantage funding cuts of approximately 2% from the Final Rate Notice, reductions tied to the Health Care Reform Law, and other formula changes. The filing also discusses CMS risk-adjustment audits (RADV) and a sunset of the Star quality demonstration in 2015.
How much will the health insurance industry fee cost Humana in 2015?
The filing states that the industry-wide health insurance industry fee increases 41% in 2015. Absent changes in market share, Humana would expect a 41% increase in its fee from the $562 million paid in 2014.
What is the status of Humana's capital return program?
In September 2014 the Board replaced a $1 billion authorization with a $2 billion repurchase authorization expiring December 31, 2016, of which about $1.37 billion remained as of February 18, 2015. The quarterly dividend declared in October 2014 was $0.28 per share.
06—Continue