01—Abstract
Summary
Summary of the 10-K filed February 20, 2020. Cited figures are marked; the original filing is the authoritative source.
Humana Inc. (Louisville, Kentucky, NYSE: HUM) reported net income of $2.7 billiona, or $20.10 per diluted common share, for 2019, compared with $1.7 billion, or $12.16 per diluted share, in 2018.
Total revenues rose to $64.89 billionb from $56.91 billion, driven primarily by the Retail segment. Premiums were $62.95 billion, up from $54.94 billion, with Individual Medicare Advantage membership growing to 3,587,200 members at December 31, 2019. The benefit ratio increased to 85.6% from 83.5%, mainly due to the suspension of the health insurance industry fee in 2019 and lower favorable prior-period reserve development, while the operating cost ratio improved to 11.5% from 13.3%.
Retail segment earnings were $2.24 billionc, up from $1.73 billion, while Group and Specialty segment earnings fell to $28 million from $361 million. Cash flow from operations was $5.28 billion, compared with $2.17 billion in 2018. Cash and cash equivalents rose to $4.05 billion, and debt declined to $5.67 billion from $6.07 billion.
The company repurchased $1.07 billiond of common stock in 2019 and had approximately $2.0 billion of remaining repurchase authorization as of February 19, 2020. The Board declared a quarterly dividend of $0.625 per share in February 2020, up from $0.55 per share. Significant 2020 developments disclosed include the planned acquisition of Enclara Healthcare for approximately $707 million, a partnership with Welsh, Carson, Anderson & Stowe involving a commitment of approximately $600 million, and the resumption of the health insurance industry fee for calendar year 2020.
The filing highlights concentration risk: approximately 82% of total premiums and services revenue came from federal government contracts in 2019, including 15% from individual Medicare Advantage contracts in Florida. Key risks include CMS risk-adjustment and RADV audit methodology, qui tam litigation, and the phase-in of risk score calculations from RAPS to EDS, which moves from 25% in 2019 to 50% in 2020.
02—Key points
Key Highlights
- Net income rose to $2.71 billion ($20.10 diluted EPS) in 2019 from $1.68 billion ($12.16 diluted EPS) in 2018, with the 2018 results including a $786 million loss on the sale of KMG.
- Total revenues increased to $64.89 billion from $56.91 billion, led by premiums growth of $8.01 billion, primarily from Retail Medicare Advantage.
- Individual Medicare Advantage membership reached 3,587,200 at December 31, 2019, up from 3,064,000, and the company anticipates a net increase of 270,000 to 330,000 members in 2020.
- Benefit ratio rose to 85.6% from 83.5%, while the operating cost ratio improved to 11.5% from 13.3%.
- Group and Specialty segment earnings declined to $28 million from $361 million, with its benefit ratio rising to 86.0% from 79.7%.
- Cash flow from operations increased to $5.28 billion from $2.17 billion, and $1.07 billion of stock was repurchased in 2019 with $2.0 billion of authorization remaining as of February 19, 2020.
- About 82% of total premiums and services revenue was derived from federal government contracts, and the 2020 health insurance industry fee is set to resume.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2019filed February 20, 2020Financial Statements
FY2019 against FY2018
| Line item | FY2019FY2018 | Change |
|---|---|---|
| Revenue | $64.89B$56.91B | +14.0% |
| SG&A Expenses | $7.38B$7.53B | −1.9% |
| Operating Income | $3.19B$3.10B | +3.0% |
| Interest Expense | $242.00M$218.00M | +11.0% |
| Net Income | $2.71B$1.68B | +60.8% |
| EPS (Basic) | $20.20$12.24 | +65.0% |
| EPS (Diluted) | $20.10$12.16 | +65.3% |
| Shares Outstanding (Basic) | 134.06M137.49M | −2.5% |
| Shares Outstanding (Diluted) | 134.73M138.40M | −2.7% |
05—Questions
Frequently Asked Questions
What drove the increase in Humana's 2019 earnings?
Net income increased to $2.71 billion from $1.68 billion, primarily reflecting higher Retail segment earnings of $2.24 billion, up from $1.73 billion, and Healthcare Services segment earnings of $789 million. Results were also boosted by put/call valuation adjustments related to the Kindred at Home investment and fewer diluted shares, partly offset by lower Group and Specialty earnings and a loss on the 2018 KMG sale comparison.
Why did the benefit ratio increase in 2019?
The consolidated benefit ratio rose to 85.6% from 83.5%, primarily due to the suspension of the health insurance industry fee in 2019, which was contemplated in product pricing, lower favorable prior-period medical claims reserve development, and a shift in Medicare membership mix toward Medicare Advantage.
How concentrated is Humana's revenue in government programs?
Approximately 82% of total premiums and services revenue in 2019 came from contracts with the federal government, including 15% from individual Medicare Advantage contracts in Florida with CMS. The filing identifies the loss of these contracts or adverse changes in Medicare programs as a material risk.
What capital return and financing actions did Humana take?
Humana repurchased $1.07 billion of common stock in 2019 and paid $291 million in dividends. It issued $1.0 billion of senior notes in August 2019 and repaid a $650 million term note and $400 million of senior notes. In February 2020, it entered into a new $1 billion term loan commitment and declared a $0.625 per share quarterly dividend.
What significant 2020 developments does the filing disclose?
In the first quarter of 2020, Humana acquired Enclara Healthcare for approximately $707 million, net of cash received. Its Partners in Primary Care subsidiary also entered a strategic partnership with Welsh, Carson, Anderson & Stowe, with Humana committing approximately $600 million for a non-controlling interest. The health insurance industry fee is also set to resume for calendar year 2020 and is not tax deductible.
06—Continue