01—Abstract
Summary
Summary of the 10-K filed February 18, 2021. Cited figures are marked; the original filing is the authoritative source.
Humana Inc. (NYSE: HUM), headquartered in Louisville, Kentucky, reported net income of $3.37 billiona for 2020, up from $2.71 billion in 2019, with diluted earnings per share of $25.31 versus $20.10.
Total revenues rose to $77.16 billionb from $64.89 billion, driven by a 17.9% increase in premiums to $74.19 billion. The company states that 83% of its 2020 premiums and services revenue came from contracts with the federal government, and its Retail segment (Medicare Advantage, PDP and state-based Medicaid) produced $3.02 billion in segment earnings. Results were materially affected by one-time items: a $745 million change in fair value of publicly-traded equity securities (largely from the Oak Street Health IPO), $578 million of received commercial risk corridor receivables, and $(103) million of put/call valuation adjustments.
The filing also notes that COVID-19 significantly disrupted utilization, with non-COVID utilization falling in late 2020 and COVID-related treatment and testing costs rising. The benefit ratio improved to 83.1% from 85.6%, while the operating cost ratio rose to 13.2% from 11.5%, reflecting the reinstated non-deductible health insurance industry fee of $1.18 billionc paid in 2020 and COVID-related administrative costs. Cash flow from operations was $5.64 billion, and the company repurchased $1.82 billion of common stock in 2020.
In February 2021, the Board replaced the prior $3 billiond repurchase authorization with a new $3 billion authorization expiring February 18, 2024, and declared a quarterly dividend of $0.70 per share. Management expects Medicare Advantage membership to increase by 425,000 to 475,000 in 2021 and stand-alone PDP membership to decline by approximately 300,000, and it flags that the 2022 Medicare Advantage Final Rate Notice implies a 3.7% rate increase for non-ESRD business. Key risks highlighted in the filing include heavy dependence on government programs, Medicare risk-adjustment and RADV audit exposure, Medicare star ratings, the transition from RAPS to EDS risk-score data, pending U.S. Department of Justice and qui tam matters related to risk adjustment, and continued uncertainty from COVID-19.
02—Key points
Key Highlights
- Net income of $3.37 billion in 2020, up 24.4% from $2.71 billion in 2019; diluted EPS of $25.31 versus $20.10.
- Total revenues of $77.16 billion, up 18.9%, with premiums revenue of $74.19 billion, up 17.9%.
- Benefit ratio improved to 83.1% from 85.6%, while operating cost ratio rose to 13.2% from 11.5%, including a 160 basis point impact from the non-deductible health insurance industry fee.
- Results include one-time gains: $745 million from fair value changes in publicly-traded equity securities and $578 million from receipt of commercial risk corridor receivables previously written off.
- Approximately 83% of 2020 premiums and services revenue derived from federal government contracts; individual Medicare Advantage membership reached 3,962,700, up 10.5%.
- Operating cash flow of $5.64 billion; $1.82 billion spent on share repurchases in 2020.
- February 2021: new $3 billion share repurchase authorization and quarterly dividend increased to $0.70 per share; 2021 Medicare Advantage membership expected to grow by 425,000 to 475,000.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2020filed February 18, 2021Financial Statements
FY2020 against FY2019
| Line item | FY2020FY2019 | Change |
|---|---|---|
| Revenue | $77.16B$64.89B | +18.9% |
| SG&A Expenses | $10.05B$7.38B | +36.2% |
| Operating Income | $4.99B$3.19B | +56.2% |
| Interest Expense | $283.00M$242.00M | +16.9% |
| Net Income | $3.37B$2.71B | +24.4% |
| EPS (Basic) | $25.47$20.20 | +26.1% |
| EPS (Diluted) | $25.31$20.10 | +25.9% |
| Shares Outstanding (Basic) | 132.20M134.06M | −1.4% |
| Shares Outstanding (Diluted) | 133.01M134.73M | −1.3% |
05—Questions
Frequently Asked Questions
What drove the large increase in 2020 net income?
Net income rose to $3.37 billion from $2.71 billion, primarily reflecting higher premiums from Medicare Advantage and state-based Medicaid membership growth and a lower benefit ratio. The filing notes that results were significantly affected by a $745 million gain on publicly-traded equity securities, $578 million from received risk corridor receivables, and $(103) million of put/call valuation adjustments.
How did COVID-19 affect Humana's 2020 results?
The filing states that deferral of non-essential care reduced utilization in April 2020, lowering benefit costs, but COVID-19 treatment and testing costs rose in late 2020. Non-COVID utilization fell well below baseline in November and December, and the company expects higher COVID admissions to continue for at least the first few months of 2021, with the impact on 2021 Medicare Advantage risk-adjustment revenue uncertain.
What is the company's exposure to government programs and risk adjustment?
About 83% of 2020 premiums and services revenue came from federal government contracts. The filing describes Medicare risk-adjustment rules, the phase-in from RAPS to EDS data (75% for 2021, fully EDS in 2022), RADV audits, and a pending qui tam suit alleging actuarial equivalence issues in the Basic PDP plan, all of which could materially affect results.
What capital return and financing actions did Humana take?
Humana repurchased $1.82 billion of common stock in 2020, including a $1.75 billion accelerated stock repurchase agreement entered in December 2020 with final settlement expected in the second quarter of 2021. It issued $1.1 billion of net senior notes in March 2020, repaid $400 million of notes due December 2020, and in February 2021 authorized a new $3 billion repurchase program and declared a $0.70 quarterly dividend.
06—Continue