01—Abstract
Summary
Summary of the 10-K filed February 17, 2022. Cited figures are marked; the original filing is the authoritative source.
Humana Inc., headquartered in Louisville, Kentucky, reported 2021 net income of $2.9 billiona, or $22.67 per diluted common share, down from $3.4 billion, or $25.31 per diluted share, in 2020.
Total revenues rose to $83.06 billionb from $77.16 billion, driven by premiums of $79.82 billion and services revenue of $3.06 billion, the latter reflecting consolidation of Kindred at Home. The company stated that the 2021 comparison was significantly affected by a $1.13 billion gain on its Kindred at Home equity method investment, put/call valuation adjustments, changes in the fair value of publicly-traded equity securities, and acquisition-related costs, and that COVID-19 impacts lowered operating results in 2021 relative to 2020. The benefit ratio rose to 86.7% from 83.1%, and the operating cost ratio fell to 12.2% from 13.2%.
Income before income taxes was $3.35 billionc, and the effective tax rate was 14.2% versus 28.0% in 2020. The company completed its acquisition of the remaining 60% interest in Kindred at Home on August 17, 2021, for an enterprise value of $8.2 billion, paying an approximate $5.8 billion transaction price net of its existing stake. Cash and cash equivalents ended the year at $3.39 billion, and operating cash flow fell to $2.26 billion from $5.64 billion, which the filing attributes primarily to working capital changes and lower earnings.
Long-term debt rose to $10.54 billiond from $6.06 billion, and total debt including short-term obligations reached roughly $12.5 billion after the acquisition financing. Management said it anticipates certain charges in 2022 tied to cost-saving and productivity initiatives, and it reported that CMS's preliminary 2023 Medicare Advantage Advance Notice estimated a 4.48% average benchmark increase. The filing shows concentration in government programs, with approximately 83% of premiums and services revenue from federal government contracts in 2021.
Individual Medicare Advantage membership grew to 4,409,100 members, while stand-alone PDP membership declined to 3,606,200. The company also disclosed ongoing risk-adjustment audits (RADV), a Department of Justice information request regarding Medicare Part C risk adjustment practices, and a qui tam suit concerning Basic PDP actuarial equivalence.
02—Key points
Key Highlights
- Net income fell 12.9% to $2.93 billion attributable to Humana, with diluted EPS of $22.67 versus $25.31 in 2020; the filing attributes the change to Kindred at Home gains and fair value adjustments, COVID-19 effects, and other items.
- Kindred at Home acquisition (August 17, 2021) for an enterprise value of $8.2 billion, including a $1.13 billion gain on the previously held 40% equity stake; services revenue rose 118.1% to $2.22 billion in external services.
- Benefit ratio increased 360 basis points to 86.7%, while the operating cost ratio improved 100 basis points to 12.2%, reflecting the termination of the non-deductible health insurance industry fee in 2021.
- Individual Medicare Advantage membership grew 11.3% to 4,409,100 members; the company expects 150,000 to 200,000 net additions in 2022 but a net decline of about 125,000 stand-alone PDP members.
- Operating cash flow dropped to $2.26 billion from $5.64 billion, driven by working capital changes including paying down claims inventory and provider surplus accruals from 2020.
- Debt increased substantially with $10.54 billion long-term debt and $1.95 billion short-term debt, and the company's investment-grade ratings were BBB+ (S&P) and Baa3 (Moody's) at year-end.
- Board authorized a $3.0 billion share repurchase program in February 2021, and a $1.0 billion accelerated share repurchase was executed in January 2022 with $2.0 billion remaining under authorization as of February 17, 2022.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2021filed February 17, 2022Financial Statements
FY2021 against FY2020
| Line item | FY2021FY2020 | Change |
|---|---|---|
| Revenue | $83.06B$77.16B | +7.7% |
| SG&A Expenses | $10.12B$10.05B | +0.7% |
| Operating Income | $3.15B$4.99B | −36.9% |
| Interest Expense | $326.00M$283.00M | +15.2% |
| Net Income | $2.93B$3.37B | −12.9% |
| EPS (Basic) | $22.79$25.47 | −10.5% |
| EPS (Diluted) | $22.67$25.31 | −10.4% |
| Shares Outstanding (Basic) | 128.69M132.20M | −2.7% |
| Shares Outstanding (Diluted) | 129.40M133.01M | −2.7% |
05—Questions
Frequently Asked Questions
How much of Humana's revenue comes from government programs?
The filing states that approximately 83% of Humana's total premiums and services revenue in 2021 was derived from contracts with the federal government, including about 15% from its individual Medicare Advantage contracts in Florida. Medicare products accounted for approximately 82% of total premiums and services revenue, and state-based Medicaid about 6%.
Why did net income decline in 2021 despite higher revenue?
Net income fell to $2.93 billion from $3.37 billion. The filing attributes the change to a higher benefit ratio (86.7% vs. 83.1%), largely from the termination of the health insurance industry fee, COVID-19 utilization effects, and competitive pressure in group Medicare Advantage and stand-alone PDP, partly offset by lower operating costs and a $1.13 billion non-taxable gain on Kindred at Home.
What is the outlook for Medicare Advantage membership in 2022?
The company anticipates net membership growth in individual Medicare Advantage of approximately 150,000 to 200,000 members for 2022, relatively flat group Medicare Advantage membership, and a net decline of about 125,000 in stand-alone PDP. It also expects a net decline of 50,000 to 100,000 in state-based contracts, assuming the Public Health Emergency ends in April 2022.
What regulatory risks does the filing highlight for Medicare Advantage?
The filing highlights CMS risk-adjustment payment accuracy, including RADV audits and a proposed rule that would extrapolate audit results without a fee-for-service adjuster. It also cites the phase-in from RAPS to EDS data, with CMS using only EDS data in 2022, and a Department of Justice information request regarding Medicare Part C risk adjustment practices. The company notes these matters could have a material adverse effect on results, financial position, or cash flows.
How is Humana funding its growth and capital returns?
Humana issued $3.0 billion in senior notes in August 2021 (net proceeds of $2.98 billion), entered a $2.0 billion term loan in October 2021, and drew on a $500 million delayed draw term loan to help fund the Kindred at Home acquisition. It paid $354 million in dividends in 2021 and repurchased $79 million of common stock, excluding employee plan shares. In January 2022 it also made a $1.0 billion accelerated share repurchase payment, and the Board declared a quarterly dividend of $0.7875 per share for April 2022.
06—Continue