01—Abstract
Summary
Summary of the 10-K filed February 16, 2023. Cited figures are marked; the original filing is the authoritative source.
Humana Inc. reported 2022 net income of $2.8 billiona, or $22.08 per diluted common share, versus $2.9 billion, or $22.67, in 2021.
Total revenues rose to $92.87 billionb from $83.06 billion, driven by premiums revenue of $87.7 billion, up 9.9%, mainly from individual Medicare Advantage and state-based contracts membership growth. The benefit ratio improved to 86.3% from 86.7%, while the operating cost ratio rose to 13.7% from 12.2%, largely reflecting the consolidation of Kindred at Home and $473 million of value creation initiative charges. Individual Medicare Advantage membership reached 4,565,600 at December 31, 2022, and the company projects at least 625,000 net membership growth in that segment for 2023, while expecting declines in standalone PDP (approximately 800,000) and group commercial medical (approximately 300,000).
Humana realigned into two segments, Insurance and CenterWell, in December 2022. The company completed the sale of a 60% interest in KAH Hospice to Clayton, Dubilier & Rice for cash proceeds of approximately $2.7 billionc, recognizing a pre-tax gain of $237 million. Cash and cash equivalents rose to $5.06 billion, and net cash from operating activities was $4.59 billion.
The Board replaced the prior $3 billiond repurchase authorization with a new $3 billion program on February 15, 2023, and the company repurchased $2.10 billion of common shares during 2022. Key risks highlighted include the CMS Advance Notice for 2024, which estimates a 2.27% decrease in sector benchmark funding, and the Final RADV Rule published January 30, 2023, which eliminates the FFS Adjuster.
Humana states it is considering its legal options regarding the rule. Government programs accounted for approximately 88% of total premiums and services revenue, and a qui tam suit concerning Part D actuarial equivalence remains pending.
02—Key points
Key Highlights
- Net income of $2.8 billion ($22.08 diluted EPS) in 2022, compared with $2.9 billion ($22.67) in 2021
- Total revenues of $92.87 billion, compared with $83.06 billion in 2021; premiums revenue increased 9.9% to $87.7 billion
- Benefit ratio improved to 86.3% from 86.7%; operating cost ratio increased to 13.7% from 12.2%
- Individual Medicare Advantage membership of 4,565,600 at year-end 2022, up 3.5%; 2023 guidance calls for at least 625,000 net additions
- Sold a 60% interest in KAH Hospice for about $2.7 billion in cash proceeds, recognizing a $237 million pre-tax gain
- CMS Advance Notice estimates a 2.27% sector-wide decrease in MA benchmark funding for 2024; Final RADV Rule eliminates the FFS Adjuster
- New $3 billion share repurchase authorization approved February 15, 2023; quarterly dividend increased to $0.8850 per share
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2022filed February 16, 2023Financial Statements
FY2022 against FY2021
| Line item | FY2022FY2021 | Change |
|---|---|---|
| Revenue | $92.87B$83.06B | +11.8% |
| SG&A Expenses | $12.67B$10.12B | +25.2% |
| Operating Income | $3.80B$3.15B | +20.7% |
| Interest Expense | $401.00M$326.00M | +23.0% |
| Net Income | $2.81B$2.93B | −4.3% |
| EPS (Basic) | $22.20$22.79 | −2.6% |
| EPS (Diluted) | $22.08$22.67 | −2.6% |
| Shares Outstanding (Basic) | 126.42M128.69M | −1.8% |
| Shares Outstanding (Diluted) | 127.09M129.40M | −1.8% |
05—Questions
Frequently Asked Questions
What drove the change in Humana's 2022 profitability?
Net income fell 4.5% to $2.80 billion, from $2.93 billion, as 2021 included a $1.1 billion non-taxable gain on the remeasurement of the Kindred at Home equity investment. Premiums growth from individual Medicare Advantage and a lower benefit ratio partly offset higher operating costs, which rose to 13.7% of revenue, largely from the consolidation of Kindred at Home and $473 million in value creation charges.
How much of Humana's revenue comes from government programs?
The filing states that approximately 82% of total premiums and services revenue in 2022 was derived from contracts with the federal government, and that government programs, including Medicare, military and Medicaid, accounted for approximately 88% of total premiums and services revenue. Florida Medicare Advantage contracts with CMS accounted for about 14%.
What membership changes does Humana expect in 2023?
For 2023, Humana anticipates net growth of at least 625,000 individual Medicare Advantage members, a net decline of approximately 60,000 group Medicare Advantage members, a net decline of approximately 800,000 standalone PDP members, growth of 25,000 to 100,000 in state-based contracts, and a net decline of approximately 300,000 in group commercial medical membership.
What regulatory risks does the filing highlight?
The CMS Advance Notice for 2024 proposes a 2.27% average decrease in sector benchmark funding, with Humana expecting an impact on individual plans and cohorts with greater risk score trend. The Final RADV Rule, published January 30, 2023, eliminates the FFS Adjuster and states an intention to extrapolate audit results beginning with payment year 2018. Humana believes the rule does not adequately address actuarial equivalence and is considering its legal options.
How is Humana returning capital to shareholders?
In 2022 Humana repurchased $2.10 billion of common shares and paid $392 million in dividends. On February 15, 2023, the Board approved a new authorization of up to $3 billion for repurchases. The Board also declared a quarterly dividend of $0.8850 per share in February 2023, payable April 28, 2023.
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