01—Abstract
Summary
Summary of the 10-K filed February 15, 2024. Cited figures are marked; the original filing is the authoritative source.
Humana Inc. (NYSE: HUM), headquartered in Louisville, Kentucky, reported net income attributable to Humana of $2.5 billiona, or $20.00 per diluted common share, for 2023, compared with $2.8 billion, or $22.08 per diluted share, in 2022.
Total revenues rose 14.5% to $106.4 billionb, driven by a 15.5% increase in premiums revenue to $101.3 billion, primarily from individual Medicare Advantage and state-based contracts membership growth. However, the benefit ratio rose 100 basis points to 87.3%, reflecting higher-than-anticipated Medicare Advantage utilization trends, particularly in the fourth quarter of 2023. The consolidated operating cost ratio improved 120 basis points to 12.5%, and favorable prior-period medical claims reserve development totaled $872 million.
Approximately 84%c of 2023 premiums and services revenue came from federal government contracts. The filing highlights several forward-looking pressures. CMS's preliminary 2025 Medicare Advantage Advance Notice, issued January 31, 2024, is estimated by the company to result in a benchmark funding change approximately 160 basis points worse than its expectation of a flat rate environment.
The company is also exiting its Employer Group Commercial Medical Products business over 18 to 24 months, and it expects individual Medicare Advantage membership to grow by approximately 100,000 members in 2024 while stand-alone PDP membership declines by approximately 650,000. Humana is contesting the CMS Final RADV Rule, which eliminates the Fee-For-Service Adjuster, through a lawsuit filed September 1, 2023. Management also expects Chief Executive Officer Bruce D.
Broussard to step down in the latter half of 2024, with James A. Rechtin to become President and Chief Executive Officer at that time. Balance sheet and cash flow metrics remained solid.
Net cash provided by operating activities was $4.0 billiond in 2023, compared with $4.6 billion in 2022. The company repurchased $1.6 billion of common stock and paid $431 million in dividends in 2023.
Investment securities totaled $17.0 billion, and the company's investment-grade credit rating was BBB+ by S&P and Baa2 by Moody's at December 31, 2023. The Board replaced the prior repurchase authorization with a new authorization of up to $3 billion effective February 16, 2024.
02—Key points
Key Highlights
- Net income attributable to Humana was $2.5 billion, or $20.00 per diluted share, in 2023, down from $2.8 billion, or $22.08 per diluted share, in 2022.
- Premiums revenue grew 15.5% to $101.3 billion, driven by individual Medicare Advantage membership growth of 843,300 members, or 18.5%, to 5,408,900 members.
- The benefit ratio increased 100 basis points to 87.3% due to higher Medicare Advantage utilization trends and investments in Medicare Advantage benefit design.
- The operating cost ratio improved 120 basis points to 12.5%, supported by scale efficiencies and value creation initiatives, with charges of $436 million recorded in 2023.
- CMS's January 31, 2024 Advance Notice for 2025 is estimated to reduce Humana's benchmark funding by about 160 basis points relative to a flat rate environment.
- Operating cash flow was $4.0 billion in 2023, and the company repurchased $1.6 billion of common stock while paying $431 million in dividends.
- Management expects Medicare stand-alone PDP membership to decline by approximately 650,000 members in 2024, while individual Medicare Advantage membership is expected to grow by approximately 100,000 members.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2023filed February 15, 2024Financial Statements
FY2023 against FY2022
| Line item | FY2023FY2022 | Change |
|---|---|---|
| Revenue | $106.37B$92.87B | +14.5% |
| SG&A Expenses | $13.19B$12.67B | +4.1% |
| Operating Income | $4.01B$3.80B | +5.6% |
| Interest Expense | $493.00M$401.00M | +22.9% |
| Net Income | $2.49B$2.81B | −11.3% |
| EPS (Basic) | $20.09$22.20 | −9.5% |
| EPS (Diluted) | $20.00$22.08 | −9.4% |
| Shares Outstanding (Basic) | 123.87M126.42M | −2.0% |
| Shares Outstanding (Diluted) | 124.44M127.09M | −2.1% |
05—Questions
Frequently Asked Questions
How did Humana's profitability change in 2023?
Net income attributable to Humana fell to $2.5 billion, or $20.00 per diluted share, from $2.8 billion, or $22.08 per diluted share, in 2022. The decline reflected a 100 basis point increase in the benefit ratio to 87.3%, driven by higher Medicare Advantage utilization, partially offset by a 120 basis point improvement in the operating cost ratio to 12.5%.
What is the key regulatory risk highlighted for 2025?
CMS's preliminary 2025 Medicare Advantage and Part D Advance Notice, issued January 31, 2024, would result in a change to Humana's benchmark funding approximately 160 basis points worse than the company's expectation of a flat rate environment. The company cites proposed effective growth rate restatements and negative normalization factors, and it will provide formal commentary before the Final Notice due on or before April 1, 2024.
Why is Humana exiting the Employer Group Commercial Medical Products business?
Following a strategic review announced in February 2023, Humana determined that the Employer Group Commercial Medical Products business was no longer positioned to sustainably meet the needs of commercial members over the long term or support its long-term strategic plans. The exit is being phased over 18 to 24 months from the February 2023 announcement.
What is the status of the CMS Final RADV Rule dispute?
CMS published the Final RADV Rule on January 30, 2023, eliminating the Fee-For-Service Adjuster and extrapolating audit results beginning with PY 2018. Humana believes the rule fails to address the statutory requirement of actuarial equivalence and violates the Administrative Procedure Act. On September 1, 2023, Humana Inc. and Humana Benefit Plan of Texas, Inc. filed suit seeking a determination that the rule violates the APA and should be set aside.
Who will lead Humana after the planned CEO transition?
Humana expects that Bruce D. Broussard will step down as Chief Executive Officer in the latter half of 2024, and that James A. Rechtin, who was elected President and Chief Operating Officer in January 2024, will become President and Chief Executive Officer at that time, under the company's previously announced leadership succession plan.
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