01—Abstract
Summary
Summary of the 10-Q filed July 31, 2024. Cited figures are marked; the original filing is the authoritative source.
Humana Inc. reported net income attributable to Humana of $679 milliona, or $5.62 per diluted share, for the three months ended June 30, 2024, down from $959 million, or $7.66 per diluted share, a year earlier.
For the six months, net income attributable to Humana was $1.4 billionb, or $11.74 per diluted share, compared with $2.2 billion, or $17.54 per diluted share, in the 2023 period. Total revenues rose to $29.54 billion in the quarter from $26.75 billion, driven mainly by premiums revenue of $28.14 billion, which the filing attributes to higher per member Medicare premiums and membership growth in Medicare Advantage and state-based contracts. The decline in earnings reflects a consolidated benefit ratio of 89.0% versus 86.3%, which the filing attributes to elevated Medicare Advantage medical cost trends and a smaller favorable impact from prior-period claims reserve development.
Partly offsetting this, the operating cost ratio improved to 10.8% from 11.8%. Results were also affected by put/call valuation adjustments of $68 millionc and value creation initiative charges of $68 million in the quarter. Balance sheet and cash flow items show a change in timing.
Cash and cash equivalents were $5.5 billiond at June 30, 2024, and net cash provided by operating activities was $1.6 billion for the six months, compared with $9.9 billion in the prior-year period. The filing states that the 2023 period was significantly affected by the early receipt of a $7.0 billion Medicare premium remittance and a $2.2 billion CMS mid-year settlement, and that the 2024 mid-year settlement of approximately $2.3 billion was received in July 2024. In March 2024 Humana issued $2.25 billion of senior notes, with net proceeds of $2.2 billion.
Total debt was $12.9 billion of senior notes at carrying value, with no commercial paper outstanding at June 30, 2024. The filing also describes ongoing legal and regulatory risk, including a lawsuit challenging the Final RADV Rule, a qui tam suit, and a securities class action filed in June 2024, and it states that these matters could have a material adverse effect on results of operations, financial position, or cash flows.
02—Key points
Key Highlights
- Net income attributable to Humana was $679 million, or $5.62 per diluted share, in Q2 2024, versus $959 million, or $7.66 per diluted share, in Q2 2023; six-month diluted EPS was $11.74 versus $17.54.
- Consolidated benefit ratio rose to 89.0% from 86.3% in the quarter, attributed to elevated Medicare Advantage medical cost trends and lower favorable prior-period reserve development.
- Operating cost ratio improved to 10.8% from 11.8% in the quarter, attributed to scale efficiencies, value creation initiatives, and lower broker commission expense.
- Individual Medicare Advantage membership reached 5,617,600 at June 30, 2024, up 6.6% year over year, while stand-alone PDP membership declined 19.7% amid intensified competition.
- Commercial fully-insured membership fell 86.9% as Humana continues its phased exit from the Employer Group Commercial Medical Products business over 18 to 24 months from February 2023.
- Humana issued $1.25 billion of 5.375% senior notes due 2031 and $1.0 billion of 5.750% senior notes due 2054 in March 2024, with net proceeds of $2.2 billion; $750 million of shares were repurchased in the six months ended June 30, 2024, leaving $2.93 billion of repurchase authorization as of July 30, 2024.
- The filing discloses litigation risk, including a suit challenging the CMS Final RADV Rule, which the company says could have a material adverse effect, and a putative securities class action filed in June 2024.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-QQ2 FY2024filed July 31, 2024Financial Statements
Q2 FY2024 against Q2 FY2023
| Line item | Q2 FY2024Q2 FY2023 | Change |
|---|---|---|
| Revenue | $29.54B$26.75B | +10.4% |
| SG&A Expenses | $3.15B$3.11B | +1.2% |
| Operating Income | $1.14B$1.44B | −20.5% |
| Net Income | $679.00M$959.00M | −29.2% |
| EPS (Basic) | $5.63$7.70 | −26.9% |
| EPS (Diluted) | $5.62$7.66 | −26.6% |
| Shares Outstanding (Basic) | 120.44M124.57M | −3.3% |
| Shares Outstanding (Diluted) | 120.67M125.11M | −3.6% |
05—Questions
Frequently Asked Questions
Why did earnings decline year over year in the second quarter of 2024?
Net income attributable to Humana fell to $679 million from $959 million. The filing attributes the decline mainly to a higher consolidated benefit ratio of 89.0% versus 86.3%, driven by elevated Medicare Advantage medical cost trends and a smaller favorable impact from prior-period medical claims reserve development. Value creation initiative charges of $68 million and put/call valuation adjustments of $68 million also affected results, partly offset by an improved operating cost ratio.
Why did operating cash flow drop so sharply in the first half of 2024?
Net cash provided by operating activities was $1.6 billion for the six months ended June 30, 2024, versus $9.9 billion a year earlier. The filing states that the 2023 period included the early receipt of a $7.0 billion Medicare premium remittance in June 2023 because the July payment date fell on a weekend, and a $2.2 billion CMS mid-year settlement received in June 2023. The 2024 mid-year settlement of approximately $2.3 billion was received in July 2024.
How much debt did Humana issue and how is it being used?
In March 2024, Humana issued $1.25 billion of 5.375% senior notes due April 15, 2031 and $1.0 billion of 5.750% senior notes due April 15, 2054, with net proceeds of $2.23 billion. The company used the proceeds for general corporate purposes, including repaying existing indebtedness and borrowings under its commercial paper program. No commercial paper was outstanding at June 30, 2024, compared with $0.9 billion at December 31, 2023.
What are the main regulatory and legal risks disclosed in the filing?
The filing discusses the CMS Final RADV Rule, which eliminates the Fee-for-Service Adjuster and could apply extrapolated audit results from PY 2018 onward; Humana has sued HHS over the rule. It also describes a qui tam suit concerning Basic PDP actuarial equivalence, a June 2024 putative securities class action alleging misleading statements about Medicare Advantage medical costs, and a related derivative action filed in July 2024. The company states that these matters could have a material adverse effect on its results of operations, financial position, or cash flows.
How strong is Humana's capital position and shareholder return program?
The filing reports cash and cash equivalents of $5.5 billion and investment securities of $17.4 billion at June 30, 2024. State-regulated subsidiaries had aggregate statutory capital and surplus of approximately $12.9 billion, above minimum requirements of $10.3 billion as of March 31, 2024. The Board declared a quarterly dividend of $0.885 per share payable July 26, 2024, and common stock repurchases totaled $750 million for the six months ended June 30, 2024.
06—Continue