[November 08, 2017] |
|
Humana Reports Third Quarter 2017 Financial Results
Humana Inc. (NYSE: HUM) today reported diluted earnings per common share
(EPS) for the quarter ended September 30, 2017 (3Q17) versus the quarter
ended September 30, 2016 (3Q16) and for the nine months ended September
30, 2017 (YTD 2017) versus for the nine months ended September 30, 2016
(YTD 2016) as follows:
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Consolidated pretax income
In millions
|
|
|
|
3Q17 (a)
|
|
|
3Q16 (b)
|
|
|
YTD 2017 (c)
|
|
|
YTD 2016 (d)
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Generally Accepted Accounting Principles (GAAP)
|
|
|
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$799
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|
|
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$902
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|
|
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$3,530
|
|
|
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$2,038
|
Net (gain) expenses associated with the terminated merger agreement
(for YTD 2017, primarily the break-up fee)
|
|
|
|
-
|
|
|
|
20
|
|
|
|
(947
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)
|
|
|
81
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Amortization associated with identifiable intangibles
|
|
|
|
18
|
|
|
|
18
|
|
|
|
54
|
|
|
|
59
|
Guaranty fund assessment expense to support the policyholder
obligations of Penn Treaty (an unaffiliated long-term care insurance
company)
|
|
|
|
-
|
|
|
|
-
|
|
|
|
54
|
|
|
|
-
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Operating (income) losses associated with the Individual Commercial
business
|
|
|
|
(26
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)
|
|
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(2
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)
|
|
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(207
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)
|
|
|
235
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Charges associated with voluntary and involuntary workforce
reduction programs
|
|
|
|
124
|
|
|
|
-
|
|
|
|
124
|
|
|
|
-
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Adjusted (non-GAAP) - 3Q16 and YTD 2016 as recast
|
|
|
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$915
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|
|
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$938
|
|
|
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$2,608
|
|
|
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$2,413
|
|
|
|
Diluted earnings per common share (EPS)
|
|
|
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3Q17 (a)
|
|
|
3Q16 (b)
|
|
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YTD 2017 (c)
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YTD 2016 (d)
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GAAP
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|
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$3.44
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|
|
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$2.98
|
|
|
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$15.44
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|
|
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$6.73
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Net (gain) expenses associated with the terminated merger agreement
(for YTD 2017, primarily the break-up fee)
|
|
|
|
-
|
|
|
|
0.12
|
|
|
|
(4.33
|
)
|
|
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0.49
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Amortization associated with identifiable intangibles
|
|
|
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0.07
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|
|
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0.08
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|
|
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0.23
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|
|
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0.25
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Beneficial effect of lower effective tax rate in light of pricing
and benefit design assumptions associated with the 2017 temporary
suspension of the non-deductible health insurance industry fee;
excludes Individual Commercial business impact
|
|
|
|
(0.55
|
)
|
|
|
-
|
|
|
|
(1.60
|
)
|
|
|
-
|
Guaranty fund assessment expense to support the policyholder
obligations of Penn Treaty (an unaffiliated long-term care insurance
company)
|
|
|
|
-
|
|
|
|
-
|
|
|
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0.23
|
|
|
|
-
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Operating (income) losses associated with the Individual Commercial
business
|
|
|
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(0.11
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)
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|
|
0.02
|
|
|
|
(0.89
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)
|
|
|
1.10
|
Charges associated with voluntary and involuntary workforce
reduction programs
|
|
|
|
0.54
|
|
|
|
-
|
|
|
|
0.54
|
|
|
|
-
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Adjusted (non-GAAP) - 3Q16 and YTD 2016 as recast
|
|
|
|
$3.39
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|
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$3.20
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|
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$9.62
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|
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$8.57
|
The company has included financial measures throughout this
earnings release that are not in accordance with GAAP. Management
believes that these measures, when presented in conjunction with the
comparable GAAP measures, are useful to both management and its
investors in analyzing the company's ongoing business and operating
performance. Consequently, management uses these non-GAAP financial
measures as indicators of the company's business performance, as well as
for operational planning and decision making purposes. Non-GAAP
financial measures should be considered in addition to, but not as a
substitute for, or superior to, financial measures prepared in
accordance with GAAP. All financial measures in this press release are
in accordance with GAAP unless otherwise indicated.
"Our 2017 financial performance and improved Star ratings that were
announced in October reflect the solid execution of our strategy and the
effectiveness of our integrated care delivery model," said Bruce D.
Broussard, Humana's President and Chief Executive Officer. "With the
first several weeks of the Annual Election Period behind us, we feel
comfortable with our 2018 Medicare Advantage competitive positioning. As
a result of our over performance in 2017 and other cost savings
measures, we made targeted investments in our product design, clinical
programs and operating processes, which enabled us to maintain stable
plan benefits, simplify the member experience and improve clinical
outcomes."
The GAAP consolidated pretax income for 3Q17 of $799 million declined
$103 million, or 11 percent, compared to GAAP consolidated pretax income
of $902 million in 3Q16 primarily due to charges associated with
voluntary and involuntary workforce reduction programs and lower pretax
earnings in the Healthcare Services segment, partially offset by
year-over-year improvement in earnings for the company's Group and
Specialty and Retail segments as well as its Individual Commercial
business.
The Adjusted consolidated pretax income for 3Q17 of $915 million
declined $23 million, or 2 percent, versus $938 million in 3Q16
primarily reflecting the same factors impacting the GAAP comparison,
while excluding the impact of the items detailed in the consolidated
pretax income table above.
GAAP consolidated pretax income for YTD 2017 of $3.53 billion increased
$1.49 billion, or 73 percent, from $2.04 billion in YTD 2016. The
increase primarily reflects the net gain associated with the terminated
merger agreement, mainly the break-up fee recognized in the first
quarter of 2017, along with the year-over-year improvement in earnings
for the company's Individual Commercial, Retail, and Group and Specialty
segments. These increases were partially offset by lower pretax earnings
in the Healthcare Services segment in YTD 2017 and the recording of
charges associated with voluntary and involuntary workforce reduction
programs in 3Q17.
The Adjusted consolidated pretax income for YTD 2017 of $2.61 billion
increased $195 million, or 8 percent, versus $2.41 billion in YTD 2016
primarily reflecting the same factors impacting the GAAP comparison,
while excluding the impact of items noted in the table above.
Further discussions of each segment's financial results are included in
the segment highlights below.
In addition to the factors impacting the year-over-year changes in
quarterly and year-to-date GAAP pretax income, GAAP EPS for 3Q17 and YTD
2017 were further impacted by the beneficial effect of the lower
effective tax rate in light of pricing and benefit design assumptions
associated with the temporary suspension of the health insurance
industry fee in 2017, as well as a lower number of shares used to
compute EPS, primarily reflecting share repurchases in 2017, including
the completion of the previously disclosed accelerated stock repurchase
(ASR) program.
Adjusted EPS for 3Q17 and YTD 2017 were affected by the same factors
impacting Adjusted pretax income, as well as a lower number of shares
used to compute EPS as discussed above.
2017 Earnings Commentary and Guidance Update
The company's 3Q17 results exceeded its previous expectations, primarily
driven by the strong results in the Group and Specialty segment, largely
attributable to higher-than-expected prior period medical claims reserve
development and favorable utilization trends. The improvement in the
Group and Specialty segment results was partially offset by slightly
lower Healthcare Services segment pretax than previously expected,
primarily due to continued lower than expected mail order pharmacy
utilization, particularly associated with new members in the company's
Humana-Walmart stand-alone PDP offering. Retail segment results are in
line with the company's previous expectations as the Retail segment
continues to perform well, primarily driven by Medicare Advantage.
Throughout 2017, the company has been committed to productivity
initiatives designed to promote operational excellence, accelerate its
strategy, fund critical initiatives and advance its growth objectives.
In 3Q17, the company initiated a voluntary Early Retirement Program and
an involuntary workforce reduction program that will allow it to achieve
these objectives and position the company for the future. These programs
are expected to impact approximately 2,700 employees, or 5.7 percent, of
its workforce. As a result, in 3Q17 the company recorded estimated
charges with an EPS impact of $0.54. The estimated charges were recorded
at the corporate level and not allocated to the segments; the estimated
charges are excluded from Adjusted results. Payments under these
programs are made upon termination during the early retirement or
severance pay period, primarily starting as of the beginning of the
first quarter of 2018. The company expects these amounts to be primarily
paid within the next 12 months.
As a result of the strong 3Q17 performance discussed above, Adjusted EPS
guidance for the year ending December 31, 2017 (FY17)(e) was
increased to approximately $11.60 from the previous guidance of
approximately $11.50. Humana decreased GAAP EPS guidance for FY17, which
includes the impact of the voluntary and involuntary workforce reduction
programs discussed above, to approximately $17.62 from the previous
guidance of at least $17.83.
"The company continues to produce exceptional financial results that are
significantly exceeding our initial 2017 earnings expectations,
particularly in the Retail and Group and Specialty segments," said Brian
A. Kane, Senior Vice President and Chief Financial Officer. "Our 2017
outperformance coupled with our continued focus on driving operational
excellence and productivity have allowed us to invest in our 2018
product design for our customers while funding critical initiatives to
advance our strategy that together will return us to meaningful
individual Medicare Advantage membership growth in 2018."
Star Quality Ratings
As previously disclosed, on October 11, 2017, the Centers for Medicare
and Medicaid Services (CMS) published its updated Star quality ratings
for bonus year 2019 showing that Humana has 12 contracts rated 4 Stars
or above and 2.4 million members in 4 Star or above rated contracts to
be offered in 2018, representing 74% of the company's Medicare Advantage
membership as of July 31, 2017. Humana received a 4.5 star rating on
CMS's 5-Star Rating System for five MA contracts offered in 8 states, an
increase from one such contract last year. All Humana Medicare Advantage
HMO contracts in Florida received a 4.5-star rating. Additionally, all
of Humana's Medicare Advantage contracts were rated 3.5 Stars or higher.
Detailed press release
Humana's full earnings press release including the statistical pages has
been posted to the company's Investor Relations site and may be accessed
at https://humana.gcs-web.com/
or via a current report on Form 8-K filed by the company with the
Securities and Exchange Commission this morning (available at www.sec.gov
or on the company's website).
Conference Call
Humana will host a conference call at 9:00 a.m. eastern time today to
discuss its financial results for the quarter and the company's
expectations for future earnings.
All parties interested in the company's 3Q17 earnings conference call
are invited to dial 888-625-7430. No password is required. A webcast of
the 3Q17 earnings call may also be accessed via Humana's Investor
Relations page at humana.com.
The company suggests participants for both the conference call and those
listening via the web dial in or sign on at least 15 minutes in advance
of the call.
For those unable to participate in the live event, the archive will be
available in the Historical Webcasts and Presentations section of the
Investor Relations page at humana.com,
approximately two hours following the live webcast. Telephone replays
will also be available approximately two hours following the live event
until midnight eastern time on January 8, 2018 and can be accessed by
dialing 855-859-2056 and providing the conference ID #89804895.
Footnotes
(a) 3Q17 Adjusted results exclude the following:
-
Amortization expense for identifiable intangibles of approximately $18
million pretax, or $0.07 per diluted common share; GAAP measures
affected in this release include consolidated pretax, EPS, and segment
pretax results (for each segment's amount of such amortization).
-
The one-year beneficial effect of a lower effective tax rate of
approximately $0.55 per diluted common share in light of pricing and
benefit design assumptions associated with the 2017 temporary
suspension of the non-deductible health insurance industry fee;
excludes Individual Commercial business impact. The only GAAP measure
affected in this release is EPS.
-
Operating earnings of $26 million pretax, or $0.11 per diluted common
share, for the company's Individual Commercial business given the
company's planned exit on January 1, 2018, as previously disclosed.
GAAP measures affected in this release include consolidated pretax
income, EPS, consolidated revenues, consolidated benefit ratio and
consolidated operating cost ratio.
-
Expense of approximately $124 million pretax, or $0.54 per diluted
common share, associated with voluntary and involuntary workforce
reduction programs; GAAP measures affected in this release include
consolidated pretax, EPS, and consolidated operating cost ratio.
(b) 3Q16 Adjusted results (recast) exclude the
following:
-
Transaction and integration costs of $20 million pretax, or $0.12 per
diluted common share, associated with the then-pending merger
agreement; GAAP measures affected in this release include consolidated
pretax income and EPS.
-
Amortization expense for identifiable intangibles of approximately $18
million, or $0.08 per diluted common share; GAAP measures affected in
this release include consolidated pretax, EPS, and segment pretax
results (for each segment's amount of such amortization).
-
Operating earnings of $2 million pretax, or $0.02 per diluted common
share, for the company's Individual Commercial business given the
company's planned exit on January 1, 2018, as previously disclosed.
GAAP measures affected in this release include consolidated pretax
income, EPS, consolidated revenues, consolidated benefit ratio and
consolidated operating cost ratio.
(c) YTD 2017 Adjusted results exclude the
following:
-
Net gain from the termination of the merger agreement of approximately
$947 million pretax, or $4.33 per diluted common share; includes the
net break-up fee and transaction costs net of the tax benefit
associated with certain expenses which were previously non-deductible;
GAAP measures affected in this release include consolidated pretax
income and EPS.
-
Amortization expense for identifiable intangibles of approximately $54
million pretax, or $0.23 per diluted common share; GAAP measures
affected in this release include consolidated pretax, EPS, and segment
pretax results (for each segment's amount of such amortization).
-
The one-year beneficial effect of a lower effective tax rate of
approximately $1.60 per diluted common share in light of pricing and
benefit design assumptions associated with the 2017 temporary
suspension of the non-deductible health insurance industry fee;
excludes Individual Commercial business impact. The only GAAP measure
affected in this release is EPS.
-
Guaranty fund assessment expense of approximately $54 million pretax,
or $0.23 per diluted common share, to support the policyholder
obligations of Penn Treaty (an unaffiliated long-term care insurance
company); GAAP measures affected in this release include consolidated
pretax income, EPS, and consolidated operating costs ratio. Under
state guaranty assessment laws, the company may be assessed (up to
prescribed limits) for certain obligations to the policyholders and
claimants of insolvent insurance companies that write the same line or
lines of business as the company. On March 1, 2017, a court ordered
the liquidation of Penn Treaty which triggered assessments from the
state guaranty associations.
-
Operating earnings of approximately $207 million pretax, or $0.89 per
diluted common share, for the company's Individual Commercial business
given the company's planned exit on January 1, 2018, as previously
disclosed. GAAP measures affected in this release include consolidated
pretax income, EPS, consolidated revenues, consolidated benefit ratio
and consolidated operating cost ratio.
-
Expense of approximately $124 million pretax, or $0.54 per diluted
common share, associated with voluntary and involuntary workforce
reduction programs; GAAP measures affected in this release include
consolidated pretax, EPS, and consolidated operating cost ratio.
(d) YTD 2016 Adjusted results (recast) exclude the
following:
-
Transaction and integration costs of $81 million pretax, or $0.49 per
diluted common share, associated with the then-pending merger
agreement; GAAP measures affected in this release include consolidated
pretax income and EPS.
-
Amortization expense for identifiable intangibles of approximately $59
million, or $0.25 per diluted common share; GAAP measures affected in
this release include consolidated pretax, EPS, and segment pretax
results (for each segment's amount of such amortization).
-
Operating losses of $235 million pretax, or $1.10 per diluted common
share, for the company's Individual Commercial business given the
company's planned exit on January 1, 2018, as previously disclosed.
GAAP measures affected in this release include consolidated pretax
income, EPS, consolidated revenues, consolidated benefit ratio and
consolidated operating cost ratio.
(e) FY17 Adjusted EPS projections exclude the
following:
-
Net gain from the termination of the merger agreement of approximately
$947 million pretax, or $4.35 per diluted common share; includes the
net break-up fee and transaction costs net of the tax benefit
associated with certain expenses which were previously non-deductible.
-
Amortization expense for identifiable intangibles of approximately $71
million pretax, or $0.31 per diluted common share.
-
The one-year beneficial effect of a lower effective tax rate of
approximately $2.15 per diluted common share in light of pricing and
benefit design assumptions associated with the 2017 temporary
suspension of the non-deductible health insurance industry fee;
excludes Individual Commercial business impact.
-
Guaranty fund assessment expense of approximately $54 million pretax,
or $0.24 per diluted common share, to support the policyholder
obligations of Penn Treaty (an unaffiliated long-term care insurance
company).
-
Operating earnings of approximately $150 million pretax, or $0.64 per
diluted common share, for the company's Individual Commercial business
given the company's planned exit on January 1, 2018, as previously
disclosed.
-
Expense of approximately $132 million pretax, or $0.57 per diluted
common share, associated with voluntary and involuntary workforce
reduction programs.
Cautionary Statement
This news release includes forward-looking statements within the meaning
of the Private Securities Litigation Reform Act of 1995. When used in
investor presentations, press releases, Securities and Exchange
Commission (SEC (News - Alert)) filings, and in oral statements made by or with the
approval of one of Humana's executive officers, the words or phrases
like "expects," "believes," "anticipates," "intends," "likely will
result," "estimates," "projects" or variations of such words and similar
expressions are intended to identify such forward-looking statements.
These forward-looking statements are not guarantees of future
performance and are subject to risks, uncertainties, and assumptions,
including, among other things, information set forth in the "Risk
Factors" section of the company's SEC filings, a summary of which
includes but is not limited to the following:
-
If Humana does not design and price its products properly and
competitively, if the premiums Humana receives are insufficient to
cover the cost of healthcare services delivered to its members, if the
company is unable to implement clinical initiatives to provide a
better healthcare experience for its members, lower costs and
appropriately document the risk profile of its members, or if its
estimates of benefits expense are inadequate, Humana's profitability
could be materially adversely affected. Humana estimates the costs of
its benefit expense payments, and designs and prices its products
accordingly, using actuarial methods and assumptions based upon, among
other relevant factors, claim payment patterns, medical cost
inflation, and historical developments such as claim inventory levels
and claim receipt patterns. The company continually reviews estimates
of future payments relating to benefit expenses for services incurred
in the current and prior periods and makes necessary adjustments to
its reserves, including premium deficiency reserves, where
appropriate. These estimates, however, involve extensive judgment, and
have considerable inherent variability because they are extremely
sensitive to changes in claim payment patterns and medical cost
trends, so any reserves the company may establish, including premium
deficiency reserves, may be insufficient.
-
If Humana fails to effectively implement its operational and strategic
initiatives, particularly its Medicare initiatives, state-based
contract strategy, and its participation in the new health insurance
exchanges, the company's business may be materially adversely
affected, which is of particular importance given the concentration of
the company's revenues in these products. In addition, there can be no
assurances that the company will be successful in maintaining or
improving its Star ratings in future years.
-
The divestiture of Humana's subsidiary, KMG America Corporation, is
subject to various closing conditions, including various regulatory
approvals and customary closing conditions, as well as other
uncertainties, and there can be no assurances as to whether and when
it may be completed.
-
If Humana fails to properly maintain the integrity of its data, to
strategically implement new information systems, to protect Humana's
proprietary rights to its systems, or to defend against cyber-security
attacks, the company's business may be materially adversely affected.
-
Humana is involved in various legal actions, or disputes that could
lead to legal actions (such as, among other things, provider contract
disputes relating to rate adjustments resulting from the Balanced
Budget and Emergency Deficit Control Act of 1985, as amended, commonly
referred to as "sequestration"; other provider contract disputes; and
qui tam litigation brought by individuals on behalf of the government)
and governmental and internal investigations, any of which, if
resolved unfavorably to the company, could result in substantial
monetary damages or changes in its business practices. Increased
litigation and negative publicity could also increase the company's
cost of doing business.
-
As a government contractor, Humana is exposed to risks that may
materially adversely affect its business or its willingness or ability
to participate in government healthcare programs including, among
other things, loss of material government contracts, governmental
audits and investigations, potential inadequacy of government
determined payment rates, potential restrictions on profitability,
including by comparison of profitability of the company's Medicare
Advantage business to non-Medicare Advantage business, or other
changes in the governmental programs in which Humana participates.
-
The Healthcare Reform Law, including The Patient Protection and
Affordable Care Act and The Healthcare and Education Reconciliation
Act of 2010, could have a material adverse effect on Humana's results
of operations, including restricting revenue, enrollment and premium
growth in certain products and market segments, restricting the
company's ability to expand into new markets, increasing the company's
medical and operating costs by, among other things, requiring a
minimum benefit ratio on insured products, lowering the company's
Medicare payment rates and increasing the company's expenses
associated with a non-deductible health insurance industry fee and
other assessments; the company's financial position, including the
company's ability to maintain the value of its goodwill; and the
company's cash flows. Additionally, potential legislative changes,
including activities to repeal or replace, in whole or in part, the
Health Care Reform Law, creates uncertainty for Humana's business, and
when, or in what form, such legislative changes may occur cannot be
predicted with certainty.
-
Humana's continued participation in the federal and state health
insurance exchanges, which entail uncertainties associated with mix,
volume of business and the operation of premium stabilization programs
that are subject to federal administrative action, could adversely
affect the company's results of operations, financial position and
cash flows.
-
Humana's business activities are subject to substantial government
regulation. New laws or regulations, or changes in existing laws or
regulations or their manner of application could increase the
company's cost of doing business and may adversely affect the
company's business, profitability and cash flows.
-
If Humana fails to develop and maintain satisfactory relationships
with the providers of care to its members, the company's business may
be adversely affected.
-
Humana's pharmacy business is highly competitive and subjects it to
regulations in addition to those the company faces with its core
health benefits businesses.
-
Changes in the prescription drug industry pricing benchmarks may
adversely affect Humana's financial performance.
-
If Humana does not continue to earn and retain purchase discounts and
volume rebates from pharmaceutical manufacturers at current levels,
Humana's gross margins may decline.
-
Humana's ability to obtain funds from certain of its licensed
subsidiaries is restricted by state insurance regulations.
-
Downgrades in Humana's debt ratings, should they occur, may adversely
affect its business, results of operations, and financial condition.
-
The securities and credit markets may experience volatility and
disruption, which may adversely affect Humana's business.
In making forward-looking statements, Humana is not undertaking to
address or update them in future filings or communications regarding its
business or results. In light of these risks, uncertainties, and
assumptions, the forward-looking events discussed herein may or may not
occur. There also may be other risks that the company is unable to
predict at this time. Any of these risks and uncertainties may cause
actual results to differ materially from the results discussed in the
forward-looking statements.
Humana advises investors to read the following documents as filed by the
company with the SEC for further discussion both of the risks it faces
and its historical performance:
-
Form 10-K for the year ended December 31, 2016;
-
Form 10-Q for the quarter ended March 31, 2017, June 30, 2017; and
-
Form 8-Ks filed during 2017.
About Humana
Humana Inc. is committed to helping our millions of medical and
specialty members achieve their best health. Our successful history in
care delivery and health plan administration is helping us create a new
kind of integrated care with the power to improve health and well-being
and lower costs. Our efforts are leading to a better quality of life for
people with Medicare, families, individuals, military service personnel,
and communities at large.
To accomplish that, we support physicians and other health care
professionals as they work to deliver the right care in the right place
for their patients, our members. Our range of clinical capabilities,
resources and tools - such as in-home care, behavioral health, pharmacy
services, data analytics and wellness solutions - combine to produce a
simplified experience that makes health care easier to navigate and more
effective.
More information regarding Humana is available to investors via the
Investor Relations page of the company's website at humana.com,
including copies of:
-
Annual reports to stockholders;
-
Securities and Exchange Commission filings;
-
Most recent investor conference presentations;
-
Quarterly earnings news releases and conference calls;
-
Calendar of events; and
-
Corporate Governance information.
View source version on businesswire.com: http://www.businesswire.com/news/home/20171108005410/en/
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