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Humana Reports Third Quarter 2020 Financial Results; Remains Focused on Facilitating Access to Quality Care During the PandemicHumana Inc. (NYSE: HUM) has continued to focus on its most vulnerable members and communities throughout the ongoing COVID-19 pandemic by taking actions to simplify access to care, reduce financial barriers, and address social determinants of health, while also alleviating administrative difficulties and monetary burdens for its providers to ensure efficient, consistent care for their patients. Humana has leveraged its clinically focused integrated care delivery model to stand up initiatives to support the return to care amid the pandemic, including waiver of all cost sharing for in-network primary care, outpatient behavioral health, and telehealth visits for its Medicare Advantage members, the distribution of in-home preventive screening kits, establishment of a clinical outreach team to proactively engage with the company's most vulnerable members, and a multi-sector advertising campaign designed to encourage members to stay connected with their providers. Utilization continued to rebound throughout the quarter, reaching approximately 95 percent of historic baseline levels at the close of the third quarter. Utilization resumed at a faster pace for fully-insured group commercial medical members in the Group and Specialty segment, compared to a more gradual return for senior and Medicaid members in the Retail segment. Results of operations in the quarter were impacted by increasing utilization, COVID-19 testing and treatment costs, as well as the financial impact of the company's ongoing crisis relief efforts. As utilization levels continue to normalize and the company persists with support to its members, providers, employer groups, and communities, Humana maintains the expectation that its results of operations in the back half of 2020 will entirely offset the significant outperformance experienced in the first half of the year that resulted from historically low utilization levels. Humana will continue to monitor the pandemic's impact on the company and remains committed to all of its stakeholders to adjust its response accordingly, proactively leveraging its integrated care delivery model to best serve its members, partnering with federal and state governments to develop comprehensive and actionable response plans, minimizing the impact on its provider partners, and advancing the long-term sustainability of the company and the healthcare system. "We continue to see more Medicare beneficiaries choosing Medicare Advantage (MA) plans over Medicare-Fee-For-Service due to MA's ever-increasing value proposition. What's driving this strong value is the fact that plans must constantly innovate to stay competitive as Medicare beneficiaries have the freedom to choose a plan that's affordable for them and that suits their lifestyle needs. For example, about 60 percent of our members are in $0 premium plans and enjoy supplemental benefits not included in Medicare-Fee-For-Service, like dental, vision, hearing, access to healthy foods, and gym memberships," said Bruce D. Broussard, Humana's President and Chief Executive Officer. "Also, because the MA program rewards for quality through CMS's Five-Star Quality Rating System, it encourages health plans like Humana to be proactive and to take a holistic approach to managing the care of its members. Based on Humana's recently announced Stars ratings, we continue to be a leader among our peers, with 4.1 million, or 92 percent, of our MA members currently enrolled in plans rated 4-stars or higher." Summary of Quarterly and Year to Date Results Humana today reported consolidated pretax income and diluted earnings per common share (EPS) for the quarter ended September 30, 2020 (3Q20) versus the quarter ended September 30, 2019 (3Q19) and for the nine months ended September 30, 2020 (YTD 2020) versus the nine months ended September 30, 2019 (YTD 2019) as noted in the tables below. Humana's 3Q20 and YTD 2020 GAAP results of operations were impacted by both the market gain resulting from the initial conversion of the company's prior ownership interest in certain privately held companies (primarily Oak Street Health, Inc.) into publicly-traded common stock upon such companies initial public offering (IPO) during 3Q20 and the subsequent changes in the market value of such securities from their IPO through the end of the quarter, as well as the receipt of unpaid risk corridor payments that were previously written off. The 3Q20 receipt of the risk corridor payments was associated with losses incurred by the company under the Affordable Care Act (ACA) business in 2014 to 2016. The receipt of these risk corridor payments accounted for less than 50 percent of the company's accumulated pretax losses from its ACA businesses during that time period. The impact of both the fair market value change and the receipt of the unpaid risk corridor payments have been excluded in the company's 3Q20 and YTD 2020 Adjusted (non-GAAP) consolidated results of operations.
Please refer to the tables above, as well as the consolidated and segment highlight sections in the detailed earnings release for additional discussion of the factors impacting the year-over-comparisons. In addition, below is a summary of key consolidated and segment statistics comparing 3Q20 to 3Q19 and YTD 2020 to YTD 2019.
2020 Earnings Guidance Humana today adjusted its GAAP and Adjusted EPS guidance ranges for the year ended December 31, 2020 (FY20). The company now expects its FY20 GAAP EPS to be in the range of $24.70 to $24.95, compared to the previous range of $23.74 to $24.24, while Adjusted EPS is expected to be in a range of $18.50 to $18.75 versus the previous range of $18.25 to $18.75. For comparison, FY 2020 GAAP and Adjusted EPS guidance is detailed below along with GAAP and Adjusted results for the year ended December 31, 2019 (FY 2019). The company is revising its individual Medicare Advantage net membership growth estimate to now anticipate growth of approximately 375,000 members for FY 2020 compared to the previous guidance growth range of 330,000 to 360,000 members. This anticipated increase in 2020 represents year-over-year growth of approximately 10 percent. The company is reiterating its expectations for group Medicare Advantage net membership gains for FY 2020, projecting an increase of approximately 90,000 members year over year. For its stand-alone PDP business, Humana now expects a net membership decline of approximately 500,000 members for FY 2020, compared to the previous estimate of 550,000 members. Given the likelihood of significant variability of results by financial statement line item (and related ratios), Humana previously withdrew its additional FY 2020 detailed guidance points that were initially provided as part of the company's fourth quarter 2019 earnings release dated February 5, 2020.
2022 Preliminary Rate Notice On Friday, October 30, 2020, after the stock market closed, the Centers for Medicare and Medicaid Services (CMS) issued its preliminary 2022 Medicare Advantage and Part D payment rates and proposed policy changes (collectively, the Advance Notice). CMS has invited public comment on the Advance Notice before publishing final rates on or before April 5, 2021 (the Final Notice), and indicated that the Final Notice may be published early in light of the challenges posed by the uncertainty associated with the COVID-19 pandemic. In the Advance Notice, CMS estimates Medicare Advantage plans across the sector will, on average, experience a 2.82 percent increase in benchmark funding based on proposals included therein. As indicated by CMS, its estimate excludes the impact of fee-for-service county rebasing/re-pricing since the related impact is dependent upon finalization of certain data, which will be available with the publication of the Final Notice. Based on the company's preliminary analysis using the same factors CMS included in its estimate, the components of which are detailed on CMS' website, Humana anticipates the proposals in the Advance Notice would result in a change generally in line with CMS' estimate, with the exception of Humana's Medicare Star Ratings for bonus year 2022, as more fully described below, that led the company's peers. The company will be drawing upon its program expertise to provide CMS formal commentary on the impact of the Advance Notice and the related impact upon Medicare beneficiaries' quality of care and service to its members through the Medicare Advantage program. Star Quality Ratings As previously disclosed, in October 2020, the Centers for Medicare and Medicaid Services (CMS) published its updated Medicare Star Ratings for bonus year 2022. Humana has 4.1 million members, or approximately 92 percent of its Medicare Advantage membership as of September 2020, enrolled in 15 contracts that received a 4-star rating or above. In addition, Humana received a 5 out of 5-star rating for its CarePlus Health Plans, Inc. contract in Florida, which currently covers approximately 164,300 members, for the third consecutive year and received a 4.5-star rating for three Medicare Advantage contracts offered in 7 states, which cover approximately 796,000 members. Additionally, over 99 percent of retirees in Humana's group Medicare Advantage plans remain in 4-star or above contracts for bonus year 2022. Humana's Star Ratings continue to reflect the company's focus on quality in both member experience and clinical outcomes. 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 3Q20 earnings conference call are invited to dial 888-625-7430. No password is required. The audio-only webcast of the 3Q20 earnings call may 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 from approximately 12:15 p.m. Eastern time on November 3, 2020 until 10:59 p.m. Eastern time on January 3, 2021 and can be accessed by dialing 855-859-2056 and providing the conference ID #3879636. Footnotes (a) 3Q20 Adjusted results exclude the following:
(b) 3Q19 Adjusted results exclude the following:
(c) YTD 2020 Adjusted results exclude the following:
(d) YTD 2019 Adjusted results exclude the following:
(e) The Healthcare Services segment Adjusted EBITDA includes GAAP segment earnings with adjustments to add back depreciation and amortization expense, interest expense, and income taxes. The Adjusted EBITDA includes results from all lines of business within the segment. The Adjusted EBITDA also includes the impact of Humana's 40% minority interest in Kindred at Home and the strategic partnership with Welsh, Carson, Anderson & Stowe (WCAS) to develop and operate senior-focused, payor-agnostic, primary care centers. (f) FY 2020 Adjusted EPS projections exclude the following:
(g) FY 2019 Adjusted results exclude the following:
(h) 4Q 2020 Adjusted EPS projections exclude the following:
(i) 4Q 2019 Adjusted results exclude the following:
Cautionary Statement This news release includes forward-looking statements regarding Humana within the meaning of the Private Securities Litigation Reform Act of 1995. When used in investor presentations, press releases, Securities and Exchange Commission (SEC) 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:
In December 2019, a novel strain of coronavirus (COVID-19) emerged which was declared a pandemic by the World Health Organization on March 11, 2020, and has now spread globally including throughout the United States. Governmental and non-governmental organizations may not effectively combat the spread and severity of COVID-19, increasing the potential for harm for Humana's members. If the spread of COVID-19 is not contained, the premiums the company charges may prove to be insufficient to cover the cost of health care services delivered to its members, which may increase significantly as a result of higher utilization rates of medical facilities and services and other increases in associated hospital and pharmaceutical costs. Over time, Humana may also experience increased costs or decreased revenues if, as a result of the company's members being unable to see their providers due to actions taken to mitigate the spread of COVID-19, Humana is unable to implement clinical initiatives to manage health care costs and chronic conditions of its members, and appropriately document their risk profiles. In addition, Humana is offering its members expanded benefit coverage, such as waiving out of pocket costs for COVID-19 diagnostic testing and treatment, certain additional coverages have been mandated by governmental action, and Humana is taking actions designed to help provide financial and administrative relief for the health care provider community. Such measures and any further steps taken by Humana, or governmental action, to continue to respond to and address the ongoing impact of COVID-19, including further expansion or modification of the services delivered to its members, the adoption or modification of regulatory requirements associated with those services and the costs and challenges associated with ensuring timely compliance with such requirements, to provide further relief for the health care provider community, or in connection with the relaxation of stay-at-home and physical distancing orders and other restrictions on movement and economic activity, including the potential for widespread testing and therapeutic treatments and a vaccine, once available, as a component of lifting these measures, could adversely impact the company's profitability. The spread and impact of COVID-19, or actions taken to mitigate this spread, could have material and adverse effects on Humana's ability to operate effectively, including as a result of the complete or partial closure of facilities or labor shortages. Disruptions in public and private infrastructure, including communications, availability of in-person sales and marketing channels, financial services and supply chains, could materially and adversely disrupt the company's normal business operations. Humana has transitioned a significant subset of its employee population to a remote work environment in an effort to mitigate the spread of COVID-19, as have a number of the company's third-party service providers, which may exacerbate certain risks to Humana's business, including an increased demand for information technology resources, increased risk of phishing and other cybersecurity attacks, and increased risk of unauthorized dissemination of sensitive personal information or proprietary or confidential information about the company or its members or other third-parties. The outbreak of COVID-19 has severely impacted global economic activity, including the businesses of some of Humana's commercial customers, and caused significant volatility and negative pressure in the financial markets. In addition to disrupting Humana's operations, these developments may adversely affect the timing of commercial customer premium collections and corresponding claim payments, the value of the company's investment portfolio, or future liquidity needs. The rapid development and fluidity of this situation precludes any prediction as to the ultimate adverse impact to Humana of COVID-19. Humana is continuing to monitor the spread of COVID-19, changes to the company's benefit coverages, the ongoing costs and business impacts of dealing with COVID-19, including the potential costs and impacts associated with lifting or reimposing restrictions on movement and economic activity and related risks. The magnitude and duration of the pandemic and its impact on Humana's business, results of operations, financial position, and cash flows is uncertain as this continues to evolve globally, but such impacts could be material to the company's business, results of operations, financial position and cash flows. 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:
About Humana Humana Inc. (NYSE: HUM) 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:
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