Exhibit 99
| n e w s r e l e a s e | Humana Inc. 500 West Main Street P.O. Box 1438 Louisville, KY 40201-1438 http://www.humana.com |
| FOR MORE INFORMATION CONTACT: Regina Nethery Humana Investor Relations (502) 580-3644 e-mail: Rnethery@humana.com Tom Noland Humana Corporate Communications (502) 580-3674 e-mail: Tnoland@humana.com |  |
Humana Reports Detailed Second Quarter 2007 Financial Results
| · | Full year EPS expected to grow more than 50 percent in 2007 |
| · | Lower administrative costs primarily from efficiency and productivity gains |
| · | Improving medical expense ratios in both segments |
| · | GAAP cash flows from operations up 33 percent year to date |
| · | Non-GAAP cash flows from operations up 71 percent year to date |
LOUISVILLE, KY (July 30, 2007) – Humana Inc. (NYSE: HUM) today reported financial results for the quarter ended June 30, 2007 (2Q07) including diluted earnings per common share (EPS) of $1.28, as announced in the company’s July 18, 2007 press release. The company earned $0.53 per share for the quarter ended June 30, 2006 (2Q06). The year-over-year improvement in second quarter results reflected higher operating earnings in both of the company’s business segments, primarily driven by efficiency gains in its consolidated administrative costs as well as medical expense ratio improvement.
As also announced on July 18, 2007, the company estimates EPS for the year ending December 31, 2007 (FY07E) will be in the range of $4.40 to $4.50 versus $2.90 for the year ended December 31, 2006 (FY06).
“An across-the-board focus on operational excellence led to an extremely strong second quarter,” said Michael B. McCallister, Humana's president and chief executive officer. “These same dynamics are expected to fuel Humana’s performance for the remainder of the year and position us well for growth into the future.”
For the six months ended June 30, 2007 (1H07) the company reported $1.70 in EPS compared to $1.03 for the six months ended June 30, 2006 (1H06). Results for 1H06 included approximately $0.19 per share of venture capital gains that did not recur in 1H07. The year-over-year increase in 1H07 financial results was primarily due to better operating performance in both business segments.
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Revenues– 2Q07 consolidated revenues rose 19 percent to $6.43 billion from $5.41 billion in 2Q06, with total premium and administrative services fees up 18 percent compared to the prior year’s quarter. This year-over-year increase was primarily driven by higher average Medicare membership versus 2Q06.
1H07 consolidated revenues rose 25 percent to $12.63 billion from $10.11 billion in 1H06 with total premium and administrative services fees up 25 percent compared to the prior year’s period, also primarily driven by higher average enrollment in the company’s Medicare plans.
Medical costs– The 2Q07 consolidated medical expense ratio (medical expenses as a percent of premium revenues or MER) of 83.4 percent was 170 basis points lower than the 2Q06 MER of 85.1 percent as a result of MER improvement in both the Government and Commercial segments.
The consolidated MER for 1H07 of 85.1 percent was 70 basis points higher than the 1H06 consolidated MER of 84.4 percent, as the year-over-year increase in the Government Segment MER resulting from the Medicare Part D claims pattern outweighed the improvement in the Commercial Segment MER.
Selling, general, & administrative (SG&A) expenses– The 2Q07 consolidated SG&A expense ratio (SG&A expenses as a percent of premiums, administrative services fees and other revenue) decreased 70 basis points to 13.0 percent for 2Q07 from 13.7 percent in 2Q06. The year-over-year decline was primarily the result of improving administrative cost efficiency and productivity gains associated with servicing the company’s 11.3 million medical members.
The SG&A expense ratio for 1H07 of 13.2 percent was 160 basis points lower than that for 1H06 of 14.8 percent also primarily driven by efficiency and productivity gains.
Government Segment Results Summary
Pretax results:
| · | Government Segment pretax earnings were $288.8 million in 2Q07 compared to $98.0 million in 2Q06. As expected, this primarily reflects a more normal MER pattern for the Part D benefit for 2007 as well as administrative cost efficiency associated with higher average Medicare medical membership. The extended enrollment period for this benefit during 2006 distorted the claims pattern associated with the beneficiaries’ progression through the Part D benefit stages in the prior year. |
| · | For 1H07, pretax earnings for the Government Segment of $306.7 million increased by $187.1 million, or 157 percent versus 1H06 pretax earnings for the segment of $119.6 million, primarily reflecting the same factors impacting the year-over-year comparison for the second quarter. |
Enrollment:
| · | Medicare Advantage membership grew to 1,133,700 at June 30, 2007, an increase of 173,900, or 18 percent, from June 30, 2006 and 20,300, or 2 percent, from March 31, 2007. Average Medicare Advantage membership for 2Q07 was up 28 percent compared to that for 2Q06. The company’s expanded participation in various Medicare products and markets combined with the company’s increased sales and marketing efforts for these programs led to the higher membership level both year over year and sequentially. |
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| · | Membership in the company’s stand-alone Prescription Drug Plans (PDPs) totaled 3,440,100 at June 30, 2007 compared to 3,458,800 at June 30, 2006 and 3,473,700 at March 31, 2007. Average stand-alone PDP membership was 21 percent higher in 2Q07 than 2Q06. |
| · | TRICARE membership of 2,868,200 at June 30, 2007 was essentially unchanged from both June 30, 2006 and March 31, 2007. |
| · | Medicaid membership of 567,600 at June 30, 2007 increased 149,100 from June 30, 2006 due primarily to the award of a new Puerto Rico regional ASO contract during the fourth quarter of 2006, partially offset by eligible Puerto Rico Medicaid members choosing to move into the Medicare Advantage program. |
Premiums and administrative services fees:
| · | Medicare Advantage premiums of $2.80 billion in 2Q07 increased 33 percent compared to $2.11 billion in 2Q06, primarily the result of higher average membership. |
| · | Medicare stand-alone Part D premiums of $1.05 billion in 2Q07 increased 31 percent compared to $801.8 million in 2Q06, primarily the result of higher average membership. |
| · | TRICARE premiums and administrative services fees during 2Q07 increased $71.8 million to $740.6 million compared to $668.8 million in 2Q06. |
Medical Expenses:
| · | The Government Segment MER decreased 170 basis points to 84.3 percent in 2Q07 compared to 86.0 percent in the prior year’s quarter. This decrease reflects a more normalized MER pattern for the Medicare Part D benefit for 2007. The extended enrollment period for this benefit during the prior year distorted the claims pattern associated with the beneficiaries’ progression through the Part D benefit stages in 2006. |
SG&A Expenses:
| · | The Government Segment’s SG&A expense ratio for 2Q07 of 10.0 percent was 150 basis points lower than that for 2Q06 of 11.5 percent primarily driven by efficiency and productivity gains associated with servicing higher average Medicare membership. The 2Q07 SG&A expense ratio was approximately 30 basis points lower than previously expected primarily due to improving staffing metrics and enhanced processes associated with servicing its Medicare business. |
Commercial Segment Results Summary
Pretax results:
| · | Commercial Segment pretax earnings were $50.8 million in 2Q07 compared to $42.3 million in 2Q06. Commercial Segment operating earnings in 2Q07 continue to reflect the company’s commitment to underwriting discipline and strategic growth in select lines of business. |
| · | For 1H07, pretax earnings for the Commercial Segment of $145.2 million were $6.8 million, or 5 percent lower than 1H06 pretax earnings for the segment of $152.0 million as a result of a $45.3 million pretax gain associated with the sale of a venture capital investment that occurred in 1Q06. |
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Enrollment:
| · | Commercial Segment medical membership of 3,278,700 at June 30, 2007 was essentially unchanged from both June 30, 2006 and March 31, 2007. |
| · | Membership in the company’s Smart plans and other consumer offerings grew to 480,900 at June 30, 2007, an increase of 64,500, or 15 percent, from June 30, 2006 and 9,600, or 2 percent, from March 31, 2007. Medical members in these products comprise approximately 15 percent of Commercial medical membership at June 30, 2007 and March 31, 2007 compared to 13 percent at June 30, 2006. |
Premiums and administrative services fees:
| · | Premiums and administrative services fees for the Commercial Segment decreased 3 percent to $1.59 billion in 2Q07 compared to $1.64 billion in the prior year’s quarter, primarily due to lower average commercial fully-insured membership, down 8 percent year over year, as well as a shift in business mix from fully-insured to ASO enrollment. |
| · | Commercial Segment medical premiums for fully-insured groups increased approximately 5 percent on a per-member basis during 2Q07 compared to 2Q06. |
Medical Expenses:
| · | In 2Q07, the Commercial Segment MER of 80.7 percent was 220 basis points lower than the 2Q06 MER of 82.9 percent, primarily reflecting improving medical cost utilization trends and the company’s continued commitment to underwriting discipline. |
SG&A Expenses:
| · | The Commercial Segment SG&A expense ratio of 21.8 percent for 2Q07 compares to 18.7 percent in 2Q06, primarily the combined result of higher average ASO membership and administrative costs associated with increased business for the company’s mail order pharmacy. Average ASO membership increased 8 percent versus the prior year’s quarter. |
Balance Sheet
| · | Cash and cash equivalents of $3.72 billion increased $26.7 million or 1 percent sequentially. The early receipt of the April Medicare premium from the Centers for Medicare and Medicaid Services (CMS) during 1Q07 was essentially offset by the early receipt of the July Medicare premium from CMS during 2Q07. |
| · | Parent company cash and investments decreased to $419.3 million at June 30, 2007 from $424.4 million at December 31, 2006. |
| · | Unearned revenues of $1.36 billion increased 2 percent from the March 31, 2007 balance of $1.33 billion also due to the timing of the receipts of Medicare premiums from CMS. |
| · | Debt-to-total capitalization at June 30, 2007 was 26.1 percent, down 350 basis points from March 31, 2007 due primarily to the repayment of 1Q07 borrowings against the company’s credit facility. |
| · | The company’s working capital at June 30, 2007 included approximately $690.2 million in net Part D risk-share payables to CMS associated with the company’s Medicare Advantage and stand-alone PDP offerings. Approximately $728.1 million of this net liability related to Part D plan offerings for the year ended December 31, 2006. |
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| · | Days in claims payable excluding the impact of Medicare stand-alone PDPs were up slightly to 62.4 days at June 30, 2007 from 62.0 days at March 31, 2007. |
Cash Flows from Operations
Cash flows provided by operations for 2Q07 of $477.3 million compared to cash provided by operations of $534.9 million in 2Q06.
Cash flows from operations ($ in millions) | 2Q07 | 2Q06 | 1H07 | 1H06 | ||||||||||||
Cash flows provided by operations in accordance with Generally Accepted Accounting Principles (GAAP) | $ | 477.3 | $ | 534.9 | $ | 2,051.7 | $ | 1,542.8 | ||||||||
Timing of premium payment from CMS(a) | (45.6 | ) | (257.2 | ) | (1,175.3 | ) | (1,031.7 | ) | ||||||||
Non-GAAP cash flows provided by operations(a)(b) | $ | 431.7 | $ | 277.7 | $ | 876.4 | $ | 511.1 | ||||||||
The company also evaluates operating cash flows on a non-GAAP basis(a)(b). Non-GAAP cash flows provided by operations rose to $431.7 million(a)(b) in 2Q07 from $277.7 million(a)(b) in 2Q06 driven primarily by growth in the company’s Medicare operations.
Footnotes
| (a) | When reviewing and analyzing Humana’s operating cash flows, company management applies the CMS premium payment in each month to match the corresponding disbursements. To do otherwise distorts meaningful analysis of the company’s operating cash flow. Therefore, decisions such as management’s forecasting and business plans regarding cash flow use this non-GAAP financial measure. |
| (b) | The company believes that this non-GAAP measure, when presented in conjunction with the comparable GAAP measure, is useful to both management and its investors in analyzing the company's ongoing business and operating performance. Internally, management uses this non-GAAP financial measure as an indicator of 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. |
Conference Call & Virtual Slide Presentation
Humana will host a conference call, as well as a virtual slide presentation, at 9:00 a.m. eastern time today to discuss its financial results for the quarter and the company’s expectations for future earnings. A live virtual presentation (audio with slides) may be accessed via Humana’s Investor Relations page at www.humana.com. The company suggests web participants sign on approximately 15 minutes in advance of the call. The company also suggests web participants visit the site well in advance of the call to run a system test and to download any free software needed to view the presentation.
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All parties interested in the audio-only portion of the conference call are invited to dial 888-625-7430. No password is required. The company suggests participants dial in approximately ten minutes in advance of the call. For those unable to participate in the live event, the virtual presentation archive may be accessed via the Historical Webcasts & Presentations section of the Investor Relations page at www.humana.com.
Cautionary Statement
This news release contains statements and earnings guidance points that are forward-looking. The forward-looking items herein are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking items may be significantly impacted by certain risks and uncertainties described in the following documents filed by Humana with the Securities and Exchange Commission
| · | Form 10-K for the year ended December, 31, 2006, |
| · | Form 10-Q for the quarter ended March 31, 2007, |
| · | Form 8-Ks filed during 2007. |
About Humana
Humana Inc., headquartered in Louisville, Kentucky, is one of the nation’s largest publicly traded health benefits companies, with approximately 11.3 million medical members. Humana offers a diversified portfolio of health insurance products and related services – through traditional and consumer-choice plans – to employer groups, government-sponsored plans, and individuals.
Over its 46-year history, Humana has consistently seized opportunities to meet changing customer needs. Today, the company is a leader in consumer engagement, providing guidance that leads to lower costs and a better health plan experience throughout its diversified customer portfolio.
More information regarding Humana is available to investors via the Investor Relations page of the company’s web site at www.humana.com, including copies of:
| · | Annual reports to stockholders; |
| · | Securities and Exchange Commission filings; |
| · | Most recent investor conference presentations; |
| · | Quarterly earnings news releases; |
| · | Replay of most recent earnings release conference calls; |
| · | Calendar of events (includes upcoming earnings conference call dates and times, as well as planned interaction with research analysts and institutional investors); |
| · | Corporate Governance information. |
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Humana Inc.
Guidance Points as of July 30, 2007 | For the year ending December 31, 2007 (in accordance with Generally Accepted Accounting Principles) | Comments | ||
| Diluted earnings per common share (EPS) | Full year 2007: $4.40 to $4.50 3Q07: $1.45 to $1.50 | |||
| Revenues | Consolidated revenues: $24.5 billion to $25.5 billion; Premiums and ASO fees: Medicare Advantage: $10.5 billion to $11.0 billion; Medicare stand-alone PDPs: Approximately $3.5 billion; TRICARE: Approximately $3.0 billion; Commercial: $6.5 billion to $7.0 billion; Investment income: $290 million to $300 million; | |||
| Other revenue: $150 million to $155 million | Other revenue primarily relates to revenues associated with the company’s mail order pharmacy; related administrative costs are in SG&A expenses | |||
Ending medical membership (fully-insured and ASO combined) | Medicare Advantage: 1,120,000 to 1,130,000; Medicare stand-alone PDPs: 3.4 million to 3.5 million; TRICARE: No material change from prior year; Medicaid: Down approximately 10,000; Commercial: Up approximately 50,000 to 75,000 from prior year |
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Guidance Points as of July 30, 2007 | For the year ending December 31, 2007 (in accordance with Generally Accepted Accounting Principles) | Comments |
| Medical costs | Total Medicare products: MER in the range of 82.5% to 83.5%; | Medicare Advantage and stand-alone PDP combined | ||
| Commercial fully-insured groups: Medical cost trends in the range of 4.5% to 5.0%; premium yields in line with medical cost trends | 2007 secular Commercial medical cost trend components as follows: inpatient hospital utilization – flat to 1 percent; inpatient and outpatient hospital rates – mid to upper single digits; outpatient hospital utilization – low to mid single digits; physician – mid single digits; and pharmacy – low double digits. | |||
| Selling, general & administrative expenses | Consolidated SG&A expense ratio of 13% to 14% | SG&A expenses as a percent of premiums, administrative costs, and other revenue | ||
| Depreciation & amortization | Approximately $185 million | |||
| Interest expense | Approximately $70 million | |||
Pretax results | Total Medicare products: Approximately 5% pretax margin; TRICARE: Approximately 3.5% pretax margin; | Medicare Advantage and stand-alone PDP combined | ||
| Commercial Segment: $230 million to $240 million | Includes no material benefit from venture capital gains | |||
| Cash flows from operations | $1.2 billion to $1.5 billion | Includes accrual for estimated 2007 Part D risk-share payable in the range of zero to $200 million | ||
| Capital expenditures | Approximately $220 million | |||
| Effective tax rate | Approximately 36% to 37% | |||
| Shares used in computing EPS | Approximately 171 million |
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| Statistical Schedules | |||||||||||
| And | |||||||||||
| Supplementary Information | |||||||||||
| 2Q07 Earnings Release | |||||||||||
S-1
| Humana Inc. | |||
| Statistical Schedules and Supplementary Information | |||
| 2Q07 Earnings Release | |||
| Contents | |||
Page | Description | ||
| S-3-4 | Consolidated Statements of Income | ||
| S-5 | Consolidated Balance Sheets | ||
| S-6-7 | Consolidated Statements of Cash Flows | ||
| S-8 | Key Income Statement Ratios and Segment Operating Results | ||
| S-9 | Membership Detail | ||
| S-10-11 | Premiums and Administrative Services Fees Detail | ||
| S-12 | Percentage of Ending Membership under Capitation Arrangements | ||
| S-13-15 | Medical Claims Reserves | ||
| S-16 | Footnotes | ||
S-2
| Consolidated Statements of Income | ||||||||||||||||
In thousands, except per common share results | ||||||||||||||||
Three Months Ended June 30, | ||||||||||||||||
| Dollar | Percentage | |||||||||||||||
2007 | 2006 | Change | Change | |||||||||||||
| Revenues: | ||||||||||||||||
| Premiums | $ | 6,223,250 | $ | 5,264,475 | $ | 958,775 | 18.2 | % | ||||||||
| Administrative services fees | 97,093 | 83,711 | 13,382 | 16.0 | % | |||||||||||
| Investment income | 72,052 | 50,567 | 21,485 | 42.5 | % | |||||||||||
| Other revenue | 34,402 | 8,416 | 25,986 | 308.8 | % | |||||||||||
Total revenues | 6,426,797 | 5,407,169 | 1,019,628 | 18.9 | % | |||||||||||
| Operating expenses: | ||||||||||||||||
| Medical | 5,190,418 | 4,479,501 | 710,917 | 15.9 | % | |||||||||||
| Selling, general and administrative | 826,459 | 733,863 | 92,596 | 12.6 | % | |||||||||||
| Depreciation | 48,820 | 31,613 | 17,207 | 54.4 | % | |||||||||||
| Other intangible amortization | 5,444 | 4,983 | 461 | 9.3 | % | |||||||||||
Total operating expenses | 6,071,141 | 5,249,960 | 821,181 | 15.6 | % | |||||||||||
Income from operations | 355,656 | 157,209 | 198,447 | 126.2 | % | |||||||||||
| Interest expense | 16,066 | 16,887 | (821 | ) | -4.9 | % | ||||||||||
Income before income taxes | 339,590 | 140,322 | 199,268 | 142.0 | % | |||||||||||
| Provision for income taxes | 122,744 | 50,833 | 71,911 | 141.5 | % | |||||||||||
Net income | $ | 216,846 | $ | 89,489 | $ | 127,357 | 142.3 | % | ||||||||
| Basic earnings per common share | $ | 1.30 | $ | 0.55 | $ | 0.75 | 136.4 | % | ||||||||
Diluted earnings per common share | $ | 1.28 | $ | 0.53 | $ | 0.75 | 141.5 | % | ||||||||
| Shares used in computing basic earnings per common share | 166,614 | 163,706 | ||||||||||||||
| Shares used in computing diluted earnings per common share | 169,596 | 167,536 | ||||||||||||||
S-3
| Consolidated Statements of Income | ||||||||||||||||
In thousands, except per common share results | ||||||||||||||||
Six Months Ended June 30, | ||||||||||||||||
| Dollar | Percentage | |||||||||||||||
2007 | 2006 | Change | Change | |||||||||||||
| Revenues: | ||||||||||||||||
| Premiums | $ | 12,227,813 | $ | 9,785,961 | $ | 2,441,852 | 25.0 | % | ||||||||
| Administrative services fees | 192,957 | 162,389 | 30,568 | 18.8 | % | |||||||||||
| Investment income | 145,579 | 149,469 | (3,890 | ) | -2.6 | % | ||||||||||
| Other revenue | 65,261 | 13,715 | 51,546 | 375.8 | % | |||||||||||
Total revenues | 12,631,610 | 10,111,534 | 2,520,076 | 24.9 | % | |||||||||||
| Operating expenses: | ||||||||||||||||
| Medical | 10,404,418 | 8,263,427 | 2,140,991 | 25.9 | % | |||||||||||
| Selling, general and administrative | 1,647,069 | 1,474,749 | 172,320 | 11.7 | % | |||||||||||
| Depreciation | 84,329 | 61,465 | 22,864 | 37.2 | % | |||||||||||
| Other intangible amortization | 9,999 | 10,037 | (38 | ) | -0.4 | % | ||||||||||
Total operating expenses | 12,145,815 | 9,809,678 | 2,336,137 | 23.8 | % | |||||||||||
Income from operations | 485,795 | 301,856 | 183,939 | 60.9 | % | |||||||||||
| Interest expense | 33,984 | 30,326 | 3,658 | 12.1 | % | |||||||||||
Income before income taxes | 451,811 | 271,530 | 180,281 | 66.4 | % | |||||||||||
| Provision for income taxes | 163,724 | 98,326 | 65,398 | 66.5 | % | |||||||||||
Net income | $ | 288,087 | $ | 173,204 | $ | 114,883 | 66.3 | % | ||||||||
| Basic earnings per common share | $ | 1.73 | $ | 1.06 | $ | 0.67 | 63.2 | % | ||||||||
Diluted earnings per common share | $ | 1.70 | $ | 1.03 | $ | 0.67 | 65.0 | % | ||||||||
| Shares used in computing basic earnings per common share | 166,213 | 163,411 | ||||||||||||||
| Shares used in computing diluted earnings per common share | 169,276 | 167,430 | ||||||||||||||
S-4
| Consolidated Balance Sheets | ||||||||||||||||||||
Dollars in thousands, except share amounts | ||||||||||||||||||||
June 30, | March 31, | December 31, | Sequential Change | |||||||||||||||||
2007 | 2007 | 2006 | Dollar | Percent | ||||||||||||||||
Assets | ||||||||||||||||||||
| Current assets: | ||||||||||||||||||||
| Cash and cash equivalents | $ | 3,720,769 | $ | 3,694,059 | $ | 1,740,304 | ||||||||||||||
| Investment securities | 3,323,536 | 3,154,920 | 3,192,273 | |||||||||||||||||
| Receivables, net: | ||||||||||||||||||||
| Premiums | 685,479 | 826,314 | 667,657 | |||||||||||||||||
| Administrative services fees | 12,074 | 10,806 | 13,284 | |||||||||||||||||
| Securities lending collateral | 1,346,065 | 1,049,195 | 627,990 | |||||||||||||||||
| Other | 1,318,003 | 1,135,298 | 1,091,465 | |||||||||||||||||
| Total current assets | 10,405,926 | 9,870,592 | 7,332,973 | $ | 535,334 | 5.4 | % | |||||||||||||
| Property and equipment, net | 569,412 | 571,405 | 545,004 | |||||||||||||||||
| Other assets: | ||||||||||||||||||||
| Long-term investment securities | 400,775 | 380,138 | 414,877 | |||||||||||||||||
| Goodwill | 1,330,585 | 1,331,418 | 1,310,631 | |||||||||||||||||
| Other | 628,267 | 552,572 | 524,011 | |||||||||||||||||
| Total other assets | 2,359,627 | 2,264,128 | 2,249,519 | |||||||||||||||||
Total assets | $ | 13,334,965 | $ | 12,706,125 | $ | 10,127,496 | $ | 628,840 | 4.9 | % | ||||||||||
Liabilities and Stockholders' Equity | ||||||||||||||||||||
| Current liabilities: | ||||||||||||||||||||
| Medical and other expenses payable | $ | 2,954,146 | $ | 2,886,214 | $ | 2,488,261 | ||||||||||||||
| Trade accounts payable and accrued expenses | 2,084,463 | 1,977,465 | 1,626,658 | |||||||||||||||||
| Book overdraft | 289,646 | 284,572 | 293,605 | |||||||||||||||||
| Securities lending payable | 1,346,065 | 1,049,195 | 627,990 | |||||||||||||||||
| Unearned revenues | 1,355,017 | 1,330,325 | 155,298 | |||||||||||||||||
| Total current liabilities | 8,029,337 | 7,527,771 | 5,191,812 | $ | 501,566 | 6.7 | % | |||||||||||||
| Long-term debt | 1,189,570 | 1,329,334 | 1,269,100 | |||||||||||||||||
| Other long-term liabilities | 740,560 | 689,493 | 612,698 | |||||||||||||||||
Total liabilities | 9,959,467 | 9,546,598 | 7,073,610 | $ | 412,869 | 4.3 | % | |||||||||||||
| Commitments and contingencies | ||||||||||||||||||||
| Stockholders' equity: | ||||||||||||||||||||
| Preferred stock, $1 par; 10,000,000 shares authorized, none issued | - | - | - | |||||||||||||||||
| Common stock, $0.16 2/3 par; 300,000,000 shares authorized; | ||||||||||||||||||||
| 185,002,041 issued at June 30, 2007 | 30,833 | 30,746 | 30,491 | |||||||||||||||||
| Capital in excess of par value | 1,422,370 | 1,393,582 | 1,357,077 | |||||||||||||||||
| Retained earnings | 2,197,185 | 1,980,339 | 1,909,098 | |||||||||||||||||
| Accumulated other comprehensive loss | (38,112 | ) | (8,378 | ) | (13,205 | ) | ||||||||||||||
| Treasury stock, at cost, 16,439,317 shares at June 30, 2007 | (236,778 | ) | (236,762 | ) | (229,575 | ) | ||||||||||||||
Total stockholders' equity | 3,375,498 | 3,159,527 | 3,053,886 | $ | 215,971 | 6.8 | % | |||||||||||||
Total liabilities and stockholders' equity | $ | 13,334,965 | $ | 12,706,125 | $ | 10,127,496 | $ | 628,840 | 4.9 | % | ||||||||||
| Debt-to-total capitalization ratio | 26.1 | % | 29.6 | % | 29.4 | % | ||||||||||||||
S-5
| Consolidated Statements of Cash Flows | ||||||||||||||||
Dollars in thousands | ||||||||||||||||
Three Months Ended June 30, | ||||||||||||||||
| Dollar | Percentage | |||||||||||||||
2007 | 2006 | Change | Change | |||||||||||||
Cash flows from operating activities | ||||||||||||||||
| Net income | $ | 216,846 | $ | 89,489 | ||||||||||||
| Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||||||||||
| Depreciation and amortization | 54,264 | 36,596 | ||||||||||||||
| Stock-based compensation | 10,462 | 8,471 | ||||||||||||||
| (Benefit) provision for deferred income taxes | (17,900 | ) | 2,479 | |||||||||||||
| Changes in operating assets and liabilities excluding | ||||||||||||||||
| the effects of acquisitions: | ||||||||||||||||
| Receivables | 139,567 | 3,104 | ||||||||||||||
| Other assets | (107,522 | ) | (174,050 | ) | ||||||||||||
| Medical and other expenses payable | 67,932 | 266,956 | ||||||||||||||
| Other liabilities | 75,771 | 57,967 | ||||||||||||||
| Unearned revenues | 24,692 | 244,661 | ||||||||||||||
| Other | 13,154 | (818 | ) | |||||||||||||
Net cash provided by operating activities | 477,266 | 534,855 | $ | (57,589 | ) | -10.8 | % | |||||||||
Cash flows from investing activities | ||||||||||||||||
| Acquisitions, net of cash acquired | (224 | ) | (25,818 | ) | ||||||||||||
| Purchases of property and equipment | (43,973 | ) | (36,712 | ) | ||||||||||||
| Proceeds from sales of property and equipment | 2 | 18 | ||||||||||||||
| Purchases of investment securities | (908,244 | ) | (594,890 | ) | ||||||||||||
| Proceeds from maturities of investment securities | 212,471 | 100,289 | ||||||||||||||
| Proceeds from sales of investment securities | 444,692 | 152,855 | ||||||||||||||
| Change in securities lending collateral | (296,870 | ) | 9,473 | |||||||||||||
Net cash used in investing activities | (592,146 | ) | (394,785 | ) | $ | (197,361 | ) | -50.0 | % | |||||||
Cash flows from financing activities | ||||||||||||||||
| Receipts from CMS contract deposits | 639,722 | 550,868 | ||||||||||||||
| Withdrawals from CMS contract deposits | (708,277 | ) | (462,981 | ) | ||||||||||||
| Borrowings under credit agreement | 400,000 | - | ||||||||||||||
| Repayments under credit agreement | (510,000 | ) | (300,000 | ) | ||||||||||||
| Proceeds from issuance of senior notes | - | 498,545 | ||||||||||||||
| Debt issue costs | - | (3,825 | ) | |||||||||||||
| Change in book overdraft | 5,074 | (3,763 | ) | |||||||||||||
| Change in securities lending payable | 296,870 | (9,473 | ) | |||||||||||||
| Common stock repurchases | (16 | ) | (4,832 | ) | ||||||||||||
| Tax benefit from stock-based compensation | 5,426 | 5,252 | ||||||||||||||
| Proceeds from stock option exercises and other | 12,791 | 5,198 | ||||||||||||||
Net cash provided by financing activities | 141,590 | 274,989 | $ | (133,399 | ) | -48.5 | % | |||||||||
| Increase in cash and cash equivalents | 26,710 | 415,059 | ||||||||||||||
| Cash and cash equivalents at beginning of period | 3,694,059 | 1,843,405 | ||||||||||||||
Cash and cash equivalents at end of period | $ | 3,720,769 | $ | 2,258,464 | ||||||||||||
S-6
| Humana Inc. | ||||||||||||||||
| Consolidated Statements of Cash Flows | ||||||||||||||||
Dollars in thousands | ||||||||||||||||
Six Months Ended June 30, | ||||||||||||||||
| Dollar | Percentage | |||||||||||||||
2007 | 2006 | Change | Change | |||||||||||||
Cash flows from operating activities | ||||||||||||||||
| Net income | $ | 288,087 | $ | 173,204 | ||||||||||||
| Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||||||||||
| Depreciation and amortization | 94,328 | 71,502 | ||||||||||||||
| Stock-based compensation | 20,264 | 15,051 | ||||||||||||||
| Benefit for deferred income taxes | (24,011 | ) | (1,226 | ) | ||||||||||||
| Changes in operating assets and liabilities excluding | ||||||||||||||||
| the effects of acquisitions: | ||||||||||||||||
| Receivables | (16,612 | ) | (42,957 | ) | ||||||||||||
| Other assets | (126,467 | ) | (359,300 | ) | ||||||||||||
| Medical and other expenses payable | 465,885 | 526,763 | ||||||||||||||
| Other liabilities | 134,423 | 172,719 | ||||||||||||||
| Unearned revenues | 1,199,719 | 1,044,850 | ||||||||||||||
| Other | 16,131 | (57,778 | ) | |||||||||||||
Net cash provided by operating activities | 2,051,747 | 1,542,828 | $ | 508,919 | 33.0 | % | ||||||||||
Cash flows from investing activities | ||||||||||||||||
| Acquisitions, net of cash acquired | (27,005 | ) | (25,931 | ) | ||||||||||||
| Purchases of property and equipment | (114,717 | ) | (81,973 | ) | ||||||||||||
| Proceeds from sales of property and equipment | 4,072 | 2,156 | ||||||||||||||
| Purchases of investment securities | (1,873,295 | ) | (2,258,548 | ) | ||||||||||||
| Proceeds from maturities of investment securities | 769,956 | 1,010,397 | ||||||||||||||
| Proceeds from sales of investment securities | 926,603 | 712,685 | ||||||||||||||
| Change in securities lending collateral | (718,075 | ) | (193,239 | ) | ||||||||||||
Net cash used in investing activities | (1,032,461 | ) | (834,453 | ) | $ | (198,008 | ) | -23.7 | % | |||||||
Cash flows from financing activities | ||||||||||||||||
| Receipts from CMS contract deposits | 1,483,359 | 1,045,062 | ||||||||||||||
| Withdrawals from CMS contract deposits | (1,223,982 | ) | (736,425 | ) | ||||||||||||
| Borrowings under credit agreement | 710,000 | 100,000 | ||||||||||||||
| Repayments under credit agreement | (760,000 | ) | (300,000 | ) | ||||||||||||
| Proceeds from issuance of senior notes | - | 498,545 | ||||||||||||||
| Debt issue costs | - | (3,825 | ) | |||||||||||||
| Change in book overdraft | (3,959 | ) | (8,181 | ) | ||||||||||||
| Change in securities lending payable | 718,075 | 193,239 | ||||||||||||||
| Common stock repurchases | (7,203 | ) | (4,937 | ) | ||||||||||||
| Tax benefit from stock-based compensation | 14,554 | 13,656 | ||||||||||||||
| Proceeds from stock option exercises and other | 30,335 | 20,939 | ||||||||||||||
Net cash provided by financing activities | 961,179 | 818,073 | $ | 143,106 | 17.5 | % | ||||||||||
| Increase in cash and cash equivalents | 1,980,465 | 1,526,448 | ||||||||||||||
| Cash and cash equivalents at beginning of period | 1,740,304 | 732,016 | ||||||||||||||
Cash and cash equivalents at end of period | $ | 3,720,769 | $ | 2,258,464 | ||||||||||||
S-7
| Key Income Statement Ratios and Segment Operating Results |
Dollars in thousands |
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||
| Percentage | Percentage | ||||||||||||||
2007 | 2006 | Difference | Change | 2007 | 2006 | Difference | Change | ||||||||
Medical expense ratio | |||||||||||||||
| Government Segment | 84.3% | 86.0% | -1.7% | 86.7% | 85.8% | 0.9% | |||||||||
| Commercial Segment | 80.7% | 82.9% | -2.2% | 80.1% | 81.5% | -1.4% | |||||||||
| Consolidated | 83.4% | 85.1% | -1.7% | 85.1% | 84.4% | 0.7% | |||||||||
Selling, general, and administrative | |||||||||||||||
expense ratio | |||||||||||||||
| Government Segment | 10.0% | 11.5% | -1.5% | 10.4% | 12.5% | -2.1% | |||||||||
| Commercial Segment | 21.8% | 18.7% | 3.1% | 21.2% | 19.5% | 1.7% | |||||||||
| Consolidated | 13.0% | 13.7% | -0.7% | 13.2% | 14.8% | -1.6% | |||||||||
Detail of Pretax Income | |||||||||||||||
| Government Segment | $288,790 | $97,981 | $190,809 | 194.7% | $306,655 | $119,553 | $187,102 | 156.5% | |||||||
| Commercial Segment | 50,800 | 42,341 | 8,459 | 20.0% | 145,156 | 151,977 | (6,821) | -4.5% | |||||||
| Consolidated | $339,590 | $140,322 | $199,268 | 142.0% | $451,811 | $271,530 | $180,281 | 66.4% | |||||||
Detail of Pretax Margins | |||||||||||||||
| Government Segment | 6.0% | 2.6% | 3.4% | 3.3% | 1.8% | 1.5% | |||||||||
| Commercial Segment | 3.1% | 2.5% | 0.6% | 4.4% | 4.5% | -0.1% | |||||||||
| Consolidated | 5.3% | 2.6% | 2.7% | 3.6% | 2.7% | 0.9% | |||||||||
S-8
| Membership Detail | ||||||||||||
In thousands | ||||||||||||
Ending | Ending | Year-over-year Change | Ending | Sequential Change | ||||||||
June 30, 2007 | Average - 2Q07 | June 30, 2006 | Amount | Percent | March 31, 2007 | Amount | Percent | |||||
Medical Membership: | ||||||||||||
Government Segment: | ||||||||||||
| Medicare Advantage - HMO | 452.4 | 454.2 | 457.0 | (4.6) | -1.0% | 462.1 | (9.7) | -2.1% | ||||
| Medicare Advantage - PPO | 66.9 | 66.5 | 64.6 | 2.3 | 3.6% | 64.6 | 2.3 | 3.6% | ||||
| Medicare Advantage - PFFS | 614.4 | 611.9 | 438.2 | 176.2 | 40.2% | 586.7 | 27.7 | 4.7% | ||||
Total Medicare Advantage | 1,133.7 | 1,132.6 | 959.8 | 173.9 | 18.1% | 1,113.4 | 20.3 | 1.8% | ||||
| Medicare - PDP - Standard | 2,131.0 | 2,133.1 | 2,066.5 | 64.5 | 3.1% | 2,146.2 | (15.2) | -0.7% | ||||
| Medicare - PDP - Enhanced | 1,075.9 | 1,075.2 | 977.2 | 98.7 | 10.1% | 1,084.0 | (8.1) | -0.7% | ||||
| Medicare - PDP - Complete | 233.2 | 235.7 | 415.1 | (181.9) | -43.8% | 243.5 | (10.3) | -4.2% | ||||
Total Medicare stand-alone PDPs | 3,440.1 | 3,444.0 | 3,458.8 | (18.7) | -0.5% | 3,473.7 | (33.6) | -1.0% | ||||
Total Medicare | 4,573.8 | 4,576.6 | 4,418.6 | 155.2 | 3.5% | 4,587.1 | (13.3) | -0.3% | ||||
| TRICARE insured | 1,717.6 | 1,719.4 | 1,732.6 | (15.0) | -0.9% | 1,712.9 | 4.7 | 0.3% | ||||
| TRICARE ASO | 1,150.6 | 1,161.1 | 1,141.9 | 8.7 | 0.8% | 1,165.5 | (14.9) | -1.3% | ||||
Total TRICARE | 2,868.2 | 2,880.5 | 2,874.5 | (6.3) | -0.2% | 2,878.4 | (10.2) | -0.4% | ||||
| Medicaid insured | 384.9 | 384.0 | 418.5 | (33.6) | -8.0% | 384.0 | 0.9 | 0.2% | ||||
| Medicaid ASO | 182.7 | 181.7 | - | 182.7 | 100.0% | 175.4 | 7.3 | 4.2% | ||||
Total Medicaid | 567.6 | 565.7 | 418.5 | 149.1 | 35.6% | 559.4 | 8.2 | 1.5% | ||||
Total Government Segment | 8,009.6 | 8,022.8 | 7,711.6 | 298.0 | 3.9% | 8,024.9 | (15.3) | -0.2% | ||||
Commercial Segment: | ||||||||||||
| Fully-insured medical: | ||||||||||||
| Group | 1,533.0 | 1,530.1 | 1,716.4 | (183.4) | -10.7% | 1,528.6 | 4.4 | 0.3% | ||||
| Individual | 205.0 | 200.3 | 170.0 | 35.0 | 20.6% | 192.1 | 12.9 | 6.7% | ||||
| Medicare supplement | 8.3 | 7.8 | 6.7 | 1.6 | 23.9% | 7.4 | 0.9 | 12.2% | ||||
| Total fully-insured medical | 1,746.3 | 1,738.2 | 1,893.1 | (146.8) | -7.8% | 1,728.1 | 18.2 | 1.1% | ||||
| ASO | 1,532.4 | 1,525.8 | 1,420.8 | 111.6 | 7.9% | 1,529.4 | 3.0 | 0.2% | ||||
Total Commercial Segment | 3,278.7 | 3,264.0 | 3,313.9 | (35.2) | -1.1% | 3,257.5 | 21.2 | 0.7% | ||||
Total medical membership | 11,288.3 | 11,286.8 | 11,025.5 | 262.8 | 2.4% | 11,282.4 | 5.9 | 0.1% | ||||
Specialty Membership (all Commercial Segment) | ||||||||||||
| Dental – fully-insured | 978.1 | 979.9 | 955.6 | 22.5 | 2.4% | 980.5 | (2.4) | -0.2% | ||||
| Dental - ASO | 499.9 | 497.8 | 496.5 | 3.4 | 0.7% | 503.7 | (3.8) | -0.8% | ||||
| Total dental | 1,478.0 | 1,477.7 | 1,452.1 | 25.9 | 1.8% | 1,484.2 | (6.2) | -0.4% | ||||
| Group life | 439.8 | 439.2 | 427.2 | 12.6 | 2.9% | 437.9 | 1.9 | 0.4% | ||||
| Short-term disability | 12.2 | 12.5 | 15.6 | (3.4) | -21.8% | 13.1 | (0.9) | -6.9% | ||||
Total specialty membership | 1,930.0 | 1,929.4 | 1,894.9 | 35.1 | 1.9% | 1,935.2 | (5.2) | -0.3% | ||||
S-9
| Premiums and Administrative Services Fees Detail | ||||||||||||||||||||||||
Dollars in thousands, except per member per month | ||||||||||||||||||||||||
Per Member per Month (A) | ||||||||||||||||||||||||
Three Months Ended June 30, | Three Months Ended June 30, | |||||||||||||||||||||||
| Dollar | Percentage | |||||||||||||||||||||||
2007 | 2006 | Change | Change | 2007 | 2006 | |||||||||||||||||||
Premium revenues | ||||||||||||||||||||||||
Government Segment: | ||||||||||||||||||||||||
| Medicare Advantage | $ | 2,804,438 | $ | 2,109,406 | $ | 695,032 | 32.9 | % | $ | 825 | $ | 792 | ||||||||||||
| Medicare stand-alone PDPs | 1,051,259 | 801,755 | 249,504 | 31.1 | % | $ | 102 | $ | 94 | |||||||||||||||
| Total Medicare | 3,855,697 | 2,911,161 | 944,536 | 32.4 | % | |||||||||||||||||||
| TRICARE insured (B) | 725,040 | 657,627 | 67,413 | 10.3 | % | $ | 141 | $ | 127 | |||||||||||||||
| Medicaid insured | 132,486 | 129,158 | 3,328 | 2.6 | % | $ | 115 | $ | 102 | |||||||||||||||
Total Government Segment premiums | 4,713,223 | 3,697,946 | 1,015,277 | 27.5 | % | |||||||||||||||||||
Commercial Segment: | ||||||||||||||||||||||||
| Fully-insured medical | 1,402,082 | 1,464,646 | (62,564 | ) | -4.3 | % | $ | 269 | $ | 259 | ||||||||||||||
| Specialty | 107,945 | 101,883 | 6,062 | 5.9 | % | $ | 22 | $ | 21 | |||||||||||||||
Total Commercial Segment premiums | 1,510,027 | 1,566,529 | (56,502 | ) | -3.6 | % | ||||||||||||||||||
Total premium revenues | $ | 6,223,250 | $ | 5,264,475 | $ | 958,775 | 18.2 | % | ||||||||||||||||
Administrative services fees | ||||||||||||||||||||||||
| TRICARE ASO (B) | $ | 15,535 | $ | 11,144 | $ | 4,391 | 39.4 | % | $ | 4 | $ | 3 | ||||||||||||
| Medicaid ASO | 2,136 | - | 2,136 | 100.0 | % | $ | 4 | - | ||||||||||||||||
Total Government Segment | 17,671 | 11,144 | 6,527 | 58.6 | % | |||||||||||||||||||
| Commercial Segment | 79,422 | 72,567 | 6,855 | 9.4 | % | $ | 13 | $ | 13 | |||||||||||||||
Total administrative services fees | $ | 97,093 | $ | 83,711 | $ | 13,382 | 16.0 | % | ||||||||||||||||
S-10
| Humana Inc. | ||||||||||||||||||||||||
| Premiums and Administrative Services Fees Detail | ||||||||||||||||||||||||
Dollars in thousands, except per member per month | ||||||||||||||||||||||||
Per Member per Month (A) | ||||||||||||||||||||||||
Six Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||||||||
| Dollar | Percentage | |||||||||||||||||||||||
2007 | 2006 | Change | Change | 2007 | 2006 | |||||||||||||||||||
Premium revenues | ||||||||||||||||||||||||
Government Segment: | ||||||||||||||||||||||||
| Medicare Advantage | $ | 5,547,149 | $ | 3,830,249 | $ | 1,716,900 | 44.8 | % | $ | 828 | $ | 808 | ||||||||||||
| Medicare stand-alone PDPs | 1,957,685 | 1,316,912 | 640,773 | 48.7 | % | $ | 94 | $ | 96 | |||||||||||||||
| Total Medicare | 7,504,834 | 5,147,161 | 2,357,673 | 45.8 | % | |||||||||||||||||||
| TRICARE insured (B) | 1,452,255 | 1,258,381 | 193,874 | 15.4 | % | $ | 141 | $ | 121 | |||||||||||||||
| Medicaid insured | 261,811 | 258,625 | 3,186 | 1.2 | % | $ | 113 | $ | 101 | |||||||||||||||
Total Government Segment premiums | 9,218,900 | 6,664,167 | 2,554,733 | 38.3 | % | |||||||||||||||||||
Commercial Segment: | ||||||||||||||||||||||||
| Fully-insured medical | 2,792,887 | 2,918,578 | (125,691 | ) | -4.3 | % | $ | 269 | $ | 259 | ||||||||||||||
| Specialty | 216,026 | 203,216 | 12,810 | 6.3 | % | $ | 22 | $ | 21 | |||||||||||||||
Total Commercial Segment premiums | 3,008,913 | 3,121,794 | (112,881 | ) | -3.6 | % | ||||||||||||||||||
Total premium revenues | $ | 12,227,813 | $ | 9,785,961 | $ | 2,441,852 | 25.0 | % | ||||||||||||||||
Administrative services fees | ||||||||||||||||||||||||
| TRICARE ASO (B) | $ | 29,829 | $ | 22,335 | $ | 7,494 | 33.6 | % | $ | 4 | $ | 3 | ||||||||||||
| Medicaid ASO | 4,232 | - | 4,232 | 100.0 | % | $ | 4 | - | ||||||||||||||||
Total Government Segment | 34,061 | 22,335 | 11,726 | 52.5 | % | |||||||||||||||||||
| Commercial Segment | 158,896 | 140,054 | 18,842 | 13.5 | % | $ | 13 | $ | 12 | |||||||||||||||
Total administrative services fees | $ | 192,957 | $ | 162,389 | $ | 30,568 | 18.8 | % | ||||||||||||||||
S-11
| Humana Inc. | ||||||||||||||||||||||||||||||||||||
| Percentage of Ending Membership under Capitation Arrangements | ||||||||||||||||||||||||||||||||||||
Government Segment | Commercial Segment | |||||||||||||||||||||||||||||||||||
June 30, 2007 | Medicare Advantage | Medicare stand-alone PDPs | TRICARE | Medicaid | Total Govt. Segment | Fully-insured | ASO | Total Comm. Segment | Total Medical Membership | |||||||||||||||||||||||||||
| Capitated HMO hospital system based (C) | 2.5 | % | - | - | - | 0.3 | % | 1.4 | % | - | 0.8 | % | 0.5 | % | ||||||||||||||||||||||
| Capitated HMO physician group based (C) | 2.0 | % | - | - | 26.0 | % | 2.1 | % | 1.5 | % | - | 0.8 | % | 1.8 | % | |||||||||||||||||||||
| Risk-sharing (D) | 24.3 | % | - | - | 41.4 | % | 6.4 | % | 1.5 | % | - | 0.8 | % | 4.8 | % | |||||||||||||||||||||
| All other membership | 71.2 | % | 100.0 | % | 100.0 | % | 32.6 | % | 91.2 | % | 95.6 | % | 100.0 | % | 97.6 | % | 92.9 | % | ||||||||||||||||||
| Total medical membership | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | ||||||||||||||||||
June 30, 2006 | ||||||||||||||||||||||||||||||||||||
| Capitated HMO hospital system based (C) | 3.4 | % | - | - | - | 0.4 | % | 1.8 | % | - | 1.1 | % | 0.6 | % | ||||||||||||||||||||||
| Capitated HMO physician group based (C) | 2.5 | % | - | - | 34.7 | % | 2.2 | % | 1.7 | % | - | 1.0 | % | 1.8 | % | |||||||||||||||||||||
| Risk-sharing (D) | 27.9 | % | - | - | 64.6 | % | 7.0 | % | 2.3 | % | - | 1.3 | % | 5.3 | % | |||||||||||||||||||||
| All other membership | 66.2 | % | 100.0 | % | 100.0 | % | 0.7 | % | 90.4 | % | 94.2 | % | 100.0 | % | 96.6 | % | 92.3 | % | ||||||||||||||||||
| Total medical membership | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | ||||||||||||||||||
S-12
| Humana Inc. | ||||||||||||
| Detail of Medical and Other Expenses Payable Balance and Year-to-Date Changes | ||||||||||||
Dollars in thousands | ||||||||||||
June 30, | March 31, | December 31, | ||||||||||
2007 | 2007 | 2006 | ||||||||||
Detail of medical and other expenses payable | ||||||||||||
| IBNR and other medical expenses payable (E) | $ | 2,028,722 | $ | 1,869,209 | $ | 1,686,051 | ||||||
| TRICARE IBNR (F) | 308,112 | 361,786 | 318,583 | |||||||||
| TRICARE other medical expenses payable (G) | 100,975 | 97,994 | 94,699 | |||||||||
| Unprocessed claim inventories (H) | 211,300 | 222,300 | 218,400 | |||||||||
| Processed claim inventories (I) | 142,171 | 135,241 | 115,424 | |||||||||
| Payable to pharmacy benefit administrator (J) | 162,866 | 199,684 | 55,104 | |||||||||
Total medical and other expenses payable | $ | 2,954,146 | $ | 2,886,214 | $ | 2,488,261 | ||||||
Six Months Ended | Three Months Ended | Year Ended | ||||||||||
June 30, 2007 | March 31, 2007 | December 31, 2006 | ||||||||||
Year-to-date changes in medical and other | ||||||||||||
expenses payable | ||||||||||||
| Balances at January 1 | $ | 2,488,261 | $ | 2,488,261 | $ | 1,909,682 | ||||||
| Acquisitions | - | - | 21,198 | |||||||||
| Incurred related to: | ||||||||||||
| Current year (K) | 10,574,111 | 5,370,722 | 17,696,654 | |||||||||
| Prior years - non-TRICARE (K) | (156,032 | ) | (148,777 | ) | (178,998 | ) | ||||||
| Prior years - TRICARE (L) | (13,661 | ) | (7,945 | ) | (96,452 | ) | ||||||
| Total incurred | 10,404,418 | 5,214,000 | 17,421,204 | |||||||||
| Paid related to: | ||||||||||||
| Current year | (8,275,133 | ) | (3,800,981 | ) | (15,532,079 | ) | ||||||
| Prior years | (1,663,400 | ) | (1,015,066 | ) | (1,331,744 | ) | ||||||
| Total paid | (9,938,533 | ) | (4,816,047 | ) | (16,863,823 | ) | ||||||
| Balances at end of period | $ | 2,954,146 | $ | 2,886,214 | $ | 2,488,261 | ||||||
S-13
| Medical Claims Reserves Statistics | |||||
Receipt Cycle Time (M) | |||||
2007 | 2006 | Change | Percentage Change | ||
| 1st Quarter Average | 15.6 | 16.1 | (0.5) | -3.1% | |
| 2nd Quarter Average | 15.6 | 15.8 | (0.2) | -1.3% | |
| 3rd Quarter Average | - | 16.0 | N/A | N/A | |
| 4th Quarter Average | - | 15.8 | N/A | N/A | |
| Full Year Average | 15.6 | 15.9 | (0.3) | -1.9% | |
Unprocessed Claims Inventories | |||||
Date | Estimated Valuation (000's) | Claim Item Counts | Number of Days on Hand | ||
| 6/30/2005 | $119,500 | 443,600 | 4.0 | ||
| 9/30/2005 | $136,700 | 512,800 | 4.7 | ||
| 12/31/2005 | $148,200 | 498,400 | 4.6 | ||
| 3/31/2006 | $185,300 | 683,900 | 5.6 | ||
| 6/30/2006 | $193,700 | 702,000 | 4.8 | ||
| 9/30/2006 | $187,900 | 623,900 | 5.4 | ||
| 12/31/2006 | $218,400 | 757,700 | 6.1 | ||
| 3/31/2007 | $222,300 | 747,200 | 5.5 | ||
6/30/2007 | $211,300 | 751,600 | 4.9 | ||
S-14
| Humana Inc. | |||||||
| Medical Claims Reserves Statistics (Continued) | |||||||
Days in Claims Payable (N) | |||||||
Quarter Ended | Days in Claim Payable (DCP) | Annual Change | Percentage Change | DCP Excluding Capitation | Annual Change | Percentage Change | |
| 6/30/2005 | 52.8 | 5.4 | 11.4% | 58.6 | 4.5 | 8.3% | |
| 9/30/2005 | 54.0 | 2.2 | 4.2% | 60.8 | 1.7 | 2.9% | |
| 12/31/2005 | 60.3 | 10.8 | 21.8% | 66.6 | 11.8 | 21.5% | |
| 3/31/2006 | 59.1 | 8.6 | 17.0% | 65.5 | 9.4 | 16.8% | |
| 6/30/2006 | 59.5 | 6.7 | 12.7% | 65.5 | 6.9 | 11.8% | |
| 9/30/2006 | 61.2 | 7.2 | 13.3% | 67.1 | 6.3 | 10.4% | |
| 12/31/2006 | 60.2 | (0.1) | -0.2% | 66.5 | (0.1) | -0.2% | |
| 3/31/2007 | 62.0 | 2.9 | 4.9% | 67.8 | 2.3 | 3.5% | |
6/30/2007 | 62.4 | 2.9 | 4.9% | 69.7 | 4.2 | 6.4% | |
Year-to-Date Change in Days in Claims Payable (O) (P) | |||||||
2007 | 2006 | ||||||
DCP - 4th quarter of prior year | 60.2 | 60.3 | |||||
| Components of year-to-date change in DCP: | |||||||
| Change in claims receipt cycle time | (0.8) | (1.6) | |||||
| Change in unprocessed claims inventories | (0.2) | 1.7 | |||||
| Change in processed claims inventories | 0.6 | 0.8 | |||||
| Change in TRICARE reserve balances | (0.1) | (2.1) | |||||
| Change in pharmacy payment cutoff | - | (1.3) | |||||
| Change in provider payables under risk arrangements | 2.5 | 1.9 | |||||
| All other | 0.2 | 0.5 | |||||
DCP - current quarter | 62.4 | 60.2 | |||||
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| Footnotes to Statistical Schedules and Supplementary Information | ||
| 2Q07 Earnings Release | ||
Footnote | ||
| (A) | Computed based on average membership for the period (i.e., monthly ending membership during the period divided by the number of months in the period). | |
| (B) | TRICARE revenues are not contracted on a per-member basis. | |
| (C) | In a limited number of circumstances, the company contracts with hospitals and physicians to accept financial risk for a defined set of HMO membership. In transferring this risk, the company prepays these providers a monthly fixed-fee per member to coordinate substantially all of the medical care for their capitated HMO membership, including some health benefit administrative functions and claims processing. For these capitated HMO arrangements, the company generally agrees to reimbursement rates that target a medical expense ratio. Providers participating in hospital-based capitated HMO arrangements generally receive a monthly payment for all of the services within their system for their HMO membership. Providers participating in physician-based capitated HMO arrangements generally have subcontracted specialist physicians and are responsible for reimbursing such physicians and hospitals for services rendered to their HMO membership. | |
| (D) | In some circumstances, the company contracts with physicians under risk-sharing arrangements whereby physicians have assumed some level of risk for all or a portion of the medical costs of their HMO membership. Although these arrangements do include capitation payments for services rendered, the company processes substantially all of the claims under these arrangements. | |
| (E) | IBNR represents an estimate of medical expenses payable for claims incurred but not reported (IBNR) at the balance sheet date. The level of IBNR is primarily impacted by membership levels, medical claim trends and the receipt cycle time, which represents the length of time between when a claim is initially incurred and when the claim form is received (i.e. a shorter time span results in lower reserves for claims IBNR). Other medical expenses payable includes amounts payable to providers under capitation arrangements. | |
| (F) | TRICARE IBNR primarily fluctuates due to medical expense inflation and changes in the utilization of benefits. | |
| (G) | TRICARE other medical expenses payable may include liabilities to subcontractors and/or risk share payables to the Department of Defense. The level of these balances may fluctuate from period to period due to the timing of payment (cutoff) and whether or not the balances are payables or receivables (receivables from the Department of Defense are classified as receivables in the company's balance sheet). | |
| (H) | Unprocessed claim inventories represent the estimated valuation of claims received but not yet fully processed. TRICARE claim inventories are not included in this amount as an independent third party administrator processes all TRICARE medical claims on the company's behalf. Reserves for TRICARE unprocessed claims inventory are included in TRICARE IBNR. | |
| (I) | Processed claim inventories represent the estimated valuation of processed claims that are in the post-claim-adjudication process, which consists of administrative functions such as audit and check batching and handling. | |
| (J) | The balance due to the company's pharmacy benefit administrator fluctuates as a result of the number of business days in the last payment cycle of the month. Payment cycles are every 10 days (10th & 20th of month) and the last day of the month. | |
| (K) | Amounts incurred related to prior years vary from previously estimated liabilities as the claims ultimately are settled. Negative amounts reported for incurred related to prior years result from claims being ultimately settled for amounts less than originally estimated (favorable development). There were no changes in the approach used to determine our estimate of claim reserves during the quarter. | |
| (L) | Changes in estimates of TRICARE incurred claims for prior years result primarily from claim costs and utilization levels developing favorably from the levels originally estimated for the second half of the prior year. As a result of substantial risk-sharing provisions with the Department of Defense and with subcontractors, any resulting impact on operations from the change in estimates of incurred related to prior years is substantially reduced, whether positive or negative. | |
| (M) | The receipt cycle time measures the average length of time between when a claim was initially incurred and when the claim form was received. Receipt cycle time data for our largest claim processing platforms represents 70% to 75% of the company's fully-insured claims volume. Pharmacy claims are excluded from this measurement. | |
| (N) | A common metric for monitoring medical claim reserve levels relative to the medical claims expense is days in claims payable, or DCP, which represents the medical claim liabilities at the end of the period divided by average medical expenses per day in the quarterly period. Since the company has some providers under capitation payment arrangements (which do not require a medical claim IBNR reserve), the company has also summarized this metric excluding capitation expense. In addition, this calculation excludes the impact of the company's stand-alone PDP business. | |
| (O) | Excludes the impact of Medicare stand-alone PDPs. | |
| (P) | DCP fluctuates due to a number of issues, the more significant of which are detailed in the rollforward of DCP from the fourth quarter of the prior year. Growth in certain product lines can also impact DCP for the quarter since a provision for claims would not have been recorded for members that had not yet enrolled earlier in the quarter, yet those members would have a provision and corresponding reserve recorded upon enrollment later in the quarter. | |
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