HUM - Earnings call transcript Q4 2018

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Operator

Ladies and gentlemen, good day and thank you for standing by. My name is Lilly and I will be your conference operator today. At this time, I would like to welcome everyone to the Humana Incorporated Fourth Quarter 2018 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks there will be a question-and-answer session. pleasure today’s my your over now Ms. host, is to call turn to It President Relations. of Vice Smith, Amy Investor

You may begin your conference.

Amy Smith

Kane, Executive Thank a you XXXX and results Chief for financial fourth moment, In Officer, Brian Officer; XXXX. Bruce Broussard, and discuss and Humana's President quarter good our Chief Financial morning. outlook will our and

Joe prepared a to industry Ventura. with would to like be question-and-answer welcome prepared with Officer, the management's remarks, new will analysts. session. will Legal remarks the both investing up open and related Q&A the we these public Bruce session Following analysts. the and for Chief our Brian media lines joining Q&A to and encourage I listen Joe for We

Investor prepared replay on during today. Relations page Additionally, Humana's have be replay page we for of remarks. recorded humana.com, for call website, our Brian's is purposes. being That Investor Relations available will later posted supporting the to This reference materials

are release. the includes to financial Call release, also releases participants press with use discussion are of release, participants our to that today's a number Before we this our in on involve are GAAP. and or begin and call discussed forward-looking matters SEC note of conference our cautionary reconciliations advised measures need today's quarter in results call that in the of discussed discussion, financial Today's advise Certain are not these all for of could Accounting the factors news the included accordance our XXXX and our statement. in with as our historical well are detailed and Actual Relations differ should financial earnings risk read with Principles available of to Accepted Exchange filings uncertainties. explanation measures Commission. in Generally non-GAAP I materially. non-GAAP Investors Investor site. risks and press measures filings as GAAP Management's Securities fourth the press our

per I'll share per during this earnings that, call diluted to to references refer the or Bruce made turn over conference any Finally, With earnings to call share. EPS common Broussard.

Bruce Broussard

for above and share Good fourth full-year, XXXX you for results. approximately of favorable $XX.XX $XX.XX, previous the the Advantage due of we and guidance thank to quarter reported morning earnings our us. of joining $X.XX per primarily adjusted for Medicare Today

are pleased We attributed consistency be ongoing on performance, to optimizing can an with our our focus the operations. in improvement of core which our

to excluding pharmacy, joint the over XXX primary we In the like AEP expected primary clinics to on owned on Our that drive care, us in Humana these And operational advancements and behavioral our integrate desire X% each home, each. more continued majority continues of To is our election briefly to improvements. inside focused to clinical as which and to experienced Conviva clinics five the make MA care, areas and stores clinics, with are clinics. results or are AEP. annual these of the period in health Conviva partners social payer-agnostic, care effective in influence: In mature positive Walgreens primary the I’d make in including of areas membership in alliance end, outcomes lifestyle. we grew ventured determinants. leading healthcare touch five XXXX, two

Advantage provides an at established that we home, with Curo the overlap and health significant business. Regarding independent Kindred joining Medicare home Home company our

interventions. the to impactful identify during at to and Home. our five most in information admission chronic payment the optimized with patients process We We've care key pilot medical clinical history conditions implementing use with multiple treatment care models patient's the to We deploy Kindred are home evidence-based, to disease-specific markets. exchange oriented now ability health and inform plan we prioritize this as plans

system as health proactively identify for the Home begin to will Additionally, selected and ability And at implementing our while and this key practice hospice. Homebase interventions reporting. and This in management Homecare both accelerate system medical home XXXX. and clinical Kindred has improving quality electronic business we’ll capture record revenue

the part as Medicare medication adherence engage of an inpatient of pharmacy pharmacy, and is in conditions of how ER prescriptions reduction number four and is as chronic important Turning have important times commercial healthcare This especially managing result a care primary the admissions, visits integration and to their with in members members. education given physician. members

in rates Medicare continue We products. Part see Standalone and or order industry-leading Advantage mail PDP to D both Medicare penetration our

in completed others that acknowledge and enrollment we with have evidenced recently significant during leaders plans declines PDP the PDP share. price a experienced AEP, become by Humana However, commodity as taking

that recall low now Walmart. the have Others market with in price we co-branded introduction will imitated with our industry plan plan. PDP this the pioneered the You of

to has While market. are health the it impact outcomes, Medicare physical we model members better to our behavioral to intend health To stay take are our and proposition change impact with behavioral through TRICARE clinical XXXX. the Transitioning Florida. competitive to working million on now beginning expanded drive Advantage health, we six And to beginning in-source and individual's we health nearly time, will internal and wellbeing. value we health significant our recognize alternatives in mental the behavioral offerings

improve and with living access the By to the expand programs community terms continue measure of XXXX by partnering our outperform we and to communities systems social Lastly, of we of to local communities fewer among Goal critical that having work social continue XX% health support and in other unhealthy Bold in agencies Bold other communities to regarding Seniors the determinants, isolation serve endeavors. address beyond. and days. security we Goal food

approximately patient the up higher Goal, to additional person Bold of is month. $XX a cost per associates per they our with members each In when the need perspective, are spirit our unhealthy associated and empowered it medical most. our help has day For speak

has lack of associates seek proactively critical response, Bold said out access a Humana in has at far and to and other the that In primary these Goal I've the outcomes. Taking call food with issues. this drives only connect a not clinics centers them our member. learn and member extra experience, As community other before, associates our and the resources member It relationship team and better to access to leads our effect [Audio better a food but step a health our frequently Dip] too transformative member resources. with care positive on local also help with

Company's one who to on team instance, written a had could formal culture due at and ingrained returned healthy week her she our and surprised out so of a These in members, assortment the with in own Rather they're the of hospital her showed member For fall, recently policies our procedures. purpose home descriptions. job after foods, our just fresh a when goes out an hospital. where was in stay actions of aren't up the door beyond

one also our we advance growth. as Medicaid closed our business operations insurance exited Medicare companies membership statewide individual continued care only block core Advantage we awarded to strong We long-term policies. our Importantly, operations And the a Florida expanded and to two XXXX. in We of commercial returned contract.

been As operational we our in Company financial celebrate our without not our success would celebrate as and also have possible. employees XXXX, achievements a whom we

in employees will We for our increased incentive that at interest of participating program, our in compensation closely result the expanded performance are organization compensation shareholders. our an all associate to which our aligns pleased levels across strong the incentive

broker the notice the Medicare meaningful Turning experienced XXXX, HIF make tailwinds year, rate period deep into benefit annual our and or Advantage growth. now significant combined fee insurance outcomes. election allowed health including health products relationships led in among members results others, industry strong moratorium, completed strong outpacing These us and coming our to investments in with enhancements the to and benefit our which drive to to the improved we industry's recently

or to Medicare to XX% for XXX,XXX Advantage of members We projecting XX% the growth are individual XXX,XXX membership full-year.

MA capacity. the initial of was exceeded While the expectations, growth individual still growth the operational bounds our our within

confident management and in perspective, Texas. sales did five-star Medicare markets XX% gross As grow we investments we this disproportionately predictive the From industry where the growth place with AEP Florida came level including geographic approximately from capabilities experienced but Preliminary competitor Humana of that a growth. have a higher generally previous our average penetration have data plan Advantage infrastructure, and we appropriate or offerings. result than key suggests during widespread manage of risk programs individual are to in of we a

sense partners rapidly Accordingly, submitting for premiums. working and higher to as to is the take approaching and/or the XXXX While we due beyond. whole Advantage great invested evident the HIF believe there benefits a Medicare given bids with the it the in will of for action of the industry Recognizing across HIF return for reduced XXXX for to form urge to urgency repeal part moratorium, legislative HIF are that that benefits XXXX offerings. XXXX the impact in deadline a Congress in is we nation in seniors the in the members of negatively

to require in entire As Giving technology Blue we the who integrate This and them government’s implementation Button to healthcare facilitates information the progressing companies Amazon the record patient companies rapidly fingertips. space. X.X large move X.X of determine Google the entrance ability advancement in action. healthcare XXXX, and Button puts health forward their evident is information. the take Humana and evolution large healthcare Medicare of the a as of to like power access like by at of their and to Blue the

expanding the systems we accelerate channels; context, of longitudinal discussed experience five organizations and increase data partnering our clinical developing a that are to placing us including across of focus integrate with external a our power deepening leading healthcare us our developing computing drive interoperability, that to the ecosystem, to previously. more we in external record operating most believe development resources use facilitate clinical consumer investments the in higher out consumer-focused I partners. of learning, momentum areas interventions simpler These Combined, experience create health relationships members create infrastructure, our made clinical tools following agile of identify machine to enterprise engagement. those expanding to and investments the the interventions enabling enabling personalize create and our strategy while and continue to AI for We will actions effort patient; proving important clinical additional our or by experience. our member ability efforts will these health and will and areas: provider internal building and a to executing In model the an in including the a health we infrastructure health also

to In addition, and members to will on needs. more our like refining the This access care offices. products receive telehealth and care more in and this need home a becomes the it expands, offer for use as to functional will allow technology personalized reduce segmentations for doctor's convenient sophisticated like of traditional They're to care. experience emotional members’ address customer settings more based also

best in insurance rankings. excited as we serve service America's In have work do, closing, future Customer people the improve the we XXXX magazines’ Best are the was among in whilst Humana we health millions recognized and way to customer Service are Newsweek, to that Although, opportunity the to helping proud we by life transforming about our lead industry. of of of our companies

success growth the MA recently into in strong over of in XXXX. increase EPS today for for provided coupled EPS we with represents XX% adjusted to XXXX. $XX.XX an AEP announced $XX momentum This of guidance $XX.XX our XX% the to And basis Our full of year. an XXXX completed on adjusted initial

per into $X.XX has his dividend in voted from to call turn that, Brian Brian. board go I'll dividend to cash the an of more XX% With raise to over our increase addition, per will previous remarks. of $X.XX share. of Company's directors detail our the In share,

Brian Kane

previous us morning Bruce for a fourth $XX.XX Medicare continued of XXXX for full EPS represents the and Advantage you, strong quarter XX% of This ahead year everyone. adjusted by full fueled for Thank our XXXX. strong EPS believe Today which positions we expectations. adjusted and of year, growth reported over of the results, we good for $X.XX the well

I strategy, briefly XXXX of our sentiment that our care strong both our delivery are of not in integrated of pleased more detailed the our reflects and core for a shareholders I to and value fourth the year for Bruce's success impact model of has begin quarter that expectations operations. we discuss results. and translated the only Before also I our but And full strength echo performance will our advancement our associates. the our discussion XXXX, XXXX

the incentive all the As higher-than-anticipated with will program. benefit Bruce the indicated, of across XXXX previously segments associates expanded outperformance compensation announced under from organization

inpatient our medical pretax better by revenue that allowing Turning results, outperformed once as benefit was expectations segment now finish business us segment per to our ratio again to led the year. trend outperformed result member than our Retail XXXX range. our strong reflected month above Medicare previously throughout and Advantage This MA an consistently expectations, anticipated per

notably and award until continued performed December range. providing Medicaid year contract strong combined increase the year also the in pretax ASO to particularly ratio. comprehensive groups funded new performance The business the risk-rated from Our under and to coverage and going Medicaid XXXX migration community-rated healthier services to medical did costs with gain February product slightly Specialty our traction we XXXX our end described continue was higher in in to for the year benefit resulted marketplace. in offer significant X. Florida. at incentive ratio phase In forward the in business previously fully the among for began the while of Group lower the statewide benefit segment, a impact on guidance contract positive compensation finished the This in-regions products implemented the We TRICARE our secured well and contract ASO level business full

Turning a acquired well guidance as Healthcare adjusted and transitory XXXX EBITDA assets below from into previously the business, strong incentive performance full investments MCCI Conviva integration our Company. our bit increase costs compensation by primarily resulting the the the range, to year reflecting Services, of described associated the in the as ended with previous

deployed branches addition, cost the a our only opportunity In Kindred to shutdown of earnings enhancing related significantly capabilities a in we establish of advance Home quarter, but to efficiently other membership, costs from was that branches to the to costs investments existing incurred at Humana also resulting and XXXX incurred strategy. service independent capital an company. substantial year, the higher-than-anticipated unprofitable present including our Not strong

As the noted acquisition with to hospice option investments previously, in in a in completing few acquire the country's home business health the next we made Kindred stake of the home, at a the XXX% and of largest operator, an XX% years. Home

important noncore the full exit our primary business. investments made other our And capabilities. care and in also We of clinical business care successfully achieved we long-term

lower XXXX, will an Additionally, our in over and we we to repurchase billion, in EPS shareholders fee share Florida. expansion by count of a In growth to Advantage of the pivot result entered to quarter, XXXX million and top the billion, be in XX% into of the to XXXX. November dividends increased also as I the second share of due XXXX tax revenues per excess repurchased in rate consecutive significant of reflects last our form worth adjusted consistent for in a primarily approximately ASR XX% Medicaid our of health we the including range the meaningful Medicare reflecting as entered and that year impact agreement shares projected a of increased $X.X target returned expect reduced into $XXX $XX insurer of of the reflects capital shareholder now ASR moratorium we the as north EPS to membership accelerated repurchase. dividend to or well of November share This XX% strong line adjusted in to XX%. consolidated remarks XX%. our XXXX. XXXX and above $XX.XX, increase EPS growth XXXX with adjusted $XX guidance, XX% long-term EPS XXXX With share growth

than to increased full very period, And we XXX,XXX segment, growth annual segments. of membership posted That Additionally, Relations our continue on members. some the to January by aligns In year on individual to XXXX I our members. that Retail expect we Investor color will each a of adjusted election XXXX waterfall approach business earnings expect first provide website. year XXX,XXX slide of result additional our XX% now as of full EPS. XXXX with is a XXX,XXX quarter more MA our strong

health pleased for and health industry a us with members are in and significant allowed We moratorium make products investments to fee the the XXXX insurance drive benefit outcomes. as whole improved to

risk in in at points XX.X% Humana Given Retail as above as we which a clinical approximately It impacting takes also growth to not in a we will programs while of our Accordingly, prior a revenue year not are typically first a be new benefit perspective. document improvement XXXX. the from to expecting benefits, which XXXX to to relative quite margin XXXX, target and profitability. given range with get reasonable the high to break-even XX.X% anticipated membership members while is the it meaningfully the to time higher-than-expected in in due guiding is basis them expect are important to into that important are segment, we XXXX the improvement score is XXXX investment and our that ratio accurately percentage were remarks. midpoint It to for continue member it note XXX consistent pretax as previously increases in that higher below our ratio remember the

target, power significant and And of our on in to X.X% It XX,XXX While target period below returning be MA, an membership remains approximately members Medicare long-term XXXX. time the expect of a position. or membership decline Part our have that XXX,XXX expect continue that a and as very a of historically These From well competitive where we strong PDP, we perspective position this us a expect in over group we we individual years XXXX performed XXXX. driven note D the that have XXX,XXX of value smaller committed increase in growth, continue to result growth for as reasonable competitive trend small MA to ahead. primarily standalone and by to to accounts expect group margin proposition. providing a of margin group is margin X%. continue earnings target we to important of members a is to that balance source Touching are to we deterioration to accounts we

This will PDP no price are markets. the we our in insurance for earnings course plan longer impact of at that XXXX. any low Given

and have PDP to impact we the not January Humana value serve while business Walmart is ahead co-branded to the more low million losses committed first X.X market. is as to the price membership negative However, innovating important segment remember will around on around in PDP mover committed declines would the moment. and discuss a disciplined are space note I our Healthcare proposition was a our pricing, in insignificant to as this pharmacy with membership are also plan Services continue of years It will serve remaining to meaningful members a XXXX. PDP we Humana in a in I the that

fully business XXX,XXX Finally, to a X, of $X.XXX in by statewide Medicaid Medicaid grow were This in by our increase award expected Retail XXXX for at to Medicaid of regions phased of is the we February contract revenue to XX% the the as the billion XXX,XXX XXXX is Comprehensive guiding summary, increase to members approximately as all of billion the $X.XXX over in income million result In Florida. a $XXX range pretax midpoint are to XXXX, range. in XXXX. of segment an expected

our to primarily members, commercial by expecting including to membership environment. XX,XXX both competitive decline segment, medical total the XXX,XXX Group and Moving of fully the reflecting are to products to due ASO group certain large insured and we accounts Specialty loss

are more a products. Our plans where space, on vision the to thousand competitive cross-sell particularly groups offer and focus small be we with dental two group continues to specialty and able our to members

funded block XX our which We X that a community-rated serve segment. to our in to more by ASO be expect offset fully in reduction see products this level growth also than will insured

profitability business range will received XX was TRICARE that revised $XXX and experienced anticipated to with profits. We offset or Recall more positive what than From moratorium, we're continue All-in, core previous in final replaced HIF minus segment. expanded generally million a East TRICARE we points, part show to the TRICARE with run the to million previously expect settlements the the nice associated consistent of of discussed by XXXX. $XXX with that to guiding in XXXX contract with because for this a but growth, lower be Region this pretax commercial X% terms. perspective, contract to the expect in we trend pretax plus basis

use losses adjusted which expect we is lower from the our Healthcare This by for PDP For than a the greater above, higher-than-expected of that is the fact range XXXX, primarily the of of our had higher the billion $X rates. impact discussed $X.XX is stem to which segment, EBITDA Services in Walmart we average now the result losses plan, what exacerbated been billion mail-order than bit anticipating.

is adjusted model investments the discussed the consolidated for Our operating the Homecare reflects of PDGM primarily ratio significant guidance XX.X% EBITDA cost annual that year-over-year. platforms to implementation XXXX, moratorium. enhance system in XXXX, the ratio including for or to home of patient-driven groupings the to guiding Homebase Bruce both also operating HIF in the a reflects cost a of perspective, XXXX making across for projected his range Home in additional the an due to This we're at in Kindred remarks. From cost lower XXXX costs ratio preparation model and hospice that decline XX.X% from the also XX.X% compensation clinical incentive

a Given that by XXXX importance productivity as and in of recognized partially we previously impact $XXX would to discuss for shareholders as the of I to well We XXXX reflects discussed. clinical and XXXX. like XXXX, guidance in November offset gains, ASR briefly million returning deployment technology the the now entered outperformance capital capital our capabilities. investments as into

our the assumed maintain of repurchases desire to additional the guidance. Given are strategic in flexibility, size ASR our share no and

could that build assets. clinical with associated to services acquisitions our our we increased our perspective, meaningful consecutive cash and dividend opportunities share an strategic M&A evaluate that the by segment, In we look capabilities, arena care that share addition, announced including dividend $X.XX for third technology, specialty From out to generally year board continue a in as care Bruce enhance pharmacy, health our the per directors of particularly XX% to today, increase. per discussed, we representing companies primary other with

in presence Additionally, we increase would assets also have in underpenetrated interest our markets. health that plan

expectations of higher target opportunity. to rating go strategic approximately I've for the agency As the we total said with with a XX% consistent debt-to-capitalization right ability ratio previously,

Investor Please will Finally, to that you With the for Day date. plan yourself to host that first limit caller. ask up the those In on everyone question. an remind please I lines the XXXX in fairness New one the to waiting City. queue, want to questions. XX, save open March York introduce your we that, Operator, in we we

Operator

And from first the comes Research. question from of Instructions] our Raskin line Josh [Operator Nephron

Your line is now open.

Josh Raskin

Good a thanks. MLR, I question all the Appreciate XX guess Hi, morning. year-over-year my just on is on the mentioned segment the basis. color basis around Retail points you guidance. up

the guess is much is, that how HIF market, your moratorium MLR additions than of I how question So going much kind of more. faster little of benefit that is up is growth? and a growing just with that and sort I the the but juxtapose bit of your

And much just does to sort of in come the that to planned out figure HIF as and trying benefit addition the back sustainability of what rolled if has how back? XXXX, so I'm Thanks. get

Brian Kane

morning, Brian. It's Good Josh.

is about XXX environment host of HIF positive we mentioned, very the [ph] funding rate We from by So MBR plus some one The sector. Obviously, higher benefits had those. have had. elements points. tax did whole looked HIF minus. the in We for that basis still reform. a the The I was moratorium of year-over-year as was broadly or at we range, that

tax benefits moratorium. of the have We HIF the

in I the could that we we think enhancement well HIF balance to as enhancement right our all Obviously, calculus a So tried strike balance we're return growth the to earnings. XXXX. nice to into struck went drive benefit those And mindful as there. drive between as really margin

the cost return We of prudent say the for as anticipate are I would from we've the just in HIF both to think XXXX. investments about trend on investments. return planning and well that, respect And the getting the as we the I of our that in been organization with thoughtful potential vendor

Josh Raskin

thanks it, Brian. Got

Operator

much. Ana your SVB from you Thank And Gupte line comes so Leerink. next the from question of

Your line open. now is

Ana Gupte

guess, to that pricing. up about good D Thanks, question your into plays D Part you have how Part bundled board market on firstly, to is, impact the You on XXXX? are that rebates disrupting disruptive? being the MA this follow and think a will on changes potentially gap suggested you the commentary and happen are I that on be does the product. wanted I secondly, an the you and PD and do do to And how offer then opportunity PBM morning. for

Brian Kane

much in without on program specific were sale. Good that be would too or the discounts morning, if proposal, Ana, of PD commenting to and rebates obviously, way go works the a the the change of point rebate major PDP

is would that, of through. disruption in I in for creates marketplace think, that to have some populations. perspective premiums Our broader raise think the we itself, that that And the

that. I will about that. irrespective prop And partners the a potential creating wouldn't after with beyond just in want sort our it or be what whether something of with comment thinking when about think is it's we XXXX rebate I where we're talk to as well. But value implemented change material, thinking broadly, we're and is hard say obviously, to different about go of that rebates and it's –

the priced is imbalanced. idea have risk that create is the selection could given we're pool best the product of it could negotiating of the the mindful rebates things on a is the One potential way that adverse the fact of

And think negotiate we're that positioned. broadly prepared just creates that I good so of kind incentive it, for we how think the discounts industry for goes, those the through. and of policymakers we're and PBMs to about policy feel what something question But need is wherever to

Bruce Broussard

CMMI. with certain is of rebates would what but innovative add example details and evolution needs needs counter policy of of We some give a of – Ana, the believe how of other think view, an pricing just Brian programs coming that, won't do the we're D just that. out broader as is saying, – can little of market, are I Part package to some that the that, a the I maybe but also a result study combined that in to are within Part market D we point you from going one it, at is are services is as than construct we you there that

market proposition value the out to for this a outside see We we actually run I enhance want and these changes so a the actually down. refreshing a there's think as to has changes value the has time price commoditized, offer there. – the And that's where running its way just proposition these course, here use of

Ana Gupte

Bruce. and it. Brian Appreciate Thanks

Operator

next from line of Thank Fischbeck And comes your you so from America Kevin the Bank Merrill Lynch. much. of question

Your open. line is now

Kevin Fischbeck

exactly that some X%, if which I sure think HIF clear guess, for to by Wanted so wasn't of ask might to this if I be offset EPS. in wanted could there partially bridge, the we tax it thanks. in kind that's your your exclude be would related I and to And below is sure. we through which has – wasn't Great, It I $X.XX guess, they're to to question. I – a secondly, the growing me chart. answer, interest I with and on On part I not questions, was that, think see that same what the issues, If the now I'm what about long-term but that. but higher, your understand flowing understand guidance, then guidance, of was two case adding expense core other being that column there. line else is

Brian Kane

other. the show me let Well,

EBITDA of a other simply to host that's but The segment, our whole element. things an there, the in from is in adjustments sort including of – important pretax there's HCS

interest some things a increase changes on of bunch there's in other in and there. going expense So there. There's

there's really nothing think… out I a beyond to the obviously spike footnote. what's category, But almost catchall it's there but in So

Kevin Fischbeck

the just converted the number to other EPS, items. Your EBITDA have services EPS impact the then and below-the-line is

looks the So two to you what things of those kind of benefit actual kind net like? EPS say

Brian Kane

the on there's element Healthcare company a the be focus Services changes. changes other but we we things internally, Services an important Well, Healthcare Again, it is the should but as believe EBITDA-type an business, in and business. other besides really

there the incremental Kindred, power And so are a debt of the we build that EBITDA below Recall business in the of the whole that when business line. below And owner of drives get necessarily our clinic doesn't as impacts there reflect leveraged that highly earnings out a depreciation there's consolidated XX% lot host a that business. line. changes in

to other was, line, that in in changed investors is XXXX. right think you trade in if on an thought We on but types trade going the of are assets that private market EBITDA in the about – we businesses, about things way of also thought basis. EBITDA which host the are it the business. on they And focusing frankly, the why these way think there frankly, we So

and about was genesis as year of holistically. where it anomaly the say, respect multiple benefit/margin said bit – growth But contexts, really obviously we the tax the changes, in we've that XX%. slightly first I would So pretax that. effectively, question below an of to of this was on your With so because below thought a the is, trade-off

below-the-line so the a to driving increased top we're we're on, focused as range. focused of lot which, there's remarks, in last in we've in And It's our to above membership. And getting but and on nicely as business. we pretax then that not EPS pretax ultimately, year, margin driving I benefits this well. my have obviously, as two line said a And our range, range, growth mentioned, XX% XX% year, years then

to of sort the balance try we that's strike. So that

Bruce Broussard

we as to changes other margin, Brian in our around of some And at are happened the items and returns, in for tax the business in that pretax and a growth growth, to structure, pricing – that incorporated in result looking a when we're pretax the at at confusion post-tax. as HIF. tax. these being tax investors. core things the pretax look add our after just overhead is we challenge to how and at a what's it's both of looking apologize really look And reform approach The would hard I what's you and

complicated you and we it one to there, So just for item line that. – for is apologize pick I

Kevin Fischbeck

All thanks. right,

Operator

the Thank And from of question next your from Barclays. you. comes line Steven Valiquette

Your line is now open.

Steven Valiquette

Thanks.

I gears here a you margin touched think the shifting on, questions so little bit. maybe just just

really drug Part looking proposal helpful? your maybe any premiums the HHS color just from you last But comments D rebates plan My sponsor on it Just around that some extra that. would and about that week. to is offset every proposal profitability Thanks. hurt thoughts on your much for the probably sense because raise would could not be

Brian Kane

I address question. this a in previous And to Yes. tried

the through a longer rebates is the to continues chain premium to flow it supply acknowledged one, way flowing more the a benefit so works increase from up. the from going no differently, is see change has and have going is direct To the CMS more of and I going that, contracting the are is extent and study, customer, who's to bigger obviously, through to going hydraulics this The obviously, the going on should to the Pharma supply to customer to continue this. we the to change the think subsidy the because government's there. PBMs, pay through to I issue industry study. Again, proposal goes the impact because the chain meaningful something think broad they're around have this. the rebate go to all

complexity And has so there's that a through. host whole be of worked to

for more through, the all I bigger that negotiate adverse think what come members once people their just to that to again, issue, for good around is the I to broadly. is think selection does sorted back discounts and incentives for

is be meaningful So be of we in imagine, and next of have XX days, timing is I to here. it additional And which going it are uncertain, something as we a still better. will understand there'll The a comment all impact. pronouncements number the to made that that's – need

Bruce Broussard

that Just of for knowing a something is additional comments, top investors. mind few this our

the processing is and just is it program that's where from completely and do that And – of particular drug buying through drug As trying administration going thing for do, work continue is population, of filing what and are letter also We is that, reduce on companies, to support all will individuals costs. to to at have we're insurance the place the that what lower to around something, drug redo party is response This dollars drugs company, transition always. right �� and believe the cost have understanding of things. you Brian that but a and how work it we how discounts, happen there's And is through, the that our about the takes as both the and the administration those a that's through to has lot raise counter we will the the because the to there contracts, you the on particular to it, get the the to the articulating The to next. a moving out. sector sort other of one bring parties parts. of the that costs

easy as to So are we needs you are complete understand there. and there. will that bid them in D, do are the and it they not – provide D of an contract if Part happens transitioning prices there then it parts, details the the the be that timing ensure is you the manage we change and contracts those and is moving a happening, process. And you secondarily, to then how that. transition But changes through manage through Part the they after it different Because part your how processing that have and do

So stay tuned.

complexity have – We lot of this a support the administration we ruling, are it. final the does to is if obviously it but will

Steven Valiquette

focus the and giving companies really Just plan part public some in extra of posting profitable are curious you there nugget. Do that's surprisingly a D, Part think on too D us are focus? Washington, that's not the Part are sense, sponsors just the here. In low, that MLRs that

Bruce Broussard

that. done I because – work a some to the that publicly with a been mean, competitive we cost that have very we are – I described amazed are our drug have there. there are in that add there of fashion and MLRs of lot I'll we out

market is maybe and has there versus the maybe things drug share. more gain wanting So pricing that just other there the cost to

within the I Part way pricing. that our of rebates bid that of are fully rebates one are is see in very process, bids processed area. Part would it transparent D are of Medicare the all the that's in the there way the incorporated that that industry So margins you because say disclosed the in and because D

of unlike you – have the the counter rebates. the the commercial the regulations full much both where the pricing because So at transparency, and oversight of the in and it's transparency D, of different Part

the that's cost just excess across it there's already the population. dollars it's or Medicare system. really general that D, of really buying more not dollars counter And that sharing more of in than And is that, drug the to just reallocating policy really dollars it's – taken are sharing it's not That's Medicare out taken has because versus change. what Advantage getting not the no the the the it's and so are system, back the allocated profits the people because transparency at the to rebates the Part

Steven Valiquette

Got it, okay. Thanks.

Operator

Fargo. comes from much. line question Please Thank your Costa Peter you question. Wells from so of And your next ask the

Peter Costa

morning. Good

Your you performance and perhaps on Part been in the like that you third not much you bigger carries talked group guide business on about earnings of having impact even little the more membership. about of on little as bit The be rate more an MA with much the of worse had There's changes thought impact a business pretty mentioned retroactive guide And the you a line, but a some negative the membership, revenues. – seems lower D $XX into in your originally in adjustments that's to then than quarter on Services seems next line because you Healthcare talked $XX.XX business of that terms will of year. the call. of terms but performance

negatives to of profitable? guidance the little third the in So that I business XX% a cohort what there fact there? came you've think that of was some bit same? and where Is quarter, relative maybe makes the competitors the the MA positives that more number, that makes outlined few – the a Perhaps from that

Brian Kane

Peter. morning, It’s good Brian. Yes,

where in we is Retail MA that, as mentioned, I say think it's to versus business improved offset the And were our by guess, call. those negatives. fair third some quarter I that of you

$XX we $XX.XX. how to to back get that's the So

say, how good is business Retail about very feel I we our should think I Retail – MA our trending. and

HCS, And think side. commentary. on focus I the so less that's I'd the group But a on fair

other. performance are the material clear, there, expectations one better be And XXX or well is of It's offset of which our HCS the to is aren't these TRICARE the numbers, Just XXX and earnings. Retail. to slight way these commercial within really earnings, lower the

Peter Costa

you. thank Okay,

Operator

of the from much. so Wolfe comes And question your you next Thank Lake Justin from line Research.

line now Your open. is

Justin Lake

you've the individual X%. I'm Thanks, are X% to be next just back good out And at shared to that a kind not before, improve early implied thoughts target. guidance getting – that of ability then should year? Thanks. XXXX, that X.X% margins to in below ballpark? in what Is and MA right the If that your said morning. Brian, you they to in release their you're margins come look below in trajectory I that might any the rate just looking on number

Brian Kane

I'm Justin. estimates good Yes, give margin. on point just hesitant always Again, to the morning,

for free to margin we've fair we our And significantly think in below nicely the of towards has think but target be that said significant X.X% as handle low before, – certainly improved we end I want below just we've still XXXX. and range. And that X%. to were XXXX, the to next it's that it I for I say say would to where

a and to up, guidance. here We'll Regardless to what get this growing we're the just committed on. I you'll that. think to give have and we're where see important happens, the well, final I element too I this HIF all am think XXXX that early any go see XXXX it's of a for still point. Obviously, something that's give and to notice specifics to really hesitant enterprise, rate as waiting at is finishes notice. ways we the

Justin Lake

thanks. Okay,

Brian Kane

Yes.

Operator

And Dave Jefferies. Windley the your from line question next you. Thank from comes of

open. Your line now is

Dave Windley

that And think about there's couple to Hi, would kind question And it burner to decision stand also that clearly, up? outcome? it you influence – case. is, relevant court upheld, pending you to taking Medicaid trend and cause you to really the have move there's around question. of does implications, more in to implications. your instance, two-parter my be today? a thanks but those then the were back as for two, I The if rates – you of Does wait back that HIF to here – rate were for ratchet would appetite if see I'm that wondering, parity of a expect ACA see

Bruce Broussard

the to I in try the that rates. order. I'll of on reversal can't reverse answer comment

there that. that's with CMS too there I would speculative think to on fix what happen – in policy be other interventions or would

I'd on. on I comment you rather our as view that. our So put Medicaid comment where is something on and for it, that's appetite, can not

to for We their service dual from in able health that, population is the a that be offering we will in, the has successful to of capabilities addition, continue Medicaid their we years. serve continue in to a is being today feel tomorrow we individuals, quite both lifestyle quite as effectively, to been and that we that market complex effectively. states. in serve a the very And demonstrated and a should – believe strong And our care strength of grow that and, and from have proposition population value

that have be road we So they whether duals belief population. the as that are SNFs. we be court the Medicaid expansion will states, or oriented change think about not, less down different whether and out to changes to to doesn't more with oriented is potential the It to or catered continue program a with the our going that case changes going of they

the require population, serve will so say states as populations both be. Medicaid, their to dual very on focused but And continues other specifically appetite I would strong the for would be our and but preferences

Dave Windley

Okay, thank you.

Operator

line Credit next Your Suisse. from comes question A.J. the of Rice

open. is Your now line

A.J. Rice

others with – other may have are Is give it expectation say it's you've on lives not And going about HIF? somehow coming comment the higher you've that if than MA I if just consistent with suggest be it particularly come agents? the everybody, years? this could is anything wanted us around XX% about wonder underlying competitive to some landscape usual, that with of year the if the and Hi ask – If perspective back what competitors. – I that. on people does your XX% from does what's of the of seen you growth changing, from over go to it's up new picked

Brian Kane

few but would – difference would we've material where say the I not a slightly from call years, above not last Good I morning it A.J. it's been.

lower. year. – I CMS on And it January about at right of they over out offered. think the way pull asked to market if conversion Minnesota this this you tape, is the to no a at bit because there's actually, where the look January been glad big little But growth a the longer some plans the MA there were you I'm seems look was there commentary cost

And number so MedSup, Advantage. some and those to of those went members of to Medicare a went

the into the actually MA. was rate. counted get are But an in those a sector opportunity the from it cost to way industry actually the plans growth for big perspective, So it's members

So distorts it. it

see you'll If market you taking year. are disproportionate pull share faster out, growing of market. than last that a And that actually the that actually, is we faster-growing

only numbers we that how And we're obviously, So, about feel seen, Bruce remarks, there's we how that where as we us put in feel but It's very the February, good that priced. nothing gives his early indicated early are. We positioned. we've good it's about still we've any about pause today. out

our bottom And line and line. segment, potential, very so Medicare all we're in on both Advantage all, Retail on terms top growth in bullish our of

A.J. Rice

thanks. alright, Okay,

Operator

Your next the of comes Piper line Sarah from Jaffray. question James of

is open. line Your now

Sarah James

with revenue synergies about referring how Humana be from talked I may recently doesn't has mind retail perhaps that Humana in have, think this to locations. you. levers be D pricing and bidders some could Thank Part

a creation? instead And compete? about to value are So services considerations low-price-point drive what of talking And strategy if you more packaging segment? traditional do packaging targeting Part a Humana with your in pricing is together to itself, beyond D the product benefit-rich is other can shift segment to this specifically, what

Bruce Broussard

lot think opportunity ways the those sort That happening with that for I that of of combination an mashed this what is just different commoditization that general a services it a think value and in some Yes, would what in have happens to a a or, I you're accordingly. seeing say are be out come I this the lot product, changes industry. other and we negative comment of two could in and evolution I a that we'll you see, add. we'll companies. think offers for And too. the is of matter, don't segment on of enhance just and industries, policy things

have Advantage us, one as to game you approached, than commitment investors competitive advantage the I see just Part very this D are a can very way Part in not to a that or a in way that the from at and So other." year both front of would then going as this look result is of the – also have " someone one at doesn't that that's of mentioned It when taking have either them. revenue end. Well, mail of back the times significant we doesn't say, seems and some order We're at end, price a but in share. we've particular more delivering still oriented earn retail a And Medicare business have market we buy to who We that interesting. it's is companies And be D synergies, we the we return. synergies that price see value we is large really share, it a the emphasize by our can and to have synergies

clinical the in We that it have service, D. us that that our enhancing doing our don't that our us see don't in ability with customer, Medicare, Medicaid, the see outcomes, you to and we're in strength. meeting we value to Part do impact You cheapen our strength doing expectations feel brand, shouldn't through not we in is and along our going

stay tuned. So

changes. as is opportunity believe I making we and opportunities there. but the we promises environment the market think changes We're some not obviously marketplace there's the these in do believe in here, that for disruptive presenting need to all an be is

Sarah James

Thank you.

Operator

comes And from of line Scott your Fidel the question next of Stephens.

Your open. line is now

Scott Fidel

morning. good thanks, Hi,

just question Group segment on of trends in the Just the commercial saw had a just you some the fourth quarter. in and

that of given around the And just just you're particular into also, on commercial XX% relative and at small I selection group. then in Do you level-funded guess, Just be of you're terms you're XXXX shift. seem I the mix of the that sort like part expecting products showing of in what have risk seeing year. end talk XXXX? some the, of pricing at you're any shift shift sort issues projection marginal mix to as how that up of to mix residual ASO adverse the book the about know in the

Brian Kane

Scott, Hey pointed And you good morning. it. just to

If members release, tick actually you in of you ASO continuing our press see can percentage look up. the at to

XX increase product you the to XX,XXX level-funded decrease saw in community-rated a and in product. X Just a, we that in XXXX, XX,XXX, give some about member it, context, call to commensurate

to think in that see I you're XXXX. going even of more

more a we So that It's something even share. disproportionate targeting. are

have we customers if so really X which their a And on to it's to because right our like effectively it's and is the ASO-level you needs about block like the customized business XX, the it, the think funded, risk-rated, it's risk you profile.

You transitional that quite out These community-rated have so-called for that's a to been ACA. business the that have XX there. relief the has small products X well you us. performs business grandmother challenging. still then this from And That's product, more group,

also going stop-loss of significant this nearly and But can to we not going and – care the which that product, and as as estimating healthier be in worlds. to ASO-level-funded protected a book get that's between your effectively it's it of have like it other seeing gives any that the to One they're you health under get both it your adjustment to we'd what books. self-funded them be going basically go market are so but is stable for how cost blocks a issues to that to them risk effectively shift, they who best business allows and protection are and see, play is that

business I headed without on giving that to disrupt positive. group actually, think I think, we shift prediction So percentages, the continued and there. a is you'll We see about optimistic the We're a think that's the have marketplace. opportunities a where

and the flexibility One a business that different opportunity to player benefits we the more in more major of group things. of have try being is not

And way. do that very so in see I you'll think a prudent us

is is element really six important our like mean, of business, They talk million members. have we The don't lot. a TRICARE business. a this lot that I us military other which about, we

our we're more towards some there They're partners a with very great value Defense excited the risk. that U.S. we're business. that some government. have Department It's We and of experiments with working on, about closely relationship and also perhaps of moving elements based something

you mentioned. us us So to There some that for of strong the quarter migration future. to come put fourth that some a settlements also on we set more basically that. had was But just that behind up

story And so that's really the there.

Scott Fidel

Okay, thanks.

Operator

Your next question comes Giacobbe from Ralph line the from Citi. of

Your now line is open.

Ralph Giacobbe

I enrollment to you're understand but margin consider high do growing certainly just want sort go to faster, of baseline. I morning. good typically, you guidance. some the single-digit Retail growth Thanks back as

and So to improvement And of just top would have the magnitude on the base basis those of big on HIF that, the in coming have moratorium. the better prior from that pretty incremental suggesting. impact like even X% XXX doesn't then points XXX considering you're and your on in growth, it we years, from the at seem rate margin backdrop

preservation at of So to margin of just that to there something least we and comeback Thanks. conservatism. curious if is on whether really sort HIF, in prudent potential should it given is being else, mean just thoughtful, And the take Brian, your just comments, about XXXX.

Brian Kane

to is Look, not decline margins degrade XXXX. our intent to in –

business grow to think goes. that's growing the But are obviously, improve where this rate I we bottom the very as committed And unless, said. But a we've have business the are to regardless we've where the environment and and as situation to there's fair top obviously, to to But business line. to to to HIF regards rates. of we continue the committed said, say. unexpected grow we that's understand I've with and

we and nice will think of the feel seen revenue. fair impact pretax insignificant about that in wouldn't dollars side, XXXX is a the but several Retail margin. have question, billion On say, our meaningfully Peter's given it's the just I pieces. to And XXXX, going some positioned. actual incremental growth to and where individual pretax amount, we business back an of enterprise I The overall other we see, MA is improvement of good in It's above not underestimate growth pretax moving the the

on are seeing nice side. So really individual I the pretax think growth you MA

positioned I Retail here. again, about where broadly we're on the we feel good So side think

Ralph Giacobbe

Thanks.

Operator

Tanal question of Steve the Goldman Sachs. next from comes from line Your

Your line is open.

Steve Tanal

more of you get Part thank D one little and color about just D guess Great, trying captive other just plans for question. how segment. talk I Services some segment made mail Part I'm any, on than the a and Can decline kind sort profit how order, of your outlook. the on that to Healthcare the flows sources the segment enrollment that if you through through. the of flows

of the and the Med the investments of PBM as that of decline related you little to segment, you EBITDA XXXX. about bit maybe kind well that Sort profit into of in could thinking to framed outlook dig lapping down some the versus the maybe sort a flat guidance into break for adjusted if down services D

Brian Kane

just EBITDA up. look guidance year-over-year. Well be clear, at if first of is the all, you not It's adjusted to

so mail just – as mail some side had order both PBM the we've That is bit The well than was PDP that regard impacted impact on flows little a bigger And we it's it's as the on the anticipated. through changes had been which order. side. by worse of with to membership,

the relatively As plan high order mail mentioned, Walmart has I high a – penetration.

But billion an where growing finished have when sector of where year-over-year, going look impact guide in Healthcare you and nicely be. $X So members, you're suggest at we still our the lose $X.XXX if we'll on EBITDA those to billion Services. we're to we where

term. element. important an of that so important element one An just an MA in Kindred Obviously, part part expectations, some it's that's HHS. Healthcare pressure. Services about Kindred, again, of So also that. for important PDP It's important long of invest is PDP of is above and our that is is the we offset The nice MA to growing helping we're element

position it's Humana, outcomes while striving the we're thought that example, for we for Homebase, because it decision Homecare XXXX, so and the the Kindred that expense implementing attain an us as a board And clinical measures clinical made recently do. to enable to us, future would better and for the

investment smart business. our to segment So that a in we thought was care importantly is primary And make. the also

a and assets we're The we're also making. as And was making but additional rate team that so where clinics the And turnaround years Services continuing notice. down to of continue we been as for care and then impact last over XXXX, some JV on Conviva impacted there's better with few committed where improvements well well. still operational segment on, as that to to there, put we've in is our the put a difficult work notice focus the to has the business our down Healthcare by the profitability we clinics, whole in that rate primary host own on partners the have investing

think we with and it Retail I our good think business. we about about HCS, feel holistically again, So

Steve Tanal

thank Maybe Great, then. quick one you. just follow-up

of investments treated about in with How think associated sort plan? pretax million in those the were that the I about went into think on recurring, reform. not I which Just potentially was of were XXXX half $XXX was half tax wages. XXXX, I financial there think

me. Just for the on that it how into and flows that's guidance, curious then

Brian Kane

into I as our we everyone $X we dollar that the are lot referenced, benefiting the – right. investments our in community. investing margin. for benefiting into went wages Sure, broke the and other said from technology to from developing then, and people big are you so – $X benefits, to as investing our shareholders, it you investing change of went in investing, out, mean, dollars by a enterprise both invest well then associates, and program, goes process the effectively so all and and our the as or have investments, That to clinical the bonus most way obviously, went in what in that was and XXXX effectively the Bruce and exciting that a higher business, which capabilities in we're

that pot say. all just both the dollar And to as part the into whole back the – increase the we growth well the hasn't dollar funding as But had That's to pot, associates The and run incremental higher bonuses. in in of still rate, grow I that XXXX. margin so minimum wage would went funding changed. our to was

Operator

from And Gary question line comes the Taylor of JPMorgan. the of next

is line Your now open.

Gary Taylor

a it HIF MLR we potentially basis about a revisit for the and a impacting guess HIF And there going could being points stable? I'm a Hi Or specifically being trend guess so – sorry outlook? is XX in the account it. in pretty was from you've different perspective, it than guidance But And – where MLR. that about in I approach as substantially that any out that on seems maybe XXXX took of the about invested or Brian, XXXX, think I any moment, the easily secondly, underlying today, into wondering, XXX I in related like that guidance. benefit. was of you if were lot good morning. talked in seconds, – for the my to I tax you a can't change investing your incorporated maybe portion to benefits, held appreciate underlying benefits just – HIF the you then guidance few talk approach MLR talked things I just to am lot

a of than market grew lot growing into putting like the you're the than faster are You sounds this year HIF the slower benefits and obviously substantially market.

So in to things: approach heading into why give decided the change us little underlying two, a different just XXXX holiday. trends? take refresher on you two the any And one, just

Brian Kane

change. no put about it the bids that be reflect respect very is trend accounted for. trend, any perspective With We're always, is our we ensure actuarial I going to prudent deviation, XXXX. for think, Obviously, in speak, adverse of we we what as to into provisions for our and trend call

of very about the I that. bids. And prudent trend into we And so put been think we've mindful our we're

or difference. question. whether not, to So regard would possible. changes not a as impact question our necessarily accounting in it I exclude away fact come to a made the from Because investors. some guidance, just XXXX, that there think decided again, we really it, to The again, just wouldn't don't the that create characterize comparability difference was necessarily an year-over-year. XXXX With that was for HIF, The it it I back tax option in went

just at few called tax we other that have clear year-over-year look out. and you impact. that you tax out few waterfall, called said $X.XX, We see But we've been HIF had very If less specifically we've that a . changes that we've our a the can

getting impact HIF in we the really tax So of the we're into our it mean, haven't some treated respects, differently. numbers. I

different. other, obviously, rate XXXX, the was also between XXXX The difference environment and very

And is about. so that something to think

us and in flows MER helped the ability in in the on to change there But XXXX the think and no of in summary, I the that, as so terms MER. trend. that impact invest impact well And like through

change Our And just dramatic differently been from an changed. in philosophy priced hasn't shows or would that how hasn't I on really, what thought the perspective. what XXXX. – we the It for it it be we think, HIF, – from we accounting in

Gary Taylor

Okay, thank you.

Operator

this questions time Mr. Broussard no And there further may you are Bruce continue. at

Bruce Broussard

York really in first Well, see our XX,XXX all long-term where and team And the thank our of care that we provider support great. saying will in I March make you for as time, management to same our will and I it And strategy, partners. close that people members by Well, thank are investor then especially and their happen, Brian be mentioned, the the as investors all the just associates, having exposure that's really able organization. breadth XX this shareholders the our make this happen. to New importantly, to more out Okay. And taking at the of of our the meeting helps City.

see your there. for to you you hope thank again, we So And support.

Operator

and thank your gentlemen. call. and This concludes you, conference presenters, ladies participation. you, today's appreciate Thank We

You may now disconnect. Have good a day.

Humana (HUM) 6 Feb 192018 Q4 Earnings call transcript