Humana Inc 10-Q for FY2020 Q1

Humana Inc (HUM)

10-Q 2020-04-29 For: 2020-03-31

Added on April 10, 2026

About this 10-Q

Humana Inc filed this 10-Q on April 29, 2020, covering the quarter ended March 31, 2020 (FY2020 Q1).

Headline figures

Quarter ended March 31, 2020, as reported in this filing, compared with the same period a year earlier where the filing states it.

Revenue: $18.94B; up 17.6% from $16.11B a year earlier
Net income: $473M; down 16.4% from net income of $566M a year earlier
Diluted EPS: $3.56; down 14.4% from $4.16 a year earlier

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Delaware		61-0647538
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)



Title of each class	Trading Symbol	Name of each exchange on which registered
Common stock, $0.16 2/3 par value	HUM	New York Stock Exchange



Large accelerated filer	☒	Accelerated filer	☐

Non-accelerated filer	☐	Smaller reporting company	☐

Emerging growth company	☐



Class of Common Stock	Outstanding at March 31, 2020
$0.16 2/3 par value	132,206,069 shares



		Page
Part I: Financial Information
Item 1.	Financial Statements (Unaudited)

	Condensed Consolidated Balance Sheets at March 31, 2020 and December 31, 2019	3

	Condensed Consolidated Statements of Income for the three months ended March 31, 2020 and 2019	4

	Condensed Consolidated Statements of Comprehensive Income for the three months ended March 31, 2020 and 2019	5

	Condensed Consolidated Statements of Stockholders' Equity for the three months ended March 31, 2020 and 2019	6

	Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2020 and 2019	7

	Notes to Condensed Consolidated Financial Statements	8

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	31

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	48

Item 4.	Controls and Procedures	48

Part II: Other Information

Item 1.	Legal Proceedings	49

Item 1A.	Risk Factors	49

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	50

Item 3.	Defaults Upon Senior Securities	50

Item 4.	Mine Safety Disclosures	50

Item 5.	Other Information	50

Item 6.	Exhibits	51

	Signatures	52

	Certifications



☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934



☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934



	March 31, 2020			December 31, 2019
	(in millions, except share amounts)
ASSETS
Current assets:
Cash and cash equivalents	$	6,054		$	4,054
Investment securities	11,104			10,972
Receivables, less allowance for doubtful accounts of $73 in 2020 and $69 in 2019	2,009			1,056
Other current assets	5,384			3,806
Total current assets	24,551			19,888
Property and equipment, net	2,023			1,955
Long-term investment securities	393			406
Equity method investments	1,093			1,063
Goodwill	4,443			3,928
Other long-term assets	2,130			1,834
Total assets	$	34,633		$	29,074
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Benefits payable	$	7,090		$	6,004
Trade accounts payable and accrued expenses	5,399			3,754
Book overdraft	169			225
Unearned revenues	274			247
Short-term debt	1,898			699
Total current liabilities	14,830			10,929
Long-term debt	6,057			4,967
Future policy benefits payable	205			206
Other long-term liabilities	1,186			935
Total liabilities	22,278			17,037
Commitments and contingencies (Note 13)
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; 198,629,992 shares issued at March 31, 2020 and December 31, 2019	33			33
Capital in excess of par value	2,857			2,820
Retained earnings	17,871			17,483
Accumulated other comprehensive income	48			156
Treasury stock, at cost, 66,423,923 shares at March 31, 2020 and 66,524,771 shares at December 31, 2019	(8,454		)	(8,455		)
Total stockholders’ equity	12,355			12,037
Total liabilities and stockholders’ equity	$	34,633		$	29,074



	Three months ended March 31,
	2020		2019
	(in millions, except per share results)
Revenues:
Premiums	$	18,362	$	15,651
Services	424		355
Investment income	149		101
Total revenues	18,935		16,107
Operating expenses:
Benefits	15,629		13,493
Operating costs	2,117		1,660
Depreciation and amortization	115		107
Total operating expenses	17,861		15,260
Income from operations	1,074		847
Interest expense	60		62
Other expense, net	297		39
Income before income taxes and equity in net earnings	717		746
Provision for income taxes	252		183
Equity in net earnings	8		3
Net income	$	473	$	566
Basic earnings per common share	$	3.58	$	4.18
Diluted earnings per common share	$	3.56	$	4.16



	Common Stock			Capital In Excess of Par Value			Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Treasury Stock			Total Stockholders’ Equity
	Issued Shares	Amount		Capital In Excess of Par Value			Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Treasury Stock			Total Stockholders’ Equity
	(dollars in millions, share amounts in thousands)
Three months ended March 31, 2020
Balances, December 31, 2019	198,630	$	33	$	2,820		$	17,483		$	156		$	(8,455	)	$	12,037
Net income							473									473
Impact of adopting ASC 326 - Current expected credit loss standard (CECL)							(2		)							(2		)
Other comprehensive loss										(108		)				(108		)
Common stock repurchases				—									(17		)	(17		)
Dividends and dividend equivalents				—			(83		)							(83		)
Stock-based compensation				36												36
Restricted stock unit vesting	—	—		(6		)							6			—
Stock option exercises	—	—		7									12			19
Balances, March 31, 2020	198,630	$	33	$	2,857		$	17,871		$	48		$	(8,454	)	$	12,355

Three months ended March 31, 2019
Balances, December 31, 2018	198,595	$	33	$	2,535		$	15,072		$	(159	)	$	(7,320	)	$	10,161
Net income							566									566
Other comprehensive income										149						149
Common stock repurchases				150									(160		)	(10		)
Dividends and dividend equivalents				—			(75		)							(75		)
Stock-based compensation				33												33
Restricted stock unit vesting	—	—		(13		)							13			—
Stock option exercises	—	—		17									—			17
Balances, March 31, 2019	198,595	$	33	$	2,722		$	15,563		$	(10	)	$	(7,467	)	$	10,841



	For the three months ended March 31,
	2020			2019
	(in millions)
Cash flows from operating activities
Net income	$	473		$	566
Adjustments to reconcile net income to net cash provided by operating activities:
Net realized capital (gains) losses	(49		)	2
Equity in net earnings	(8		)	(3		)
Stock-based compensation	36			33
Depreciation	124			118
Amortization	21			18
Benefit for deferred income taxes	(3		)	(21		)
Changes in operating assets and liabilities, net of effect of businesses acquired and dispositions:
Receivables	(953		)	(940		)
Other assets	(1,470		)	(102		)
Benefits payable	1,086			1,162
Other liabilities	1,203			16
Unearned revenues	27			29
Other	(13		)	18
Net cash provided by operating activities	474			896
Cash flows from investing activities
Acquisitions, net of cash acquired	(709		)	—
Purchases of property and equipment	(192		)	(139		)
Purchases of investment securities	(2,459		)	(2,175		)
Maturities of investment securities	735			397
Proceeds from sales of investment securities	1,415			2,062
Net cash (used in) provided by investing activities	(1,210		)	145
Cash flows from financing activities
Receipts from contract deposits, net	574			554
Proceeds from issuance of senior notes, net	1,090			—
Proceeds from issuance of commercial paper, net	198			17
Proceeds from term loan	1,000			—
Change in book overdraft	(55		)	(17		)
Common stock repurchases	(17		)	(10		)
Dividends paid	(73		)	(68		)
Proceeds from stock option exercises and other, net	19			17
Net cash provided by financing activities	2,736			493
Increase in cash and cash equivalents	2,000			1,534
Cash and cash equivalents at beginning of period	4,054			2,343
Cash and cash equivalents at end of period	$	6,054		$	3,877
Supplemental cash flow disclosures:
Interest payments	$	40		$	29
Income tax refunds, net	$	(6	)	$	(22	)



	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
	(in millions)
March 31, 2020
U.S. Treasury and other U.S. government corporations and agencies:
U.S. Treasury and agency obligations	$	394	$	4	$	—		$	398
Mortgage-backed securities	3,438		160		(1		)	3,597
Tax-exempt municipal securities	1,549		16		(12		)	1,553
Mortgage-backed securities:
Commercial	834		16		(28		)	822
Asset-backed securities	1,126		1		(46		)	1,081
Corporate debt securities	4,082		48		(84		)	4,046
Total debt securities	$	11,423	$	245	$	(171	)	$	11,497

December 31, 2019
U.S. Treasury and other U.S. government corporations and agencies:
U.S. Treasury and agency obligations	$	353	$	1	$	—		$	354
Mortgage-backed securities	3,628		85		(3		)	3,710
Tax-exempt municipal securities	1,433		30		—			1,463
Mortgage-backed securities:
Commercial	786		18		—			804
Asset-backed securities	1,093		3		(3		)	1,093
Corporate debt securities	3,867		82		(2		)	3,947
Total debt securities	$	11,160	$	219	$	(8	)	$	11,371



	Less than 12 months					12 months or more					Total
	Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses
	(in millions)
March 31, 2020
U.S. Treasury and other U.S. government corporations and agencies:
U.S. Treasury and agency obligations	$	2	$	—		$	—	$	—		$	2	$	—
Mortgage-backed securities	67		(1		)	1		—			68		(1		)
Tax-exempt municipal securities	309		(10		)	176		(2		)	485		(12		)
Mortgage-backed securities:
Commercial	198		(15		)	131		(13		)	329		(28		)
Asset-backed securities	144		(5		)	891		(41		)	1,035		(46		)
Corporate debt securities	1,453		(55		)	710		(29		)	2,163		(84		)
Total debt securities	$	2,173	$	(86	)	$	1,909	$	(85	)	$	4,082	$	(171	)

December 31, 2019
U.S. Treasury and other U.S. government corporations and agencies:
U.S. Treasury and agency obligations	$	48	$	—		$	23	$	—		$	71	$	—
Mortgage-backed securities	315		(1		)	204		(2		)	519		(3		)
Tax-exempt municipal securities	58		—			75		—			133		—
Mortgage-backed securities:
Commercial	118		—			36		—			154		—
Asset-backed securities	20		—			607		(3		)	627		(3		)
Corporate debt securities	589		(2		)	155		—			744		(2		)
Total debt securities	$	1,148	$	(3	)	$	1,100	$	(5	)	$	2,248	$	(8	)



	Fair Value Measurements Using
	Fair Value		Quoted Prices in Active Markets (Level 1)		Other Observable Inputs (Level 2)		Unobservable Inputs (Level 3)
	(in millions)
March 31, 2020
Cash equivalents	$	5,857	$	5,857	$	—	$	—
Debt securities:
U.S. Treasury and other U.S. government corporations and agencies:
U.S. Treasury and agency obligations	398		—		398		—
Mortgage-backed securities	3,597		—		3,597		—
Tax-exempt municipal securities	1,553		—		1,553		—
Mortgage-backed securities:
Commercial	822		—		822		—
Asset-backed securities	1,081		—		1,081		—
Corporate debt securities	4,046		—		4,046		—
Total debt securities	11,497		—		11,497		—
Total invested assets	$	17,354	$	5,857	$	11,497	$	—

December 31, 2019
Cash equivalents	$	3,660	$	3,660	$	—	$	—
Debt securities:
U.S. Treasury and other U.S. government corporations and agencies:
U.S. Treasury and agency obligations	354		—		354		—
Mortgage-backed securities	3,710		—		3,710		—
Tax-exempt municipal securities	1,463		—		1,463		—
Mortgage-backed securities:
Commercial	804		—		804		—
Asset-backed securities	1,093		—		1,093		—
Corporate debt securities	3,947		—		3,947		—
Total debt securities	11,371		—		11,371		—
Common stock	7		7		—		—
Total invested assets	$	15,038	$	3,667	$	11,371	$	—



	March 31, 2020		December 31, 2019
Annualized volatility	28.0	%	19.8	%
Secured credit rate	4.1	%	2.2	%
NOPAT	12.0	%	12.0	%
Weighted average cost of capital	10.5	%	10.0	%
Long term growth rate	3.0	%	3.0	%



	Amortized Cost		Fair Value
	(in millions)
Due within one year	$	1,337	$	1,339
Due after one year through five years	1,918		1,905
Due after five years through ten years	1,750		1,736
Due after ten years	1,020		1,017
Mortgage and asset-backed securities	5,398		5,500
Total debt securities	$	11,423	$	11,497



		March 31, 2020						December 31, 2019
	Weighted Average Life	Cost		Accumulated Amortization		Net		Cost		Accumulated Amortization		Net
		($ in millions)
Other intangible assets:
Customer contracts/ relationships	9.5 years	$	849	$	514	$	335	$	646	$	496	$	150
Trade names and technology	7.0 years	121		85		36		84		84		—
Provider contracts	11.8 years	70		46		24		70		44		26
Noncompetes and other	7.3 years	29		28		1		29		28		1
Total other intangible assets	9.3 years	$	1,069	$	673	$	396	$	829	$	652	$	177



	(in millions)
For the years ending December 31,
2020	$	67
2021	56
2022	53
2023	40
2024	33
2025	33



	For the three months ended March 31,
	2020			2019
	(in millions)
Balances, beginning of period	$	6,004		$	4,862
Less: Reinsurance recoverables	(68		)	(95		)
Balances, beginning of period, net	5,936			4,767
Incurred related to:
Current year	15,913			13,760
Prior years	(284		)	(267		)
Total incurred	15,629			13,493
Paid related to:
Current year	(10,205		)	(8,725		)
Prior years	(4,280		)	(3,595		)
Total paid	(14,485		)	(12,320		)
Reinsurance recoverable	10			84
Balances, end of period	$	7,090		$	6,024



	March 31, 2020						December 31, 2019
	Risk Corridor Settlement			CMS Subsidies/ Discounts			Risk Corridor Settlement			CMS Subsidies/ Discounts
	(in millions)
Other current assets	$	59		$	894		$	5		$	585
Trade accounts payable and accrued expenses	(148		)	(1,241		)	(120		)	(356		)
Net current (liability) asset	(89		)	(347		)	(115		)	229
Other long-term assets	183			—			6			—
Other long-term liabilities	(130		)	—			(61		)	—
Net long-term asset (liability)	53			—			(55		)	—
Total net (liability) asset	$	(36	)	$	(347	)	$	(170	)	$	229



	Retail		Group and Specialty		Healthcare Services		Total
	(in millions)
Balance at January 1, 2020	$	1,535	$	261	$	2,132	$	3,928
Acquisitions	—		—		515		515
Balance at March 31, 2020	$	1,535	$	261	$	2,647	$	4,443



Reconciliation of the Disclosure of Incurred and Paid Claims Development to Benefits Payable, net of reinsurance

	March 31,
	2020
Net outstanding liabilities	(in millions)
Retail	$	6,487
Group and Specialty	593
Benefits payable, net of reinsurance	7,080

Reinsurance recoverable on unpaid claims
Retail	10
Total benefits payable, gross	$	7,090



	Three months ended March 31,
	2020		2019
	(dollars in millions, except per common share results; number of shares in thousands)
Net income available for common stockholders	$	473	$	566
Weighted average outstanding shares of common stock used to compute basic earnings per common share	132,135		135,383
Dilutive effect of:
Employee stock options	92		130
Restricted stock	584		449
Shares used to compute diluted earnings per common share	132,811		135,962
Basic earnings per common share	$	3.58	$	4.18
Diluted earnings per common share	$	3.56	$	4.16
Number of antidilutive stock options and restricted stock excluded from computation	660		703



Record Date	Payment Date	Amount per Share		Total Amount
				(in millions)
2019 payments
12/31/2018	1/25/2019	$	0.50	$	68
3/29/2019	4/26/2019	$	0.55	$	74
6/28/2019	7/26/2019	$	0.55	$	74
9/30/2019	10/25/2019	$	0.55	$	73
2020 payments
12/31/2019	1/31/2020	$	0.55	$	73
3/31/2020	4/24/2020	$	0.625	$	83


•	waiving costs associated with the diagnostic testing, medical costs related to the treatment of COVID-19 as well as FDA-approved medications or vaccines when they become available;


•	expanding access to telehealth services to help reduce the risk of infection and spread, waiving member cost share for all telehealth services delivered by participating/in-network providers and accepting audio-only telephone visits for reimbursement;


•	allowing early refills on prescription medicines to provide for member’s extended supply needs given stay-at-home and other restrictions on movement;


•	simplifying and expediting claims processing for providers to promote the speed of reimbursement payments and help ease their financial concerns beginning in April 2020;


•	transitioning a significant subset of our employee population to work-at-home and providing additional support and benefits.


•	Contributing to our Retail segment revenue growth was our individual Medicare Advantage membership, which increased 404,800 members, or 11.8%, from March 31, 2019 to March 31, 2020.


•	Our operating cash flows for the 2020 quarter decreased from the 2019 quarter due to the timing of working capital items, including the impact of early prescription refills permitting members to prepare for extended supply needs in response to COVID-19, partially offset by higher income from operations.



	For the three months ended March 31,						Change
	2020			2019			Dollars			Percentage
	(dollars in millions, except per common share results)
Revenues:
Premiums:
Retail	$	16,704		$	13,967		$	2,737		19.6	%
Group and Specialty	1,658			1,684			(26		)	(1.5	)%
Total premiums	18,362			15,651			2,711			17.3	%
Services:
Retail	4			5			(1		)	(20.0	)%
Group and Specialty	195			194			1			0.5	%
Healthcare Services	225			156			69			44.2	%
Total services	424			355			69			19.4	%
Investment income	149			101			48			47.5	%
Total revenues	18,935			16,107			2,828			17.6	%
Operating expenses:
Benefits	15,629			13,493			2,136			15.8	%
Operating costs	2,117			1,660			457			27.5	%
Depreciation and amortization	115			107			8			7.5	%
Total operating expenses	17,861			15,260			2,601			17.0	%
Income from operations	1,074			847			227			26.8	%
Interest expense	60			62			(2		)	(3.2	)%
Other expense, net	297			39			258			661.5	%
Income before income taxes and equity in net earnings	717			746			(29		)	(3.9	)%
Provision for income taxes	252			183			69			37.7	%
Equity in net earnings	8			3			5			166.7	%
Net income	$	473		$	566		$	(93	)	(16.4	)%
Diluted earnings per common share	$	3.56		$	4.16		$	(0.60	)	(14.4	)%
Benefit ratio (a)	85.1		%	86.2		%				(1.1	)%
Operating cost ratio (b)	11.3		%	10.4		%				0.9	%
Effective tax rate	34.8		%	24.4		%				10.4	%


(a)	Represents benefits expense as a percentage of premiums revenue.


(b)	Represents operating costs as a percentage of total revenues less investment income.


•	Group Medicare Advantage membership increased 89,500, or 17.3%, from March 31, 2019 to March 31, 2020, primarily due to the addition of a large account in January 2020, along with net membership additions associated with the most recent AEP for Medicare beneficiaries.


•	State-based Medicaid membership increased 156,000 members, or 33.8%, from March 31, 2019 to March 31, 2020. This increase primarily reflects the impact of discontinuing the reinsurance agreement with CareSource and the assumption of full financial risk for the existing Kentucky Medicaid contract as of January 1, 2020.


•	Retail segment premiums increased $2.7 billion, or 19.6%, from the 2019 quarter to the 2020 quarter primarily reflecting higher premiums as a result of membership growth and higher per member premiums in our Medicare Advantage and state-based contract businesses. These favorable items were partially offset by the decline in membership in our stand-alone PDP offerings.


•	The Retail segment's benefits expense for the 2020 quarter included $238 million in favorable prior-period medical claims reserve development versus $283 million in the 2019 quarter. Prior-period medical claims reserve development decreased the Retail segment benefit ratio by approximately 140 basis points in the 2020 quarter versus approximately 200 basis points in the 2019 quarter.


(a)	Specialty products include dental, vision, and other supplemental health. Members included in these products may not be unique to each product since members have the ability to enroll in multiple products.