Humana
Humana is a for-profit American-managed health insurance provider. The Humana plans focus on an individual’s whole-person health, inside and out covering all age ranges and disabilities across 45 countries across 5 continents.
Employees: 95,500
Revenue: $92.87 billion for FY2022
HQ Location: Louisville, Kentucky, U.S.
What they do:
They offer fully-insured medical and specialty health insurance benefits, including vision, dental, other supplemental health benefits, and administrative services to individual and employer groups. Plans are tailored to each person’s individual needs.
Ranked 41 on the Fortune 500 list.
Leading company in the Medicare Advantage Industry.
Their vision and priorities:
To help people live healthy and happy by offering personalized care programs by creating solutions to help people become a better version of themselves.
To build a sustainable healthcare system by working with partners to connect those in need to resources within communities.
Financial Goals
2023 outlook:
Growth above 11%
Consolidated revenues are projected to be north of $103 billion at the midpoint driven by growth in their individual Medicare Advantage, Medicaid, and CenterWell businesses.
First-quarter earnings are expected to be 35% of full-year 2023 adjusted EPS due to the divestiture of a 60% interest in Kindred Hospice and expected declines in their Group Medicare Advantage, commercial group medical, and PDP membership.
In the Insurance Segment- They anticipate individual Medicare Advantage membership growth of at least 625,000 in 2023, a 13.7% increase year-over-year.
They are projecting approximately 80,000 of their PDP members will convert to a Humana Medicare Advantage plan in 2023, which represents a disproportionate share of all Humana PDP members who are expected to switch to a Medicare Advantage plan in 2023.
In their Medicaid business, they anticipate that their membership will increase 25,000 to 100,000 members in 2023. This change reflects membership additions associated with the start of the Louisiana contract which went live on January 1, as well as the Ohio contract, which began at the beginning of February. They expect to add approximately 140,000 members in Louisiana and 65,000 members in Ohio at implementation with Ohio membership ramping to 130,000 by year-end and to a total of 225,000 in 2024.
The insurance segment revenue is expected to be in the range of $99.5 billion to $101 billion, reflecting an increase of nearly 13% year-over-year at the midpoint. The year-over-year change includes the impact of the phaseout of sequestration relief beginning in the second quarter of 2022 and as well as the impact of changing member mix within our Medicare Advantage business.
In the Centerwell Segment - they expect EBITDA in the range of $1.3 billion to $1.45 billion for 2023, a slight decrease from 2022. The 2023 outlook reflects the impact of the divestiture of a 60% interest in Kindred Hospice in August 2022, which created a $150 million year-over-year headwind, largely offset by continued growth in our Primary Care, Home, and Pharmacy businesses.
In their core fee-for-service home business, home health admissions are expected to be up mid-single digits. While they have strategies in place to continue to take share in fee-for-service Medicare, they do acknowledge it is a shrinking market with the increasing penetration of Medicare Advantage.
CenterWell Home Health is focused on increasing nursing capacity through recruiting and retention initiatives. Their voluntary nursing turnover improved from 31.9% in 2021 to 30.6% in 2022. They continue to invest in clinical orientation and mentors and technology focused on reducing administrative tasks and driving time for clinicians, which they expect to drive further improvement in nurse recruitment and retention.
With respect to their value-based home model, they expect to expand coverage to approximately 1 million additional members by year-end 2023, 800,000 of which are currently served under the utilization and network management model.
In their Primary Care business they expect significant center expansion throughout the year through a combination of de novo bills under their joint venture with Welsh Carson as well as programmatic M&A. They anticipate adding nearly 50 centers in 2023, an increase of approximately 20%. They also expect to add 20,000 to 25,000 patients during the year in their de novo and wholly owned centers, representing nearly 12% growth year-over-year.
In the pharmacy business, it will benefit from the significant growth in individual Medicare Advantage membership in 2023, as they anticipate maintaining its industry-leading mail order penetration rate.
Three things to know right now
Business Segment Realignment
Humana realigned certain of its businesses among its previously reportable segments, Retail, Group and Specialty and Healthcare Services, into two distinct segments: Insurance and CenterWell.
The Insurance segment includes the businesses that were previously included in the Retail and Group and Specialty segments, as well as the Pharmacy Benefit Manager (PBM) business which was previously included in the Healthcare Services segment. The PBM is included in the Insurance segment as the operations of the business are highly interdependent with the capability needs of the health plan businesses included in the Insurance segment.
The CenterWell segment represents the company's payor-agnostic healthcare services offerings, including pharmacy dispensing services, provider services, and home services. In addition to the new segment classifications being utilized to assess performance and allocate resources, Humana believes this simpler structure will create greater collaboration across the Insurance and CenterWell businesses and will accelerate work that is underway to centralize and integrate operations within the organization.
Centre Expansion underway
Their center expansion remains on track as they ended 2022 with 235 centers and are scheduled to open an additional 10 to 15 in the first quarter alone.
In-Home Care expansion underway
They have continued to expand their value-based model, which coordinates care and optimizes [standard] across home health, DME, and infusion services. They are now supporting approximately 15% of their MA members with the model, expanding coverage to an additional 433,000 members during the fourth quarter. They remain on track to cover approximately 40% of our MA members with a fully based value-based model by 2025.
Home Health Utilization and Network Management Capabilities Rolled out
These were rolled out to 1.4 million members, bringing the total of covered members to 1.9 million, creating incremental enterprise value in advance of the fully value-based market rollout.
Humana Appointments
Dr. Sanjay Shetty is joining Humana as the President of CenterWell effective April 1. This newly created role comes as they continue to meaningfully expand their CenterWell capabilities, strengthening their payer-agnostic platform and integrating the clinical experiences for patients across the CenterWell platform. Sanjay comes to Humana from Stewart Health Care Systems, where he currently serves as the President. He will draw on his extensive experience leading a large healthcare system as well as his deep understanding of technology and application of data and analytics and modernizing workflows to accelerate the integration of their CenterWell assets.
George Renaudin has been promoted to President of Medicare and Medicaid and added to the management team effective immediately. Bringing Medicaid under his leadership complements his current responsibilities for the operations supporting more than 5 million Medicare Advantage and Medicare Supplement members.
They have closed their search for a President for their Insurance sector and feel at the moment they have a good leadership team.
Competitors
Anthem, Inc
United Health Group
Express Scripts
Aetna
Molina Healthcare
Humana’s competitive advantage: Their defocus on value-based care, both through their CenterWell platform and their highly diversified value-based care solutions and locally oriented provider relationships is 1 of the differentiated capabilities that give Humana a durable competitive advantage.
What does each business unit do?
Medicare Advantage Business (falls under the Insurance Segment)
This part of the business focuses on customizing the Groups Medicare plans by combining hospital insurance and medical insurance for retirees (for anyone over the age of 65 and some people under 65 who have specific disabilities). The Advantage part of the business allows individuals to add dental, vision, hearing, and prescription drug coverage to it. Medicare is a federal health insurance program.
Medicaid Business (falls under the Insurance Segment)
This part of the business gives an individual medical aid that gives them more in the form of rewards, everyday benefits, and help and support. It is open to people who meet income guidelines, qualified families and children, pregnant women, seniors, and people with disabilities. People of any age can qualify for Medicaid benefits from this part of the business. Any individual applying for an insurance plan will typically receive the same set of basic benefits which are either free or low-cost but will have no additional add-ons.
Healthcare Services Business (falls under the Centrewell Segment)
This part of the business is centered around creating personalized care plans to help patients confidently manage their condition or recover from a hospital stay from the comfort of their own homes. This part of the business teaches patients the necessary skills to maintain independence and get back to what they love doing.
Pharmacy Business (falls under the Centrewell Segment)
This part of the business offers secure mail delivery of pharmacy medication to all Humana patients so that it is both safe and convenient for them.
Primary Care Organization (Falls under the Centrewell Segment)
This part of the business helps an individual’s healthcare provider identify any medical problems before they become major. The main aim of this part of the business is to help lower the risk of illness and help the patient save on medical costs.
Home Solutions (Falls under the Centrewell Segment)
This part of the business offers services such as house calls, virtual visits, care management, and in-home health and well-being assessments.
House Calls - this helps individuals not have to travel for medical care.
Virtual Visits - Phone calls are made to individuals who might need emotional well-being support or are too sick to visit their regular healthcare provider. Also called telemedicine or telehealth.
Care Management - these plans are offered to individuals on the Medicare Advantage plan which include support from a personal care manager, educational materials, and other resources based on an individual’s specific needs such as telephonic care management and chronic kidney management.
In-home health and well-being assessment - This is a free annual health review that is conducted in an individual’s home as an extra set of eyes for the individual’s physician in order for the patient to get the best care.
Note: As of next quarter the reportable segment will be under the new business segment realignment sections of 1) Insurance and 2) Centrewell.
The Insurance Segment:
This segment is comprised of insurance products serving Medicare and state-based contract beneficiaries, as well as individuals and employers. The segment also includes the company's Pharmacy Benefit Manager, or PBM, business.
The Centerwell Segment:
This segment includes pharmacy (excluding the PBM operations), provider, and home solutions. The segment also includes the impact of non-consolidating minority interest investments related to the company's strategic partnerships with Welsh, Carson, Anderson & Stowe (WCAS) to develop and operate senior-focused, payor-agnostic, primary care centers, as well as the KAH Hospice operations. Services offered by this segment are designed to enhance the overall healthcare experience. These services may lead to lower utilization associated with improved member health and/or lower drug costs.
Their financial calendar
Q1: February - April - Earnings 26th April 2023
Q2: May -July - Earnings 2nd August 2023
Q3: August -October Earnings 1st November 2023
Q4: November -January - Earnings 1st February 2024
Next Earnings Report:
Around 26 April 2023
Positives from the last earnings report (Q4 FY2022)
Adjusted earnings per share for the full year are $25.24 which was above their previous estimate of approximately $25 and represents an annual growth of 22%.
They achieved their strongest growth in states with robust or growing value-based provider penetration. For example, their top states by absolute growth were Texas, Georgia, Florida, and Illinois, which are highly penetrated value-based markets. Together, they grew 163,000 members in 2023 AEP, a 450% increase over the 29,000 members achieved in those states last year.
Their external call center partners improve retention by 380 basis points year-over-year, reflecting their enhanced focus on quality and customer satisfaction.
Approximately 50% of their new sales reflect members switching from competitor MA Plans, which was higher than anticipated and significantly improved from the 30% experienced in 2022. They also saw a shift in their overall sales channel mix to higher-quality channels. Their internal sales channel and their external field broker partners represented 53% of total sales in the 2023 AEP compared to 44% last year. These channels drive better engagement with members leading to greater planned satisfaction, retention, and lifetime value.
In the Insurance segment, their Medicaid business continued to perform well in the quarter with lower-than-anticipated medical costs. In addition, the favorable utilization seen throughout the year in their commercial group medical and specialty businesses persisted in the fourth quarter.
Within their CenterWell segment, each business performed largely in line with expectations in the fourth quarter.
The Primary Care organization continued to improve the operating performance in their wholly-owned centers and they were happy to report that they increased the number of centers that are contribution margin positive from 88 at the end of 2021 to 110 at year-end 2022, a 25% increase year-over-year. Nearly 60% of these new patients had appointments scheduled as of December 31. This is a great key metric to measure the engagement level of new members and engagement is a key driver of retention. In addition, they increased the number of centers that have reached their $3 million contribution margin target from 18 in 2021 to 31 at the end of 2022. In their de novo centers, they grew to over 9,000 patients in 2022, or 91%, while our de novo center count increased by 18 or 56%.
In the Home, total admissions in their core fee-for-service home health business were up 9.1% year-over-year for the fourth quarter and up 6.3% for the full year in line with our expectations of mid-single-digit growth.
In the Pharmacy business, they increased their industry-leading mail order penetration levels in 2022, driving 38.6% penetration in their individual MA business, a 40 basis point increase over 2021. The benefits of mail orders extend beyond their pharmacy operations, leading to better medication adherence and health outcomes, benefiting their members and health plan.
Challenges from the last earnings report (Q4 FY22)
Results for their Insurance segment were modestly favorable to expectations. Total medical costs in their Medicare Advantage business ranged slightly above previous expectations during the fourth quarter, driven by higher-than-anticipated flu and COVID costs as well as higher reimbursement rates implemented for 340B eligible drugs. Collectively, these items had an impact of approximately 80 basis points on the fourth-quarter benefit ratio for both the Insurance segment as well as the previous retail segment.
Risks to the Business:
If they do not design and price their products properly and competitively their profitability may be materially adversely affected.
If the premiums they charge are insufficient to cover the cost of health care services delivered to their members their profitability may be materially adversely affected.
If they are unable to implement clinical initiatives to provide a better healthcare experience for their members, lower costs and appropriately document the risk profile of their members their profitability may be materially adversely affected.
If their estimates of benefits expense are inadequate, their profitability may be materially adversely affected.
They estimate the costs of their benefits expense payments, and design and price their products accordingly, using actuarial methods and assumptions based upon, among other relevant factors, claim payment patterns, medical cost inflation, and historical developments such as claim inventory levels and claim receipt patterns. These estimates involve extensive judgment and have considerable inherent variability because they are extremely sensitive to changes in claim payment patterns and medical cost trends. Accordingly, their reserves may be insufficient.
If they fail to effectively implement their operational and strategic initiatives, including their Medicare initiatives and their state-based contracts strategy, their business may be materially adversely affected.
If they fail to properly maintain the integrity of their data, to strategically maintain existing or implement new information systems, or to protect their proprietary rights to their systems, their business may be materially adversely affected.
If they, and the third-party service providers on whom they rely, are unable to defend their information technology security systems against cybersecurity attacks or prevent other privacy or data security incidents that result in security breaches that disrupt their operations or in the unintentional dissemination of sensitive personal information or proprietary or confidential information, they could be exposed to significant regulatory fines or penalties, liability or reputational damage, or experience a material adverse effect on their results of operations, financial position, and cash flows.
They are involved in various legal actions and governmental and internal investigations, any of which, if resolved unfavorably to them, could result in substantial monetary damages or changes in their business practices. Increased litigation and negative publicity could increase their cost of doing business.
As government contractors, they are exposed to risks that may materially adversely affect their business or their willingness or ability to participate in government health care programs.
Their business activities are subject to substantial government regulation. New laws or regulations, or legislative, judicial, or regulatory changes in existing laws or regulations or their manner of application could increase their cost of doing business and may have a material adverse effect on their results of operations, or cash flows.
Any failure by them to manage acquisitions, divestitures, and other significant transactions successfully may have a material adverse effect on their results of operations, financial position, and cash flows.
If they fail to develop and maintain satisfactory relationships with the providers of care to their members, their business may be adversely affected
They face significant competition in attracting and retaining talented employees. Further, managing succession for, and retention of, key executives is critical to their success, and their failure to do so could adversely affect their businesses, operating results, and/or future performance.
Their pharmacy business is highly competitive and subjects them to regulations and distribution and supply chain risks in addition to those we face with their core health benefits businesses.
Changes in the prescription drug industry pricing benchmarks may adversely affect their financial performance.
Their ability to obtain funds from certain of their licensed subsidiaries is restricted by state insurance regulations.
Downgrades in their debt ratings, should they occur, may adversely affect their business, results of operations, and financial condition
The securities and credit markets may experience volatility and disruption, which may adversely affect their business.
The spread of, and response to, COVID-19 underscores certain risks they face, including those discussed above, and the ongoing, heightened uncertainty created by the pandemic precludes any prediction as to the ultimate adverse impact to them of COVID-19.