Pandemic-induced challenges continued to cast a shadow on Humana Inc’s earnings. The Louisville, Kentucky-headquartered healthcare payer saw narrower quarterly losses for the fourth quarter of 2021 at $14 million versus $274 million recorded in the corresponding quarter a year ago. Company’s full year net profit fell by 13% to $2.9 Billion. This indicates a broader impact of the pandemic on the company’s yearly earnings. During the year, the company’s total medical membership grew by 1.4% to 17.1 million, which included 9.8 million retail membership and 7.2 million group and specialty membership.
DistilINFO High Five:
1. Earnings Highlight:
Full year operating expenses surged by 11% to $79 B driven by 22% increase in depreciation and amortization costs and 12% rise towards benefits. The total revenues grew by a single digit 8% to $83.1 B for 2021 versus $77.1 B previous year. Adjusted earnings per share for 2021 was at $20.64, a tad higher than the earlier estimate of $20.50. Of the three business segments of Humana, retail and healthcare services segments posted growth in revenues for the year, while group and specialty segments reported a dip in yearly revenues. Retail revenues increased 10% from $67 B to $74 B, while the healthcare services segment grew by 9.5% to $31.2 B. Group and specialty segment revenues fell by 5.5%. The benefit expense ratio – a parameter to assess health payer’s profitability – showed a dip for group and specialty and healthcare services segments. But for retail revenues, the benefit expense ratio was found to be higher than year-ago-levels.
2. Factors impacting earnings:
The company’s consolidated earnings per share and revenues were impacted due to the factors such as COVID-19-related challenges, which trimmed the EPS by $1 for the year 2021. Further, $1.13 B gain was recorded in the third quarter of 2021 associated with the company’s previous minority ownership in Kindred at Home (non-taxable). Also, factors such as change in fair market value of publicly-traded equity securities and receipt of unpaid risk corridor payments that were previously written off played a key role in Humana’s performance.
3. Strategic move:
Humana will invest $ 1 B in order to create capacities to fund growth and investments in its Medicare Advantage business and further expand its Healthcare Services segment in 2023. This will be achieved through cost saving, productivity initiatives, and value acceleration from previous investments. It looks to slow or pause further investments in some areas so as to focus on accelerating value-creation from its existing investments. The management informed that it will increase its focus on attracting new members while retaining the existing members with improved engagement and service.
4. COVID impact:
During the earnings call on February 2, 2022, Susan M. Diamond, Chief Financial Officer, commented that the COVID-19 utilization remained higher than initially expected following the surge in cases due to the new coronavirus variant – Omicron. But there was a corresponding reduction in non-COVID utilization through the end of 2021. Susan said, “Although a smaller percentage of individuals that are infected with the Omicron variant require hospitalization as compared to previous surges, COVID admissions in recent weeks have been consistent with levels experienced in January 2021 due to the significantly higher rate of transmissibility of the Omicron variant.” Company assumes medical costs return to baseline levels and the costs related to COVID-19 continue to be offset by the depressed non-COVID utilization in the Medicare Advantage business.
5. Outlook for 2022:
The year 2021 saw Humana hitting an EPS at $20.64, while for 2022, the company expects 16.3% jump in adjusted EPS to “at least $24” including an embedded COVID headwind of $1. Topline growth is expected above 10% with consolidated revenues projected to cross $92 B at the midpoint. This will be driven by continued growth in the company’s Medicare Advantage business and expansion of Healthcare Services businesses. Under its value-creation initiatives, Humana looks to reduce and optimize the third-party spend, including significantly rationalizing its real estate portfolio, and deploy automation and digitization for greater operational efficiencies across the organization.
Summary:
Humana is one of the top players in Medicare Advantage plans. While the company’s fourth quarter and full year 2021 earnings remained under pressure following pandemic effect, there are strategies being deployed by the company for the fiscal 2022. While there are likely to be fewer Medicare enrollments for the company in 2022, there is an expectation of a boost to the earnings following the measures being deployed for operational efficiencies, new membership addition and membership retention in the highly competitive market.
