Humana on Wednesday reported second-quarter earnings, including a 5% increase in quarterly consolidated revenues, or $725 million to $14.26 billion, compared to a year earlier.
The boost was driven primarily by higher revenues in the retail segment, which increased 7% to $12.04 billion in the quarter. The insurance company said the improvement came mostly from Medicare Advantage membership growth in the annual election period and increased per-member premiums for certain products.
However, the Louisville-based company saw membership losses in its Medicare prescription drug and Medicaid plans.
Humana continues to grow its MA membership. Second only to UnitedHealthcare in market share, Humana’s individual MA membership increased 7% from a year ago to slightly more than 3 million members. Group MA membership skyrocketed 14% year-over-year to 493,100 members, most of whom came during the annual election period.
Humana serves patients in primary care clinics in Florida and Texas via Conviva, including more than 200,000 MA members in south Florida alone. Bruce Broussard, Humana’s CEO, said during the call that Conviva manages clinical operations in 110 centers and is one of the biggest physician practices in the South with more than 400 providers.
Broussard said physician retention and recruitment and patient quality measures are all trending positively. Humana will rebrand all of its clinics to Conviva over the next 12 to 18 months.
Another example of Humana’s move into MA is the company’s recent partial purchase of Kindred. The payer bought a 40% share in Kindred at Home with the right to buy the remaining interest over time.
Humana is betting that adding Kindred will help the company’s MA business with end-of-life costs and its integrated care delivery model that combines primary and home health care.
Broussard said the company sees acute care taking place more in the home in the long run. Telehealth, remote monitoring, nurse visits and deeper analytics will drive this move of care to the home. It will also lead to fewer emergency room visits, he said.
“We took another large step this quarter in helping our members, especially those living with chronic conditions, by beginning the integration of important clinical services through our investments in Kindred at Home and Curo, and through our partnership with Walgreens. Over time, these moves, along with the continuous improvement of our operating system, will go a long way in simplifying the healthcare experience of our members and provider partners, while also improving the health status of our members,” Broussard said.
Humana said its operating cost ratio, or operating costs as a percent of total revenues less investment income, increased from 10.8% to 12.5% in the quarter. The year-over-year increase was because of the reinstatement of the health insurance fee this year and investments made in the quarter after last year's tax cut law.
However, operating cost efficiencies seen in 2017 and Humana dropping its Affordable Care Act exchange plans offset those investments partially.
Lower membership in prescription drug plans, Medicaid
While MA continues to grow, Humana saw a drop in membership for stand-alone Medicare prescription drug plans, falling by 4% to 5 million in the quarter. The decline came mostly in Florida and South Carolina and came amid pricing issues involving CMS’ low income benchmark and membership declines in the company’s Enhanced Plan. Also, Humana’s co-branded Walmart plan brought significantly slower growth than expected as low-priced competitors ate into membership numbers. Brian Kane, Humana CFO, said the company expects headwinds with its prescription drug plans and added that competition will restrain growth.
Humana also saw a loss of Medicaid members. Its state-based contracts membership, including dual-eligibles, dropped 13% year-over-year to 325,200 members. The drop came from Humana not participating in Illinois’ Integrated Care Program and lower Medicaid membership in Florida because of improved economic conditions. The payer is optimistic about improving Medicaid membership next year after a new Florida contract.
Meanwhile, Humana improved its group and specialty segment revenues, rising 4% to $1.91 billion for the quarter. The company said the improved numbers came from its TRICARE contract, better stop-loss premiums and higher per member premiums. Humana also trumpeted its TRICARE contract as a significant driver during its first-quarter earnings call in May.
Humana has seen small group accounts migrate to self-funded plans and contract for “administrative services only” (ASO). Commercial medical membership decreased 5% to slightly more than 1 million members in the quarter.
ASO commercial plans increased 3% increase to 458,800 members for the quarter. Humana also lost some large group accounts in self-funded accounts, but more small companies seeking level-funded ASO plans partially offset that.
To show how small companies are increasingly choosing ASO services, Humana said small group membership made up just 7% of group ASO membership a year ago and 12% at the end of 2017. It was 18% at the end of the second quarter.