The History Of Humana

Humana is one of the leading health and well-being companies in the United States. Their focus is to make it easy for individuals to maintain their best health with excellence through coordinated care. Some of their strategies include care delivery, proactive outreach clinically, clinical and consumer insights and member experiences. In the year 2016, over 70 percent of their total services revenue and total premiums were from the federal government, fourteen percent of which was derived from their individual Medicare Advantage contracts with are in Florida with CMS. Under CMS they provided health insurance coverage to almost 600,000 members as of December of 2016. (Annual Report, 2016)
The birth of Humana was in 1961, where it was founded
by David Jones.
Although now known as Humana one of the leading managed care health companies. When Jones found it, it was a nursing home company that went by the name of Extendicare. Eleven years later in 1972, stripping of the nursing home business, he transferred into the hospital business. In 1974 Humana was official as a corporate name. In the 1990’s is when the business actually assumed responsibility in the hospital world. In the late 1990’s Humana and UnitedHealth Group had a plan to merge in a deal that was worth over 5 and a half billion dollars. This deal did not take place, because that same year UnitedHealth Group had over a billion dollars in quarterly losses that same year. In July of 2015, Humana entered into a merger agreement with Aetna Inc. and certain owned subsidiaries of Aetna. Within this agreement a year later, there was a civil antitrust complaint filed by the Department of Justice and some attorney generals, stating that the merge could possibly violate Section 7 of the Clayton Antitrust Act. In February of this year, Humana and Aetna agreed to mutually terminate the Merger Agreement (Annual Report,
2016). Along with the agreement there of course was some risk associated with the terminated merger. The termination has affected and could affect the future of Humana operations due to them having liability for certain legal, accounting and financial advisory that is ongoing. As well as the reservations they have had, has weakened them to retain, recruit and motivate key personnel (Annual Report, 2016). This could have already had a financial effect on Humana. The net income has decreased from 1,276(in millions of dollars) in 2015 to $614(in millions of dollars) in 2016. Also in 2015, the diluted earnings per common share was $8.44 and in 2016 the diluted earnings per common share was $4.07.
Now over 40 years later, Humana is the 3rd largest health insurance provider in the United States. The headquarters operate out of Louisville, Kentucky and they have over thirteen million customers located in the United States. According to (Patrick, 2015), Humana is listed as number 73 in the Fortune 500 rankings. This in turn makes Humana the highest-ranked company based out of Kentucky. The company’s stock symbol is HUM. The company has about 51,600 employees and approximately 2,600 additional medical professionals that work under management agreements. These agreements are primarily between Humana and affiliated associations that are physician owned. Humana have not experienced any work stoppages or huge layoffs.
Humana three reportable business segments include Retail, Group and Healthcare Services. Humana has medical and specialty insurance products allow members the access to health care services. This is done through their networks of providers for health care in which they are contracted with (Annual Report, 2016). The coverage that the members have allows the products to vary. Such as Health maintenance organizations (HMO) where there is usually a referral form the members primary care provider before they can see a specialty physician. On the other hand, Preferred provider organizations (PPO) allows the members the flexibility and freedom to choose a health care provider without having a referral. On the downside, PPO’s usually require the members to pay a greater portion of the provider’s fee if they choose not to use a provider in the PPO’s network. Humana offer services to their health plan members as well as to third parties that encompasses the promotion of health and wellness. This includes pharmacy solutions, clinical programs, provider programs and even home based programs. These services are to advance the health of the population by its capabilities.
Humana’s strategies include an integrated care delivery model.
This model consists of providing quality care, engagement of members that are high and data analytics. With the delivery model in place, the core elements include simplifying interaction between the member and themselves and engaging members in clinical programs. Humana have participated in the Medicare program for private health plans over the past thirty years. They offer a minimum of one type of Medicare plan in every state. Some strategies for Medicare includes health assessments and guidance programs such as fitness programs. This allows seniors to be guided in making decisions that are cost-effective in relevance to their health care. As of 2016, Humana provided health insurance coverage to approximately 2,837,600 Medicare Advantage members and this includes about 598,100 members in the state of Florida alone. The Florida contracts accounted for premium revenue of over 7 and a half billion which accumulates to over 24 percent of Humana’s individual Medicare Advantage premiums revenue (Annual Report,
2016).
The retail segment and Premiums and Services Revenue consist of 40,155(in millions of dollars for Total Medicare and 46,546 (in millions of dollars) for Total Premiums with Services at 46,554(in millions of dollars) for Total premiums and services revenue. In turn a total of 86.2 percent of consolidated premiums and services revenue in total (Annual Report, 2016). Humana has a closing price of $203.49 as of March 27, 2017. Their P/E ratio is 52.64, which has decreased which puts them at a lower risk (Market watch, 2017). In 2012 Humana interest expense was 105 million, in 2016 it jumped to 189 million. In the same respect, in 2012 the net income was 1.22 billion and in 2016 has decreased to 614 million (Market watch, 2017). This would represent that there is not a solvency issue. Some of Humana’s peers consist of Anthem, UnitedHealth Group and Aetna. Humana has consistently outperformed those three companies (Morning Star, 2017). From January 2010 to January 2015, they estimated that the company delivered over 25.7 percent in returns. In comparison to Anthem and UnitedHealth Group at 17 percent and Aetna at 25.4 percent (Patrick, 2015). In another realm of the market cap, Humana had 29,359 million and Aetna 41,779 million (Morning Star, 2017).
As participants in the health care market exchange, Humana experienced that they had members that were much sicker than they assume they would be. There was a good deal of members who signed up through the Affordable Care Act plans that needed care that was pricy in the first two years. There were no plans that were priced to cover the huge medical claims they received. Medicare is very important to Humana. Over 70 percent of their entire revenue comes from Medicaid. Even though they did not price correctly for Medicare Advantage plans it did not lead to higher than expected medical cost. The changes from President Trump to the Affordable Care Act can possibly change the way Humana revenues off Medicare.
With the health care field being competitive companies must find ways to stand out and make their way through. Humana offer stand-alone prescription drug land that are part of Medicare Part D and they offer co-brand with Wal-Mart Stores Inc also known as Humana-Walmart plan. This alone is considered relatable and could be seemed as general. So, since 2010 Humana has administered a program under CMS named Limited Income Newly Eligible Transition (LI-NET). This is a prescription drug plan that allows members to receive the low-income subsidy for Medicare to receive immediate drug coverage for prescription if they are not enrolled in Medicare Part D (Annual Report, 2016).
As stated earlier Humana offers services in all 50 states. The medical membership by market and product consist of the top 5 states. The states include, Florida, Texas, Kentucky, Georgia and California. Florida percent of total is the highest at 12.1 percent, Texas at 6.6 percent, Kentucky at 4.5 percent, Georgia a little under Kentucky at 4.2 percent and California at 3.7 percent. Comparing Florida and California, Florida has 598.1 thousand members in Medicare Advantage while California has 70.0 thousand in Medicare Advantage members. Yet, California has Medicare standalone PDP with 444.3 thousand and Florida with 345.0 members enrolled in the Medicare Stand Alone PDP.
To maximize on the operational strategy, Humana implements clinical initiatives that they tend to decree not only provide better experiences with care but lower health care services in cost. The company’s profitability tends to depend on their ability to manage the cost of health care through programs for medical management. According to the report, if the company fails to price the products sufficiently there could be results that would affect the financial and cash flow positions (Annual Report, 2016). Noted earlier, health care is a highly competitive industry and there are competitors that may be more established as far as larger market share may go. Humana acknowledges this and therefore compete in an efficient way. By avoiding setting their rates either too low or too high. This as part of the future, which largely depends on how they execute the strategies they have in place. Part of the strategy is to implement the integrated care delivery model they have in place as well as participating in health insurance exchange.