Humana Q3 2010 Earnings Call Transcript

Humana (HUM)

Q3 2010 Earnings Call

November 01, 2010 9:00 am ET

Executives

James Bloem - Chief Financial Officer, Senior Vice President and Treasurer

Michael McCallister - Chairman, Chief Executive Officer, President and Member of Executive Committee

James Murray - Chief Operating Officer

Regina Nethery - Vice President Investor Relations

Analysts

Ana Gupte - Bernstein Research

Christian Rigg - Susquehanna Financial Group, LLLP

Joshua Raskin - Barclays Capital

Justin Lake - UBS Investment Bank

Sarah James - Wedbush Securities Inc.

Peter Costa - FTN Midwest Securities

Carl McDonald - Citigroup Inc

Scott Fidel - Deutsche Bank AG

Charles Boorady - Crédit Suisse AG

Matthew Borsch - Goldman Sachs Group Inc.

David Windley - Jefferies & Company, Inc.

Thomas Carroll - Stifel, Nicolaus & Co., Inc.

John Rex - JP Morgan Chase & Co

Doug Simpson - Morgan Stanley

Christine Arnold - Cowen and Company, LLC

Kevin Fischbeck - BofA Merrill Lynch

Presentation

Operator

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Good morning. My name is Sarah, and I will be your conference operator today. At this time, I would like to welcome everyone to the Humana Third Quarter 2010 Earnings Release Conference Call. [Operator Instructions] I would now like to turn the call over to Ms. Regina Nethery, Vice President of Investor Relations. Please go ahead.

Regina Nethery

Good morning, and thank you for joining us. In a moment, Mike McCallister, Humana's Chairman of the Board and Chief Executive Officer; and Jim Bloem, Senior Vice President and Chief Financial Officer, will briefly discuss highlights from our third quarter 2010 results, as well as comment on our earnings outlook for 2010. Following these prepared remarks, we will open up the lines for a question-and-answer session with industry analysts. Joining Mike and Jim for the Q&A session will be Jim Murray, our Chief Operating Officer; and Chris Todoroff, Senior Vice President and General Counsel. We encourage the investing public and media to listen in to both management's prepared remarks and the related Q&A with analysts.

This call is being recorded for replay purposes. That replay will be available on the investor relations page of Humana's website, humana.com, later today. This call is also being simulcast via the Internet along with a virtual slide presentation. For those of you who have company firewall issues and cannot access the live presentation, an Adobe version of the slides has been posted to the Investor Relations section of Humana's website.

Before we begin our discussion, I need to cover a few other items. First, our cautionary statement. Certain of the matters discussed in this conference call are forward looking and involve a number of risks and uncertainties. Actual results could differ materially. Investors are advised to read the detailed risk factors discussed in this morning's press release, as well as in our filings with the Securities and Exchange Commission. Today's press release and other historical financial news releases are available on our investor relations website. All of our SEC filings are also available via the investor relations page of Humana's website, as well as on the SEC's website. Finally, any references to earnings per share or EPS made during this morning's call refer to diluted earnings per common share. With that, I'll turn the call over to Mike McCallister.

Michael McCallister

Good morning, everyone, and thank you for joining us. Today, Humana announced third quarter earnings of $2.32 per share, which compares to $1.78 per share in the year ago quarter. This favorable result was achieved because of strong operating performance in both our Government and Commercial segments. We have updated our 2010 earnings per share guidance range to $6.40 to $6.50 compared to our previous forecast of $5.65 to $5.75 based on this operating performance and on the anticipated extension of our TRICARE contract. Jim Bloem will discuss this TRICARE development in the course of his remarks.

My comments this morning will be brief due to our upcoming Investor Day on November 18 where I'll be joined by key Humana leaders for in-depth discussions of our operations and outlook. We will also disclose 2011 guidance at that time. Today I'll spend just a few minutes highlighting our strategy and how our operating progress is positioning us for the long-term success before turning the call over to Jim.

I'll start with Medicare. Our long-standing focus on Medicare as a one-to-one Retail business combined with our emphasis on disciplined and innovative approaches to managing trend and coordinating care has served us well and is proving to be well-suited for the post reform world. Humana's holistic approach to our members is the linchpin of our ongoing 15 percent Solution. The results of which were evident in our third quarter operating results. The 15 percent Solution involves providing better benefits to our Medicare Advantage members that had cost 15% less than the cost of baseline benefits under traditional Medicare with higher quality and better outcomes than original Medicare. Delivering on this solution requires integrating many different functions on a large-scale, starting with building efficient provider networks and then coordinating targeted clinical interventions to address high cost situations that can be managed more efficiently to produce lower cost and better results.

This is becoming increasingly important in Medicare Advantage as payment rates continue to move toward parity with traditional Medicare. One important message of how this approach has positioned us well in relation to our competitors became apparent when industry-wide 2011 Medicare member premiums were announced at the end of September. Despite the economic challenge of Medicare Advantage payment rates being held flat with 2010, the success of our 15 percent Solution meant that Humana's 2011 member premiums for both Medicare Advantage and our existing PDP business went up only modestly.

Separately, our innovative co-branded PDP offering with Wal-Mart has for the first time since the PDP program was launched in 2006, won price and won benefit structure nationwide. This makes it easy to understand the key element for retail consumers. Further, it has the lowest premium of any PDP plant in all 50 states and Washington DC. This advantage coupled with the linkage of two leading brands with high favorability among seniors, we believe, is generating meaningful, positive awareness of the new product. That's been helped by comprehensive marketing campaigns from both companies prior to the opening of the annual election period on November 15. Together, we're introducing a positive disruption in the standalone PDP market this year.

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