Humana's net income, medical loss ratio beat industry expectations for Q2

The Humana building in Louisville, Kentucky

Photo: Raymond Gehman/Getty Images

Major health insurer Humana logged a net income of $588 million during the second quarter, the company announced this week. And while that's considerably less than the $1.8 billion posted a year ago at this time, when patients were deferring care, it still beat expectations thanks in large part to falling COVID-19 treatment costs for its members.

Humana also said that "solid fundamentals" across its business lines have played a part, especially as the company continues to navigate the impacts of the coronavirus pandemic.

What helped is that non-COVID-19 medical use bounced back faster than expected during the second quarter, executives told investors this week.

WHAT'S THE IMPACT?

The company believes that the pent-up demand for deferred care, while noticeable during the first and second quarters of the year, has begun to normalize, and the insurer expects this trend to continue, despite rising case counts and hospitalizations in many areas of the country.

A key metric that beat expectations was medical loss ratio, which can determine how much an insurer can spend on care. The medical loss ratio was 85.8%, significantly higher compared to the same time period in 2020.

There's uncertainty around medical usage. Humana indicated that annual earnings during the second half of the year could be impacted should demand for care - both for non-COVID-19-related services and for treatment of COVID-19 patients - increase beyond expectations.

The numbers also reaffirmed the expected individual Medicare Advantage membership growth range of about 425,000 to 475,000 members, though of course the pandemic has made forecasting difficult.

Humana's second quarter and year-to-date GAAP results of operations were further impacted by put/call valuation adjustments associated with the company's non-consolidating minority interest investments, the change in the fair market value of publicly-traded equity securities (primarily Oak Street Health), and transaction and integration costs associated with the pending Kindred at Home acquisition.

The company expects to record a mark to market gain, currently expected to be around $1 billion, on its existing 40% ownership of Kindred at Home. The anticipated gain will be recorded when the Kindred at Home transaction closes, which is expected in the third quarter of 2021.

THE LARGER TREND

Humana is now the sole owner of Kindred at Home, after announcing in April that it had signed a definitive agreement to purchase the remaining 60% interest in the home health and hospice provider from two private equity partners, TPG Capital and Welsh, Carson, Anderson & Stowe. The deal values Kindred at $8.1 billion, which includes Humana's existing 40% share that is valued at $2.4 billion.

Under the terms of the deal, Kindred's home health operations will be integrated into Humana's Home Solutions business and it will take on the same branding as Humana's new payer-agnostic health-services arm, transitioning to CenterWell Home Health.

Following closely on the deal to nab Kindred, in June Humana signaled its intent to acquire One Homecare Solutions, or onehome, in an effort to grow its presence in the value-based home healthcare space. Financial terms of the deal were not disclosed, though the insurer expects it will not have a significant impact on its financials for the year.

Having served Humana members since 2015, onehome is a provider of a variety of home-based services, as well as a convener of home health services stakeholders and a care and risk manager. It has a value-based model in Florida and Texas.

ON THE RECORD

"Humana's fundamentals remain strong, with the core of our business continuing to perform well," said Humana president and CEO Bruce D. Broussard. "We believe our operating discipline in 2021, combined with the depth of our planning for the 2022 Medicare Advantage Annual Election Period, puts us in a strong position for financial growth in 2022.

"This year, we continue to focus on delivering strong operating performance, while navigating a dynamic environment due to the ongoing COVID-19 pandemic, all while staying true to our commitment to delivering the highest quality healthcare experience for our members and patients."
 

Twitter: @JELagasse
Email the writer: jeff.lagasse@himssmedia.com