Humana Inc.

Ladies and gentlemen, thank you for standing by and welcome to the Humana Third Quarter 2019 Earnings Call. At this time, all participants align in a listen-only mode. Please be advised that today's conference is being recorded. After the speaker's presentation, there will be a question and answer session. To ask the question during the session, you will need to press star 1 on your telephone. I would like to hand the conference over to our speaker today, Ms. Amy Smith, Vice President of Investor Relations. Thank you.

You may begin. Thank you and good morning. In a moment, Bruce Broussard, Humana's President and Chief Executive Officer, and Brian Kane, Chief Financial Officer, will discuss our third quarter 2019 results and our updated financial outlook for the full year. Following these prepared remarks, we will open up the lines for a question and answer session with industry analysts. Our Chief Legal Officer, Joe Ventura, will also be joining Bruce and Brian for the Q&A session. We encourage the investing public and media to listen 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. Before we begin our discussion, I need to advise call participants of 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 our third quarter 2019 earnings press release, as well as in our filings with the Securities and Exchange Commission. Today's press release, our historical financial news releases, and our filings with the SEC are all also available on our investor relations sites. Call participants should note that today's discussion includes financial measures that are not in accordance with generally accepted accounting principles, or GAAP. Management's explanation for the use of these non-GAAP measures and reconciliations of GAAP to non-GAAP financial measures are included in today's press release. Finally, any references to earnings per share or EPS made during this conference call refer to diluted earnings per common share. With that, I'll turn the call over to Bruce Broussard.

Good morning and thank you for joining us. Today we reported adjusted earnings per share of $5.03 for the third quarter of 2019 and raised our full year 2019 adjusted EPS guidance to approximately $17.75, primarily reflecting improved results in our retail segment. Our year-to-date results through the third quarter of 2019, including our significant individual Medicare Advantage membership growth, now projected to exceed half a million members for the full year, demonstrate the value of our products and services, the strength of our brand with consumers, and our progress in simplifying the health care experience for our members, providers, broker partners, and associates. The management team continues to maintain its focus on operational excellence, ensuring our operating results remain consistent despite potential pressure of significant membership growth. While we celebrate these strong results, we also recognize healthcare will continue to evolve and will require an ongoing balance between improving our productivity while innovating for long-term sustainability. specifically by improving the health outcomes of our members and simplifying their healthcare experience. We believe we have a significant opportunity to improve the efficiency and effectiveness of the healthcare system. This is highlighted by a recently completed multi-year study conducted by Humana researchers and published in the Journal of the American Medical Association. The study puts a spotlight on the nearly 25% of our country's annual total healthcare spending that can be deemed as waste. That's one out of every four healthcare dollars, or between $760 billion and $935 billion each year. Our integrated approach to holistic health through programs like Medicare Advantage uniquely position us to evolve healthcare. driving affordability through improving clinical outcomes and simplifying the experience, and reducing the waste in the system. As we look to 2020 and beyond, we are continuing to meaningfully advance our strategy, which centers on improving health outcomes through the most impactful areas of health, home, primary care, pharmacy, behavioral health, and social determinants. In addition, we are making it easier for our members to interact with us and others in the healthcare system through leveraging technology to develop a healthcare ecosystem. An important element of our strategy includes establishing partnerships with key organizations. Our multi-partnership approach allows us to minimize risk, move faster, and use our To that end, you'll recall last quarter I highlighted our partnership with Epic, and today I'd like to share additional examples of recent partnerships. In our efforts to simplify the healthcare experience, in our group and specialty business, we recently expanded our partnership with Accolade, first announced in March of this year. We've created a differentiated health engagement experience for individuals and their employers by integrating our organization's capabilities. Together, we will continue to create personalized and simplified member experiences and leverage new opportunities around solution flexibility, service delivery, partner integration, and economic value in healthcare. Our partnership, which includes a recent additional strategic investment, allows us to tailor the Humana and Accolade solution for a broader base of fully insured and ASO prospects and clients, including expansion of upstream larger group accounts. At the core of our strategy is interoperability, which facilitates our relationship with our provider partners while simplifying the experience of our members. Recently, Humana Pharmacy developed what we believe is the first clinical decision support fire integration in production between a payer and a provider via their clinical workflow. Our partner, Signified Health, is now using our OneMed list in connection with an in-home assessment, giving them the ability to confirm in real time member adherence to their medication and more proactively identify potential adverse drug interventions and drug disease conflicts. During 2020, we will roll this same functionality to all kindred at home and other home health providers, including integration with the new home care home-based system. The integration of technology like OneMedList with kindred at home is enabled by Humana's integration with the home care home-based electronic medical record and practice management system. The integration allows the prescription drug information gathered by the kindred at home nurse to become part of the Humana record, ensuring a more comprehensive record and reducing the likelihood of medication errors. This will accelerate our ability to proactively identify key clinical interventions while improving revenue capture and business and quality reporting. Lastly, just a few weeks ago, we announced a strategic partnership with Microsoft focused on building modern healthcare solutions for Humana members aimed at improving their health outcomes and making their healthcare experiences simpler to navigate. The main objectives of this partnership center on evolving our organization to cloud to improve our speed and efficiency. while assisting us in key initiatives such as the build-out of our longitudinal record so that our members and their care teams have a complete view of their health records for real-time interventions. Importantly, our partnerships with Microsoft will help amplify our home health strategy through the use of their home devices, natural language processing, and device data integration. Similarly, we continue to work closely with key partners like IBM, helping enable data interoperability across our ecosystem and voice-based self-service capabilities using Watson to better serve our providers. These external partnerships complement our internal resources and accelerate solutions we are developing for our members and providers that simplify their experience, enable proactive clinical interventions, and advance value-based population health management. For example, in January 2020, we are launching a new population health management platform, Population Insights Compass, that makes it easy for primary care providers to manage the complexity of value-based payment models. These tools meet a critical need of our providers in that it delivers a single solution for all payers. COMPAS will be a payer agnostic with interoperability for various information systems, complemented with powerful analytics to identify providers that deliver the most effective care interventions. Providers will have access to multiple sources of data in one location, including medical and pharmacy claims, financial data, HEDIS opportunities, clinical programs, and predictive models. The analytics and reporting capabilities will be deployed through a contemporary mobile experience based on the deep knowledge of Humana's successful management of population health over the last 30 years. When it comes to leveraging the power of value-based care, Humana has continued to make progress for our MA members. For example, when comparing members in Humana MA value-based care agreements to those in the Humana MA fee-for-service arrangements, we see 9% more eye exams for individuals with diabetes and 21% increase in blood sugar control management. A testament to Humana's experience in this combination of the 60% of providers being in a surplus and our increasing number of MA members in four SAR plans or greater. Humana will unveil an additional value-based care result in our sixth annual Medicare Advantage Value-Based Care Report on Thursday morning, November 21st. These partnerships and investments, among others, are designed to continue to improve quality and customer service for our members and providers. Our orientation to these two pivotal aspects of healthcare resulted in recognition from multiple external stakeholders. In addition to the awards we shared last quarter, including receiving the J.D. Power Award for the number one mail order pharmacy, we recently ranked as the health insurer brand most recommended by customers in Forrester's 2019 Consumer Experience Index and received a number one net promoter score ranking by Variant4C in their Variant Digital Experience Index 2019 Insurance Edition. which recognizes the most loyalty-inspiring digital experience in health insurance. Our commitment to patient-focused pharmacy benefits also earned us the Specialty Pharmacy Patient Choice Award in the PBM Pay Your Specialty Pharmacy category. This is the second year in a row that MMIT and Zyder Insights have presented Humana with this award. Further and more importantly, our commitment to quality and service is demonstrated by our compelling operational execution, leading to strong star ratings and significant improvement in our CMS program audit results. We are pleased that 3.7 million of our existing Medicare Advantage members, representing approximately 92% of our total MA membership, are in four-star and above contracts for 2021 bonus year, including 1.3 million members in 4.5-star contracts and 5-star contracts in the important state of Florida. In addition, CMS completes a comprehensive program audit every three years, and we saw significant improvement in our results for our recently completed 2018 audit as compared to our 2015 audit. These results are a testament to the strong capabilities we've built through our Medicare Advantage platform, especially in our analytics, enterprise-wide operating structure, talent development, and management information systems. Turning now to 2020, we believe we are competitively positioned in Medicare Advantage based on our early indicators from the annual election period. However, as previously indicated, the likely return of the Health Insurance Industry Fee, or HIF, in 2020 is particularly challenging. We began preparing for the return of the HIF last year, working diligently to identify ways to improve our cost structure by leveraging technology to streamline processes. These efforts have also included discontinuing work being performed that no longer align to our strategy to create capacity for activities that drive the most value to our members and advance the company's long-term sustainability. As a result, we've had to make some tough decisions and recently announced a 2% reduction in our workforce. As a result of initiating our productivity planning over 12 months ago, we've been able to minimize the number of impacted team members by redeploying where and when appropriate many of these individuals to other positions. Approximately 2,000 jobs were impacted by these combined changes. Despite these productivity efforts, there are still members who will see an increase in premium or reduction in benefits next year, given the magnitude of the HIF. Given that the HIF is a premium-based fee, beneficiaries In Medicare Advantage and Medicaid, the sicker and most vulnerable population are disproportionately taxed. As we've mentioned before, there is a bipartisan support to further suspend the HIF. Given the significant positive benefit the removal of the fee would have on members, we continue to urge Congress to address the HIF. We continue to expand our Medicare offerings and segment our products to align to the unique needs of certain populations. For example, we are expanding our dual special needs plan offerings and launched Humana Honor Medicare Advantage plans. In the Honor plan, which are available to anyone eligible for Medicare, but are designed in a way that complement the benefits of a veteran receives through VA health care, underscoring our commitment to veterans. We are also expanding our supplement benefit offerings and introduce offerings under the CMS value-based insurance design, or VBID, and special supplement benefits for the chronically ill, or SSBCI programs. Our VBID offerings include healthy food cards, Part D rewards, COPD adherence, and wellness and health planning. SSBCI is a tailored benefit to address gaps in care and improve specific health outcomes that we are piloting into markets. As I said previously, while it is early based on the results to date in the AEP, We believe we are competitively positioned in Medicare Advantage as expected at the time of bids. Our brand resonates with seniors, giving our focus on customer service and quality, our strong clinical programs, and provider relationships, as well as our longevity in the MA market. We also believe we are competitively positioned in Medicare Part D prescription drug plans, or PDP. We introduced a new line of PDP offerings for 2020, designed to provide a wide range of options to meet the varying needs of people with Medicare. Following two years of significant PDP membership losses, recognizing that historically individual plan selections have been driven by price alone, it was important for us to redesign our products for 2020 in order to address the needs of our members while offering a competitive low-price plan. We also recognize that these changes had to be made under CMS's regulation, which limits us to three PDP plans per region. Accordingly, we launched a new low-price plan co-branded with Walmart, the Humana Walmart Value Rx plan. We are pleased that the national monthly plan premium of $13.20 is the lowest available in the most markets. The 2019 Humana Enhanced Rx and the 2019 Humana Walmart Rx prescription drug plans were combined to create the 2020 Humana Premier Rx plan. This plan is designed to include our most robust coverage for 2020. Members from the previous plan are now enrolled in the new Premier Rx plan. This change affects approximately 2.6 million customers. We recognize consumers have varying healthcare needs, so we are anticipating a certain level of movement between our premier plan and our new low premium Walmart plan. We have empathy for our customers who are experiencing changes to their plans. We've been reaching out to them proactively to find the best plan for their budget and healthcare needs. Lastly, we continue to offer basic plan designed to keep premiums and benefits stable. These changes are required for positioning us for the long-term growth, but create short-term uncertainty in PDP membership expectations for 2020. Brian will provide more detailed 2020 commentary in his remarks, including high-level EPS and membership guidance. In closing, we are confident that the measures we've taken in 2019, combined with our relentless focus on the activities that drive the most value to our members, and advance the company's long-term sustainability will allow us to continue to operate from a position of strength. That means meeting the commitments we've made, including to positively impact the health outcomes of our members, to consistently deliver growth for our shareholders, and continue to create an environment where our team members can do their best work on behalf of those we serve. With that, I'll turn the call over to Brian.