Humana Inc.

Ladies and gentlemen, thank you for standing by and welcome to the Humana second quarter 2020 earnings call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a Q&A session. To ask a question during the session, you will need to press star 1 on your telephone. If you're requiring further assistance, please press star 0. I would now like to hand the conference over to your speaker today, Amy Smith, Vice President of Investor Relations.

Please go ahead. 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 second quarter 2020 results and our updated financial outlook for 2020. 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 latest Form 10-K, our other filings with the Securities and Exchange Commission, and our second quarter 2020 earnings press release as they relate to forward-looking statements And to note in particular that these forward-looking statements could be impacted by risks related to the spread of and response to the COVID-19 pandemic, including the potential impacts to us of actions taken by federal, state, and local governments to mitigate the spread of COVID-19 and in turn relax those restrictions, actions taken by us to expand benefits for our members and provide relief for the healthcare provider community in connection with COVID-19. disruptions in our ability to operate our business effectively, and negative pressure in economic, employment, and financial markets, among others, all of which creates additional uncertainties and risks for our business. Our forward-looking statements should therefore be considered in light of these additional uncertainties and risks, along with other risks discussed in our SEC filings. We undertake no obligation to publicly address or update any forward-looking statements in future filings or communications regarding our business or results. Today's press release, our historical financial news releases, and our filings with the SEC are all also available on our investor relations site. 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.

Thank you, Amy. And good morning, everyone, and thank you for joining us. As we continue to navigate the global coronavirus pandemic, our daily interactions with associates, members, providers, and government partners only served to underscore the strength of the Medicare Advantage Program and its endearing public-private partnerships that put seniors and their holistic health at the forefront. As you know, over the last several months, Humana, together with industry peers, the administration, and Congress quickly took deliberate and sustained actions to remove financial barriers and enhance access to care in response to the pandemic. easing some of the burden on our nation's most vulnerable population at a time when they need it most. Supported and enabled by the structure of the Medicare Advantage Program, which incentivizes plans to look holistically at the health and well-being of seniors and those with disabilities. Medicare Advantage plans were some of the first organizations to proactively identify and implement policy and benefit changes at the outset of the pandemic. These actions address testing and treatment costs associated with coronavirus, identified and tackled social determinants needs such as food insecurity, and ensuring continuity of care for our members. At Humana, we quickly announced we would cover COVID testing and treatment costs and pivoted to telehealth alternatives for care due to physical distancing requirements, allowing in-network providers to use personal devices to connect with members while being paid for an office visit. For our members, we recognize that the access to preventative care, medication adherence, focus on social determinants, And the continuation of our other chronic condition management programs during the pandemic will reduce the likelihood that they will experience negative long term effects on their health. That could result from a lack of access to care accordingly. In addition to helping providers pivot to telehealth at the outset, you may have quickly established a number of interventions. including a clinical outreach team to proactively engage with our most vulnerable members, waived co-pays for primary care, outpatient behavioral health, and telehealth services, allowed early refills for prescriptions so members could feel confident in the amount of medication they had on hand, sent care kits to members, including masks, to help them feel like they could safely use the healthcare system, and worked with food banks and other organizations to quickly get meals to those with an immediate need, while also offering meal delivery to address long-term concerns as the pandemic persists. To date, our clinical team has reached out to nearly 1.2 million members, and we've delivered approximately 900,000 meals, including 750,000 meals in the second quarter. Most recently, we announced the distribution of a million preventative care kits to our Medicare Advantage and Medicaid members. These kits provide in-home prevention screenings for colorectal, cancer, diabetes, and kidney disease, recognizing that early diagnosis and intervention is critical for these conditions. From a provider perspective, the pandemic has reinforced the strength of our value-based care models. under which approximately one-third of our individual Medicare members are cared for by providers that take full risk for their patients into in-care under capitated payment models. Providers in these arrangements focus on their patients' holistic health with aligned incentives to drive improved clinical outcomes. As a result, these providers experienced steady cash flow despite declines in utilization, and were the first to reach out to patients ensuring continuity of care. In contrast, providers in fee-for-service models were experiencing cash flow concerns because of the dramatic decline in nonessential services. As previously announced, to help address provider liquidity concerns, we accelerated $1 billion in payments to providers early in the second quarter. Just as the pandemic has demonstrated the compelling value proposition of Medicare Advantage and value-based care, the growing number of individuals selecting Medicare Advantage further underscores the value of the program for seniors, with enrollment nearly doubling in the last decade. The opportunity for Medicare Advantage organizations in partnership with the government to meaningfully impact the healthcare system in the coming years is significant. According to the U.S. Census Bureau, the number of U.S. residents over 65 will again double over the next four decades, with one in five U.S. residents over the age of 65 by 2030. A 2017 publication sponsored by CMS included 9.9 million beneficiaries from three states and found that Medicare Advantage outperformed traditional Medicare on 16 of the 16 clinical quality measures and four of the six patient experience measures. Data from CMS and the Kaiser Family Foundation indicates that in 2020, approximately 94% of Medicare Advantage enrollees have access to at least one zero dollar premium plan, and 80% of all Medicare Advantage plans offer vision, hearing, wellness, or dental, with more than half of the MA plans offering all four. With the expansion of additional flexibilities for supplement benefits, Medicare Advantage organizations have been highly innovative. from efforts to lessen social isolation, to meal delivery, to respite care, to simple home improvements to keep seniors safer at home. Analysis of beneficiary data shows Medicare Advantage saves seniors $1,598 a year on an average relative to those in a traditional Medicare. With seniors' out-of-pocket costs for inpatient costs running seven times higher and traditional Medicare than Medicare Advantage. Data shows that Medicare Advantage is continuing to grow as the preferred option for those who are low income and for racial and ethnic minorities. Of the more than 22 million Medicare Advantage beneficiaries, there is a growing diversity in enrollment with more than 28% of beneficiaries being racial, or ethnic minorities as compared to 21% in traditional Medicare. Nearly 40% of individuals enrolled in MA have annual income of less than $20,000 a year. This data demonstrates that as we think about disparities in healthcare for underserved populations, Medicare Advantage plans are uniquely positioned to address the needs of these members. Humana is committed to leverage our business platforms to support local communities in their efforts to lower social and health disparities. This includes taking a leadership role in social determinants and Medicaid as well. Integrating our Medicare Advantage and Medicaid business models with our community efforts enables us to be more holistic in our approach to improve health both at an individual level and within the communities overall. We will do this by leveraging our successful Bold Goal population health platform as another touch point for us to engage with our members and to support the underserved community. We are committed to deepening our understanding of how to scale specific programs to address social determinants affecting younger populations as well. In June, we contributed an additional $150 million to the Humana Foundation. This endowment will allow the Humana Foundation to continue to invest meaningfully in the communities we serve, including initiatives designed to address healthcare disparities. While we have been engaged in responding to the public health crisis over the last several months, we've also continued to advance our strategy. announcing investments in companies delivering value-based care and higher acuity care in the home, and entering into partnerships with several companies focused on innovative kidney care solutions. These moves are part of Humana's broader effort to create an ecosystem of home-centric care delivery models intended to provide holistic, coordinated care for our members. improving patient experience and outcomes while reducing the total cost of care. As I mentioned in my remarks on last quarter's call, we believe in an omnichannel approach to care that includes primary and higher acuity care in the home is critical to meeting members where they want to be and allows for more visibility into members' needs, particularly social determinants of health. We recently announced strategic partnerships with HEAL and Dispatch Health. While at the same time, we continue to invest in transforming Kindred's home health and hospice programs to drive improved patient outcomes. We believe consumer demand for high-quality home-based care models will continue to increase, and COVID has reinforced this belief as we see increased awareness and interest in home-based care models by consumers. Home-based models consistently demonstrate higher patient satisfaction, reporting net promoter scores of 95 or higher, allow for more personalized care, and often demonstrate superior clinical outcomes. HEAL will serve as our preferred home-based primary care model, which is inherently more capital efficient and scalable, allowing Humana to offer high-quality, value-based primary care to more members than a clinic-based strategy. The ability to deliver emergency room and hospital-level care in the home through partners like Dispatch Health is highly complementary and allows patients to recover in the safety and comfort of their home, reduces caregiver burden, and avoids the risk of secondary infections and further health declines often experienced as a result of inpatient hospital stay. Finally, we've been developing new clinical models and operational enhancements for kindred at home to improve outcomes for the most at-risk patient populations and enable more timely, effective, and coordinated care in the home, enhancing the patient experience and preventing unneeded hospitalizations. Over the last several months, we've begun designing integrated models that fully leverage the collective capabilities of these offerings. which are currently being tested in various markets. As an example, as Kindred identifies members with complex needs who do not have a primary care physician, they will partner with HEAL to address the immediate need and also support ongoing proactive primary care when appropriate and desired by the member. We are identifying Humana members with high emergency room utilization and leveraging Humana at home clinicians to proactively outreach and educate them about dispatch health services and are pleased with the early reductions in emergency room and inpatient hospitalizations for these members. These are only a few examples of how we see these solutions working together to improve member health and outcomes, and we expect to continue to develop, refine, and scale additional clinical innovations. We have also further advanced our kidney care strategy, recognizing kidney disease as the nation's ninth leading cause of death. We continue to support serving individuals with end-stage renal disease and Medicare Advantage in 2021 and beyond. And we believe we can positively impact their healthcare experience. However, we acknowledge that we can be most impactful if we can enable early detection and treatment of kidney disease for our members. Our initiatives and partnerships are focused on how we can better serve both populations. Over the last several months, we've announced agreements with multiple partners offering innovative, enhanced clinical solutions to provide kidney disease care coordination services for Medicare Advantage and commercial members in certain markets. The goal of these initiatives is to help our members detect kidney disease early, slow disease progression, and educate members about treatment options, which include home dialysis. Before I turn the call over to Brian, I'll briefly touch on our financial performance. As I said last quarter, all our businesses started the year strong from both a strategic and financial perspective. As we navigate these uncertain times, we believe that this underlying strength sets us up well for 2021 and beyond. We believe our 2021 offerings are compelling and are pleased that nearly all our members will have access to plans that provide stable or enhanced benefits. As Brian will discuss in a moment, while acknowledging the uncertainty as to the duration of the crisis, the emergence of hotspots across the nation, and the extent to which deferred procedures may resume, We continue to maintain our initial full-year 2020 adjusted EPS guidance range of $18.25 to $18.75. This reflects our expected continued investment to help our constituencies and communities that may be disproportionately affected by the crisis, with many of these costs expected to occur in the back half of the year as we anticipate utilization to normalize and members to utilize the enhanced benefits offered. While we expect these benefit enhancements, including co-pay waivers and other proactive actions we are taking for our members in response to the pandemic, to mitigate much of the impact from the reduced utilization we experienced in March and during the second quarter, the Medicare Advantage program also includes safeguards requiring that plans spend 85 cents of every dollar of premium on medical costs. When that threshold is not met, plans must rebate premiums to the government. This incentivizes plans to provide robust benefits for members each year while also protecting individuals with disabilities and the Medicare Trust Fund if an unanticipated significant decline in utilization occurs. We currently do expect to pay some level of rebate to the government in 2020 as a result of the declines in utilization experience at the beginning of the pandemic. In closing, I want to thank the healthcare providers and especially those on the front line who continue to be the heroes of this pandemic. I also want to express my pride in our associates and my immense gratitude for their extraordinary efforts over the last several months and for those to come as we continue to work relentlessly during the pandemic to ease some of the burden on all stakeholders through this proactive and transparent engagement. At Humana, we are dedicated to delivering human care, a healthcare experience that is easier, more personalized, and more caring for our members. Our associates go above and beyond to take action to address the most important needs of our members and to continuously create the best possible experience so that they can achieve their best health. These efforts are recognized both inside and outside of the organization. Humana Pharmacy has been named the best in mail-order pharmacy customer satisfaction in the J.D. Power 2020 U.S. Pharmacy Study. It is the third consecutive year that Humana has received this prestigious honor. In addition, Humana ranked number one in Florida and Texas in the 2020 J.D. Power ranking of 149 commercial member health plans. I offer my congratulations and thanks to these teams. With that, I'll turn the call over to Brian.