Humana Inc.

Ladies and gentlemen, thank you for standing by and welcome to the Humana third quarter 2020 earnings conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press star 1 on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star zero. I would now like to hand the conference over to Amy Smith, Vice President of Investor Relations. Thank you. 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 third 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 at Humana.com later today. Before we begin our discussion, I need to advise call participants about 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, In our third 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, one, actions taken by federal, state, and local governments to mitigate the spread of COVID-19 and, in turn, relax those restrictions. Two, actions taken by us to expand benefits for our members and provide relief for the healthcare provider community in connection with COVID-19. And three, disruptions in our ability to operate our business effectively. Four, 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 filing. 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, and thank you for joining us. I want to begin by thanking our associates. From proactively reaching out to check on our members, making sure they have access to care and medications, to showing up on members' doorsteps for delivery of much-needed food, our associates continue to go above and beyond to meet the needs of our members and providers. Our team's discipline and continued focus on quality is evident in Humana's recently announced star ratings. again putting us in a leadership position among our peers. A key tenet of the MA program, the STARS rating system incentivizes plans to focus on quality in both care and the consumer experience, driving improved clinical outcomes. Plans then invest the STARS bonus dollars in additional benefits, improved care, and better member experiences. We are proud that approximately 4.1 million, or 92% of our MA members, are currently enrolled in plans rated four stars or higher. For three straight years, our Care Plus MA plan in Florida, which covers more than 164,000 members, received a five-star rating. In addition, more than 99% of our retirees in our group MA plans remain in contracts rated four stars and above. These outstanding results are a testament to our associates' commitment to building trust with our customers through simple, personalized, and empathetic experiences. It is what we call human care. You've probably seen our new human care ads. Human care is more than an ad campaign. It is a strategy for how we run the company, centering on holistic care that addresses our members' most important health care needs. Our newest ad stresses the importance of continuing to take care of your health during the pandemic and how Humana is making it easier for members to seek care safely. This is one of several messages to our members encouraging them to continue to engage with their doctors for managing their ongoing health conditions. As you know, Humana, in partnership with CMS, was among the first in the industry to quickly implement benefit changes for Medicare Advantage members that removed financial barriers, improved access to care, and address social determinants of health needs during the pandemic. I've described over the past few earnings calls many of our initiatives to support our members, providers, and associates, so I won't repeat them. However, as the pandemic progresses, our actions will continue to evolve to meet the changing needs of our constituents. For example, the pandemic has highlighted the importance of social needs such as social interaction. In response to this need, Humana extended the PAPA program, a program that matches college students when members identified as lonely or severely lonely, into several South Florida communities. I'd like to share a story about Otis, a Humana member. While registering Otis for the PAPA program, the case manager noticed it was Otis' birthday and began singing happy birthday to him over the phone. Otis was overcome with emotion, noting it had been years since someone had even wished him a happy birthday. His reaction impacted his case manager so much that she reached out to PAPA's corporate team and Humana, who immediately took action and had a birthday cake delivered to Otis' home. Sometimes the smallest action can make a big difference in someone's life. Programs like PAPA are an important element in addressing the holistic needs of our members. As we look forward to 2021, we are able to provide stable or enhanced benefit for most of our members. with plans that continue to reflect our commitment to their holistic health. Our strong clinical and quality programs drive improved clinical outcomes and cost savings that allow Humana plans to invest and expand member benefits beyond those covered by original Medicare Parts A and B, including supplemental benefits like dental, vision, hearing coverage, prescription drug benefits, and gym membership, as well as programs that address social determinants of health needs, like the Papa platform. For 2021, all Humana MAPD members will enjoy a number of benefits, including zero telehealth co-pays for primary care physician visits, urgent care, and outpatient behavioral health, zero copays for COVID-19 testing and treatment, and 14 days of home-delivered meals for members with COVID diagnosis, and a health essential kit with useful items for preventing the spread of COVID-19 and other viruses like the flu. Other 2021 plans and highlights include nearly 60% of our members will be in plans that offer care coordination services and enhanced benefits not offered under original Medicare for zero member paid premium. Primary care co-pays of $20 or less for approximately 93% of our members, including nearly 60% with zero co-pay. An insulin savings program included on approximately half of our Humana's MAPD plans and a third of our PDP plans. Members will pay no more than $35 for a 30-day supply of select insulins. In addition, eligible Humana Medicare Advantage members who need help remaining independent at home have access to their own personal care manager through Humana at Home. We are pleased that for 2021, Humana and MAPD plans are all recommended by USAA, a company known for its customer satisfaction and commitment to the financial security of current and former members of the US military. Our ability to offer enhanced benefits relative to original Medicare is due in large part to our chronic condition management programs and our focus on value-based care. The Medicare Advantage program incentivizes a holistic focus on health and because of this offers an opportunity for private organizations like Humana to partner with providers on value-based care models customized to meet both the unique dynamics of the local market and the risk tolerance of a given provider. This ability to customize is key to driving deeper and faster adoption of health-based care models, and together with our industry peers, we are structurally changing the health care system. Approximately two-thirds of Humana's individual Medicare Advantage members are cared for by providers in value-based arrangements. with just under one-third in full risk arrangements where the provider is responsible for the entirety of the member's care for a capitated payment. We are pleased that approximately 86% of our value-based care partners are in surplus, demonstrating the success of driving improved clinical outcomes in these models. Our annual value-based care report for 2020 included several key findings based on 2019 experience. Human and Medicare Advantage members under the current care of physicians in value-based arrangements would have incurred an additional $4 billion in planned covered medical expenses had they been under Medicare fee-for-service. Prevention screenings improved medication adherence, and effective management of patient treatment plans all contributed to creating these reductions. Humana Medicare Advantage members served by physicians in value-based arrangements had a 29.2% lower rate of hospital admissions and a 10.3% less emergency room visits when compared with original Medicare. Physicians in value-based arrangements with Humana with 2016 through 2018 had an average of 4.44 HEDIS star score at the end of 2018, compared to 3.1 for physicians in non-value-based arrangements. Our deep value-based contracting experience positions us well to participate in other value-based care models, including the new direct contracting program. Initially, we intend for both our health plan and primary care assets to participate as direct contracting entities on a limited basis. We are working very closely with CMS as there is still a number of points of clarification needed before the programs begin in 2021. While we believe this could be an interesting opportunity to take on original Medicare fee-for-service members, we do not expect our participation to have a material impact on our results or operations for 2021, as we will employ a test-and-learn approach to implementing and evaluating the direct contracting programs. Before turning the call over to Brian, I want to touch on our standalone Medicare Part D, or PDP, offerings for 2021. As we've discussed the last couple of years, PDP plans have become a commodity with low price leader essentially capturing all of the growth. As a result, after our meaningful PDP membership losses in 2019, we made significant changes to our portfolio. for 2020, combining two plans to create space to offer a new low premium plan co-branded with Walmart. This low premium plan was the most competitively priced plan in the majority of our regions and grew substantially by adding almost 1 million members. For 2021, the PDP industry remains extremely competitive with multiple carriers offering low premium plans. We take a disciplined approach to pricing, balancing membership growth and the overall impact of the enterprise. As a result, the Walmart value plan will not be the lowest cost leader in 2021, but is priced in a similar range to other low premium plans with competitive benefits. However, one plan sponsor is an outlier with an offering priced well below the rest of the market. While we once again anticipate the overall PDP market will shrink in 2021 as seniors increasingly choose Medicare Advantage plans with prescription drug coverage, we expect PDP to continue making meaningful contributions to the overall enterprise with high mail order pharmacy utilization and more PDP members converting to MAPD over time. Our premium plan will include the new senior savings model demonstration, where members can get certain insulin at a maximum monthly cost of $35. In addition, all three PDP plans have expanded preferred network pharmacies to improve member access, convenience, and options to reduce their out-of-pocket costs. Despite our enhanced offerings, the very competitive price marketplace will be a headwind for the PDP membership again in 2021, as Brian will discuss in his remarks. Turning to the importance of the day, I would be remiss if I didn't encourage everyone, if they have not already done so, to get out and exercise their civic duty to vote on this election day. Regardless of the outcome of the election, Humana is committed to public-private partnerships that are solution-oriented and drive results that will meaningfully benefit the health care system in the coming years. With that, I'll turn the call over to Brian.