Humana Inc.

Ladies and gentlemen, thank you for standing by. And welcome to UMENA second quarter 2021 earnings call. At this time, all attendees 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 keypad. If you require any further assistance, please press star 0. Thank you. Now, I would like to welcome Ms. Amy Smith, Vice President of Investors Relations. Ma'am, please go ahead.

Thank you and good morning. In a moment, Bruce Broussard, Humana's President and Chief Executive Officer, and Susan Diamond, Chief Financial Officer, will discuss our second quarter 2021 results and our updated financial outlook for 2021. Following these prepared remarks, we will open up the lines for a question and answer session with industry analysts. Joe Ventura, our Chief Legal Officer, We'll also be joining Bruce and Susan 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 2021 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. 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.

Amy, thank you. Good morning, everyone, and thank you for joining us. Today we reported adjusted earnings per share of $6.89 for the second quarter of 2021, in line with our previous expectations. We continue to focus on delivering strong operating results while navigating a dynamic environment due to the ongoing COVID-19 pandemic. All while staying true to our commitment to delivering the highest quality health care experience for members and patients. Well, we are maintaining our full year 2021 adjusted EPS guidance of approximately $21.25 to $21.75 at the midpoint representing full year adjusted EPS growth of 16% above the 2020 baseline of $18.50 in excess of our long-term growth target. While acknowledging the continued uncertainty driven by COVID-19 hospitalization trends and the rate at which non-COVID costs normalize. As Susan will describe in more detail, our full year adjusted EPS guidance now assumes a $600 million COVID-19 related headwind that is expected to be largely offset by favorable operating items. In addition, this guidance assumes no COVID costs will run Non-COVID costs will run approximately 2.5% below baseline in the back half of the year, including the assumption of minimum COVID testing and treatment costs for the remaining of the year. I'd like to reiterate that our core fundamentals are performing well, and 2021 is a year of COVID-19 transition with various pandemic-related financial impacts, including reduced Medicare Advantage revenue resulting from the significant temporary deferral of utilization in 2020, as well as the lingering long near-term uncertainties regarding the pace and level of the return of utilization for the balance of the year. We also acknowledge that we are seeing increase in COVID utilization in recent weeks, which we will continue to watch closely. While we continue to navigate this pandemic-related uncertainties in 2021, as Susan will lay out in detail, we expect 2022 to be a more normal year. The healthcare system has been open for several months, and we have seen vaccination rates in the seniors reach approximately 80% nationally. Importantly, our members continue to engage in more routine interactions with their providers, which we anticipate will result in more normalized Medicare Advantage revenue next year as providers are able to ensure that our members are receiving appropriate care and that their conditions are being fully documented. I would reiterate our remarks from the last quarter regarding our Medicare Advantage bids for 2022, which reflected the continued uncertainty associated with COVID-19 and our premium and claims assumption, with a focus on maintaining benefit stability in 2023. While it is still too early to provide 2022 guidance, we believe our operating discipline in 2021, combined with the depth of our planning for 2022 Medicare Advantage AEP, puts us in a strong position for financial growth in 2022. I will now turn to an operational and strategic update. Importantly, our underlying core businesses continue to deliver strong results on solid fundamentals with individual Medicare Advantage membership growth outpacing the industry. As we highlighted at our recent Investor Day, this growth is balanced across various product lines. including HMO, PPO, and dual special needs plans, or DSNPs. Our Medicaid business continues to perform well in 2021, and our South Carolina plan is now operational. We are diligently preparing for the Ohio contract go-live date in early 2022, and are continuing to improve our operating model, building off of our core Medicare Advantage capabilities. We've also experienced slightly better than expected results in our home and provider businesses, and increased mail order rates in our pharmacy business. Finally, as announced last quarter, we've entered into an agreement to acquire the remaining 60% interest in Kindred at Home, and we expect the transaction to close mid-August, which we've included in our revised estimates for the year. Our strong operating performance this year is in part a tribute to our strong partnerships with providers who are delivering high-quality care to our members. We are currently seeing 87% of our provider partners in value-based arrangements and surplus. Further, our relentless focus on consumer centricity has led to an all-time high net promoter scores for our retail organization, contributing to Medicare Advantage membership growth and resulted in an external recognition of Humana as an industry leader in customer satisfaction. including the announcement this morning that we received the highest ranking in mail order pharmacy customer satisfaction for the fourth year in a row in the JD Power 2021 U.S. Pharmacy Study. On the public policy front, As policymakers explore changes to Medicare, including adding dental, vision, and hearing as part of the Medicare benefit, we stand ready to both innovate for the more than 12 million of our members who already have these benefits, including 7 million dental and vision policies in our MA group. as well as offer ideas of public-private collaboration to leverage our deep capabilities in Medicare and specialty markets so that beneficiaries could quickly see benefits go from a proposed law to a tangible benefit. Before turning the call over to our new Chief Financial Officer, Susan Diamond, I'd like to take a moment to speak about Susan's experience at Humana over the last 15 years. She has served in various leadership roles across the company during her tenure, spending eight years as part of the Medicare leadership team with various financial and operational and line of business responsibilities. She also spent two years on the finance team, leading enterprise planning and forecasting and overseeing the company's line of business CFOs and controllers. Most recently, she led our home business, growing it to the largest offering of its kind. Her strong financial background and extensive knowledge of our business made her uniquely positioned to step into the CFO role. The board and I have great confidence in her abilities and the contributions she'll make in the next chapter for Humana as we execute on our strategic plan and deliver shareholder value. In addition, given the strategic nature of the CFO role, Susan will continue to contribute in a meaningful way to our home health business. With that, I'll turn the call over to Susan.