Humana Inc.

Good day and thank you for standing by. Welcome to the Humana Incorporated Quarterly Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker 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. 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 your speaker today, Ms. Lisa Stoner, Vice President of Investor Relations. Please go ahead.

Thank you, and good morning. In a moment, Bruce Versard, Humanities President and Chief Executive Officer, and Susan Diamond, Chief Financial Officer, will discuss our third 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, will 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 and other filings with the Securities and Exchange Commission and our third 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 in 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 also available on our Investor Relations website. Call participants should note that today's discussion includes financial measures that are not in accordance with generally accepted accounting principles or GAF. 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, Lisa, and good morning, and thank you for joining us. Today, we reported adjusted earnings per share of $4.83 for the third quarter of 2021, slightly above consensus estimates. Our year-to-date results reflect the strength of our core operations as we continue to see strong underlying fundamentals across all lines of business, and have remained focused on ensuring our members receive the right care at the right time, despite the continued disruption caused by the pandemic. While our underlying fundamentals are strong, 2021 financial results have been impacted by the ongoing pandemic, which has resulted in an adjustment to our full-year adjusted EPS guidance. As detailed in our earnings press release, we have updated our guidance to approximately $20.50 from our previous guidance of $21.25 to $21.75. As Susan will share in more detail, this reduction of approximately $1 in adjusted EPS is a direct result of COVID and corresponds to our current expectation of the total Medicare Advantage utilization inclusive of COVID costs will run 1% below baseline in the fourth quarter, which is 150 basis points less than our previous assumption of 2.5% below baseline. This update reflects a more conservative posture going into the final months of the year and notably 2150 remains the baseline of which to grow for 2022. As a reminder, prior to this guidance update, we had not recognized a COVID headwind in our 21 guidance, as many of our peers did. Our adjusted EPS guidance has been above our long-term growth target at the midpoint throughout the year at 16% growth. This update results in an expected adjusted EPS growth at the lower end of our long-term range, and importantly, is not reflective of any concerns with our core operations. I will now turn to our operational and strategic update. Our Medicare Advantage individual above-market growth in 2021 of 11%. can be in part attributed to our industry-leading quality and consumer satisfaction scores. We are pleased to be recognized by CMS for having 97 percent of our members in four-star or higher-rated contracts for 2022. We also increased the number of contracts that received a five-star rating from one contract in 2021 to four contracts in 2022. the most in our history. Well, welcome back. Sorry for the technical glitch here. Let me just maybe just go back to our guidance update here and re-ensure that the investors understand the guidance and, in addition, how it reflects as we look at the future here. First, the guidance reflects a much more conservative posture going into the final months of the year. And notably, 2150 remains the baseline of which to grow for 2022. As a reminder, prior to the guidance update, we had not recognized a COVID headwind in our 2021 guidance as many of our peers did. Our adjusted EPS guidance has been above our long-term growth target at the midpoint through throughout the year at 16% growth. This update results in expected adjusted EPS growth at the lower end of our long-term range, and as importantly, does not reflect any concern with our core operations. I will now turn to our operational and strategic update. Our Medicare Advantage individual above market growth in 2021 of 11% can be in part attributed to our industry leading quality and consumer satisfaction scores. We are pleased to be recognized by CMS for having 97% of our members in four star or higher contract for 2022. We also increased the number of contracts that received a five-star rating from one contract in 2021 to four contracts in 2022, the most in our history. And while CMS did make adjustments to the 2022 star ratings due to the possible impact of the COVID-19 pandemic, these adjustments had minimal impact on our ratings. This further demonstrates our enterprise-wide focus on quality, clinical outcomes, and best-in-class customer service, which has been recognized from notable organizations such as Forrester, J.D. Power, and USAA. Importantly, the STARS bonus allows us to maintain a strong value proposition for our members and provided valuable supplemental benefits that address social determinants of health and other barriers not addressed by fee-for-service Medicare. Looking ahead to 2022, we are pleased to be able to provide stable or enhanced benefits for the majority of our Medicare Advantage members, offering plans that support members' whole health needs while continuing to deliver the human care our members have come to expect from us. Our strong clinical and quality programs drive improved clinical outcomes and cost savings that allow our Medicare Advantage plans to continue to expand member benefits on those covered by fee-for-service Medicare. Our plans include highly valuable extra benefits including dental, vision, hearing, and over-the-counter medication allowance, transportation support, fitness program memberships, and home-delivered meals following an inpatient hospital stay. Over the last few years, we've made great progress in addressing social determinants of health and health equity by expanding our Medicare Advantage benefits. Examples of those impactful areas include respite care, distributing 1.5 million meals during COVID, sending fans to seniors with COPD during a heat wave, and providing support for financial need impacting a senior's health and well-being. Given the increasing demand for health equity across America, we have aggressively expanded our efforts to address it. We continue to advance our consumer segmentation efforts, developing plans that are tailored to the unique needs of specific member populations. This has allowed us to provide benefits that enhance and complement an individual's existing coverage through programs like Medicaid or entities such as Veterans Affairs. This approach leads to disproportionate growth. As you've seen in our DSNP plans designed for dual eligible members, where we have grown our membership approximately 40% in both 2022 and 2021. We've expanded our DSNP offerings for 2022 to cover nearly 65% of the dual eligible population nationally. To reduce food insecurity, 97% of our members enrolled in our DSNP plans and will have a healthy foods card, which provides a monthly allowance to purchase approved food and beverages at various national chains. New for 2022, many of our DSNIP members will have reduced Part D drug co-pays as a result of the DSNIP prescription drug savings benefit, which will help address the financial barriers some members face when assessing needed prescriptions, leading to better medication adherence, an important driver of members' health, overall health outcome. As previously shared, we took a more conservative approach to our 2022 bids, recognizing the continued uncertainty associated with COVID-19 and potential impacts to premium and claims assumption, allowing us to prioritize long-term benefit stability for our members. While it is early in the selling season, we believe we've struck the right balance and are competitively positioned for our continued growth in Medicare Advantage. Our brand promise to deliver human care resonates with seniors given our comprehensive set of offerings and focus on providing a patient-centered experience based on their specific needs. Susan will provide more detailed 2022 commentary in her remarks, including high-level EPS and membership guidance. I now would like to highlight the continued progress of our strategy through the build-out of our healthcare service platform, starting with primary care business and then moving to our growing home solutions offerings. We have the largest senior-focused, value-based primary care organization in the country. which by year end will include approximately 200 clinics serving 300,000 patients across 24 markets in nine states. We are accelerating organic and inorganic growth nationally and plan to open a total of 30 de novo senior focus centers in 2022, up from 24 in 2021. This will include launching in two new major metropolitan areas, Dallas and Phoenix next year. This faster pace, Expansion comes as we continue to gain conviction in our de novo center model, with panel growth in centers launched in 2020 and 2021 exceeding plan, and clinical performance in our more mature markets continuing to improve. In our more mature centers, hospitalizations and ER visits are down 12% year-to-date versus 2019 pre-COVID level. with STARS performance tracking to 4.5 stars, an NPS score of 90. We will also continue to expand through inorganic growth, completing seven acquisitions through the third quarter of this year, bringing 21 newly wholly owned centers to our portfolio. We plan to continue this pace of acquisitions, focused on the markets where we have established presence to provide more access and high-quality care to our patients. Turning to the home, we completed the acquisition of Kindred at Home in the third quarter, and now the largest home health and hospice organization in the nation. As previously shared, we will be migrating Kindred at Home to Humana's paragnostic healthcare service brand, CenterWell. Our efforts to transform home health to a value-based model come at a pivotal time for the industry. As seniors increasingly choose Medicare Advantage, there is a meaningful opportunity for home health organizations to engage differently with patients and Medicare Advantage payers to more holistically address patient needs and improve health outcomes, reduce the total cost of care for health plans, and share appropriately in this value creation. We've made substantial progress towards our goal of scaling and maturing a risk-bearing value-based model that manages the provision of home health, durable medical equipment, and home infusion services. With the acquisition of one home earlier in 2021, a delegated post-acute management services organization for the home We have the capabilities to be a value-based convener, providing risk-based contracting and referral management, and continue to develop technology enabling us to coordinate with other adjacent services. These services include gap in care, closure, primary or emergent care in the home, as well as coordination of meals, transportation, and other services to positively support social determinants of health. We currently care for approximately 270,000 Humana members under value-based home care models in South Florida and Southeast Texas. where we've seen improved outcomes, including emergency room usage, being 100 basis points better than Humana's national average. We now are focused on expanding to select markets in North Carolina and Virginia, which we've chose based on multiple criteria, including market density, opportunity to significantly reduce home care expense, and a robust kindred at home footprint. We expect to begin the rollout in the second quarter of 2022 with the goal of covering nearly 50% of Humana Medicare Advantage members under this value-based home health model within the next five years. We are excited about the continued progress of our strategy in the home, but consistent with our home health peers, we recognize that the national nursing labor shortage poses a significant risk to the industry. and we are taking proactive steps to address it as part of our well-developed integration process with Kindred at Home. In some markets, the nursing shortage is resulting in inadequate capacity to meet demand, negatively impacting our ability to grow the top line. We believe the Humana CenterWell brand, supported by our patient-centric culture, will bolster recruiting and retention efforts for nurses. We've seen increased nurse satisfaction and engagement in pilot markets where we have deployed value-based concepts with voluntary nursing turnover improving nearly 10% among home health nurses in 2021. In addition, to unlock sufficient capacity to meet our growth goals, we are implementing broader operational improvements and benefit enhancements while also making targeted investments in capacity-constrained areas to enhance nurse recruiting and retention. With respect to hospice, our intent remains to ultimately divest the majority interest in this portion of the asset. As our experience has demonstrated, we can deliver desired experiences and outcomes for patients transitioning from restorative care to hospice through partnership models. Since we closed the transaction in August, we have continued to explore alternatives for the long-term ownership structure for the business and have initiated steps to reorganize the hospice business for standalone operations, while also ensuring business continuity and monitoring underlying trends. We do not have a further update on the specific transaction structure or expected transaction timing but we will provide additional updates as appropriate moving forward. Given the continued expansion of an interest in our healthcare service platform, we are committed to providing additional disclosure to give further transparency into the performance of these businesses beginning with our first quarter 2022 reporting. Before closing, I want to touch on the current regulatory and legislative landscape. As you know, last week the White House and congressional leaders released their plan known as Build Back Better, which includes several proposed changes to the Medicare program, including establishing a hearing benefit starting in calendar year 2024, which will be included in the Medicare Advantage benchmark. Given that today more than 40% of Medicare beneficiaries, over 27 million seniors, and those with disabilities are enrolled in Medicare Advantage, we were encouraged to see that the package did not include any payment reductions to the program. As this legislation continues to advance and likely be modified, and as we look ahead to the annual CMS call letter and rate notice period, we will continue to work with policymakers and the Biden administration to further improve Medicare Advantage. building on the program's innovation and significant progress in areas like value-based care, social determinants of health, affordability, and financial protection for beneficiaries, as well as reducing the total cost of care. These attributes, along with the deep consumer popularity of Medicare Advantage, are what have enabled it to have a strong bipartisan support with hundreds of members of Congress on record supporting the program. With Medicare Advantage serving as a leading example of a successful private-public partnership, I am optimistic we can continue to lead on important healthcare issues facing both individuals and society, including addressing health inequities, improving health outcomes, and expanding value-based care. With that, I'll turn the call over to Susan.