Humana Earnings Call Nuggets: Potential Impact of Regulations and Key Drivers

On Monday, Humana (NYSE:HUM) reported its third quarter earnings and discussed the following topics in its earnings conference call. Take a look.

Potential Impact of Regulations

Joshua Raskin – Barclays: Congrats, Mike, I guess officially or two months away from officially on the transition. So, first question just on the acquisition/investments of MetCare and then MCCI. Could you talk a little bit about the potential impact of minimum MLR regulations as well as how you see their relationships with other health plans progressing, the Coventrys and United WellCares of the world?

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James E. Murray – EVP and COO: This is Jim Murray. The transactions that we talked about today and some of the investments that were spelled out are the right thing to do from a strategic perspective and whatever has happened down the road with respect to MLR requirements and rules and regulations we’ll deal with that as they come along. The other question that I think that you asked is the relationship that we currently have through MetCare and MCCI with those competitors that we do business with and we’re really pleased that the relationship exist and I think folks from MetCare and MCCI are calling those competitors today to demonstrate that we would love to continue our relationship with them going forward and that would be something that would be very important for us down the road.

Bruce D. Broussard – President: Josh, in regards to that also we today with our CAC center is actually have some relationships with those competitors today and I think it has been fruitful for them as a result of our capability and operations and I would see that continuing in the acquisitions that we’re talking about.

Joshua Raskin – Barclays: So, Jim Murray just clarified that, you don’t have a sense necessarily whether or not there will be an impact in minimum MLRs, I mean I’m just wondering is that – does MetCare become a separate subsidiaries, is that part of your Florida MLR that you’ve reported on a consolidated basis theoretically or how is that going to work?

James E. Murray – EVP and COO: The current plan is for MetCare to be a separate subsidiary and that the results of our health plan business will flow-up through Humana’s results and MetCare’s results will flow into our overall consolidated financial reporting. What happens ultimately with how the MLRs are required to be reported or included in our bids is something that has to be determined by CMS and we are waiting for guidance on all that.

Joshua Raskin – Barclays: Is that all included in the 2013 guidance, I know you said modestly accretive in the press release?

Michael B. McCallister – Chairman and CEO: The results of the acquisitions that we reported on today and the investments that we reported on are included in our 2013 guidance net of any investments that we have to do to combine those into the company, but as we said its modestly accretive.

Key Drivers

Sarah James – Wedbush: You had improvement in your retail MLR and I was hoping that you could talk about some of the drivers there, maybe parsed out, what was medical management on the new cohort versus what was the underlying trend?

James H. Bloem – SVP, CFO and Treasurer: There’s been a stabilization of the second quarter when we talked about what the new member cohort are. There is no change in what we had originally put forth there. We indicated in the second quarter that we had seen an increase in the MLR of the new cohorts. We had then projected that through the rest of the year. We’ve seen the real stabilization of that, so the improvement basically continues to be as the book continues to get better in the rest of the business. We indicated that we’ve had strong PDP results and that the rest of the business continues to perform just as we had originally envisioned that both originally last year and in the second quarter.

James E. Murray – EVP and COO: This is Jim Murray. The suggestion I made earlier obviously MetCare has to close before it can be included in our guidance. When it does close it would likely be modestly accretive as well as MCCI. So I apologize for that.

Sarah James – Wedbush: Then looking into next year the retail MLR guidance is flat, so can you talk about some of the assumptions going into that on the cost side or the pricing side?

James H. Bloem – SVP, CFO and Treasurer: Well, again as we mentioned about our 2013 business will vary. As we said in the second quarter we are very pleased with those and as we have seen things developed that’s continue to be the case. So, what we have seen in terms of the overall MLR we are returning to our overall objective of a 5% pre-tax operating margin and again we’ve also taken into account the competitive positioning that we learned about in October.

A Closer Look: Humana Earnings Cheat Sheet>>