Humana Inc. — 2023 Form 10-K
Reporting period: Fiscal year ended December 31, 2023. This is an annual filing; the supplied text does not provide a separate fourth-quarter income statement.
Business context
Humana operates through its Insurance and CenterWell segments. Insurance is centered on Medicare Advantage, Part D, Medicaid and other plans; CenterWell provides pharmacy, primary-care and home-health services. At year-end, the company served approximately 16.9 million medical members and 4.9 million specialty members. Approximately 84% of 2023 premiums and services revenue came from federal government contracts, underscoring material exposure to government programs and regulation.
Key financial results
| Metric | 2023 | 2022 | Change |
|---|---|---|---|
| Total revenue | $106.4 billion | $92.9 billion | +14.5% |
| Premiums revenue | $101.3 billion | $87.7 billion | +15.5% |
| Income from operations | $4.0 billion | $3.8 billion | +5.6% |
| Net income attributable to Humana | $2.5 billion | $2.8 billion | -11.3% |
| Diluted EPS | $20.00 | $22.08 | -9.4% |
| Operating cash flow | $4.0 billion | $4.6 billion | -$606 million |
The consolidated benefit ratio rose to 87.3% from 86.3%, reflecting higher-than-anticipated Medicare Advantage utilization and richer 2023 benefits, partly offset by higher premiums and favorable prior-year claims development. The operating cost ratio improved to 12.5% from 13.7%, with scale and cost efficiencies contributing. Favorable prior-period medical claims reserve development was $872 million, versus $415 million in 2022.
- Insurance: Revenue was $102.3 billion, up 15.5%; operating income fell 12.2% to $2.65 billion. Its benefit ratio increased to 88.0% from 86.6%.
- CenterWell: Operating income increased 8.8% to $1.40 billion. External services revenue fell 22.7% to $3.03 billion, primarily reflecting the 2022 Gentiva Hospice divestiture; intersegment revenue grew 14.9%.
Liquidity, debt and financial position
Year-end cash and cash equivalents were $4.7 billion, down from $5.1 billion. Current and long-term debt totaled approximately $11.7 billion; total liabilities were $30.7 billion and stockholders’ equity was $16.3 billion. The company reported $871 million of commercial paper outstanding and approximately $4.0 billion of remaining capacity under its revolving credit agreements. Operating cash flow declined, which management attributed to lower earnings and unfavorable working-capital movements. Net cash used in investing was $3.5 billion; financing activities used $856 million. Humana repurchased $1.6 billion of shares and paid $431 million in dividends during 2023.
Management stated that cash, investments, operating cash flow and available financing were adequate for operating and regulatory needs and planned uses for at least the next 12 months. This assessment is subject to market conditions and restrictions on transfers from regulated insurance subsidiaries. The company’s stated year-end ratings were BBB+ from S&P and Baa2 from Moody’s.
Material changes, outlook and commentary
- Individual Medicare Advantage membership grew 18.5% to 5.41 million; state-based contract membership grew 8.0% to 1.23 million. Stand-alone PDP membership declined 19.8% to 2.85 million.
- Humana is phasing out its Employer Group Commercial Medical Products business over 18–24 months following its February 2023 announcement. Related 2023 charges included $70 million of severance.
- For 2024, management anticipated net membership growth of about 100,000 in individual Medicare Advantage, 45,000 in group Medicare Advantage and 250,000 in state-based contracts, alongside a decline of about 650,000 in stand-alone PDP.
- CMS’s preliminary 2025 Medicare Advantage and Part D Advance Notice estimated a 0.16% average sector decrease in benchmark funding. Humana’s preliminary analysis indicated funding approximately 160 basis points worse than its expectation of a flat-rate environment; rates remained subject to finalization.
- The company recorded $436 million of 2023 value-creation initiative charges and expected additional charges through the end of 2024. Management also disclosed $91 million of impairment charges. Its list of specified items affecting consolidated pretax income and diluted EPS totaled $903 million and $5.58 per share, respectively, in 2023; these items included valuation adjustments, initiative charges, litigation accruals and impairments. These are disclosed adjustments, not a substitute for reported results.
- Humana sued HHS over the 2023 Medicare Advantage risk-adjustment data validation (RADV) rule, which eliminates the Fee-for-Service Adjuster and provides for extrapolated audit results beginning with payment year 2018. Humana says the rule could materially affect results; the suit’s outcome and potential financial exposure are uncertain.
- Other significant risks include medical-cost and claims-reserve estimation, Medicare Advantage rates and Star ratings, government contract renewals, cybersecurity, provider relationships and litigation. The company reported that past cybersecurity incidents had not materially affected it through year-end 2023. The auditor issued an unqualified opinion and concluded internal control over financial reporting was effective.
Important facts for investors to verify
- Whether elevated Medicare Advantage utilization persists, and how claims experience compares with reserves, including the impact of $872 million in favorable prior-period development.
- The final 2025 CMS payment rates and policy changes, and the effect on Humana’s funding, benefits, membership and margins.
- Developments in the RADV litigation, audits and risk-coding reviews, including any recoveries, settlements or required corrections.
- Progress and remaining costs of the commercial medical exit and value-creation initiatives, and whether CenterWell growth supports the company’s stated strategy.
- Debt maturities, refinancing costs, regulated-subsidiary dividend capacity and cash needs for share repurchases, dividends and WCAS-related put/call options.