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Humana (HUM) to Write off Receivables; Updates Guidance
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Humana Inc. (HUM - Free Report) recently announced its decision to write off its receivables of $591 million associated with the risk corridor premium stabilization program outstanding as of Sep 30, 2016. This is due to a change in interpretation of the Affordable Care Act (ACA) associated with a recent court ruling. Last month, the U.S. Court of Federal Claims rejected all of the insurer’s statutory, contract and constitutional claims for risk corridor payment, which compelled it to write off (according to accounting rules) the total amount of receivable.
Humana expects to collect roughly $8 million in risk corridor receivables outstanding as of Sep 30, 2016 associated with the 2014 plan year using information released by Centers for Medicare and Medicaid Services (CMS) on Nov 18, 2016. Earlier, Humana had collected nearly $30 million from CMS for risk corridor receivables, which were also associated with the 2014 plan year.
Shares of Humana were adversely impacted by the surprise victory of Donald Trump in the Presidential elections. In the last one month, the shares of Humana have gained only 5.25% compared with the Zacks categorized Health Maintenance Organization industry’s increase of 8.18%.
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Along with Humana, other medical sector stocks like UnitedHealth Group Inc. (UNH - Free Report) , Molina Healthcare Inc. (MOH - Free Report) and Anthem Inc. to name a few, are likely to suffer due to the uncertainty prevailing in the hospital industry as Trump intends to repeal the ACA that largely benefitted these insurers.
We note that the Risk Corridor Program was one of the three major premium stabilization policies under the ACA. The program was initiated during the early years of ACA implementation, when the level of risk for the new enrollees was unpredictable. The Risk Corridor Program was designed to lower the gains and losses associated with health care plans. In case of higher-than-expected profits, the amount above the specified level had to be remitted to the government. On the other hand, plans that made lower profit would have been reimbursed by the government.
Earlier, these risk corridor receivables benefitted the company by increasing the premium income of Humana in the period these were accrued. The company is likely to utilize this write off of the receivables as an adjustment to premium income in the fourth quarter. Humana is unlikely to include the impact of the write off of risk corridor receivables in its adjusted EPS for the fourth quarter and full-year 2016. Humana’s guidance for adjusted EPS for 2016 is pegged at $9.50 as of Dec 8, 2016.
The risk corridor premium stabilization program, which will expire on Dec 31, 2016, is not likely to have any impact on Humana’s performance in 2017. The company’s core businesses are expected to continue to perform in line with expectations.
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Humana (HUM) to Write off Receivables; Updates Guidance
Humana Inc. (HUM - Free Report) recently announced its decision to write off its receivables of $591 million associated with the risk corridor premium stabilization program outstanding as of Sep 30, 2016. This is due to a change in interpretation of the Affordable Care Act (ACA) associated with a recent court ruling. Last month, the U.S. Court of Federal Claims rejected all of the insurer’s statutory, contract and constitutional claims for risk corridor payment, which compelled it to write off (according to accounting rules) the total amount of receivable.
Humana expects to collect roughly $8 million in risk corridor receivables outstanding as of Sep 30, 2016 associated with the 2014 plan year using information released by Centers for Medicare and Medicaid Services (CMS) on Nov 18, 2016. Earlier, Humana had collected nearly $30 million from CMS for risk corridor receivables, which were also associated with the 2014 plan year.
Shares of Humana were adversely impacted by the surprise victory of Donald Trump in the Presidential elections. In the last one month, the shares of Humana have gained only 5.25% compared with the Zacks categorized Health Maintenance Organization industry’s increase of 8.18%.
PRICE CHART
Along with Humana, other medical sector stocks like UnitedHealth Group Inc. (UNH - Free Report) , Molina Healthcare Inc. (MOH - Free Report) and Anthem Inc. to name a few, are likely to suffer due to the uncertainty prevailing in the hospital industry as Trump intends to repeal the ACA that largely benefitted these insurers.
We note that the Risk Corridor Program was one of the three major premium stabilization policies under the ACA. The program was initiated during the early years of ACA implementation, when the level of risk for the new enrollees was unpredictable. The Risk Corridor Program was designed to lower the gains and losses associated with health care plans. In case of higher-than-expected profits, the amount above the specified level had to be remitted to the government. On the other hand, plans that made lower profit would have been reimbursed by the government.
Earlier, these risk corridor receivables benefitted the company by increasing the premium income of Humana in the period these were accrued. The company is likely to utilize this write off of the receivables as an adjustment to premium income in the fourth quarter. Humana is unlikely to include the impact of the write off of risk corridor receivables in its adjusted EPS for the fourth quarter and full-year 2016. Humana’s guidance for adjusted EPS for 2016 is pegged at $9.50 as of Dec 8, 2016.
The risk corridor premium stabilization program, which will expire on Dec 31, 2016, is not likely to have any impact on Humana’s performance in 2017. The company’s core businesses are expected to continue to perform in line with expectations.
Zacks Rank
Humana presently carries Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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Today, you are invited to download the full list of 220 Zacks Rank #1 "Strong Buy" stocks – absolutely free of charge. Since 1988, Zacks Rank #1 stocks have nearly tripled the market, with average gains of +26% per year. Plus, you can access the list of portfolio-killing Zacks Rank #5 "Strong Sells" and other private research. See these stocks free >>