Universal American Corp. Reports 2015 Third Quarter Results

WHITE PLAINS, N.Y.–(BUSINESS WIRE)–Universal American Corp. (NYSE:UAM) today announced financial results
for the quarter ended September 30, 2015.

Results of Third Quarter 2015

Universal American’s reported net income for the third quarter of 2015
was $2.8 million, or $0.03 per share. Adjusted net loss for the third
quarter of 2015 was $11.2 million, or $0.13 per share, which
excludes the following after-tax items:

  • $5.7 million, or $0.07 per share, of losses associated with our
    Accountable Care Organization (ACO) business;
  • $18.8 million, or $0.22 per share, of net realized investment gains,
    primarily related to the sale of our minority interest in naviHealth;
  • $0.3 million, or less than $0.01 per share, of tax expense;
  • $0.5 million, or $0.01 per share, of non-recurring expenses; and
  • $1.7 million or $0.02 per share, of income associated with
    discontinued operations related to the APS Healthcare businesses which
    have been sold.

Total revenues for the third quarter of 2015 were approximately $434
million.

Results of Nine Months ended September 30, 2015

Universal American’s reported net loss for the nine months ended
September 30, 2015 was $2.4 million, or $0.03 per share. Adjusted net
loss for the nine months ended September 30, 2015 was $7.3 million, or
$0.09 per share, which excludes the following after-tax items:

  • $6.1 million, or $0.07 per share, of losses associated with our ACO
    business;
  • $21.3 million, or $0.26 per share, of net realized investment gains,
    primarily related to the sale of our minority interest in naviHealth;
  • $5.2 million, or $0.06 per share, of tax benefits;
  • $3.9 million, or $0.05 per share, of non-recurring expenses; and
  • $11.6 million, or $0.14 per share, of losses associated with
    discontinued operations related to the APS Healthcare businesses which
    have been sold.

Total revenues for the first nine months of 2015 were approximately $1.3
billion.

Management Comments

Richard A. Barasch, Chairman and CEO, commented, “In the third quarter,
we continued to take actions that enable us to focus on our core
strength and the foundation of our future: partnering with providers,
especially primary care physicians, to improve health outcomes while
reducing cost in the Medicare population. With the pending sale of our
Traditional Insurance businesses, we can better concentrate our efforts
on growing our Medicare Advantage business and continuing the positive
momentum in our Medicare Shared Savings Program ACO business.

“We have chosen to concentrate our Medicare Advantage business in
regions where we have a meaningful market position, strong relationships
with primary care physicians and the ability to positively impact the
quality and cost of healthcare. Approximately 96% of our members are now
in plans with 4 Stars.

“We continue to expand our market leadership in the growing
Houston/Beaumont region. We are building on our successful 15-year
history of working closely with our physician partners to improve
quality and reduce cost for Medicare beneficiaries. Our year-to-date
results demonstrate the ongoing strength of this business.

“In the Northeast, especially upstate New York, we are in the process of
converting a fee-for-service market into a more value-based system by
introducing pay for performance to primary care physicians. In 2015, we
have had 35% growth in Medicare Advantage membership, but our financial
results reflect an increase in utilization as well as a lag in adequate
premium for new members. We are addressing both of these issues and
believe that our 2016 bids adequately reflected our experience.

“A noteworthy achievement in our Medicare Advantage results is the
reduction in our administrative expense ratio to 10.0% in year-to-date
2015. Given the seasonality of expenses, we expect the full-year expense
ratio to be approximately 10.5%, consistent with the target we set going
into 2015.

“Since 2010, Universal American has returned $19.35 per share ($1.6
billion) in cash dividends to its shareholders, including the recent
$0.75 per share dividend. After payment of the dividend and the
repayment of our term loan in October, our cash and capital position
remain strong, with approximately $57 million in cash at the holding
company and more than adequate capital to support the ongoing growth in
our operating companies.”

Medicare Advantage

Our current Medicare Advantage markets include our members in Texas,
upstate New York and Maine.

  September 30,   December 31,
Membership (in thousands) 2015 2014
Texas HMOs 66.4 61.8
Upstate New York/Maine 40.2 29.7
Core Markets 106.6 91.5
Non-Core Network* 20.7
Rural* 1.9
Total Membership 106.6 114.1
 

*The Company did not renew its non-core network and rural markets for
2015.

 

 

Three Months Ended
September 30, 2015

 

 

Nine Months Ended
September 30, 2015

 

Financial Performance ($ in millions)    
   
Premiums $ 304.3 $ 923.9
Net investment income & other income 2.5 8.0
Revenue 306.8 931.9
 
Quality initiatives 5.8 1.9% 18.8 2.0%
Medical benefits 261.9 86.1% 783.2 84.8%
Total benefits 267.7 88.0% 802.0 86.8%
 
Admin expenses 32.8 10.8 % 92.2 10.0%
ACA Fee 6.4 19.1
 
Segment (loss) income before income taxes $ (0.1) $ 18.6
 
Reported Recast** Reported Recast**
Texas HMOs Medical Benefit Ratio 82.9% 82.1% 82.1% 82.4%
Upstate New York/Maine Medical Benefit Ratio 91.5% 90.8% 91.3% 91.1%
 

** Recast excludes the impact of prior period items.

The Medicare Advantage segment generated a pre-tax loss of $0.1 million
for the quarter ended September 30, 2015; a decrease of $5.4 million
compared to the quarter ended September 30, 2014. The decrease in
earnings was driven primarily by higher utilization in our Northeast
market, a decrease in favorable prior period items and lower net
investment income, partially offset by a decrease in commissions and
general expense levels driven by our cost reduction initiatives and
lower membership. The quarter ended September 30, 2015 included $3.3
million of net unfavorable prior period items compared to $3.7 million
of net favorable prior period items in the quarter ended September 30,
2014.

The Medicare Advantage segment pre-tax operating income during the first
nine months of 2015 was $18.6 million, a decrease of $24.5 million
compared to the first nine months of 2014. These results were largely
driven by higher utilization in our Northeast markets, expected lower
membership as we exited non-core markets, a decrease in favorable prior
period items and lower net investment income, partially offset by a
decrease in commissions and general expense levels driven by our cost
reduction initiatives and lower membership. The nine months ended
September 30, 2015, included $6.2 million of net favorable prior year
items compared to $28.2 million of favorable items for the nine months
ended September 30, 2014.

Texan Plus®, our flagship plan, is the largest Medicare HMO in Southeast
Texas and has achieved 10% compounded membership growth over the past
three years. Virtually all of our members in this plan are in
value-based payment arrangements. For the third quarter of 2015, the
reported Medical Benefit Ratio (MBR) in our Texas HMOs, excluding
Quality Initiative (QI) expenses, was 82.9% and 82.1% excluding prior
period items. For the nine months ended September 30, 2015, the reported
MBR in our Texas HMOs was 82.1% excluding Quality Initiative expenses
and 82.4% excluding prior period items.

Our Northeast markets experienced a 35% increase in membership during
2015 and now have more than 40,000 members with a large concentration in
upstate New York. For the third quarter of 2015, the reported MBR was
91.5%, excluding Quality Initiative expenses, largely driven by an
increase in utilization and a lag in adequate premium for new members.
Excluding prior period items, the MBR was 90.8%. For the nine months
ended September 30, 2015, the reported MBR in our Northeast markets was
91.3% excluding Quality Initiative expenses and 91.1% excluding prior
period items.

Our administrative expense ratio improved to 10.8% in the third quarter
of 2015, compared to 12.4% for the same period in 2014. Administrative
expenses for the third quarter of 2015 decreased $9.2 million compared
to the third quarter of 2014. For the nine months ended September 30,
2015, our administrative expense ratio improved to 10.0% compared to
11.3% for the same period in 2014. Administrative expenses for the nine
months ended September 30, 2015 decreased $27.1 million compared to the
same period in 2014.

Medicare Advantage 2016 Stars

Approximately 96% of our members are currently enrolled in plans awarded
4 Stars from CMS. A summary of these ratings is presented below:

2016 Universal American Medicare Advantage Plans

     

Contract

 

Plan Name

 

Location

 

Members

 

2015 Star

Rating

 

2016 Star
Rating

H4506   Texan Plus HMO   Southeast Texas   62,600   4.0   4.0
H2816   Today’s Options Network PFFS   Northeast   29,000   4.0   4.0
H2775   Today’s Options PPO   Northeast   11,200   3.5   4.0
H5656   Texan Plus HMO   North Texas (Dallas)   3,800   3.0   3.0
         

All of our plans in Southeast Texas (Houston/Beaumont) and the Northeast
were awarded 4 Stars reflecting the quality of care delivered to
enrolled Medicare beneficiaries.

Management Services Organization (MSO)

Our MSO segment includes the operations of our ACOs. On July 30, 2015,
the Centers for Medicare & Medicaid Services (CMS) informed us that our
23 Medicare Shared Savings Program (MSSP) ACOs generated $80 million in
gross savings for program year 2014. This compares to $66 million in
gross savings for 2012/2013, the first program period of the MSSP, which
comprised up to 21 months. We recorded revenue for program year 2014
during the second quarter of 2015 and we recorded revenue for the
program year 2012/2013 during the third quarter of 2014, due to the
timing of CMS’s notice of results.

For these 23 ACOs, the results showed that:

  • Nine ACOs, serving more than 105,000 Medicare beneficiaries, including
    our flagship ACO in Houston, qualified for shared savings totaling
    $26.9 million. This compares to $20.4 million in shared savings paid
    to ACOs for the first program year 2012/2013, which was longer. Our
    share of these payments, recorded in the second quarter of 2015, after
    payments to our physician partners of $6.0 million increased to $20.9
    million, which is reflected in equity in (losses) earnings of
    unconsolidated subsidiaries in our consolidated statements of
    operations.
  • Eight additional ACOs achieved savings but did not exceed the Minimum
    Savings Rate (MSR). Of those eight, four missed the MSR by less than
    1%.
  • Quality scores improved for all ACOs, which indicates improved
    healthcare management particularly for our chronically ill
    beneficiaries.

Financial Performance ($ in millions)

   

Three Months Ended
September 30,

 

Nine Months Ended
September 30,

2015

 

2014

2015

 

2014

Shared Savings Revenue:
Gross Shared Savings $ $ 20.4 $ 26.9 $ 20.4
ACO Partner Share     (7.0)   (6.0)   (7.0)
Net Shared Savings Revenue 13.4 20.9 13.4
Operating expenses   9.3   10.2   30.3   33.3
Segment (loss) income before income taxes $ (9.3) $ 3.2 $ (9.4) $ (19.9)
 

Medicaid

 

Three Months Ended

September 30,

 

Nine Months Ended

September 30,

Financial Performance ($ in millions)

2015

 

2014

2015

 

2014

 
Revenue $ 48.9 $ 46.8 $ 142.5 $ 131.4
 
Segment income (loss) before income taxes $ 0.5 $ 0.1 $ (0.9) $ 2.2
 

The Medicaid segment includes the Total Care Medicaid health plan in
upstate New York with approximately 39,500 members. Pre-tax operating
income for the quarter was $0.5 million, an increase of $0.4 million
from the same period in 2014 driven by an increase in net premiums as a
result of higher state reimbursement rates, partially offset by higher
operating expenses. The medical benefits ratio was 88.4% for the three
months ended September 30, 2015 compared with 92.2% for the three months
ended September 30, 2014.

The pre-tax operating results for the nine months ended September 30,
2015 decreased $3.1 million from the same period in 2014 as a result of
an increase in medical expenses and operating expenses, partially offset
by an increase in net premiums due to higher state reimbursement rates.
The MBR was 90.1% for the nine months ended September 30, 2015 as
compared to 89.9% for the same period in 2014 due to higher medical
benefits primarily related to increased inpatient utilization and
unfavorable development.

Traditional Insurance

 

 

 

 

 

Three Months Ended

September 30,

 

Nine Months Ended

September 30,

Financial Performance ($ in millions)

2015

 

2014

2015

 

2014

 
Revenue $ 45.0 $ 50.0 $ 140.4 $ 155.9
 
Segment income (loss) before income taxes $ 1.8 $ (0.1) $ 7.4 $ 3.3
 

Revenue in our Traditional Insurance segment decreased in both the three
and nine months ended September 30, 2015 due to the continued run-off of
our legacy insurance products, which we stopped marketing and selling
after June 1, 2012. Net income increased in both the three and nine
months ended September 30, 2015, primarily driven by the reduction of
operating expenses.

On October 8, 2015, the Company announced that it had entered into a
definitive agreement to sell its Traditional Insurance business to
Nassau Reinsurance Group Holdings, L.P. It is anticipated that this
transaction will close in early 2016.

Corporate & Other

 

 

 

 

 

Three Months Ended

September 30,

 

Nine Months Ended

September 30,

Financial Performance ($ in millions)

2015

 

2014

2015

 

2014

 
Revenue $ 3.4 $ 4.7 $ 6.9 $ 6.9
 
Segment loss before income taxes $ (7.3) $ (6.4) $ (29.3) $ (33.7)
 

Our Corporate & Other segment reflects the activities of our parent
holding company, debt service and other ancillary operations including
support services provided to the buyers of the APS Healthcare businesses
through transition services agreements.

Corporate expenses for the three and nine months ended September 30,
2015 were lower than those in the comparable 2014 periods primarily due
to corporate expense reduction initiatives, lower legal costs related to
our non-core business, the discontinuation of our New York Health
Benefits Exchange business and lower debt service costs.

Discontinued Operations

Discontinued operations had a pre-tax income of $1.2 million for the
three months ended September 30, 2015 and a pre-tax loss of $21.7
million in the nine months ended September 30, 2015. These results
relate to the APS Healthcare businesses, all of which have now been sold.

Special Cash Dividend and Repayment of Debt

On October 26, 2015, the Company paid a special cash dividend of $0.75
per share. Additionally, on October 14, 2015, Universal American repaid
the outstanding balance on its term loan of $44.9 million and terminated
its credit facility, including the unused revolver. After payment of the
dividend and the repayment of our term loan, our cash and capital
position remains strong, with approximately $57 million in cash at the
holding company.

Investment Portfolio

As of September 30, 2015, Universal American had $910.6 million of cash
and invested assets as follows:

  • 20% is invested in U.S. Government and agency securities;
  • The average credit quality of the investment portfolio is AA-; and
  • Approximately 1% of the investment portfolio is non-investment grade.

A complete listing of our fixed income investment portfolio as of
September 30, 2015 is available for review in the financial supplement
located in the Investors – Financial Reports section of our website, www.UniversalAmerican.com.

Balance Sheet and Liquidity

As of September 30, 2015, Universal American’s Balance Sheet had the
following characteristics:

  • Total cash and investments were $910.6 million and total assets were
    $1.9 billion;
  • Total policyholder liabilities were $1.1 billion and total liabilities
    were $1.2 billion;
  • Stockholders’ equity was $610.2 million and book value, excluding
    accumulated other comprehensive income (AOCI), was $7.18 per diluted
    common share;
  • Tangible book value per diluted common share (excluding AOCI,
    goodwill, amortizing intangibles and deferred acquisition costs) was
    $5.70;
  • Unregulated cash and investments of $163.4 million;
  • $44.9 million of bank debt; and
  • $40.0 million of mandatorily redeemable preferred stock, reported as a
    liability, with an annual dividend rate of 8.5%.

As of September 30, 2015, the ratio of debt to total capital, excluding
the effect of AOCI and including Universal American’s mandatorily
redeemable preferred stock as debt, was 12.3%.

Pro forma for the special dividend and debt pay-down, the ratio of debt
to total capital, excluding the effect of AOCI and including Universal
American’s mandatorily redeemable preferred stock as debt, will be 6.9%,
with approximately $57 million of unregulated cash and investments held
at the parent.

Conference Call

Universal American will host a conference call at 8:30 a.m. Eastern Time
on Tuesday, November 3, 2015 to discuss financial results and other
corporate developments. Interested parties may participate in the call
by dialing (201) 493-6744. Please call in 10 minutes before the
scheduled time and ask for the Universal American call. This conference
call will also be available live over the Internet and can be accessed
at Universal American’s website at www.UniversalAmerican.com,
and clicking on the “Investors” link in the upper right. To listen to
the live call on the website, please go to the website at least 15
minutes early to download and install any necessary audio software. A
replay of the call will be available on the investor relations section
of the Company’s website for approximately two weeks following the call.

Prior to the conference call, Universal American will make available on
its website a Third Quarter 2015 Investor Presentation and supplemental
financial data in connection with its quarterly earnings release. You
can access the Third Quarter 2015 Investor Presentation and supplemental
financial data at www.UniversalAmerican.com
in the “Investors” section under the “Presentations” and “Financial
Reports” sections.

About Universal American Corp.

Universal American (NYSE:UAM), through our family of healthcare
companies, provides health benefits to people covered by Medicare and/or
Medicaid. We are dedicated to working collaboratively with healthcare
professionals, especially primary care physicians, in order to improve
the health and well-being of those we serve and reduce healthcare costs.
For more information on Universal American, please visit our website at www.UniversalAmerican.com.

* * *

Forward Looking Statements

This news release and oral statements made from time to time by our
executive officers may contain “forward-looking” statements within the
meaning of Section 21E of the Securities Exchange Act of 1934, as
amended, and the Private Securities Litigation Reform Act of 1995, known
as the PSLRA. Such statements that are not historical facts are hereby
identified as forward-looking statements and intended to be covered by
the safe harbor provisions of the PSLRA and can be identified by the use
of the words “believe,” “expect,” “predict,” “project,” “potential,”
“estimate,” “anticipate,” “should,” “intend,” “may,” “will,” and similar
expressions or variations of such words, or by discussion of future
financial results and events, strategy or risks and uncertainties,
trends and conditions in our business and competitive strengths, all of
which involve risks and uncertainties.

Where, in any forward-looking statement, we or our management expresses
an expectation or belief as to future results or actions, there can be
no assurance that the statement of expectation or belief will result or
be achieved or accomplished. Our actual results may differ materially
from our expectations, plans or projections. We warn you that
forward-looking statements are only predictions and estimates, which are
inherently subject to risks, trends and uncertainties, many of which are
beyond our ability to control or predict with accuracy and some of which
we might not even anticipate. We give no assurance that we will achieve
our expectations and we do not assume responsibility for the accuracy
and completeness of the forward-looking statements. Future events and
actual results, financial and otherwise, may differ materially from the
results discussed in the forward-looking statements as a result of many
factors, including the risk factors described in the risk factor section
of our SEC reports.

A summary of the information set forth in the “Risk Factors” section of
our SEC reports and other risks includes, but is not limited to the
following: the sale of our Traditional Insurance business is subject to
numerous closing conditions and there can be no assurance that such
transaction will ultimately be consummated; the impact of CMS’s final
Medicare Advantage reimbursement rates for calendar year 2016; we are
subject to extensive government regulation and the potential that CMS
and/or other regulators could impose significant fines, penalties or
operating restrictions on the Company, including with respect to False
Claims Act matters or RADV audits; the Affordable Care Act and
subsequent rules promulgated by CMS could have a material adverse effect
on our opportunities for growth and our financial results; we are
investing significant capital and management attention in new business
opportunities, including our ACOs, that may not be successful; we may
experience higher than expected medical loss ratios or lower revenues,
especially with our new members in our Northeast markets, which could
materially adversely affect our results of operations; if we fail to
design and price our products properly and competitively or if the
premiums and fees we charge are insufficient to cover the cost of health
care services delivered to our members, our profitability may be
materially adversely affected; our significant shareholders may sell or
distribute their stock which could cause the price of our stock to
decline; changes in governmental regulation or legislative reform could
increase our costs of doing business and adversely affect our
profitability; reductions in funding for Medicare programs
could materially reduce our profitability; failure to reduce our
operating costs could have a material adverse effect on our financial
position, results of operations and cash flows; we may not be able to
maintain or improve our CMS Star ratings which may cause certain of our
plans to receive less bonuses or rebates than our competitors; changes
in governmental regulation or legislative reform, including the impact
of Sequestration, could reduce our revenues, increase our costs of doing
business and adversely affect our profitability; a substantial portion
of our revenues are tied to our Medicare businesses and regulated by CMS
and if our government contracts are not renewed or are terminated, our
business could be substantially impaired; we no longer sell long-term
care insurance and the premiums that we charge for the long-term care
policies that remain in force may not be adequate to cover the claims
expenses that we incur; any failure by us to manage our operations or to
successfully complete or integrate acquisitions, dispositions and other
significant transactions could harm our financial results, business and
prospects; we could be subject to a cyber-attack or similar network
breach that could damage our reputation and have a material adverse
effect. Other unknown or unpredictable factors could also have material
adverse effects on future results, performance or achievements of
Universal American.

All forward-looking statements included in this release are based upon
information available to Universal American as of the date of the
release, and we assume no obligation to update or revise any such
forward-looking statements.

Contacts

Universal American Corp.
Adam C. Thackery, 914-597-2939
Chief
Financial Officer
or
INVESTOR RELATIONS COUNSEL:
The
Equity Group Inc.
Fred Buonocore, 212-836-9607
Linda Latman,
212-836-9609
www.theequitygroup.com

Read full story here