Humana 2002 Annual Report Download - page 12

Our Products Marketed to Government Segment Members
Medicare+Choice Product
Medicare is a federal program that provides persons age 65 and over and some disabled persons certain
hospital and medical insurance benefits, which include hospitalization benefits for up to 90 days per incident of
illness plus a lifetime reserve aggregating 60 days. Each Medicare-eligible individual is entitled to receive
inpatient hospital care, known as Part A care, without the payment of any premium, but is required to pay a
premium to the federal government, which is adjusted annually, to be eligible for physician care and other
services, known as Part B care.
We contract with CMS under the Medicare+Choice program to provide health insurance coverage in
exchange for a fixed monthly payment per member for Medicare-eligible individuals residing in the geographic
areas in which our HMOs operate. Individuals who elect to participate in Medicare+Choice programs receive
additional benefits not covered by Medicare and are relieved of the obligation to pay some or all of the
deductible or coinsurance amounts but are generally required to use exclusively the services provided by the
HMO (subject to nominal copayments and coinsurance) and are required to pay a Part B premium to the
Medicare program.
The Medicare+Choice product involves a contract between an HMO and CMS, pursuant to which CMS
makes a fixed monthly payment to the HMO on behalf of each Medicare-eligible individual that chooses to
enroll for coverage in the HMO. The fixed monthly payment, payable on the first day of a month, is determined
by formula established by federal law. We sometimes receive the fixed monthly payment early due to a weekend
or holiday falling on the first day of a month. This receipt is significant, the timing of which can cause material
fluctuation in operating cash flows. We also collect additional member premiums from our members in certain of
our markets.
At December 31, 2002, we provided health insurance coverage under CMS contracts to approximately
344,100 Medicare+Choice members for which we received premium revenues of approximately $2.6 billion, or
23.5% of our total premiums and ASO fees for 2002. One such CMS contract covered approximately 228,400
members in Florida and accounted for premium revenues of approximately $1.7 billion, which represented 66.0%
of our Medicare+Choice premium revenues, or 15.5% of our total premiums and ASO fees for 2002.
Our Medicare+Choice contracts with the federal government are renewed for a one-year term each
December 31 unless terminated 90 days prior thereto. Our 2003 average rate of statutory increase under the
Medicare+Choice contracts is approximately 3.2%. Over the last five years, annual increases have ranged from
as low as the January 2001 increase of 1.9% to as high as 5.0% in January 2002, with an average of
approximately 2.8%. On January 1, 2002, we ceased providing our Medicare+Choice product in 5 counties in
Kentucky and 1 county in Illinois, affecting approximately 22,000 members. On January 1, 2003, we exited
certain counties in several of our markets, affecting about 10,000 members. These exits were the result, in part,
of lower CMS reimbursement rates. We are working with CMS to develop other alternative offerings. For
example, we are participating in a Medicare+Choice pilot program offering a private fee-for-service product in
DuPage County, Illinois and a PPO product in Pinellas County, Florida.
TRICARE
TRICARE provides health insurance coverage to the dependents of active duty military personnel and to
retired military personnel and their dependents. In November 1995, the United States Department of Defense
awarded us our first TRICARE contract for Regions 3 and 4 covering approximately 1.1 million eligible
beneficiaries in Florida, Georgia, South Carolina, Mississippi, Alabama, Tennessee and Eastern Louisiana. On
July 1, 1996, we began providing health insurance coverage to these approximately 1.1 million eligible
beneficiaries.
6