Humana 2002 Annual Report Download - page 2

To our stockholders:
This past year was a period of steady progress for
Humana, as we built on the foundation established by
our management team in 2000 and 2001. We fully
expect to expand on that progress in 2003.
Much of our success in 2002 derived from
improving our positioning in the Commercial segment
for sustained earnings growth. Our progress in this area
gives encouragement for the future, as does the
continuing contribution of our Government business to
the company’s profitability and diversified business
mix.
Innovation has never been a strong suit for the
health benefits industry. Humana, however, is
assuming a leadership role by incorporating product
innovation, technology leadership, exceptional
customer service and a relentless focus on the
consumer into everything we undertake.
For employers and employees who seek workable
solutions to the problem of skyrocketing health costs,
and who daily confront a daunting health care system
that seems like an impenetrable maze, Humana in 2002
Michael B. McCallister, Director, President and Chief Executive Officer (left)
David A. Jones, Chairman of the Board (right)
began offering innovative products and product support that combine the best of traditional health plan
coverage with breakthrough approaches. Preliminary results from early adopters show these plans are able to
hold down cost increases, expand choice and, through industry-leading online educational tools, enable
consumers to understand their health benefits and use them more wisely and cost-effectively than ever before.
In so doing, Humana positioned itself as an industry leader in solving a growing health benefits dilemma for
employers and employees.
The Health Benefits Dilemma
The conditions that led us to develop this new generation of health benefits plans are rooted in the twin
phenomena of rapidly rising costs and declining consumer engagement in health spending. Following a short
period in the mid-1990s when health care inflation was near zero, costs have risen steadily over the past half-
decade. Health care cost inflation has now reached 15 percent per year in the private sector. At this rate, U.S.
health spending – already $1.5 trillion annually – will double in the next few years. Simultaneously, consumers’
share of the overall health-cost bill has continued to decline, extending a decades-long trend.
Businesses have reacted predictably to this unsustainable rate of increase. They’ve raised premiums and
coinsurance for their employees, reduced benefits or, especially in the case of small business, dropped coverage
altogether. In addition, over the past 40 years, consumer out-of-pocket spending as a share of total health costs
has declined from 48.6 percent in 1960 to 15.4 percent in 2000, according to the Centers for Medicare and
Medicaid Services (CMS). With less of a personal stake in the system – and unaware that the “real cost” of a
doctor’s office visit is not their own $15 copay, for example – consumers have become increasingly disengaged
from the cost consequences of their health-care decision-making.
SmartSuite – Humana’s Solution
To remedy the problem we first had to overcome it ourselves. In 2001, we were faced with an anticipated
19.2 percent increase in health costs for our 4,800 Louisville employees and their dependents. We were
determined to develop a breakthrough solution that would enhance choice and value for our employees while
holding down costs for them and for us. The result was SmartSuite – an innovative package of six health benefit