Humana 2002 Annual Report Download - page 33

TRICARE Revenues
Base premium revenues as originally specified in our TRICARE contracts are recognized ratably throughout
each contract year as eligible beneficiaries are entitled to receive services. TRICARE revenues also include
estimates for amounts recoverable from the federal government as a result of bid price adjustments, or BPAs, and
change orders.
Under our TRICARE contracts, we retain the financial risk of contractual discounts in the provider
networks, same-store utilization of services and administrative overhead. However, the federal government
retains the financial risk associated with changes in usage levels at military treatment facilities, or MTF, changes
in the number of persons eligible for TRICARE benefits and medical unit cost inflation. BPAs are utilized to
retroactively adjust premium revenues for the impact of the items for which the federal government retains risk.
We work closely with the federal government to obtain and review eligibility and MTF workload data, and to
quantify and negotiate amounts recoverable or payable under our contractual BPA requirements. We record
revenues applicable to BPAs when these amounts are determinable and the collectibility is reasonably assured.
Because final settlement of BPAs occurs only at specified intervals, typically in excess of 6 months after the end
of a contract year for our largest regions, cumulative amounts receivable or payable under BPAs may be
outstanding in excess of a year. Amounts receivable or payable within a year are classified as premiums
receivable or trade accounts payable and accrued expenses, respectively, in our consolidated balance sheets.
Amounts receivable or payable for longer than one year are classified as other long-term assets or other long-
term liabilities, respectively. As a result of the events of September 11, 2001, the subsequent build-up of military
personnel to support military operations in Afghanistan and the continuing build-up of military personnel
surrounding other international tensions, the magnitude of BPA activity is currently much more significant than
in prior years.
TRICARE change orders occur when we perform services or incur costs under the directive of the federal
government that were not originally specified in our contracts. Under federal regulations we are entitled to an
equitable adjustment to the contract price, which results in additional premium revenues. Examples of items that
have necessitated substantial change orders in recent years include congressionally legislated increases in the
level of benefits for TRICARE beneficiaries and the administration of new government programs such as
TRICARE for Life and TRICARE Senior Pharmacy. Like BPAs, we record revenue applicable to change orders
when these amounts are determinable and the collectibility is reasonably assured. Unlike BPAs, where settlement
only occurs at specified intervals, change orders may be negotiated and settled at any time throughout the year.
Total TRICARE premium and ASO fee receivables at December 31, 2002 and 2001 are as follows:
December 31,
2002 2001
(in thousands)
TRICARE premiums receivable:
Base receivable ....................................... $190,339 $164,621
Bid price adjustments (BPAs) ............................ 104,044 —
Changeorders ........................................ 1,400 1,431
Subtotal ......................................... 295,783 166,052
Less: long-term portion of BPAs ......................... (86,471) —
Total TRICARE premiums receivable ................. $209,312 $166,052
TRICARE ASO fees receivable:
Base receivable ....................................... $ 7,205 $ 2,142
Changeorders ........................................ 56,230 16,992
Total ........................................... $ 63,435 $ 19,134
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