Humana 2002 Annual Report Download - page 51

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one year renewal option which should continue our contracts through the new TRICARE Next Generation, or
T-Nex, transition described below. Historical pretax profit margins for our TRICARE business have generally
ranged from 2 to 4 percent. We expect margins to continue in this range during 2003.
The Department of Defense recently announced a plan to consolidate the total number of prime contracts
from seven to three under the new T-Nex program. The Department of Defense has stated that a bidder can be
awarded only one prime contract, although a bidder would be allowed to secondarily participate in another
contract. We submitted a bid in January 2003 to participate as a prime contractor for the South region.
Additionally, we partnered with Aetna Government Health Plans, LLC, a subsidiary of Aetna, Inc. to participate
as a subcontractor should Aetna Government Health Plans, LLC be awarded the North region. An announcement
of the awards is expected in mid to late 2003 with transition to the new regions not expected until mid to late
2004. At this time we are unable to predict whether we will be awarded a contract, or the effective date of the
contract.
If we are a successful bidder on the South region, we do not expect a material change to our consolidated
financial position, results of operations, or cash flows, although TRICARE profits could decline slightly.
TRICARE membership would not materially change from current levels. TRICARE revenues and expenses
would decline by approximately 20% as a result of certain benefits, e.g. pharmacy, which are included under our
current contract, being excluded and under separate T-Nex contracts in the future.
Effective July 1, 2002, we signed two contracts in Puerto Rico covering beneficiaries in two of the eight
regions in Puerto Rico’s Medicaid program, which represents 86% of our total Medicaid membership as of
December 31, 2002. The term of each of these contracts is three years, subject to annual renewal options with the
Health Insurance Administration in Puerto Rico. Our Medicaid contracts in Florida and Illinois generally are
annual contracts.
The loss of any of these government contracts or significant changes in these programs as a result of
legislative action, including reductions in premium payments to us, or increases in member benefits without
corresponding increases in premium payments to us, may have a material adverse effect on our financial position,
results of operations and cash flows.
Legal Proceedings
We are party to a variety of legal actions in the ordinary course of business, including employment matters,
breach of contract actions, tort claims, and shareholder suits involving alleged securities fraud. A description of
material legal actions in which we are currently involved is included under “Legal Proceedings” of Item 3 in
Part 1. We cannot predict the outcome of these suits with certainty, and we are incurring expenses in defense of
these matters. In addition, recent court decisions and legislative activity may increase our exposure for any of
these types of claims. Therefore, these legal actions could have a material adverse effect on our financial
position, results of operations and cash flows.
Cautionary Statements
This document includes both historical and forward-looking statements. The forward-looking statements are
made within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange
Act of 1934. We intend such forward-looking statements to be covered by the safe harbor provisions for forward-
looking statements contained in the Private Securities Litigation Reform Act of 1995, and we are including this
statement for purposes of complying with these safe harbor provisions. We have based these forward-looking
statements on our current expectations and projections about future events. These forward-looking statements are
not guarantees of future performance and are subject to risks, uncertainties and assumptions, including, among
other things, the information discussed below. In making these statements, we are not undertaking to address or
update each factor in future filings or communications regarding our business or results. Our business is highly
complicated, regulated and competitive with many different factors affecting results.
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