Humana 2002 Annual Report Download - page 54

• provider disputes over compensation and termination of provider contracts;
• disputes related to self-funded business, including actions alleging claim administration errors;
• claims related to the failure to disclose some business practices; and
• claims relating to customer audits and contract performance.
In some cases, substantial non-economic or punitive damages as well as treble damages under the federal
False Claims Act, RICO and other statutes may be sought. While we currently have insurance coverage for some
of these potential liabilities, other potential liabilities may not be covered by insurance, insurers may dispute
coverage or the amount of insurance may not be enough to cover the damages awarded.
In addition, some types of damages, like punitive damages, may not be covered by insurance, particularly in
those jurisdictions in which coverage of punitive damages is prohibited. Insurance coverage for all or some forms
of liability may become unavailable or prohibitively expensive in the future.
A description of material legal actions in which we are currently involved is included under “Legal
Proceedings” of Item 3 in Part I. We cannot predict the outcome of these suits with certainty, and we are
incurring expenses in the 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.
As a government contractor, we are exposed to additional risks that could adversely affect our business or
our willingness to participate in government health care programs.
A significant portion of our revenues relates to federal, state and local government health care coverage
programs, including the Medicare+Choice, Medicaid and TRICARE programs. These programs involve various
risks, including:
• the possibility of reduced or insufficient government reimbursement in the future;
• the possibility that we will not be able to extend or renew any of the contracts relating to these
programs. These contracts also are generally subject to frequent change, including changes that may
reduce the number of persons enrolled or eligible to enroll, reduce the revenue we receive or increase
our administrative or health care costs under those programs. We currently are in negotiations with the
Department of Defense to extend our TRICARE contracts that expire on April 30, 2003 for Regions 2
and 5 and June 30, 2003 for Regions 3 and 4. We believe we will be able to successfully extend our
TRICARE contracts under substantially the same terms for one additional year plus a one year renewal
option which should continue our contracts through the new TRICARE Next Generation, or T-Nex. In
the event government reimbursement were to decline from projected amounts, our failure to reduce the
health care costs associated with these programs could have a material adverse effect on our business.
Changes to these government programs in the future may also affect our ability or willingness to
participate in these programs. The loss of these contracts or significant changes in these programs as a
result of legislative action, including reductions in payments or increases in benefits without
corresponding increases in payments, may have a material adverse effect on our financial condition,
results of operations and cash flows;
• at December 31, 2002, under one of our CMS contracts, we provided health insurance coverage to
approximately 228,400 members in Florida. This contract accounted for approximately 16% of our total
premiums and ASO fees for the year ended December 31, 2002. The termination of this contract would
likely have a material adverse effect upon our financial condition, results of operations and cash flows;
• higher comparative medical costs;
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