Humana 2003 Annual Report Download - page 14

Administrative Services Only
We offer an administrative services only, or ASO, product to those who self-insure their employee health
plans. We receive fees to provide administrative services which generally include the processing of claims,
offering access to our provider networks and clinical programs, and responding to customer service inquiries
from members of self-funded employers. These products may include all of the same benefit and product design
characteristics of our fully insured PPO and HMO products described above, however, under ASO contracts,
self-funded employers retain the risk of financing the cost of health benefits. For the year ended December 31,
2003, commercial ASO fees totaled $122.8 million, or 1.0% of our total premiums and ASO fees.
Specialty Products
We also offer various specialty products including dental, group life, and short-term disability. At
December 31, 2003, we had approximately 1.7 million specialty members. For the year ended December 31,
2003, specialty product premium revenues were approximately $320.2 million, or 2.7% of our total premiums
and ASO fees.
Our Products Marketed to Government Segment Members and Beneficiaries
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. Since this amount is significant, the timing of its receipt can cause a
material fluctuation in our operating cash flows from period to period. We also collect additional member
premiums from our members in most of our markets.
At December 31, 2003, we provided health insurance coverage under CMS contracts to approximately
328,600 Medicare+Choice members for which we received premium revenues of approximately $2.5 billion, or
20.9% of our total premiums and ASO fees for 2003. One such CMS contract covered approximately 229,100
members in Florida and accounted for premium revenues of approximately $1.8 billion, which represented 70.5%
of our Medicare+Choice premium revenues, or 14.7% of our total premiums and ASO fees for 2003.
Our Medicare+Choice contracts with the federal government are renewed for a one-year term each
December 31 unless terminated 90 days prior thereto. Annual increases in per member premiums from
CMS have ranged from as low as approximately 2% to as high as approximately 10%, with an average of
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