Humana 2003 Annual Report Download - page 62

our administrative or health care costs under those programs. Our current TRICARE contract with the
Department of Defense will be in effect until April 30, 2004 for Regions 2 and 5 and until June 30, 2004
for Regions 3 and 4. Each of the contracts is subject to a one-year renewal at the Government’s option.
We believe these contracts will continue until the TRICARE transition described below. On August 21,
2003, the Department of Defense notified us that we were awarded the contract for the South Region,
one of three newly-created regions under the government’s revised TRICARE Program. The current
TRICARE Regions 3 and 4 will become part of the new South Region along with Region 6, which is
currently administered by another contractor. The current Regions 2 and 5 will become part of the North
Region, which was awarded to another contractor. Pursuant to the Department of Defense’s bid process,
each of the three awards was subject to protests by unsuccessful bidders of prime contracts, however,
none of the protests were successful.
• under the Department of Defense’s current schedule for implementation of the new TRICARE contracts,
Regions 2 and 5 will transition to the new North Region for the start of healthcare delivery on July 1,
2004. Regions 3 and 4 will become part of the new South Region for the start of healthcare delivery on
August 1, 2004 and Region 6 will become part of our new South Region for the start of healthcare
delivery on November 1, 2004. If this schedule is realized, our TRICARE membership is expected to
temporarily decline to 1.5 million in July 2004, and is expected to increase to 2.8 million in November
2004. This will also result in a decline in revenues during this period.
•inthe 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. Other than as described herein, the loss of our current or future
TRICARE contracts, would have a material adverse effect on our financial position, results of
operations and cash flows;
•atDecember 31, 2003, under one of our contracts with the Centers for Medicare and Medicaid Services,
or CMS, we provided health insurance coverage to approximately 229,100 members in Florida. This
contract accounted for approximately 15% of our total premiums and ASO fees for the twelve months
ended December 31, 2003. The loss of this and other CMS contracts or significant changes in the
MedicareAdvantage program as a result of legislative action, including reductions in payments to us or
increases in benefits to members without corresponding increases in payments, may have a material
adverse effect on our financial condition, results of operations and cash flows;
•inDecember 2003, The Medicare Prescription Drug, Improvement and Modernization Act, or DIMA,
was signed into law. DIMA includes provisions that require the 2004 stabilization funding to be directed
toward increased reimbursement for providers, increased benefits or access for members or decreased
member premiums. We believe DIMA will open new opportunities for us. However, DIMA may
intensify competition in the seniors’ health services market. We do not believe that the benefit to our
2004 financial position, results of operations or cash flows will be material;
• higher comparative medical costs;
• government regulatory and reporting requirements;
• higher marketing and advertising costs per member as a result of marketing to individuals as opposed to
groups; and
• the possibility of temporary or permanent suspension from participating in government health care
programs, including Medicare and Medicaid, if we are convicted of fraud or other criminal conduct in
the performance of a health care program or if there is an adverse decision against us under the federal
False Claims Act.
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