Humana 2003 Annual Report Download - page 99

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Humana Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Government Segment
2003 2002 2001
(in thousands)
Revenues:
Premiums:
Medicare+Choice ................................... $2,527,446 $2,629,597 $2,909,478
TRICARE ......................................... 2,249,725 2,001,474 1,341,557
Medicaid .......................................... 487,100 462,998 441,324
Total premiums ................................. 5,264,271 5,094,069 4,692,359
Administrative services fees ............................... 148,830 141,193 52,886
Investment and other income .............................. 22,839 18,441 42,989
Total revenues .................................. 5,435,940 5,253,703 4,788,234
Operating expenses:
Medical ............................................... 4,439,007 4,266,404 3,921,356
Selling, general and administrative .......................... 726,185 708,853 608,590
Depreciation and amortization ............................. 43,831 49,487 63,567
Total operating expenses .......................... 5,209,023 5,024,744 4,593,513
Income from operations ...................................... 226,917 228,959 194,721
Interest expense ............................................. 3,211 3,851 9,628
Income before income taxes ................................... $ 223,706 $ 225,108 $ 185,093
Premium and administrative services revenues derived from our contracts with the federal government, as
a percentage of our total premium and ASO revenues, were approximately 42% for 2003 and 44% for 2002
and 2001.
16. REINSURANCE
Certain old blocks of run-off insurance assumed in acquisitions, primarily life insurance and annuities, are
subject to 100% coinsurance agreements where the entire risk and all administrative functions, including
premium collections and claim payments, related to these policies has been ceded to a third-party. Coinsurance is
a form of reinsurance. We acquired these policies and the related reinsurance agreements with the purchase of the
stock of the companies in which the policies were originally written. We acquired these companies for business
reasons unrelated to these policies, including the companies’ licenses necessary to fulfill strategic plans.
A reinsurance agreement between two entities transfers the underwriting risk of policyholder liabilities to a
reinsurer; while the primary insurer retains the contractual relationship with the ultimate insured. As such, these
reinsurance agreements do not completely relieve us of our potential liability to the ultimate insured. However,
given the transfer of underwriting risk, our potential liability is limited to the credit exposure which exists should
the reinsurer be unable to meet their obligations assumed under these reinsurance agreements.
Given that all policies are 100% reinsured by third parties, the following amounts pertaining to the
reinsurance agreements had no effect on our results of operations. Premiums ceded were $45.3 million in 2003,
$59.3 million in 2002, and $70.8 million in 2001. Liabilities, included in “Other long-term liabilities,” and
related reinsurance recoverables, included in “Other long-term assets,” in the accompanying consolidated balance
sheets under these coinsurance agreements were $272.1 million at December 31, 2003 and $279.9 million at
December 31, 2002.
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