Humana 2004 Annual Report Download - page 15

Some employers have selected other types of consumer-directed products, such as, (1) a product with a high
deductible, (2) a catastrophic coverage plan, or (3) ones that offer a spending account option in conjunction with
more traditional medical coverage or as a stand alone plan. Unlike our Smart products, these products, while
valuable in helping employers deal with near-term cost increases by shifting costs to employees, are not
considered long-term comprehensive solutions to the employers’ cost dilemma by us, although we view this as
an initial interim step.
HMO
Our health maintenance organization, or HMO, products provide prepaid health insurance coverage to our
members through a network of independent primary care physicians, specialty physicians, and other health care
providers who contract with the HMO to furnish such services. Primary care physicians generally include
internists, family practitioners, and pediatricians. Generally, the member’s primary care physician must approve
access to certain specialty physicians and other health care providers. These other health care providers include,
among others, hospitals, nursing homes, home health agencies, pharmacies, mental health and substance abuse
centers, diagnostic centers, optometrists, outpatient surgery centers, dentists, urgent care centers, and durable
medical equipment suppliers. Because the primary care physician generally must approve access to many of
these other health care providers, the HMO product is considered the most restrictive form of a health benefit
plan.
An HMO member, typically through the member’s employer, pays a monthly fee, which generally covers,
together with some copayments, health care services received from or approved by the member’s primary care
physician. For the year ended December 31, 2004, commercial HMO premium revenues totaled approximately
$2.8 billion, or 21.8% of our total premiums and ASO fees.
PPO
Our preferred provider organization, or PPO, products, which are marketed primarily to commercial groups
and individuals, include some elements of managed health care. However, they typically include more cost-
sharing with the member, through copayments and annual deductibles. PPOs also are similar to traditional health
insurance because they provide a member with more freedom to choose a physician or other health care provider.
In a PPO, the member is encouraged, through financial incentives, to use participating health care providers,
which have contracted with the PPO to provide services at favorable rates. In the event a member chooses not to
use a participating health care provider, the member may be required to pay a greater portion of the provider’s
fees.
In June 2002, we introduced HumanaOne, a major medical product marketed directly to individuals. We
introduced this product in select markets where we can both underwrite risk and utilize our existing networks and
distribution channels. This product includes provisions mandated by law to guarantee renewal of coverage.
For the year ended December 31, 2004, commercial and individual PPO premium revenues totaled
approximately $3.8 billion, or 29.2% of our total premiums and ASO fees.
Administrative Services Only
We also offer administrative services only, or ASO, products to employers 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, HMO or consumer-directed products described above.
Under ASO contracts, self-funded employers retain the risk of financing substantially all of the cost of health
benefits. However, most ASO customers purchase stop loss insurance coverage from us to cover catastrophic
claims or to limit aggregate annual costs. Accordingly, we have recorded premiums and medical expenses related
to these stop loss arrangements. For the year ended December 31, 2004, commercial ASO fees totaled $166.0
million, or 1.3% of our total premiums and ASO fees.
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