Humana 2004 Annual Report Download - page 62

We are involved in various legal actions, which, if resolved unfavorably to us, could result in substantial
monetary damages.
We are a party to a variety of legal actions that affect our business, including employment and employment
discrimination-related suits, employee benefit claims, breach of contract actions, and tort claims.
We, together with some of our competitors in the health benefits business are defendants in a number of
purported class action lawsuits. These include an action originally filed against us and nine of our competitors
that purports to be brought on behalf of health care providers. Two companies have now settled this action. This
suit alleges breaches of federal statutes, including ERISA and RICO. Depending upon the outcome of these
cases, these lawsuits may cause or force changes in the practices of the managed care industry.
In addition, because of the nature of the health care business, we are subject to a variety of legal actions
relating to our business operations, including the design, management and offering of products and services.
These include and could include in the future:
• claims relating to the methodologies for calculating premiums;
• claims relating to the denial of health care benefits;
• challenges to the use of some software products used in administering claims;
• medical malpractice actions based on our medical necessity decisions or brought against us on the
theory that we are liable for our providers’ alleged malpractice;
• allegations of anti-competitive and unfair business activities;
• 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. Additionally, the cost of
business insurance coverage has increased significantly. As a result, we have increased the amount of risk that we
self-insure, particularly with respect to matters incidental to our business. We believe that we are adequately
insured for claims in excess of our self-insurance. However, 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” in Note 14 to the consolidated financial statements. We cannot predict the outcome of these suits
with certainty, and we are incurring expenses in the defense of these matters. 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 and state government health care coverage programs,
including the TRICARE, Medicare Advantage, and Medicaid programs. These programs involve various risks,
including:
• At December 31, 2004, under one of our contracts with the Centers for Medicare and Medicaid
Services, or CMS, we provided health insurance coverage to approximately 231,700 members in
Florida. This contract accounted for approximately 15% of our total premiums and ASO fees for the
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