Humana 2004 Annual Report Download - page 63

year ended December 31, 2004. The loss of this and other CMS contracts or significant changes in the
Medicare Advantage program as a result of legislative or administrative 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;
• At December 31, 2004, our TRICARE business, which accounted for approximately 17% of our total
premiums and ASO fees during 2004, consisted of the South Region contract. The South Region
contract is a five-year contract, subject to annual renewals at the Government’s option that covers
approximately 2.9 million beneficiaries. This contract also is generally subject to frequent change from
events and circumstances such as the escalated conflict in the Middle East. These changes may include a
reduction or increase in the number of persons enrolled or eligible to enroll, in the revenue we receive or
in our administrative or health care costs. In the event government reimbursements 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. The loss of our current TRICARE contract would have a
material adverse effect on our financial position, results of operations and cash flows;
• At December 31, 2004, under our contract with the Puerto Rico Health Insurance Administration, we
provided health insurance coverage to approximately 396,600 Medicaid members in Puerto Rico. This
contract, which expires June 30, 2005 accounted for approximately 3% of our total premiums and ASO
fees for the year ended December 31, 2004. Due to the election of a new governor and a new
Commissioner of Insurance in Puerto Rico, the renewal of the Medicaid contract is uncertain. At this
time we are unable to predict the outcome. The loss of this contract or significant changes in the Puerto
Rico Medicaid program as a result of legislative or administrative 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;
• changes to these government programs in the future may also affect our ability or willingness to
participate in these programs;
• 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.
Our industry is currently subject to substantial government regulation, which, along with possible
increased governmental regulation or legislative reform, increases our costs of doing business and could
adversely affect our profitability.
The health care industry in general, and health insurance, particularly health maintenance organizations, or
HMOs, and preferred provider organizations, or PPOs, are subject to substantial federal and state government
regulation, including:
• regulation relating to minimum net worth;
• licensing requirements;
• approval of policy language and benefits;
• mandated benefits and processes;
• provider compensation arrangements;
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