Humana 2004 Annual Report Download - page 85

Humana Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
During 2002, claim reserve balances at December 31, 2001 ultimately settled for $12.3 million more than
the amounts originally recorded, representing 0.1% of medical claim expenses recorded in 2001. The $88.4
million change in the amounts incurred related to prior years during 2003 consists of $68.3 million attributable to
our TRICARE operations with the remaining $20.1 million primarily resulting from fourth quarter 2002
utilization in our commercial medical products ultimately being lower than originally estimated. The $68.3
million change in TRICARE incurred related to prior years resulted from establishing medical expense reserves
resulting from enhanced benefits enacted for TRICARE beneficiaries as a result of congressional legislation, as
well as lower than originally estimated utilization of medical services by TRICARE beneficiaries in the second
half of 2002.
Our TRICARE contract contains risk-sharing provisions with the Department of Defense and with
subcontractors, which effectively limit profits and losses when actual claim experience varies from the targeted
medical claim amount negotiated in our annual bid. As a result of these contract provisions, the impact of
changes in estimates for prior year TRICARE medical claims payable on our results of operations is reduced
substantially, whether positive or negative.
We have a substantial percentage of our Medicare and Medicaid membership under risk-sharing
arrangements with providers. Accordingly, the impact of changes in estimates for prior year medical claims
payable on our results from operations that are attributable to our Medicare and Medicaid lines of business may
also be significantly reduced, whether positive or negative.
8. INCOME TAXES
The provision for income taxes consisted of the following for the years ended December 31, 2004, 2003 and
2002:
2004 2003 2002
(in thousands)
Current provision (benefit):
Federal .................................. $ 77,768 $ 69,643 $ (5,157)
States and Puerto Rico ...................... 4,462 13,888 22,775
Total current provision .................. 82,230 83,531 17,618
Deferred provision ............................. 53,608 32,251 49,561
Provision for income taxes ............... $135,838 $115,782 $67,179
The provision for income taxes was different from the amount computed using the federal statutory rate for
the years ended December 31, 2004, 2003 and 2002 due to the following:
2004 2003 2002
(in thousands)
Income tax provision at federal statutory rate ....... $145,547 $120,650 $ 73,477
States, net of federal benefit and Puerto Rico ........ 14,003 13,365 10,666
Tax exempt investment income .................. (12,700) (10,546) (10,460)
Capital loss valuation allowance .................. (6,855) (9,492) 24,528
Examination settlements ........................ — — (32,610)
Other, net .................................... (4,157) 1,805 1,578
Provision for income taxes .................. $135,838 $115,782 $ 67,179
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