Humana 2005 Annual Report Download

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Annual Report 2005

Table of contents

  • Page 1
    Annual Report 2005

  • Page 2

  • Page 3
    ... largest publicly traded health benefits companies, with more than nine million medical members. Humana offers a diversified portfolio of health insurance products and related services - through traditional and consumer-choice plans - to employer groups, government-sponsored plans and individuals...

  • Page 4
    ...Medicare, TRICARE (in which we offer health benefits to military families and retirees through a contract with the U.S. Department of Defense) and our Commercial business. Humana's success is also a result of our management team's ability to plan for the long-term while delivering in the short-term...

  • Page 5
    ... utilization management initiatives enabled us to achieve pretax profit in the Commercial segment of $98 million, despite the absorption of some unusual expenses. • We acquired CarePlus Health Plans, a 50,000-member Medicare Advantage HMO in South Florida, and Corphealth, a behavioral health care...

  • Page 6
    ... PDP plan choices as well as give us the opportunity to explain the MA program fully. 4 Annual Report 2005 Our innovative national alliance with Wal-Mart, whereby Humana sales representatives are offering our Medicare products in 3,200 Wal-Mart, Sam's Club and Neighborhood Market stores across...

  • Page 7
    ...by integrating through one company their prescription drug coverage and other medical benefits. We're aware that the transition to this program has been difficult. Like the rest of the industry and CMS, we've worked hard to satisfy an enormous demand for products, services and information that has...

  • Page 8
    ...$0 Total Assets (in Billions) 2001 2002 2003 • 2004 2005 Commercial Segment The Commercial segment in 2005 saw membership increases in our three areas of strategic focus: Administrative Services Only (ASO), individual and consumer plans. The company's HumanaOne individual product membership...

  • Page 9
    ...awareness is up significantly, with positive long-term implications for our Commercial business as well as for Medicare. the board and chief executive officer of Ashland Inc., will retire from the board in April 2006. He is chairman of the Nominating and Governance Committee and has served Humana...

  • Page 10
    ...,300 3,542,000 2,301,300 592,500 2,893,800 6,435,800 Commercial Segment Fully Insured Administrative Services Only Total Medical Membership 1,999,800 1,171,000 3,170,800 7,075,600 Specialty Membership Dental Other Total Specialty Membership 1,456,500 445,600 1,902,100 1,246,700 461,500 1,708,200...

  • Page 11
    ... Commission file number 1-5975 (Exact name of registrant as specified in its charter) HUMANA INC. Delaware (State of incorporation) 61-0647538 (I.R.S. Employer Identification Number) 500 West Main Street Louisville, Kentucky (Address of principal executive offices) 40202 (Zip Code) Registrant...

  • Page 12
    ... Supplementary Data Changes in and Disagreements with Accountants on Accounting and Financial Disclosure Controls and Procedures Other Information Part III Directors and Executive Officers of the Registrant Executive Compensation Security Ownership of Certain Beneficial Owners and Management Certain...

  • Page 13
    ... programs, and includes three lines of business: Medicare Advantage, TRICARE, and Medicaid. The Commercial segment consists of members enrolled in products marketed to employer groups and individuals, and includes three lines of business: fully insured medical, administrative services only, or ASO...

  • Page 14
    ...Specialty Membership* Total Premiums and Premiums ASO Fees ASO Fees (dollars in thousands) Government: Medicare Advantage: HMO ...PFFS ...PPO ...Total Medicare Advantage ...Medicaid ...TRICARE ...TRICARE ASO ...Total Government ...Commercial: Fully insured: PPO ...HMO ...Total fully insured ...ASO...

  • Page 15
    ...Medicare program. Our Medicare PFFS plans, which cover eligible Medicare beneficiaries in certain states, have no preferred network. Individuals in these plans pay us a monthly premium to receive enhanced prescription drug benefits and have the freedom to choose any health care provider that accepts...

  • Page 16
    ... plan choices. These three plan choices, Standard, Enhanced and Complete, may vary in terms of coverage levels and out-of-pocket costs for premiums, deductibles and co-insurance with the Standard plan offering the minimum benefits mandated by Congress. Our bid amount generally represents the payment...

  • Page 17
    ...provide health insurance coverage to enrolled members. Due to the increased emphasis on state health care reform and budgetary constraints, more states are utilizing a managed care product in their Medicaid programs. Our Medicaid business, which accounted for approximately 3.8% of our total premiums...

  • Page 18
    ... administrative services fees totaled $50.1 million, or 0.4% of our total premiums and ASO fees. Our Products Marketed to Commercial Segment Employers and Members Consumer-Choice Products Over the last several years, we have developed and offered various commercial products designed to provide...

  • Page 19
    ... offer 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...

  • Page 20
    ...: Commercial HMO PPO ASO Government Medicare Advantage Medicaid TRICARE (in thousands) Percent of Total Total Florida ...Texas ...Puerto Rico ...Illinois ...Kentucky ...Ohio ...Wisconsin ...Louisiana ...Arizona ...Missouri/Kansas ...Indiana ...Georgia ...Michigan ...Colorado ...Tennessee ...South...

  • Page 21
    ...members, product and benefit designs, hospital inpatient management systems and enrolling members into various disease management programs. The focal point for health care services in many of our HMO networks is the primary care physician who, under contract with us, provides services to our members...

  • Page 22
    ... and 2004: Commercial Segment Fully Insured ASO Total Segment Government Segment Medicare TRICARE Total Advantage Medicaid TRICARE ASO Segment Consol. Total Medical Medical Membership: December 31, 2005 Capitated HMO hospital system based ...42,600 - 42,600 Capitated HMO physician group based ...39...

  • Page 23
    ... providing an opportunity to enroll Medicare eligible individuals in person. Individuals become members of our commercial HMOs and PPOs through their employers or other groups which typically offer employees or members a selection of health insurance products, pay for all or part of the premiums...

  • Page 24
    ... and include other managed care companies, national insurance companies, and other HMOs and PPOs, including HMOs and PPOs owned by Blue Cross/Blue Shield plans. Many of our competitors have larger memberships and/or greater financial resources than our health plans in the markets in which we compete...

  • Page 25
    ...to Medicare beneficiaries concerning operations of a health plan contracted under the Medicare program. CMS's rules require disclosure to members upon request of information concerning financial arrangements and incentive plans between the plan and physicians in the plan's networks. These rules also...

  • Page 26
    ... Rico) in which we operate our HMOs, PPOs and other health insurance-related services regulate our operations, including the scope of benefits, rate formulas, delivery systems, utilization review procedures, quality assurance, complaint systems, enrollment requirements, claim payments, marketing...

  • Page 27
    ..., including prescription drugs; increased cost of such services; our membership mix; variances in actual versus estimated levels of cost associated with new products, benefits or lines of business, product changes or benefit level changes; membership in markets lacking adequate provider networks; 17

  • Page 28
    ... easily, and customers enjoy significant flexibility in moving between competitors. Contracts for the sale of commercial products are generally bid upon or renewed annually. While health plans compete on the basis of many factors, including service and the quality and depth of provider networks, we...

  • Page 29
    ... 1, 2006, included more than 700,000 Medicare Advantage members and approximately 1.7 million PDP members in 12 HMO markets, 33 local PPO markets, and 35 states in which we have a private fee-for-service offering. Enrollment in the new Part D prescription drug plans began on November 15, 2005, and...

  • Page 30
    ... claims relating to the methodologies for calculating premiums; claims relating to the denial of health care benefit payments; claims relating to the denial or rescission of insurance coverage; challenges to the use of some software products used in administering claims; medical malpractice actions...

  • Page 31
    ... on our business; at December 31, 2005, under our contracts with the Puerto Rico Health Insurance Administration, we provided health insurance coverage to approximately 403,100 Medicaid members in Puerto Rico. These contracts accounted for approximately 3% of our total premiums and ASO fees for the...

  • Page 32
    ... a request for such proposal has not yet been issued by the Puerto Rico Health Insurance Administration. The loss of these contracts 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...

  • Page 33
    ...individually identifiable health information, or provides legal, accounting, consulting, data aggregation, management, administrative, accreditation, or financial services. Another area receiving increased focus is the time in which various laws require the payment of health care claims. Many states...

  • Page 34
    ... Inspector General of Health and Human Services, the Office of Personnel Management, the Department of Justice, the Department of Labor, the Defense Contract Audit Agency, and state Departments of Insurance and Departments of Health. Several state attorneys general and Departments of Insurance are...

  • Page 35
    ... the providers of care to our members, our business could be adversely affected. We contract with physicians, hospitals and other providers to deliver health care to our members. Our products encourage or require our customers to use these contracted providers. These providers may share medical cost...

  • Page 36
    ...the competitive position of insurance companies. Ratings information is broadly disseminated and generally used throughout the industry. We believe our claims paying ability and financial strength ratings are an important factor in marketing our products to certain of our customers. Our debt ratings...

  • Page 37
    ... Street, Louisville, Kentucky 40202. In addition to this property, our other principal operating facilities are located in Louisville, Kentucky, Green Bay, Wisconsin, Tampa Bay, Florida, Cincinnati, Ohio and San Juan, Puerto Rico, all of which are used for customer service, enrollment, and claims...

  • Page 38
    ...care industry purported class action litigation described above. On September 21, 2001, the Texas Attorney General initiated a similar investigation. No actions have been filed against us by either state. In addition, our business practices are subject to review by various state insurance and health...

  • Page 39
    ...' rights plan expired in accordance with its terms in February 2006. c) Issuer Purchases of Equity Securities There were no common shares acquired by the Company in open market transactions in 2005. During 2005, we acquired 68,296 shares of our common stock in connection with employee stock plans...

  • Page 40
    ... ratio ...Medical Membership by Segment: Government: Medicare Advantage ...Medicaid ...TRICARE ...TRICARE ASO ...Total Government ...Commercial: Fully insured ...Administrative services only ...Total Commercial ...Total Medical Membership ...Commercial Specialty Membership: Dental ...Other ...Total...

  • Page 41
    ... enrolled in government-sponsored programs, and includes three lines of business: Medicare Advantage, TRICARE, and Medicaid. The Commercial segment consists of members enrolled in products marketed to employer groups and individuals, and includes three lines of business: fully insured medical, ASO...

  • Page 42
    ... network, including partnering with Wal-Mart Stores, Inc. and increasing our captive sales force, increasing the size and scope of our provider network, and adding employees to accommodate membership growth, including opening a dedicated Medicare service center in Tampa Bay, Florida. Our strategy...

  • Page 43
    ... employees. Membership in our Smart products and other consumer-choice health plans increased to 371,100 members at December 31, 2005, a 52% increase from December 31, 2004. We believe that growth in these products, which are offered both on a fully insured and ASO basis and competitively priced...

  • Page 44
    ... small to mid-market group account partially offset by an increase in ASO membership of 152,400 members. • We reached an agreement with representatives of more than 700,000 physicians to settle a nationwide class action suit, subject to court approval. This agreement is more fully-described below...

  • Page 45
    ... for $157.1 million in cash. Ochsner, a Louisiana health plan, added approximately 152,600 commercial medical members, primarily in fully insured large group accounts, and approximately 33,100 members in the Medicare Advantage program. These transactions are more fully described in Note 3 to...

  • Page 46
    ... administrative services fees. Also known as the SG&A expense ratio. Medical membership was as follows at December 31, 2005 and 2004: 2005 2004 Change Members Percentage Government segment medical members: Medicare Advantage ...Medicaid ...TRICARE ...TRICARE ASO ...Total Government ...Commercial...

  • Page 47
    ... due to the ongoing competitive environment within the fully insured group accounts, partially offset by membership gains in the individual and consumer-choice product lines. Average per member premiums for our fully insured group medical members increased approximately 7% to 9% in 2005 and are...

  • Page 48
    ... out certain government programs including the administration of pharmacy and medical benefits to senior members over the age of 65. We transitioned services under these separate programs to other providers during 2004. For the Commercial segment, administrative services fees increased $43.4 million...

  • Page 49
    ... decrease in administrative expenses associated with transitioning to the TRICARE South contract in 2004. During 2005, the number of employees increased 5,000 to 18,700 at December 31, 2005, primarily in the sales and customer service functions associated with the growth in the Medicare business, as...

  • Page 50
    ...) Change Dollars Percentage Premium revenues: Medicare Advantage ...TRICARE ...Medicaid ...Total Government ...Fully insured ...Specialty ...Total Commercial ...Total ...Administrative services fees: Government ...Commercial ...Total ...Income before income taxes: Government ...Commercial ...Total...

  • Page 51
    ... and an increase in Medicare Advantage and fully insured commercial average per member premiums. Items impacting average per member premiums include changes in premium rates as well as changes in the geographic mix of membership, the mix of product offerings, and the mix of benefit plans selected by...

  • Page 52
    ...accounts totaling approximately 94,000 members in 2004 and continued attrition due to the ongoing competitive environment within the small to mid-market group fully insured accounts, partially offset by membership gains in the Individual product lines. Administrative Services Fees Our administrative...

  • Page 53
    ... losses associated with a large customer account serving approximately 89,000 members and a competitive pricing environment in the 2 to 300 life customer group. The 89,000-member large group account lapsed on January 1, 2005. Increasing per member premiums commensurate with claims trend becomes more...

  • Page 54
    ..., acquisitions, and payments on borrowings. Because premiums generally are collected in advance of claim payments by a period of up to several months in many instances, our business should normally produce positive cash flows during a period of increasing enrollment. Conversely, cash flows would be...

  • Page 55
    ...government generally within 15 calendar days of when we pay the claim under the new reimbursement model. The delivery of health care services under the TRICARE South region contract results in (1) a lag between the time the service is provided and when the claim is paid by us, generally three months...

  • Page 56
    ... administrator fluctuates due to bi-weekly payments and the month-end cutoff. Medical and other expenses payable primarily increased during 2005 due to (1) growth in Medicare membership, (2) medical claims inflation, (3) the transition to the new South region contract, (4) an increase in the TRICARE...

  • Page 57
    ... in open market transactions and 1.4 million common shares in connection with employee stock plans for $44.1 million at an average price of $12.03 per share. The Board of Directors' authorization for open market transactions expired in January 2005. Senior Notes We issued in the public debt capital...

  • Page 58
    ... We maintain and may issue short-term debt securities under a commercial paper program when market conditions allow. The program is backed by our credit agreement described above. Aggregate borrowings under both the credit agreement and commercial paper program generally may not exceed $600 million...

  • Page 59
    ... at the state level. Given our anticipated premium growth in 2006 resulting from the expansion of our Medicare products, capital requirements will increase. We expect to fund these increased requirements with capital contributions from Humana Inc., our parent company, in the range of $450 million to...

  • Page 60
    ... Transactions with Management and Others." Government Contracts Our Medicare business, which accounted for approximately 32% of our total premiums and ASO fees for the year ended December 31, 2005, primarily consisted of HMO, PPO and PFFS products covered under the Medicare Advantage contracts with...

  • Page 61
    ... our business. Our Medicaid business, which accounted for approximately 4% of our total premiums and ASO fees for the year ended December 31, 2005, consisted of contracts in Puerto Rico, Florida and Illinois. Our 3-year contracts with the Puerto Rico Health Insurance Administration, which accounted...

  • Page 62
    ... per member per month claims trends developed from our historical experience in the preceding months, adjusted for known changes in estimates of recent hospital and drug utilization data, provider contracting changes, changes in benefit levels, product mix, and weekday seasonality. The completion...

  • Page 63
    ... in annualized claims trend used for the estimation of per member per month incurred claims for the most recent three months. Most medical claims are paid within a few months of the member receiving service from a physician or other health care provider. As a result, these liabilities generally are...

  • Page 64
    ...-day written notice. Our commercial contracts establish rates on a per member basis for each month of coverage. Our contracts with federal or state governments are generally multi-year contracts subject to annual renewal provisions with the exception of our Medicare Advantage and PDP contracts with...

  • Page 65
    ... by the federal government; and (3) administrative service fees related to claim processing, customer service, enrollment, disease management and other services. We recognize the insurance premium as revenue ratably over the period coverage is provided. Health care services reimbursements are...

  • Page 66
    ... price in these situations. Change orders may be negotiated and settled at any time throughout the year. We record revenue applicable to change orders when services are performed and these amounts are determinable and collectibility is reasonably assured. Our former TRICARE contracts for Regions...

  • Page 67
    ... to as the reporting unit and more frequently if adverse events or changes in circumstances indicate that the asset may be impaired. A reporting unit is one level below our Commercial and Government segments. The Commercial segment's two reporting units consist of fully and self-insured medical and...

  • Page 68
    three reporting units consist of Medicare Advantage, TRICARE and Medicaid. Goodwill is assigned to the reporting unit that is expected to benefit from a specific acquisition. Our strategy, long-range business plan, and annual planning process support our goodwill impairment tests. These tests are ...

  • Page 69
    ... for doubtful accounts of $32,557 in 2005 and $34,506 in 2004: Premiums ...Administrative services fees ...Securities lending collateral ...Other ...Total current assets ...Property and equipment, net ...Other assets: Long-term investment securities ...Goodwill ...Other ...Total other assets...

  • Page 70
    Humana Inc. CONSOLIDATED STATEMENTS OF INCOME For the year ended December 31, 2005 2004 2003 (in thousands, except per share results) Revenues: Premiums ...Administrative services fees ...Investment and other income ...Total revenues ...Operating expenses: Medical ...Selling, general and ...

  • Page 71
    Humana Inc. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY Accumulated Common Stock Capital In Other Unearned Total Issued Excess of Retained Comprehensive Stock Treasury Stockholders' Shares Amount Par Value Earnings Income Compensation Stock Equity Balances, January 1, 2003 ...171,335 $28,556 $ ...

  • Page 72
    ...Debt issue costs ...Change in book overdraft ...Change in securities lending payable ...Common stock repurchases ...Proceeds from stock option exercises and other ...Net cash provided by (used in) financing activities ...Increase (decrease) in cash and cash equivalents ...Cash and cash equivalents...

  • Page 73
    ...the Centers for Medicare and Medicaid Services, or CMS, we provide health insurance coverage for Medicare Advantage members in Florida, accounting for approximately 20% of our total premiums and administrative services fees in 2005. We manage our business with two segments: Government and Commercial...

  • Page 74
    ... one-year commercial membership contracts with employer groups, subject to cancellation by the employer group on 30-day written notice. Our TRICARE contract with the federal government and our contracts with various state Medicaid programs generally are multi-year contracts subject to annual renewal...

  • Page 75
    ... by the federal government; and (3) administrative service fees related to claim processing, customer service, enrollment, disease management and other services. We recognize the insurance premium as revenue ratably over the period coverage is provided. Health care services reimbursements are...

  • Page 76
    ... Commercial and Government segments. The Commercial segment's two reporting units consist of health insurance (fully insured and ASO) and specialty products. The Government segment's three reporting units consist of Medicare Advantage, TRICARE and Medicaid. Goodwill is assigned to the reporting unit...

  • Page 77
    ...-lived asset policy. Medical and Other Expenses Payable and Medical Cost Recognition Medical costs include claim payments, capitation payments, pharmacy costs net of rebates, allocations of certain centralized expenses and various other costs incurred to provide health insurance coverage to members...

  • Page 78
    ... our Company such as professional and general liability, employee workers' compensation, and officer and director errors and omissions risks. Professional and general liability risks may include, for example, medical malpractice claims and disputes with members regarding benefit coverage. We...

  • Page 79
    ...and restricted shares using the treasury stock method. Recently Issued Accounting Pronouncements In December 2004, the Financial Accounting Standards Board issued SFAS 123R, which requires companies to expense the fair value of employee stock options and other forms of stock-based compensation. This...

  • Page 80
    ... 10 medical centers and pharmacy company. CarePlus provides Medicare Advantage HMO plans and benefits to Medicare Advantage members in Miami-Dade, Broward and Palm Beach counties. This acquisition enhances our Medicare market position in South Florida. We paid approximately $444.9 million in cash...

  • Page 81
    ...goodwill is deductible for income tax purposes. We used an independent third party valuation specialist firm to assist us in evaluating the fair value of assets acquired. On April 1, 2004, we acquired Ochsner Health Plan, or Ochsner, from the Ochsner Clinic Foundation for $157.1 million in cash. The...

  • Page 82
    Humana Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) During the first quarter of 2006, we sold CorSolutions Medical, Inc., a disease management venture capital investment classified as a redeemable preferred stock in the previous table, for cash proceeds of $65.9 million, resulting in ...

  • Page 83
    ...in fair value below the cost basis was other than temporary. We participate in a securities lending program where we loan certain investment securities for short periods of time in exchange for collateral, consisting of cash or U.S. Government securities, initially equal to at least 102% of the fair...

  • Page 84
    ... identifiable cash flows. For example, cash flows from members located primarily in the state of Florida and serviced by the Jacksonville service center supported the Jacksonville center's long-lived assets until those members' service was transitioned elsewhere. Our impairment review during...

  • Page 85
    ... allocation of the non-cash pretax expenses related to the accelerated depreciation and writedown of certain long-lived assets to our Commercial and Government segments was as follows for the years ended December 31, 2004 and 2003: Commercial 2004 Government (in thousands) Total Line item affected...

  • Page 86
    ..., representing 0.9% of medical claim expenses recorded in 2003. This $20.7 million change in the amounts incurred related to prior years for 2005 as compared to 2004 resulted primarily from favorable development in our TRICARE line of business as a result of less than expected utilization in the...

  • Page 87
    ... favorable development in our Medicare line of business as a result of less than expected utilization in the latter half of 2003. Our TRICARE contract contains risk-sharing provisions with the Department of Defense and with subcontractors, which effectively limit profits and losses when actual claim...

  • Page 88
    ...In addition, during 2005 the Internal Revenue Service completed their audit of all open years prior to 2003 which also resulted in a $3.5 million reduction in 2005 tax expense associated with revisions to prior year's estimated taxes. Changes in the capital loss valuation allowance resulted from our...

  • Page 89
    ... The fair value of our interest rate swap agreements are estimated based on quoted market prices of comparable agreements, and reflect the amounts we would receive (or pay) to terminate the agreements at the reporting date. Our interest rate swap agreements exchange the fixed interest rate under our...

  • Page 90
    ... We maintain and may issue short-term debt securities under a commercial paper program when market conditions allow. The program is backed by our credit agreement described above. Aggregate borrowings under both the credit agreement and commercial paper program generally may not exceed $600 million...

  • Page 91
    ... from third party insurance companies. This increased level of retention resulted in an increasing net reserve balance. The total cost associated with our professional liabilities, including the cost of purchasing insurance coverage from a number of third party insurance companies not included in...

  • Page 92
    ...the Company match in the Humana common stock fund, in any other plan investment option at any time. Severance Benefits We provide severance and related employee benefits based upon our existing employee benefit plans and policies. Severance benefits are generally determined based on years of service...

  • Page 93
    ... grant. At December 31, 2005, there were 12,513,939 shares reserved for employee and director stock option plans, including 2,852,181 shares of common stock available for future grants. On February 23, 2006, the Board of Directors approved the issuance of 1,517,507 additional options and restricted...

  • Page 94
    ... A summary of our stock options outstanding and exercisable was as follows at December 31, 2005: Stock Options Outstanding Weighted Average Weighted Remaining Average Exercise Contractual Life Price Stock Options Exercisable Weighted Average Exercise Price Range of Exercise Prices Shares Shares...

  • Page 95
    ... include directors, executives, and all other employees. We then value the stock options based on the unique assumptions for each of these employee groups. We calculate the expected term for our employee stock options based on historical employee exercise behavior. The increase in our stock price in...

  • Page 96
    ... per share. Stockholders' Rights Plan Our stockholders' rights plan expired in accordance with its terms in February 2006. Regulatory Requirements Certain of our subsidiaries operate in states that regulate the payment of dividends, loans, or other cash transfers to Humana Inc., our parent company...

  • Page 97
    ... party tenants for space not used in our operations. Rent with scheduled escalation terms are accounted for on a straightline basis over the lease term. Rent expense and sublease rental income, which are recorded net as an administrative expense, for all operating leases was as follows for the years...

  • Page 98
    ... accounted for approximately 32% of our total premiums and ASO fees for the year ended December 31, 2005, primarily consisted of HMO, PPO and Fee-For-Service products covered under the Medicare Advantage contracts with the federal government. The contracts are renewed generally for a one-year term...

  • Page 99
    ... our business. Our Medicaid business, which accounted for approximately 4% of our total premiums and ASO fees for the year ended December 31, 2005, consisted of contracts in Puerto Rico, Florida and Illinois. Our 3-year contracts with the Puerto Rico Health Insurance Administration, which accounted...

  • Page 100
    ... enrolled in government-sponsored programs, and includes three lines of business: Medicare Advantage, TRICARE, and Medicaid. The Commercial segment consists of members enrolled in products marketed to employer groups and individuals, and includes three lines of business: fully insured medical, ASO...

  • Page 101
    ...) 2003 Revenues: Premiums: Medicare Advantage ...TRICARE ...Medicaid ...Total premiums ...Administrative services fees ...Investment and other income ...Total revenues ...Operating expenses: Medical ...Selling, general and administrative ...Depreciation and amortization ...Total operating expenses...

  • Page 102
    ... Commercial Segment 2004 (in thousands) 2003 Revenues: Premiums: Fully insured: PPO ...$3,635,347 HMO ...2,432,768 Total fully insured ...Specialty ...Total premiums ...Administrative services fees ...Investment and other income ...Total revenues ...Operating expenses: Medical ...Selling, general...

  • Page 103
    ...and well-established, as evidenced by the strong financial ratings at December 31, 2005 presented below: Reinsurer Total Recoverable (in thousands) Rating(a) Protective Life Insurance Company ...All others ... $229,019 24,400 $253,419 A+ (superior) A to A- (excellent) (a) Ratings are published by...

  • Page 104
    ... of the Company's management. Our responsibility is to express an opinion on these financial statements and financial statement schedules based on our audits. We conducted our audits of these statements in accordance with the standards of the Public Company Accounting Oversight Board (United States...

  • Page 105
    ... of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or...

  • Page 106
    Humana Inc. QUARTERLY FINANCIAL INFORMATION (Unaudited) A summary of our quarterly unaudited results of operations for the years ended December 31, 2005 and 2004 follows: First(a) 2005 Second Third Fourth(b) (in thousands, except per share results) Total revenues ...Income before income taxes ......

  • Page 107
    ... reporting is supported by formal policies and procedures which are reviewed, modified and improved as changes occur in business conditions and operations. The Audit Committee of the Board of Directors, which is composed solely of outside directors, meets periodically with members of management...

  • Page 108
    ..., LLP, our independent registered public accounting firm who also audited the Company's consolidated financial statements included in our Annual Report on Form 10-K, as stated in their report which appears on page 94. Michael B. McCallister President and Chief Executive Officer James H. Bloem Senior...

  • Page 109
    ... Vice President-Chief Service and Information Officer Senior Vice President-Chief Human Resources Officer Senior Vice President-General Counsel Senior Vice President-Strategy and Corporate Development Senior Vice President-Chief Innovation Officer Senior Vice President-Government Relations Vice...

  • Page 110
    ... Code of Ethics for the Chief Executive Officer and Senior Financial Officers will be promptly displayed on our web site. The Company will provide any of these documents in print without charge to any stockholder who makes a written request to: Corporate Secretary, Humana Inc., 500 West Main Street...

  • Page 111
    ...web site www.humana.com and upon a written request addressed to Humana Inc. Corporate Secretary at 500 West Main Street, 27th Floor, Louisville, Kentucky 40202. Any waiver of the application of the Humana Inc. Principles of Business Ethics to directors or executive officers must be made by the Board...

  • Page 112
    ... by reference from our Proxy Statement for the Annual Meeting of Stockholders scheduled to be held on April 27, 2006 appearing under the caption "Audit Committee Report" of such Proxy Statement. Audit Committee Pre-approval Policies and Procedures The information required by this Item is herein...

  • Page 113
    ... of all such instruments defining the rights of the holders of such indebtedness not otherwise filed as an Exhibit to the Form 10-K to the Commission upon request. 1989 Stock Option Plan for Employees. Exhibit A to the Company's Proxy Statement covering the Annual Meeting of Stockholders held on...

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    .... Amendment No. 2 to the 1989 Stock Option Plan for Non-Employee Directors. Exhibit 10(h) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1993, is incorporated by reference herein. 1989 Stock Option Plan for Non-Employee Directors, as amended and restated in 1998...

  • Page 115
    ...with Company officers concerning health insurance availability. Exhibit 10(mm) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1994, is incorporated by reference herein. Executive Long-Term Disability Program. Exhibit 10(a) to the Company's Quarterly Report on Form...

  • Page 116
    ... Note regarding Medicare Prescription Drug Plan Contracts between Humana and CMS, filed herewith. Computation of ratio of earnings to fixed charges, filed herewith. Code of Conduct for Chief Executive Officer & Senior Financial Officers. Exhibit 14 to the Company's Annual Report on Form 10-K for...

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    Humana Inc. SCHEDULE I-PARENT COMPANY FINANCIAL INFORMATION CONDENSED BALANCE SHEETS December 31, 2005 2004 (in thousands, except share amounts) ASSETS Current assets: Cash and cash equivalents ...Investment securities ...Receivable from operating subsidiaries ...Securities lending collateral ......

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    .... SCHEDULE I-PARENT COMPANY FINANCIAL INFORMATION CONDENSED STATEMENTS OF OPERATIONS For the year ended December 31, 2005 2004 (in thousands) 2003 Revenues: Management fees charged to operating subsidiaries ...Investment income and other income, net ...Expenses: Selling, general and administrative...

  • Page 119
    ... issue costs ...Change in book overdraft ...Change in securities lending payable ...Repayment of notes issued to operating subsidiaries ...Common stock repurchases ...Proceeds from stock option exercises and other ...Net cash provided by (used in) financing activities ...(Decrease) increase in cash...

  • Page 120
    ...regulated subsidiaries generally are guaranteed by our parent company in the event of insolvency for; (1) member coverage for which premium payment has been made prior to insolvency; (2) benefits for members then hospitalized until discharged; and (3) payment to providers for services rendered prior...

  • Page 121
    ..., we would have $378.2 million of aggregate capital and surplus above any of the levels that require corrective action under RBC. 4. ACQUISITIONS Refer to Note 3 of the notes to consolidated financial statements in the Annual Report on Form 10-K for a description of acquisitions. 5. INCOME TAXES...

  • Page 122
    ...416 (5,198) (6,855) (9,492) $(1,027) (1,338) 6,584 - - - $ (5,488) $32,557 (11,344) 34,506 (3,778) 40,400 (14,925) - - - 20,123 26,978 (1) Represents changes in retroactive membership adjustments to premium revenues as more fully described in Note 2 to the consolidated financial statements. 112

  • Page 123
    ... Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned, thereto duly authorized. HUMANA INC. By: /s/ JAMES H. BLOEM James H. Bloem Senior Vice President and Chief Financial Officer (Principal Financial Officer) Date: March 3, 2006 Pursuant to...

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    ... The Humana Building 500 West Main Street Louisville, Kentucky 40202 (502) 580-1000 More Information About Humana Inc. Copies of the Company's filings with the Securities and Exchange Commission may be obtained without charge either via the Investor Relations page of the Company's Internet site at...

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