Humana 2005 Annual Report Download - page 19

Some employers have selected other types of consumer-choice 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 by us to be long-term comprehensive solutions to the employers’ cost dilemma, although we view this
as an important initial interim step.
HMO
Our 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. We participate in the Federal Employee Health Benefits Program, or FEHBP, primarily with our
HMO offering in certain markets. FEHBP is the government’s health insurance program for Federal employees,
retirees, former employees, family members, and former spouses. For the year ended December 31, 2005,
commercial HMO premium revenues totaled approximately $2.4 billion, or 17.1% of our total premiums and
ASO fees.
PPO
Our 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.
As part of our PPO products, we offer HumanaOne, a major medical product marketed directly to
individuals. We offer this product in select markets where we can generally underwrite risk and utilize our
existing networks and distribution channels. This individual product includes provisions mandated by law to
guarantee renewal of coverage.
For the year ended December 31, 2005, commercial and individual PPO premium revenues totaled
approximately $3.6 billion, or 25.5% of our total premiums and ASO fees.
Administrative Services Only
We also 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 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-choice products described above. Under ASO contracts, self-funded employers
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