Humana 2005 Annual Report Download - page 29

products, as well as our PDP products. We have made substantial additional investments in the Medicare
program to enhance our ability to participate in these expanded programs. We have doubled the size of our
Medicare geographic reach since the enactment of the MMA through expanded Medicare product offerings. We
are offering both the stand-alone Medicare Prescription Drug Coverage (PDP) and Medicare Advantage Health
Plan with Prescription Drug Coverage (MA-PD) in addition to our other product offerings. Our Medicare
presence as of February 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
the plans became effective January 1, 2006. We have been approved to offer the Medicare prescription drug plan
in 46 states and the District of Columbia.
The timing of our new membership enrollment in our Medicare Advantage and PDP products is an
important factor in meeting our business objectives. The pattern of quarterly earnings for 2006 is subject to
certain assumptions including the timing of when a member enrolls in a plan, the plan type the member selects,
and the speed with which the individual members meet their deductibles and cost-sharing provisions.
We have also made substantial investments in the service personnel and technology necessary to administer
the growing Medicare business. Service issues intensified due to an enormous number of individuals being
eligible in the new program on January 1. We have to implement various initiatives such as hiring additional
service representatives to address the service issues.
The growth of our Medicare business is an important part of our business strategy. Any failure to achieve
this growth may have a material adverse effect on our financial position, results of operations or cash flows. In
addition, the expansion of our Medicare business in relation to our other businesses may intensify the risks to us
inherent in the Medicare business, which are described elsewhere in this document. These expansion efforts may
result in less diversification of our revenue stream.
Additionally, our strategy includes the growth of our Commercial segment business, with emphasis on our
ASO and individual products, introduction of new products and benefit designs, including our Smart, consumer-
choice products such as HSAs as well as the adoption of new technologies and the integration of acquired
businesses and contracts.
There can be no assurance that we will be able to successfully implement our operational and strategic
initiatives that are intended to position us for future growth or that the products we design will be accepted or
adopted in the time periods assumed. Failure to implement this strategy may result in a material adverse effect on
our financial position, results of operations and cash flows.
If we fail to properly maintain the integrity of our data, to strategically implement new information
systems, or to protect our proprietary rights to our systems, our business could be materially adversely
affected.
Our business depends significantly on effective information systems and the integrity and timeliness of the
data we use to run our business. Our business strategy involves providing members and providers with easy to
use products that leverage our information to meet their needs. Our ability to adequately price our products and
services, provide effective and efficient service to our customers, and to timely and accurately report our
financial results depends significantly on the integrity of the data in our information systems. As a result of our
past and on-going acquisition activities, we have acquired additional information systems. We have been taking
steps to reduce the number of systems we operate, have upgraded and expanded our information systems
capabilities, and are gradually migrating existing business to fewer systems. Our information systems require an
ongoing commitment of significant resources to maintain, protect and enhance existing systems and develop new
systems to keep pace with continuing changes in information processing technology, evolving industry and
regulatory standards, and changing customer preferences. If the information we rely upon to run our businesses
19