Humana 2005 Annual Report Download - page 50
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higher average outstanding debt balance increased interest expense $5.0 million during 2005. The average
interest rate during 2005 of 5.3% increased 140 basis points compared to 3.9% during 2004.
Income Taxes
Our effective tax rate in 2005 of 26.9% decreased 5.8% compared to the 32.7% effective tax rate in 2004.
The effective tax rate for 2005 reflects the favorable impact from the resolution of a contingent tax gain of $22.8
million during the first quarter of 2005 in connection with the expiration of the statute of limitations on an
uncertain tax position related to the 2000 tax year. See Note 8 to the consolidated financial statements included in
Item 8.—Financial Statements and Supplementary Data for a complete reconciliation of the federal statutory rate
to the effective tax rate. We expect the 2006 effective tax rate to be in the range of 35% to 37%.
Comparison of Results of Operations for 2004 and 2003
Certain financial data for our two segments was as follows for the years ended December 31, 2004 and
2003:
Change
2004 2003 Dollars Percentage
(dollars in thousands)
Premium revenues:
Medicare Advantage .......................... $ 3,086,598 $ 2,527,446 $ 559,152 22.1%
TRICARE .................................. 2,127,595 2,249,725 (122,130) (5.4)%
Medicaid ................................... 511,193 487,100 24,093 4.9%
Total Government ........................ 5,725,386 5,264,271 461,115 8.8%
Fully insured ................................ 6,614,482 6,240,806 373,676 6.0%
Specialty .................................... 349,564 320,206 29,358 9.2%
Total Commercial ........................ 6,964,046 6,561,012 403,034 6.1%
Total ............................... $12,689,432 $11,825,283 $ 864,149 7.3%
Administrative services fees:
Government ................................. $ 106,764 $ 148,830 $ (42,066) (28.3)%
Commercial ................................. 166,032 122,846 43,186 35.2%
Total ................................... $ 272,796 $ 271,676 $ 1,120 0.4%
Income before income taxes:
Government ................................. $ 273,840 $ 223,706 $ 50,134 22.4%
Commercial ................................. 142,010 121,010 21,000 17.4%
Total ................................... $ 415,850 $ 344,716 $ 71,134 20.6%
Medical expense ratios(a):
Government ................................. 84.3% 84.3% — %
Commercial ................................. 83.9% 82.9% 1.0%
Total ................................... 84.1% 83.5% 0.6%
SG&A expense ratios(b):
Government ................................. 12.2% 13.4% (1.2)%
Commercial ................................. 16.4% 16.9% (0.5)%
Total ................................... 14.5% 15.4% (0.9)%
(a) Represents total medical expenses as a percentage of premium revenue. Also known as MER.
(b) Represents total selling, general, and administrative expenses as a percentage of premium revenues and
administrative services fees. Also known as the SG&A expense ratio.
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