Humana 2006 Annual Report Download - page 101

Download and view the complete annual report

Please find page 101 of the 2006 Humana annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 126

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112
  • 113
  • 114
  • 115
  • 116
  • 117
  • 118
  • 119
  • 120
  • 121
  • 122
  • 123
  • 124
  • 125
  • 126

Humana Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
include, for example, litigation or claims relating to past performance. Such indemnification obligations may not
be subject to maximum loss clauses. Historically, payments made related to these indemnifications have been
immaterial.
Government Contracts
Our Medicare business, which accounted for approximately 55% of our total premiums and ASO fees for
the year ended December 31, 2006, primarily consisted of products covered under the Medicare Advantage and
stand-alone PDP contracts with the federal government. These contracts are renewed generally for a one-year
term each December 31 unless CMS notifies Humana of its decision not to renew by May 1 of the contract year,
or Humana notifies CMS of its decision not to renew by the first Monday in June of the contract year. All
material contracts between Humana and CMS relating to our Medicare business have been renewed for 2007.
Our TRICARE business, which accounted for approximately 12% of our total premiums and ASO fees for
the year ended December 31, 2006, primarily consisted of the South Region contract. The 5-year South Region
contract is subject to annual renewals on April 1 of each year at the government’s option. Effective April 1, 2006,
the South Region contract was extended into the third option period, which runs from April 1, 2006 to March 31,
2007. We have received a notice from the government of its intent to renew the fourth option period. The 5-year
South Region contract expires March 31, 2009. As required under the contract, the target underwritten health
care cost and underwriting fee amounts for the third option period were negotiated. Any variance from the target
health care cost is shared with the federal government. Accordingly, events and circumstances not contemplated
in the negotiated target health care cost amount could have a material adverse effect on our business. These
changes may include, for example, an increase or reduction in the number of persons enrolled or eligible to enroll
due to the federal government’s decision to increase or decrease U.S. military deployments. In the event
government reimbursements were to decline from projected amounts, our failure to reduce the health care costs
associated with these programs could have a material adverse effect on our business.
Our Medicaid business, which accounted for approximately 3% of our total premiums and ASO fees for the
year ended December 31, 2006, consisted of contracts in Puerto Rico and Florida. Our Medicaid contracts with
the Puerto Rico Health Insurance Administration accounted for approximately 2% of our total premium and ASO
fees for the year ended December 31, 2006. We currently are operating under the terms of our contracts that
expired October 31, 2006. Due to several ongoing and unresolved issues with the program, the government of
Puerto Rico has decided to delay the bid process for new contracts. We currently are working with the Puerto
Rico Health Insurance Administration regarding terms and rates which is expected to result in an extension of the
existing contracts through September 30, 2007. There is no assurance that the Puerto Rico Health Insurance
Administration will request such an extension, and we are unable to predict the ultimate impact that any
government policy or fiscal decisions might have on the continuation of our Medicaid contracts in Puerto Rico.
The loss of any of the contracts above or significant changes in these programs as a result of legislative
action, including reductions in premium payments to us, or increases in member benefits without corresponding
increases in premium payments to us, may have a material adverse effect on our financial position, results of
operations, and cash flows.
Legal Proceedings
Our current and past business practices are subject to review by various state insurance and health care
regulatory authorities and other state and federal regulatory authorities. These authorities regularly scrutinize the
business practices of health insurance and benefits companies. These reviews focus on numerous facets of our
business, including claims payment practices, competitive practices, commission payments, privacy issues,
89