Humana 2006 Annual Report Download - page 27

State and local regulation
We are also subject to substantial regulation by the states in which we do business. We regularly are audited
and subject to various enforcement actions by state departments of insurance. These departments enforce laws
relating to all aspects of our operations, including benefit offerings, marketing, claim payments, subsidiary
capital requirements, and premium setting, especially with regard to our small group business. Although any of
the pending government actions could result in assessment of damages, civil or criminal fines or penalties, and
other sanctions against us, including exclusion from participation in government programs, we do not believe the
results of any of these actions, individually or in the aggregate, will have a material adverse effect on our
financial position, results of operations, or cash flows.
Pending federal and state legislation
Diverse legislative and regulatory initiatives continue at both the federal and state levels to affect aspects of
the nation’s health care system.
Our management works proactively to ensure compliance with all governmental laws and regulations
affecting our business. We are unable to predict how existing federal or state laws and regulations may be
changed or interpreted, what additional laws or regulations affecting our businesses may be enacted or proposed,
when and which of the proposed laws will be adopted or what effect any such new laws and regulations will have
on our financial position, results of operations or cash flows.
For a complete description of all of the current activities in the federal and state legislative areas, see
Item 1A.—Risk Factors on page 22.
Other
Captive Insurance Company
We bear general business risks associated with operating 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 retain certain of these risks through our wholly-owned, captive insurance
subsidiary. We reduce exposure to these risks by insuring levels of coverage for losses in excess of our retained
limits with a number of third-party insurance companies. We remain liable in the event these insurance
companies are unable to pay their portion of the losses. In an effort to minimize credit risk, we insure our risks
with a number of insurance companies having a long history of strong financial ratings. Over the past few years,
we have reduced the amount of coverage purchased from third-party insurance carriers and increased the amount
of risk we retain based on the financial strength and liquidity of our captive insurance subsidiary.
Centralized Management Services
We provide centralized management services to each of our health plans and both of our business segments
from our headquarters and service centers. These services include management information systems, product
development and administration, finance, human resources, accounting, law, public relations, marketing,
insurance, purchasing, risk management, internal audit, actuarial, underwriting, claims processing, and customer
service.
Employees
As of December 31, 2006, we had approximately 22,300 employees, including 31 employees covered by
collective bargaining agreements. We believe we have good relations with our employees and have not
experienced any work stoppages.
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