Humana 2006 Annual Report Download - page 81

Humana Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Other Revenue
Other revenues primarily relate to an in-house mail order pharmacy operation. These revenues are
recognized in connection with the shipment of the prescriptions.
Policy Acquisition Costs
Policy acquisition costs are those costs that vary with and primarily are related to the acquisition of new and
renewal business. Such costs include broker commissions, costs of policy issuance and underwriting, and other
costs we incur to acquire new business or renew existing business. We expense policy acquisition costs related to
our employer-group prepaid health services policies as incurred in accordance with the Health Care
Organization Audit and Accounting Guide. These short-duration employer-group prepaid health services policies
typically have a one-year term and may be cancelled upon 30 days notice by the employer group.
Our health and life policies sold to individuals, when aggregated as a block of policies, are expected to
remain in force for an extended period beyond one year because, by law, these contracts are guaranteed
renewable. Accordingly, we account for these policies as long-duration insurance products under the provisions
of SFAS No. 60, Accounting and Reporting by Insurance Enterprises, or SFAS 60.As a result, we defer policy
acquisition costs and amortize them over the estimated life of the policies in proportion to premiums earned.
Deferred acquisition costs are regularly reviewed to determine if they are recoverable from future income.
Long-Lived Assets
Property and equipment is recorded at cost. Gains and losses on sales or disposals of property and
equipment are included in administrative expense. Certain costs related to the development or purchase of
internal-use software are capitalized in accordance with AICPA Statement of Position 98-1, Accounting for the
Costs of Computer Software Developed or Obtained for Internal Use. Depreciation is computed using the
straight-line method over estimated useful lives ranging from 3 to 10 years for equipment, 3 to 7 years for
computer software, and 20 to 40 years for buildings. Improvements to leased facilities are depreciated over the
shorter of the remaining lease term or the anticipated life of the improvement.
We periodically review long-lived assets, including property and equipment and other intangible assets, for
impairment whenever adverse events or changes in circumstances indicate the carrying value of the asset may not
be recoverable. Losses are recognized for a long-lived asset to be held and used in our operations when the
undiscounted future cash flows expected to result from the use of the asset are less than its carrying value. We
recognize an impairment loss based on the excess of the carrying value over the fair value of the asset. A long-
lived asset held for sale is reported at the lower of the carrying amount or fair value less costs to sell.
Depreciation expense is not recognized on assets held for sale. Losses are recognized for a long-lived asset to be
abandoned when the asset ceases to be used. In addition, we periodically review the estimated lives of all long-
lived assets for reasonableness.
Goodwill and Other Intangible Assets
Goodwill represents the unamortized excess of cost over the fair value of the net tangible and other
intangible assets acquired. SFAS No. 142, Goodwill and Other Intangible Assets, or SFAS 142, requires that we
not amortize goodwill to earnings, but instead requires that we test at least annually for impairment at a level of
reporting referred to as the reporting unit and more frequently if adverse events or changes in circumstances
indicate that the asset may be impaired. A reporting unit is one level below our Commercial and Government
segments. The Commercial segment’s two reporting units consist of medical (fully and self insured) and
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