Humana 2007 Annual Report Download

Download and view the complete annual report

Please find the complete 2007 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 125

  • 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

A
A
nn
n
n
u
u
a
a
l
l
R
R
e
e
p
p
o
o

Table of contents

  • Page 1
    Annual Report 2007

  • Page 2
    Product Design Clinical Programs and Forecasting Guidance Solution Humana Consumer Education Financial Analysis and Forecasting The Humana Guidance Solution brings together four key disciplines: • A complete range of products • Clinical solutions that offer guidance for all stages of life ...

  • Page 3
    ... Mix Progression Commercial Segment Fully Insured Administrative Services Only Total Commercial Medical Membership 52% 48% 100% 53% 47% 100% 63% 37% 100% 69% 31% 100% 77% 23% 100% Specialty Membership Dental Vision Other Supplemental Benefits Total Specialty Membership 1 Annual Report 2007 3,639...

  • Page 4
    ... choices. In 2007, this approach produced a record-breaking year for membership, revenues and net income, on top of a similarly recordbreaking 2006. Leverage from our growing Medicare membership base, higher Commercial pretax margins, and the continued solid performance of our Military service...

  • Page 5
    ... completed Humana health assessments in 2007, compared to 24 percent of new members in 2006. This is important because the health assessment Medicare provides a vital roadmap for positive behavior (in thousands) change through such programs as Personal Nurse, which pairs chronically ill patients...

  • Page 6
    ...focused benefit provider for specialty as well as medical employee benefits, including voluntary products. In addition to the improved performance of Humana's Commercial group business, our individual line - HumanaOne - recorded membership growth of 35 percent, further evidence of Humana's success...

  • Page 7
    ... though it is also a government program. Comprehensive care coordination for our Medicare members includes such services as case management, Personal Nurse, wellness initiatives available through Humana Active Outlook, social service coordination, home and hospital visits, cognitive assessments and...

  • Page 8
    ... Humana counterpart was hospitalized for 10.7 days. The Humana member spent 3.9 days in a skilled nursing facility, compared to 14.2 days; had 11.7 home health visits, compared to 19.6; and had a cost of care of $24,978, compared to $43,589 for the original Medicare member. At a time when evidence...

  • Page 9
    ... across the board, but especially in Medicare, which we've always operated as a one-to-one retail consumer business. Our 20-plus years of effectiveness in Medicare in virtually every type of political environment positions us well for the continuing national conversation on healthcare reform. And...

  • Page 10
    ... Officer Ashland Inc. William J. McDonald Executive Vice President Brand Marketing Capital One Financial Corporation W. Ann Reynolds, Ph.D. Former President, University of AlabamaBirmingham; Former Chancellor, City University of New York and California State University System 8 Annual Report 2007

  • Page 11
    ... as specified in its charter) HUMANA INC. Delaware (State of incorporation) 61-0647538 (I.R.S. Employer Identification Number) 500 West Main Street Louisville, Kentucky (Address of principal executive offices) 40202 (Zip Code) Registrant's telephone number, including area code: (502) 580-1000...

  • Page 12
    ... Part III Directors, Executive Officers and Corporate Governance Executive Compensation Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Certain Relationships and Related Transactions, and Director Independence Principal Accounting Fees and Services Part...

  • Page 13
    ... approximately 6.8 million members in our specialty products. During 2007, 71% of our premiums and administrative services fees were derived from contracts with the federal government, including 17% related to our contracts in Florida with the Centers for Medicare and Medicaid Services, or CMS, and...

  • Page 14
    ... of Medicare plan in all 50 states. The resulting growing membership base provides us with greater leverage to expand our network of PPO and HMO providers. We employ strategies including health assessments and programs such as Personal Nurse®, a case management and disease management program, and...

  • Page 15
    ... Department of Health and Human Services, administers the Medicare program. Medicare Advantage Products We contract with CMS under the Medicare Advantage program to provide a comprehensive array of health insurance benefits including wellness programs to Medicare eligible persons under HMO, PPO...

  • Page 16
    ... billion, or 45.0% of our total premiums and ASO fees for the year ended December 31, 2007. Under our Medicare Advantage contracts with CMS in Florida, we provided health insurance coverage to approximately 325,000 members. These contracts accounted for premium revenues of approximately $4.2 billion...

  • Page 17
    ... of our total premiums and ASO fees for the year ended December 31, 2007, consisted of contracts in Puerto Rico and Florida, with the vast majority in Puerto Rico. Military Services Under our TRICARE South Region contract with the Department of Defense, we provide health insurance coverage to the...

  • Page 18
    ... Support pilot program through Green Ribbon Health, or GRH, a jointventure company with Pfizer Health Solutions Inc. GRH is designed to support Medicare beneficiaries living with diabetes and/or congestive heart failure in Central Florida. GRH uses disease management initiatives including evidence...

  • Page 19
    ...of a health benefit plan. An HMO member, typically through the member's employer, pays a monthly fee, which generally covers, together with some copayments, health care services received from, or approved by, the member's primary care physician. We participate in the Federal Employee Health Benefits...

  • Page 20
    ... total premiums and ASO fees. Membership The following table summarizes our total medical membership at December 31, 2007, by market and product: Commercial Government Medicare Medicare Stand-alone Military Advantage PDP Medicaid services PPO HMO ASO (in thousands) Total Percent of Total Florida...

  • Page 21
    ...members, product and benefit designs, hospital inpatient management systems and enrolling members into various disease management programs. The focal point for health care services in many of our HMO networks is the primary care physician who, under contract with us, provides services to our members...

  • Page 22
    ... Medicare Military Medicare stand-alone Military Services Total Advantage PDP services ASO Medicaid Segment Medical Membership: December 31, 2007 Capitated HMO hospital system based ...Capitated HMO physician group based ...Risk-sharing ...Other ...Commercial Segment FullyInsured Total Segment Total...

  • Page 23
    ... USAA. We generally pay brokers a commission based on premiums, including bonuses based on sales volume. Individuals become members of our commercial HMOs and PPOs through their employers or other groups which typically offer employees or members a selection of health insurance products, pay for all...

  • Page 24
    ...The health benefits industry is highly competitive. Our competitors vary by local market and include other managed care companies, national insurance companies, and other HMOs and PPOs, including HMOs and PPOs owned by Blue Cross/Blue Shield plans. Many of our competitors have larger memberships and...

  • Page 25
    ... insure our risks with a number of insurance companies having a long history of strong financial ratings. 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...

  • Page 26
    ... include claims payments, capitation payments, and various other costs incurred to provide health insurance coverage to our members. These costs also include estimates of future payments to hospitals and others for medical care provided to our members. Generally, premiums in the health care business...

  • Page 27
    ... flexibility in moving between competitors. Contracts for the sale of commercial products are generally bid upon or renewed annually. While health plans compete on the basis of many factors, including service and the quality and depth of provider networks, we expect that price will continue to be...

  • Page 28
    ...of products and competitors in this area grows. Our business plans also include becoming a quality e-business organization by enhancing interactions with customers, brokers, agents, and other stakeholders through web-enabling technology. Our strategy includes sales and distribution of health benefit...

  • Page 29
    ... percentage of our total premiums and ASO fees in 2008. These programs involve various risks, including: • at December 31, 2007, under our contracts with CMS we provided health insurance coverage to approximately 507,700 Medicare members in Florida. These contracts accounted for approximately 19

  • Page 30
    ..., we provided health insurance coverage to approximately 525,400 Medicaid members in Puerto Rico. These contracts accounted for approximately 2% of our total premiums and ASO fees for the year ended December 31, 2007. These contracts for the East and Southeast regions of Puerto Rico are effective...

  • Page 31
    ... the aggregate per-member payments to Medicare plans will be reduced. As plans enroll less healthy beneficiaries, the need for the budget neutrality adjustment declines as the underlying risk adjusted Medicare rates paid to plans increase to account for their enrollees' greater healthcare needs. As...

  • Page 32
    ... our profitability. The health care industry in general, and health insurance, particularly HMOs and PPOs are subject to substantial federal and state government regulation. Our licensed subsidiaries are subject to regulation under state insurance holding company and Puerto Rico regulations. These...

  • Page 33
    ... of benefits, rate formulas, delivery systems, utilization review procedures, quality assurance, complaint systems, enrollment requirements, claim payments, marketing, and advertising. The HMO, PPO, and other health insurance-related products we offer are sold under licenses issued by the applicable...

  • Page 34
    ...We contract with physicians, hospitals and other providers to deliver health care to our members. Our products encourage or require our customers to use these contracted providers. These providers may share medical cost risk with us or have financial incentives to deliver quality medical services in...

  • Page 35
    ...of services to our members and our operations. Our recently implemented mail order pharmacy business subjects us to additional regulations in addition to those we face with our core health benefits businesses. We have opened a mail order pharmacy business that subjects us to extensive federal, state...

  • Page 36
    ...or increase premiums. The state of the U.S. economy could also adversely affect the budget of individual states and of the federal government. That could result in attempts to reduce payments in our federal and state government health care coverage programs, including the Medicare, military services...

  • Page 37
    ... operating facilities are located in Louisville, Kentucky, Green Bay, Wisconsin, Tampa Bay, Florida, Cincinnati, Ohio and San Juan, Puerto Rico, all of which are used for customer service, enrollment, and claims processing. Our Louisville and Green Bay facilities also house other corporate functions...

  • Page 38
    ... SECURITIES Market Information Our common stock trades on the New York Stock Exchange under the symbol HUM. The following table shows the range of high and low closing sales prices as reported on the New York Stock Exchange Composite Price for each quarter in the years ended December 31, 2007 and...

  • Page 39
    ... 21, 2008, the Board of Directors authorized the use of up to $150 million for the repurchase of our common shares exclusive of shares repurchased in connection with employee stock plans. The shares may be purchased from time to time at prevailing prices in the open market, by block purchases...

  • Page 40
    ... ...Total Medicare ...Military services insured ...Military services ASO ...Total military services ...Medicaid insured ...Medicaid ASO ...Total Medicaid ...Total Government ...Commercial: Fully-insured ...ASO ...Total Commercial ...Total medical membership ...Specialty Membership: Dental ...Vision...

  • Page 41
    ... in Louisville, Kentucky, Humana Inc. is one of the nation's largest publicly traded health and supplemental benefits companies, based on our 2007 revenues of $25.3 billion. We are a full-service benefits solutions company, offering a wide array of health and supplemental benefit plans for employer...

  • Page 42
    ... increased our dental membership and added new product offerings including vision and other supplemental health and life benefit plans primarily sold on a voluntary basis. The supplemental health plans cover, for example, some of the costs associated with cancer and critical illness. Along with...

  • Page 43
    ... coverage of medical and behavior health benefits. On February 16, 2005, we acquired CarePlus Health Plans of Florida, or CarePlus, as well as its affiliated 10 medical centers and pharmacy company for approximately $444.9 million in cash, adding approximately 50,400 Medicare Advantage members...

  • Page 44
    Recently Issued Accounting Pronouncements In December 2007, the Financial Accounting Standards Board, or FASB, issued FASB Statement No. 141 (Revised 2007), Business Combination, or SFAS 141R. SFAS 141R will significantly change the accounting for business combinations. Under SFAS 141R, an acquiring...

  • Page 45
    ...: 2007 2006 (dollars in thousands) Change Dollars Percentage Premium revenues: Medicare Advantage ...Medicare stand-alone PDP ...Total Medicare ...Military services ...Medicaid ...Total Government ...Fully-insured ...Specialty ...Total Commercial ...Total ...Administrative services fees: Government...

  • Page 46
    ... Medicare stand-alone PDP membership increased 19.5% for 2007 compared to 2006. Commercial segment premium revenues increased $81.8 million, or 1.3%, to $6.2 billion for 2007 primarily due to our specialty product offerings, including dental, vision, and other supplemental health and life products...

  • Page 47
    ... of commercial growth including Smart plans and other consumer offerings, individual, and small group product lines. Average per member premiums for our fully-insured group medical members increased approximately 5.2% from 2006 to 2007. Administrative Services Fees Our administrative services fees...

  • Page 48
    ... fully-insured block, the CompBenefits and KMG acquisitions which added dental, vision, and other supplemental health and life members, and improving medical cost utilization. Individual and smaller group as well as specialty, primarily dental and vision, accounts generally carry a lower benefits...

  • Page 49
    ..., 2007, 29.3% of our Commercial segment average medical membership was related to individual and small group accounts compared to 27.7% at December 31, 2006. Fee based ASO business carries a higher SG&A expense ratio than fully-insured business since there is no benefit expense or offsetting premium...

  • Page 50
    ... Dollars Percentage Premium revenues: Medicare Advantage ...Medicare stand-alone PDP ...Total Medicare ...Military services ...Medicaid ...Total Government ...Fully-insured ...Specialty ...Total Commercial ...Total ...Administrative services fees: Government ...Commercial ...Total ...Income before...

  • Page 51
    ...medical members: Medicare Advantage ...Medicare stand-alone PDP ...Total Medicare ...Military services ...Military services ASO ...Total military services ...Medicaid ...Medicaid ASO ...Total Medicaid ...Total Government ...Commercial segment medical members: Fully-insured ...ASO ...Total Commercial...

  • Page 52
    ...from December 31, 2005 due primarily to the award of a new Puerto Rico regional ASO contract in the fourth quarter of 2006 partially offset by eligible Puerto Rico Medicaid members choosing to move into the Medicare program. Commercial segment premium revenues decreased 5.3% to $6.1 billion for 2006...

  • Page 53
    ...2005 benefits ratio 30 basis points. The decrease in the benefits ratio primarily reflects improving medical cost utilization trends and an increase in the percentage of individual and small group members comprising our total fully-insured block. Individual and smaller group accounts generally carry...

  • Page 54
    ... of small group members comprising our total fully-insured membership as well as the continued shift in the mix of membership towards ASO. At December 31, 2005, 37% of our Commercial segment medical membership related to ASO business compared to 47% at December 31, 2006. Small group accounts bear...

  • Page 55
    ... base receivables consist of estimated claims owed from the federal government for health care services provided to beneficiaries and underwriting fees. The claim reimbursement component of military services base receivables is generally collected over a three to four month period. The timing of...

  • Page 56
    ... incurred and when the claim form is received (i.e. a shorter time span results in a lower IBNR). (2) Military services benefits payable primarily results from the timing of the cost of providing health care services to beneficiaries and the related reimbursement by the federal government as more...

  • Page 57
    ... February 21, 2008, the Board of Directors authorized the use of up to $150 million for the repurchase of our common shares exclusive of shares repurchased in connection with employee stock plans. Senior Notes We previously issued in the public debt capital markets, $300 million aggregate principal...

  • Page 58
    ... 80 basis points. We also pay an annual facility fee regardless of utilization. This facility fee, currently 10 basis points, may fluctuate between 8 and 20 basis points, depending upon our credit ratings. In addition, a utilization fee of 10 basis points is payable for each day in which borrowings...

  • Page 59
    ...be paid to Humana Inc. by these subsidiaries, without prior approval by state regulatory authorities, is limited based on the entity's level of statutory income and statutory capital and surplus. In most states, prior notification is provided before paying a dividend even if approval is not required...

  • Page 60
    ...Our Medicare business, which accounted for approximately 60% of our total premiums and ASO fees for the year ended December 31, 2007, primarily consisted of products covered under the Medicare Advantage and Medicare Part D Prescription Drug Plan contracts with the federal government. These contracts...

  • Page 61
    ... subject to annual renewals at the federal government's option, with services beginning January 1, 2008. Our Medicaid business, which accounted for approximately 2% of our total premiums and ASO fees for the year ended December 31, 2007, consisted of contracts in Puerto Rico and Florida, with the...

  • Page 62
    ... overall financial position. Accordingly, it represents a critical accounting estimate. Most benefit claims are paid within a few months of the member receiving service from a physician or other health care provider. As a result, these liabilities generally are described as having a "short-tail". As...

  • Page 63
    ... advertising for prescription drugs and medical services, an aging population, catastrophes, and epidemics also may impact medical cost trends. Internal factors such as system conversions, claims processing cycle times, changes in medical management practices and changes in provider contracts also...

  • Page 64
    ... our Medicare and commercial lines of business. In each of these lines of business, both our trend factor and completion factor assumptions at December 31, 2005 ultimately developed favorable versus our original estimate primarily due to (1) the utilization of hospital and physician services during...

  • Page 65
    ...military services contracts with the federal government and our contracts with various state Medicaid programs generally are multi-year contracts subject to annual renewal provisions. Our commercial contracts establish rates on a per member basis for each month of coverage. Our Medicare and Medicaid...

  • Page 66
    ... drug benefits in accordance with Medicare Part D under multiple contracts with CMS. The payments we receive monthly from CMS and members, which are determined from our annual bid, represent amounts for providing prescription drug insurance coverage. We recognize premium revenues for providing...

  • Page 67
    ...eligible beneficiaries; (2) health care services provided to beneficiaries which are in turn reimbursed by the federal government; and (3) administrative services fees related to claim processing, customer service, enrollment, disease management and other services. We recognize the insurance premium...

  • Page 68
    ... venture capital investments are estimated using a variety of valuation methodologies where an observable quoted market does not exist. Such methodologies include reviewing the value ascribed to the most recent financing, comparing the security with securities of publicly traded companies in...

  • Page 69
    .... The status of the general economic environment and significant changes in the national securities markets influence the determination of fair value and the assessment of investment impairment. Unrealized losses at December 31, 2007 resulted from 472 positions out of a total of 1,165 positions held...

  • Page 70
    ... and Medicaid. The Commercial segment consists of members enrolled in our medical and specialty products marketed to employer groups and individuals. Goodwill is assigned to the reporting unit that is expected to benefit from a specific acquisition. Our strategy, long-range business plan, and annual...

  • Page 71
    ...by both our debt position and the short-term duration of the fixed income investment portfolio. We evaluated the impact on our investment income and debt expense resulting from a hypothetical change in interest rates of 100, 200 and 300 basis points over the next twelve-month period, as reflected in...

  • Page 72
    ... policy benefits payable ...Other long-term liabilities ...Total liabilities ...Commitments and contingencies Stockholders' equity: Preferred stock, $1 par; 10,000,000 shares authorized; none issued ...Common stock, $0.16 2⁄ 3 par; 300,000,000 shares authorized; 186,738,885 shares issued in 2007...

  • Page 73
    ... For the year ended December 31, 2007 2006 2005 (in thousands, except per share results) Revenues: Premiums ...Administrative services fees ...Investment income ...Other revenue ...Total revenues ...Operating expenses: Benefits ...Selling, general and administrative ...Depreciation and amortization...

  • Page 74
    Humana Inc. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY Common Stock Issued Shares Amount Capital In Excess of Par Value Accumulated Other Total Retained Comprehensive Treasury Stockholders' Earnings Income (Loss) Stock Equity (in thousands) Balances, January 1, 2005 ...176,045 $29,340 $1,154,...

  • Page 75
    ... of senior notes ...Debt issue costs ...Change in book overdraft ...Change in securities lending payable ...Common stock repurchases ...Tax benefit from stock-based compensation ...Proceeds from stock option exercises and other ...Net cash provided by financing activities ...Increase in cash and...

  • Page 76
    ... of our premiums and administrative services fees from contracts with the federal government in 2007. Under our federal government contracts with the Centers for Medicare and Medicaid Services, or CMS, we provide health insurance coverage for Medicare members in Florida, accounting for approximately...

  • Page 77
    ... commercial membership contracts with employer groups, subject to cancellation by the employer group on 30-day written notice. Our Medicare contracts with CMS renew annually. Our military services contracts with the federal government and our contracts with various state Medicaid programs generally...

  • Page 78
    ... drug benefits in accordance with Medicare Part D under multiple contracts with CMS. The payments we receive monthly from CMS and members, which are determined from our annual bid, represent amounts for providing prescription drug insurance coverage. We recognize premium revenues for providing...

  • Page 79
    ...eligible beneficiaries; (2) health care services provided to beneficiaries which are in turn reimbursed by the federal government; and (3) administrative services fees related to claim processing, customer service, enrollment, disease management and other services. We recognize the insurance premium...

  • Page 80
    ... 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. Life insurance...

  • Page 81
    ... Benefit expenses include claim payments, capitation payments, pharmacy costs net of rebates, allocations of certain centralized expenses and various other costs incurred to provide health insurance coverage to members, as well as estimates of future payments to hospitals and others for medical care...

  • Page 82
    ... interest rate swap agreements are more fully described in Note 10. Stock-Based Compensation We recognize stock-based compensation expense, as determined on the date of grant at fair value, straightline over the period during which an employee is required to provide service in exchange for the award...

  • Page 83
    ... average number of unrestricted common shares outstanding plus the dilutive effect of outstanding employee stock options and restricted shares using the treasury stock method. Recently Issued Accounting Pronouncements In December 2007, the Financial Accounting Standards Board, or FASB, issued FASB...

  • Page 84
    ...., or DefenseWeb, a company responsible for delivering customized software solutions for the Department of Defense, for cash consideration of $27.0 million. On May 1, 2006, our Commercial segment acquired CHA Service Company, or CHA Health, a health plan serving employer groups in Kentucky, for cash...

  • Page 85
    ... the respective states' insurance regulations. Gross unrealized losses and fair value aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position were as follows at December 31, 2007 and 2006: Less than 12 months Fair Unrealized...

  • Page 86
    ... gains from the sale of venture capital investments of $16.0 million in 2007, $76.2 million in 2006, and $5.7 million in 2005. Gross realized investment losses were $8.9 million in 2007, $13.6 million in 2006, and $3.5 million in 2005. We participate in a securities lending program where we loan...

  • Page 87
    Humana Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) 5. MEDICARE PART D As discussed in Note 2, on January 1, 2006, we began covering prescription drug benefits in accordance with Medicare Part D under multiple contracts with CMS. In 2007, we paid $725.5 million related to our ...

  • Page 88
    ...,375 9,635,435 (72,868) 9,562,567 (8,392,628) (946,908) (9,339,536) $ 1,334,716 Military services benefits payable of $341.4 million and $430.7 million at December 31, 2007 and 2006, respectively, primarily consisted of our estimate of incurred healthcare services provided to beneficiaries which 78

  • Page 89
    ... in our Medicare PFFS product, (4) reductions in receipt cycle times driven by an increase in electronic claims submissions, and (5) an increase in claim overpayment recovery levels versus our historical overpayment recovery rate. Benefit expenses associated with the TRICARE contract and provisions...

  • Page 90
    ...for income taxes consisted of the following for the years ended December 31, 2007, 2006 and 2005: 2007 2006 (in thousands) 2005 Current provision: Federal ...States and Puerto Rico ...Total current provision ...Deferred benefit ...Provision for income taxes ... $452,286 36,066 488,352 (32,736) $455...

  • Page 91
    ...which would affect the effective tax rate if recognized. There were no changes in the liability during the twelve months ended December 31, 2007, and there are no positions for which it is reasonably possible that the total amounts of unrecognized tax benefits will significantly increase or decrease...

  • Page 92
    ...senior notes. The fair value of our interest rate swap agreements are estimated based on quoted market prices of comparable agreements, and reflect the amounts we would receive (or pay) to terminate the agreements at the reporting date. At December 31, 2007, the fair value of all our swap agreements...

  • Page 93
    ... general corporate purposes, including repayment or refinancing of borrowings, working capital, capital expenditures, investments, acquisitions, or the repurchase of our outstanding securities. 11. EMPLOYEE BENEFIT PLANS Employee Savings Plan We have defined contribution retirement and savings plans...

  • Page 94
    ...the participant's contribution direction. Stock-Based Compensation We have plans under which options to purchase our common stock and restricted stock awards have been granted to executive officers, directors, key employees and consultants. The terms and vesting schedules for stock-based awards vary...

  • Page 95
    ... executive officers, directors, and all other employees. We value the stock options based on the unique assumptions for each of these employee groups. We calculate the expected term for our employee stock options based on historical employee exercise behavior and base the risk-free interest rate...

  • Page 96
    ... average period of approximately 1.6 years. Restricted Stock Awards Restricted stock awards are granted with a fair value equal to the market price of our common stock on the date of grant. Compensation expense is recorded straight-line over the vesting period, generally three years from the date of...

  • Page 97
    ... 21, 2008, the Board of Directors authorized the use of up to $150 million for the repurchase of our common shares exclusive of shares repurchased in connection with employee stock plans. The shares may be purchased from time to time at prevailing prices in the open market, by block purchases...

  • Page 98
    ...on premium volume, product mix, and the quality of assets held, minimum requirements can vary significantly at the state level. Most states rely on risk-based capital requirements, or RBC, to define their required levels of equity discussed above. RBC is a model developed by the National Association...

  • Page 99
    ... which accounted for approximately 60% of our total premiums and ASO fees for the year ended December 31, 2007, primarily consisted of products covered under the Medicare Advantage and Medicare Part D Prescription Drug Plan contracts with the federal government. These contracts are renewed generally...

  • Page 100
    ... subject to annual renewals at the federal government's option, with services beginning January 1, 2008. Our Medicaid business, which accounted for approximately 2% of our total premiums and ASO fees for the year ended December 31, 2007, consisted of contracts in Puerto Rico and Florida, with the...

  • Page 101
    ... Government segment consists of beneficiaries of government benefit programs, and includes three lines of business: Medicare, Military, and Medicaid. The Commercial segment consists of members enrolled in our medical and specialty products marketed to employer groups and individuals. We identified...

  • Page 102
    ...2005 Revenues: Premiums: Medicare Advantage ...Medicare stand-alone PDP ...Total Medicare ...Military services ...Medicaid ...Total premiums ...Administrative services fees ...Investment income ...Other revenue ...Total revenues ...Operating expenses: Benefits ...Selling, general and administrative...

  • Page 103
    ...) 2007 Commercial Segment 2006 (in thousands) 2005 Revenues: Premiums: Fully-insured: PPO ...$3,664,019 HMO ...1,998,981 Total fully-insured ...Specialty ...Total premiums ...Administrative services fees ...Investment income ...Other revenue ...Total revenues ...Operating expenses: Benefits...

  • Page 104
    ... are well-known and well-established, as evidenced by the strong financial ratings at December 31, 2007 presented below: Reinsurer Total Recoverable (in thousands) A.M. Best Rating Protective Life Insurance Company ...All others ... $214,821 126,817 $341,638 A+ (superior) A+ to A- (excellent) The...

  • Page 105
    ... are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide...

  • Page 106
    Humana Inc. QUARTERLY FINANCIAL INFORMATION (Unaudited) A summary of our quarterly unaudited results of operations for the years ended December 31, 2007 and 2006 follows: First 2007 Second Third Fourth (in thousands, except per share results) Total revenues ...Income before income taxes ...Net ...

  • Page 107
    ... are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide...

  • Page 108
    ... LLP, our independent registered public accounting firm, who also audited the Company's consolidated financial statements included in our Annual Report on Form 10-K, as stated in their report which appears on page 95. Michael B. McCallister President and Chief Executive Officer James H. Bloem Senior...

  • Page 109
    ...-Acting General Counsel 09/89(1) 08/90(2) 02/01(3) 04/99(4) 05/99(5) 08/90(6) 01/97(7) 04/00(8) 12/95(9) 08/04(10) 01/01(11) 08/90(12) Mr. McCallister was elected President, Chief Executive Officer and a member of the Board of Directors in February 2000. Mr. McCallister joined the Company in...

  • Page 110
    ... Street, 27th Floor, Louisville, Kentucky 40202. Any waiver of the application of the Humana Inc. Principles of Business Ethics to directors or executive officers must be made by the Board of Directors and will be promptly disclosed on our web site at www.humana.com. Corporate Governance Items We...

  • Page 111
    ... the Chief Executive Officer and Senior Financial Officers. Any waivers or amendments for Directors or Executive Officers to the Principles of Business Ethics and the Code of Ethics for the Chief Executive Officer and Senior Financial Officers will be promptly displayed on our web site. The Company...

  • Page 112
    ... Proxy Statement for the Annual Meeting of Stockholders scheduled to be held on April 24, 2008 appearing under the captions "Certain Transactions with Management and Others" and "Independent Directors" of such Proxy Statement. ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES The information required...

  • Page 113
    ... the rights of the holders of such indebtedness not otherwise filed as an Exhibit to the Form 10-K to the Commission upon request. 1989 Stock Option Plan for Non-Employee Directors. Exhibit B to the Company's Proxy Statement covering the Annual Meeting of Stockholders held on January 11, 1990, is...

  • Page 114
    ... C to the Company's Proxy Statement covering the Annual Meeting of Stockholders held on May 14, 1998, is incorporated by reference herein. Humana Inc. Non-Qualified Stock Option Plan for Employees. Exhibit 99 to the Company's Form S-8 Registration Statement No. 333-86801 filed on September 9, 1999...

  • Page 115
    ... by reference herein. Humana Supplemental Executive Retirement and Savings Plan, as amended and restated on December 13, 2007, filed herewith. Letter agreement with Company officers concerning health insurance availability. Exhibit 10(mm) to the Company's Annual Report on Form 10-K for the...

  • Page 116
    ... Medicare Prescription Drug Plan Contracts between Humana and CMS. Exhibit 10(nn) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2005, is incorporated by reference herein. Computation of ratio of earnings to fixed charges, filed herewith. Code of Conduct for Chief...

  • Page 117
    ... subsidiaries ...Other long-term liabilities ...Total liabilities ...Commitments and contingencies Stockholders' equity: Preferred stock, $1 par; 10,000,000 shares authorized; none issued ...Common stock, $0.16 2⁄ 3 par; 300,000,000 shares authorized; 186,738,885 shares issued in 2007, and 182,947...

  • Page 118
    ... STATEMENTS OF OPERATIONS For the year ended December 31, 2007 2006 2005 (in thousands) Revenues: Management fees charged to operating subsidiaries ...Investment income and other income, net ...Expenses: Selling, general and administrative ...Depreciation ...Interest ...(Loss) income before income...

  • Page 119
    ... of notes issued to operating subsidiaries ...Change in book overdraft ...Change in securities lending payable ...Common stock repurchases ...Tax benefit from stock-based compensation ...Proceeds from stock option exercises and other ...Net cash provided by financing activities ...Increase (decrease...

  • Page 120
    ... agreements approved by state regulatory authorities, certain of our regulated subsidiaries generally are guaranteed by our parent company in the event of insolvency for; (1) member coverage for which premium payment has been made prior to insolvency; (2) benefits for members then hospitalized until...

  • Page 121
    ..., 2007, we maintained aggregate statutory capital and surplus of $2,905.2 million in our state regulated subsidiaries. This compares to applicable statutory requirements which aggregated $1,810.5 million. Although the minimum required levels of equity are largely based on premium volume, product mix...

  • Page 122
    Humana Inc. SCHEDULE II-VALUATION AND QUALIFYING ACCOUNTS For the Years Ended December 31, 2007, 2006, and 2005 (in thousands) Additions Charged (Credited) to Charged to Costs and Other Expenses Accounts(1) Balance at Beginning of Period Acquired Balances Deductions or Write-offs Balance at End ...

  • Page 123
    ... Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned, thereto duly authorized. HUMANA INC. By: /s/ JAMES H. BLOEM James H. Bloem Senior Vice President and Chief Financial Officer (Principal Financial Officer) Date: February 25, 2008 Pursuant...

  • Page 124
    ... of the Company's Internet site at Humana.com or by writing: Regina C. Nethery Vice President of Investor Relations Humana Inc. Post Office Box 1438 Louisville, Kentucky 40201-1438 Transfer Agent National City Bank Shareholder Services - LOC 5352 Post Office Box 92301 Cleveland, Ohio 44101-4301...

  • Page 125