Humana 2007 Annual Report Download - page 17

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insurance coverage to enrolled members. Due to the increased emphasis on state health care reform and
budgetary constraints, more states are utilizing a managed care product in their Medicaid programs.
Our Medicaid business, which accounted for approximately 2.3% 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 dependents of active duty military personnel and to retired military personnel and their
dependents. Currently, three health benefit options are available to TRICARE beneficiaries. In addition to a
traditional indemnity option, participants may enroll in a HMO-like plan with a point-of-service option or take
advantage of reduced copayments by using a network of preferred providers, similar to a PPO.
We have participated in the TRICARE program since 1996 under contracts with the United States
Department of Defense. Our current TRICARE South Region contract, which we were awarded in 2003, covers
approximately 2.9 million eligible beneficiaries as of December 31, 2007 in Florida, Georgia, South Carolina,
Mississippi, Alabama, Tennessee, Louisiana, Arkansas, Texas and Oklahoma. The South Region is one of the
three regions in the United States as defined by the Department of Defense. Of these eligible beneficiaries,
1.1 million were TRICARE ASO members representing active duty beneficiaries, seniors over the age of 65 and
beneficiaries in Puerto Rico for which the Department of Defense retains all of the risk of financing the cost of
their health benefit. We have subcontracted with third parties to provide selected administration and specialty
services under the contract. The TRICARE South Region contract is for a five-year period subject to annual
renewals at the federal government’s option, with the fifth option period scheduled to begin April 1, 2008 and
run through March 31, 2009. The Department of Defense has the option to extend the current contract for up to
six months under existing terms. Congressional authority has also been granted to extend the contract in one year
increments for a maximum of two additional years. In the second quarter of 2007, a draft solicitation related to
the new TRICARE contracts, currently scheduled to begin April 1, 2009, was issued for industry comment.
Currently, we are anticipating a formal request for proposal, or RFP, for the TRICARE contracts.
The TRICARE South Region contract contains provisions that require us to negotiate a target health care
cost amount annually with the federal government. 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.
For the year ended December 31, 2007, TRICARE premium revenues were approximately $2.8 billion, or
11.4% of our total premiums and ASO fees, and TRICARE ASO fees totaled $65.1 million, or 0.3% of our total
premiums and ASO fees.
In October 2007, we were awarded the Department of Veterans Affairs first specialty network
demonstration project, known as Project HERO (Healthcare Effectiveness through Resource Optimization), to
support healthcare delivery to veterans. The contract is comprised of one base period and four one-year option
periods subject to annual renewals at the federal government’s option, with services beginning January 1, 2008.
International and Green Ribbon Health Operations
We established our subsidiary Humana Europe in the United Kingdom to provide commissioning support to
Primary Care Trusts, or PCTs, in England. Under the contracts we are awarded, we will work in partnership with
local PCTs, health care providers, and patients to strengthen health-service delivery and to implement strategies
at a local level to help the National Health Service enhance patient experience, improve clinical outcomes, and
reduce costs. We are in the start-up phase in anticipation of rendering services under contracts.
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