Humana 2007 Annual Report Download - page 27

Failure to adequately price our products or estimate sufficient benefits payable or future policy benefits
payable may result in a material adverse effect on our financial position, results of operations and cash flows.
If we do not design and price our products properly and competitively, our membership and profitability
could decline.
We are in a highly competitive industry. Some of our competitors are more established in the health care
industry in terms of a larger market share and have greater financial resources than we do in some markets. In
addition, other companies may enter our markets in the future, including emerging competitors in the Medicare
program as well as in Smart plans and other consumer health plans, such as high deductible health plans with
HSAs. We believe that barriers to entry in many markets are not substantial, so the addition of new competitors
can occur relatively easily, and customers enjoy significant 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 a significant basis of competition. In addition to the challenge of controlling health care costs,
we face intense competitive pressure to contain premium prices. Factors such as business consolidations,
strategic alliances, legislative reform and marketing practices create pressure to contain premium price increases,
despite being faced with increasing medical costs.
Premium increases, introduction of new product designs, and our relationship with our providers in various
markets, among other issues, could also affect our membership levels. Other actions that could affect
membership levels include our possible exit from or entrance into Medicare or Commercial markets, or the
termination of a large contract, including our TRICARE contract.
If we do not compete effectively in our markets, if we set rates too high or too low in highly competitive
markets to keep or increase our market share, if membership does not increase as we expect, if membership
declines, or if we lose accounts with favorable medical cost experience while retaining or increasing membership
in accounts with unfavorable medical cost experience, our business and results of operations could be materially
adversely affected.
If we fail to effectively implement our operational and strategic initiatives, including our Medicare
initiatives, our business could be materially adversely affected.
Our future performance depends in large part upon our management team’s ability to execute our strategy to
position the Company for the future. This strategy includes opportunities created by the MMA. The MMA offers
new opportunities in our Medicare programs, including our HMO, PPO, and PFFS Medicare Advantage
products, as well as our stand-alone PDP products. We have made substantial additional investments in the
Medicare program to enhance our ability to participate in these expanded programs. Over the last few years we
have increased the size of our Medicare geographic reach since the enactment of the MMA through expanded
Medicare product offerings. We are offering both the stand-alone Medicare Prescription Drug Coverage and
Medicare Advantage Health Plan with Prescription Drug Coverage in addition to our other product offerings. We
have been approved to offer the Medicare prescription drug plan in 50 states as well as Puerto Rico and the
District of Columbia.
The growth of our Medicare business is an important part of our business strategy. Any failure to achieve
this growth may have a material adverse effect on our financial position, results of operations or cash flows. In
addition, the expansion of our Medicare business in relation to our other businesses may intensify the risks to us
inherent in the Medicare business, which are described elsewhere in this document. These expansion efforts may
result in less diversification of our revenue stream.
Additionally, our strategy includes the growth of our Commercial segment business, with emphasis on our
ASO and individual products, introduction of new products and benefit designs, including our Smart plans and
other consumer offerings such as HSAs, and our specialty products, as well as the adoption of new technologies
and the integration of acquired businesses and contracts.
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