Humana 2007 Annual Report Download - page 55

Cash Flow from Operating Activities
The decrease in operating cash flows for 2007 resulted from timing of cash flows associated with our
Medicare Part D offerings, offset by Medicare enrollment growth and improved earnings. During 2007, we paid
$725.5 million to CMS under the risk corridor terms of our 2006 contracts with CMS. Similarly, the provision
for net amounts payable under the risk corridor terms of our 2007 contracts with CMS, which will be paid in
2008, was $102.6 million.
The increase in operating cash flows for 2006 compared to 2005 resulted from Medicare enrollment growth,
improved earnings, and the timing of cash flows associated with our Medicare Part D offerings which were new
beginning January 1, 2006. Our 2006 Part D results related to both stand-alone PDP and MA-PD offerings
reflected provisions for net amounts payable to CMS under the risk corridor terms of our contracts with CMS.
This risk corridor amount, which was paid in 2007 as discussed above, reflects favorable experience on allowable
risk corridor costs during the second half of 2006 compared to the expectations set out in our original annual bid
for 2006 contracts with CMS. The favorable experience was associated with the Medicare Part D portion of our
MA-PD offerings as well as our Standard and Enhanced stand-alone plans.
Comparisons of our operating cash flows also are impacted by other changes in our working capital. The
most significant drivers of changes in our working capital are typically the timing of receipts for premiums and
ASO fees and payments of benefit expenses. We illustrate these changes with the following summaries of
receivables and benefits payable.
The detail of total net receivables was as follows at December 31, 2007, 2006 and 2005:
Change
2007 2006 2005 2007 2006
(in thousands)
Military services:
Base receivable ................... $404,570 $452,509 $509,444 $(47,939) $(56,935)
Change orders .................... 5,168 4,247 32,285 921 (28,038)
Military services subtotal ....... 409,738 456,756 541,729 (47,018) (84,973)
Medicare ............................ 137,345 143,875 66,536 (6,530) 77,339
Commercial and other .................. 126,718 125,899 162,944 819 (37,045)
Allowance for doubtful accounts .......... (68,260) (45,589) (32,557) (22,671) (13,032)
Total net receivables ........... $605,541 $680,941 $738,652 (75,400) (57,711)
Reconciliation to cash flow statement:
Provision for doubtful accounts ....... 28,922 20,901
Receivables from acquisition ........ (14,267) (843)
Change in receivables per cash flow
statement resulting in cash from
operations .......................... $(60,745) $(37,653)
Military services 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 claim
reimbursements resulted in the decrease in base receivables from 2006 to 2007 as well as from 2005 to 2006. The
$28.0 million decrease in military services change order receivables from 2005 to 2006 resulted from the
collection of receivables in 2006 related to an equitable adjustment to the contract price negotiated in late 2005
for services not originally specified in the contract.
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