Humana 2007 Annual Report Download - page 89

Humana Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
are in turn reimbursed by the federal government, as more fully described in Note 2 to the consolidated financial
statements. This amount is generally offset by a corresponding receivable due from the federal government.
Amounts incurred related to prior years vary from previously estimated liabilities as the claims ultimately
are settled. Negative amounts reported for incurred related to prior years result from claims being ultimately
settled for amounts less than originally estimated (favorable development).
As summarized in the previous table, claim reserve balances at December 31, 2006 ultimately settled during
2007 for $242.9 million less than the amounts originally estimated. During 2006, claim reserve balances at
December 31, 2005 ultimately settled for $179.0 million less than the amounts originally estimated. The $63.9
million change in the amounts incurred related to prior years for 2007 as compared to 2006 primarily relates to
favorable development experienced in our Medicare operations. This favorable development primarily was due
to changes in estimates associated with our 2006 Medicare Part D reconciliation and the growth in our Medicare
business. First year Medicare Part D enrollment and eligibility issues in 2006 led to actual claim settlements with
other health plans and states during 2007 for amounts less than originally estimated. Similar adjustments in the
future are not expected to be as significant due to the program’s operational improvement in 2007.
During 2006, claim reserve balances at December 31, 2005 ultimately settled during 2006 for $179.0
million less than the amounts originally estimated. During 2005, claim reserve balances at December 31, 2004
ultimately settled for $72.9 million less than the amounts originally estimated. This $106.1 million change in the
amounts incurred related to prior years for 2006 as compared to 2005 primarily was attributable to both our
Medicare and commercial lines of business. The favorable development experienced in our Medicare and
commercial operations primarily was due to (1) the utilization of hospital and physician services during the latter
half of 2005 ultimately being lower than estimated, (2) the impact of hurricanes in Florida and Louisiana in the
second half of 2005 on both utilization of services and claims processing, (3) significant growth 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 associated with future policy
benefits excluded from the previous table were as follows for the years ended December 31, 2007, 2006 and
2005:
2007 2006 2005
(in thousands)
TRICARE ................................................. $2,481,814 $2,208,033 $2,060,528
Future policy benefits ........................................ 16,392 17,314 28,375
Total ................................................. $2,498,206 $2,225,347 $2,088,903
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