Humana 2007 Annual Report Download - page 99

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Humana Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
significant terms, including: fixed or minimum levels of service to be purchased; fixed, minimum or variable
price provisions; and the appropriate timing of the transaction. We have purchase obligation commitments of
$57.8 million in 2008, $42.0 million in 2009, $32.2 million in 2010, $22.9 million in 2011 and $25.2 million
thereafter. Purchase obligations exclude agreements that are cancelable without penalty.
Off-Balance Sheet Arrangements
As part of our ongoing business, we do not participate or knowingly seek to participate in transactions that
generate relationships with unconsolidated entities or financial partnerships, such as entities often referred to as
structured finance or special purpose entities (SPEs), which would have been established for the purpose of
facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. As of
December 31, 2007, we are not involved in any SPE transactions.
Guarantees and Indemnifications
Through indemnity agreements approved by the state regulatory authorities, certain of our regulated
subsidiaries generally are guaranteed by Humana Inc., 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 discharged; and (3) payment to providers for services rendered prior to insolvency. Our
parent also has guaranteed the obligations of our military services subsidiaries.
In the ordinary course of business, we enter into contractual arrangements under which we may agree to
indemnify a third party to such arrangement from any losses incurred relating to the services they perform on
behalf of us, or for losses arising from certain events as defined within the particular contract, which may
include, for example, litigation or claims relating to past performance. Such indemnification obligations may not
be subject to maximum loss clauses. Historically, payments made related to these indemnifications have been
immaterial.
Government Contracts
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 are renewed
generally for a one-year term each December 31 unless CMS notifies Humana of its decision not to renew by
August 1 of the year in which the contract would end, or Humana notifies CMS of its decision not to renew by
the first Monday in June of the year in which the contract would end. All material contracts between Humana and
CMS relating to our Medicare business have been renewed for 2008.
Our military business, which accounted for approximately 12% of our total premiums and ASO fees for the
year ended December 31, 2007, primarily consisted of the TRICARE South Region contract. The 5-year South
Region contract, which expires March 31, 2009, is subject to annual renewals on April 1 of each year at the
government’s option. Effective April 1, 2007, the South Region contract was extended into the fourth option
period, which runs from April 1, 2007 to March 31, 2008. We have received a notice from the government of its
intent to renew the fifth option period which runs from April 1, 2008 to 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
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