Humana 2008 Annual Report Download

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2008 Annual Report
Health through Guidance

Table of contents

  • Page 1
    2008 Annual Report Health through Guidance

  • Page 2
    ... Risk Mix Progression Commercial Segment Fully-Insured Administrative Services Only Total Commercial Medical Membership 55% 45% 100% 52% 48% 100% 53% 47% 100% 63% 37% 100% 69% 31% 100% 77% 23% 100% Specialty Membership Dental Vision Other Supplemental Benefits Total Specialty Membership 3,633,400...

  • Page 3
    ...while our military business continued its successful, 14-year relationship with the Department of Defense. In Medicare Advantage, the expansion of our provider networks and our success in attracting increasing numbers of Private Fee-for-Service members to our network-based products positions us well...

  • Page 4
    ... and easier. • Support our new role. Those who define a leading health benefits company as merely aggregating risk, building networks and paying claims will soon have less than half the story. Today and tomorrow Humana is offering tools and programs that underpin a guidance role, leading to...

  • Page 5
    ... than 60 percent of our new Medicare Advantage members completed a Health Risk Assessment in 2008. As a result, 8 percent were referred to our Medical Case Management program, where they receive personalized guidance and actionable information tailored to their health care needs, and 18 percent were...

  • Page 6
    ...form continues to progress toward insolvency. Similarly, our Commercial products are achieving low-cost positioning through consumer guidance-driven utilization management, clinical initiatives, and a Commercial network development strategy that leverages our Medicare expansion by executing provider...

  • Page 7
    ...multi-year partnership between employer groups and Humana that focuses on employee health; new Health Savings Account (HSA) offerings; and our groundbreaking alliance with the Business Health Care Group of Southeast Wisconsin, which has been hailed as a national model of information transparency and...

  • Page 8
    ... as a participant in its world-class service training program. After three years Disney determined that our service progress qualified us as a model of its principles, and in May of last year, Disney published a Humana business case study that has garnered widespread positive attention through...

  • Page 9
    ...short- and long-term basis in our Medicare and Commercial businesses. • We are a company dedicated to reducing costs and improving health through consumer engagement. • We are a company that uses technology to enable new products and services, providing guidance and total solutions for employers...

  • Page 10
    ... Officer fi Humana Inc. William J. McDonald Executive Vice President Brand Management Capital One Financial Corporation James J. O'Brien Chairman of the Board and Chief Executive Officer fi Ashland Inc. Marissa T. Peterson Former Executive Vice President, Worldwide Operations and Services, Sun...

  • Page 11
    ... Commission file number 1-5975 (Exact name of registrant as specified in its charter) HUMANA INC. Delaware (State of incorporation) 61-0647538 (I.R.S. Employer Identification Number) 500 West Main Street Louisville, Kentucky (Address of principal executive offices) 40202 (Zip Code) Registrant...

  • Page 12
    ...and Financial Disclosure Controls and Procedures Other Information Part III Directors, Executive Officers and Corporate Governance Executive Compensation Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Certain Relationships and Related Transactions, and...

  • Page 13
    ...military services contracts. Under our CMS contracts in Florida, we provide health insurance coverage to approximately 492,700 members as of December 31, 2008. Humana Inc. was organized as a Delaware corporation in 1964. Our principal executive offices are located at 500 West Main Street, Louisville...

  • Page 14
    ... ASO Fees Fees Medical Specialty Membership Membership Premiums ASO Fees (dollars in thousands) Government: Medicare Advantage: HMO ...PFFS ...PPO ...Total Medicare Advantage ...Medicare stand-alone PDP ...Total Medicare ...Medicaid insured ...Medicaid ASO ...Total Medicaid ...Military services...

  • Page 15
    ... network. Individuals in these plans pay us a monthly premium to receive typical Medicare Advantage benefits along with the freedom to choose any health care provider that accepts individuals at reimbursement rates equivalent to traditional Medicare payment rates. CMS uses monthly rates per person...

  • Page 16
    ... contracts between Humana and CMS relating to our Medicare stand-alone PDP business have been renewed for 2009. Medicaid Product Medicaid is a federal program that is state-operated to facilitate the delivery of health care services primarily to low-income residents. Each electing state develops...

  • Page 17
    ... 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 Department of Defense. Our current TRICARE South Region...

  • Page 18
    ...premiums and ASO fees, and military services ASO fees totaled $76.8 million, or 0.3% of our total premiums and ASO fees. International and Green Ribbon Health Operations In August 2006, we established our subsidiary Humana Europe in the United Kingdom to provide commissioning support to Primary Care...

  • Page 19
    ..., hospitals, nursing homes, home health agencies, pharmacies, mental health and substance abuse centers, diagnostic centers, optometrists, outpatient surgery centers, dentists, urgent care centers, and durable medical equipment suppliers. Because the primary care physician generally must approve...

  • Page 20
    ..., HMO and PPO products, we also offer ASO products to employers who self-insure their employee health plans. We receive fees to provide administrative services which generally include the processing of claims, offering access to our provider networks and clinical programs, and responding to customer...

  • Page 21
    ... such as outpatient surgery centers, primary care physicians, specialist physicians, dentists and providers of ancillary health care services and facilities. These ancillary services and facilities include ambulance services, medical equipment services, home health agencies, mental health providers...

  • Page 22
    ... benefit expenses as a percentage of premium revenues. Providers participating in hospital-based capitated HMO arrangements generally receive a monthly payment for all of the services within their system for their HMO membership. Providers participating in physician-based capitated HMO arrangements...

  • Page 23
    ... and 2007: Government Segment Medicare Military Medicare stand-alone Military Services Total Advantage PDP services ASO Medicaid Segment Medical Membership: December 31, 2008 Capitated HMO hospital system based ...25,600 Capitated HMO physician group based . . 48,400 Risk-sharing ...274,100 Other...

  • Page 24
    ...brokers and agents are based on a per unit commission structure approved by CMS. Individuals become members of our commercial HMOs and PPOs through their employers or other groups which typically offer employees or members a selection of health insurance products, pay for all or part of the premiums...

  • Page 25
    employer's or group's exclusive source of health insurance benefits by offering a variety of HMO, PPO, and specialty products that provide cost-effective quality health care coverage consistent with the needs and expectations of their employees or members. We also offer commercial health insurance ...

  • Page 26
    ... We provide centralized management services to each of our health plans and both of our business segments from our headquarters and service centers. These services include management information systems, product development and administration, finance, human resources, accounting, law, public...

  • Page 27
    ... or market; changes or reductions of our utilization management functions such as preauthorization of services, concurrent review or requirements for physician referrals; possible changes in our pharmacy rebate program with drug manufacturers; catastrophes, including acts of terrorism, public health...

  • Page 28
    ... 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...

  • Page 29
    ... a quality e-business organization by enhancing interactions with customers, brokers, agents, and other stakeholders through web-enabling technology. Our strategy includes sales and distribution of health benefit products through the Internet, and implementation of advanced self-service capabilities...

  • Page 30
    ... of legal actions relating to our business operations, including the design, management and offering of products and services. These include and could include in the future claims relating to the methodologies for calculating premiums; claims relating to the denial of health care benefit payments...

  • Page 31
    ... 2008, our military services business, which accounted for approximately 12% of our total premiums and ASO fees for the year ended December 31, 2008, primarily consisted of the TRICARE South Region contract which covers approximately 3.0 million beneficiaries. The 5-year South Region contract, which...

  • Page 32
    ... benefits without corresponding increases in premium payments to us, could have a material adverse effect on our results of operations, financial position, and cash flows. We also provided services under a three-year ASO contract with the Puerto Rico Health Administration for the Metro North Region...

  • Page 33
    ...with providers to establish adequate networks, except in geographic areas that CMS determines have fewer than two network-based Medicare Advantage plans. Additionally, the Act prohibits several different kinds of marketing activities by Medicare plan sponsors and their brokers beginning in 2009, and...

  • Page 34
    ... services regulate our operations, including the scope of benefits, rate formulas, delivery systems, utilization review procedures, quality assurance, complaint systems, enrollment requirements, claim payments, marketing, and advertising. The HMO, PPO, and other health insurance-related products...

  • Page 35
    ... to health insurance access and affordability; regulation of broker licensing and commission rates, particularly in the Medicare marketing area; e-connectivity and electronic health records; universal health coverage; disclosure of provider fee schedules and other data about payments to providers...

  • Page 36
    ... payments, or take other actions that could result in higher health care costs for us, less desirable products for customers and members or difficulty meeting regulatory or accreditation requirements. In some markets, some providers, particularly hospitals, physician specialty groups, physician...

  • Page 37
    ... the state Departments of Insurance prior to making payments that do not require approval. In the event that we are unable to provide sufficient capital to fund the obligations of Humana Inc., our operations or financial position may be adversely affected. Downgrades in our debt ratings, should...

  • Page 38
    ... could also adversely affect the budget of individual states and of the federal government. That could result in attempts to reduce payments in our federal and state government health care coverage programs, including the Medicare, military services, and Medicaid programs, and could result in an...

  • Page 39
    the possibility that customers or lenders could develop a negative perception of our long or short-term financial prospects. Similarly, our access to funds could be limited if regulatory authorities or rating agencies were to take negative actions against us. If a combination of these factors were ...

  • Page 40
    ... executive office is located in the Humana Building, 500 West Main Street, Louisville, Kentucky 40202. In addition to this property, our other principal operating facilities are located in Louisville, Kentucky; Green Bay, Wisconsin; Tampa Bay, Florida; Cincinnati, Ohio; and San Juan, Puerto Rico...

  • Page 41
    ... AND ISSUER PURCHASES OF EQUITY SECURITIES Market Information Our common stock trades on the New York Stock Exchange under the symbol HUM. The following table shows the range of high and low closing sales prices as reported on the New York Stock Exchange Composite Price for each quarter in the...

  • Page 42
    ...volume, pricing and timing. Due to continued volatility and turmoil in the financial markets, we have not yet repurchased any shares under the July 2008 authorization. The presently-authorized share repurchase program expires on December 31, 2009. In connection with employee stock plans, we acquired...

  • Page 43
    ... ...Total Medicare ...Military services insured ...Military services ASO ...Total military services ...Medicaid insured ...Medicaid ASO ...Total Medicaid ...Total Government ...Commercial: Fully-insured ...ASO ...Total Commercial ...Total medical membership ...Specialty Membership: Dental ...Vision...

  • Page 44
    ... Government segment consists of beneficiaries of government benefit programs, and includes three lines of business: Medicare, Military, and Medicaid. The Commercial segment consists of members enrolled in our medical and specialty products marketed to employer groups and individuals. We identified...

  • Page 45
    ...-alone prescription drug plans, or PDPs, under the Medicare Part D program: our Standard, Enhanced, and Complete products. These plans provide varying degrees of coverage. In order to offer these plans in a given year, in June of the preceding year we must submit bids to CMS for approval. During...

  • Page 46
    management company, these specialty acquisitions are anticipated to enhance our Commercial segment margins and our ability to appeal to more customers seeking benefit providers who offer full-service solutions. Recent Turmoil in the Financial Markets Recently, the securities and credit markets have ...

  • Page 47
    ... multi-location employers with a wider range of products, including our specialty offerings. The acquisition added approximately 33,400 commercial fully-insured members, 29,700 commercial ASO members, and 14,000 Medicare HMO and PPO members. On April 30, 2008, we acquired UnitedHealth Group's Las...

  • Page 48
    ...Inc., or DefenseWeb, a company responsible for delivering customized software solutions for the Department of Defense, for cash consideration of $27.5 million. On May 1, 2006, we acquired CHA Service Company, or CHA Health, a health plan serving employer groups in Kentucky, for cash consideration of...

  • Page 49
    ...medical members: Medicare Advantage ...Medicare stand-alone PDP ...Total Medicare ...Military services ...Military services ASO ...Total military services ...Medicaid ...Medicaid ASO ...Total Medicaid ...Total Government ...Commercial segment medical members: Fully-insured ...ASO ...Total Commercial...

  • Page 50
    ...due to our specialty product offerings, including dental, vision, and other supplemental health and life products, as a result of the CompBenefits and KMG acquisitions in the fourth quarter of 2007, as well as strategic line-of-business organic growth. Our fully-insured membership increased 9.4%, or...

  • Page 51
    ... associated with servicing higher average Medicare Advantage and Commercial medical membership, partially offset by growth in certain of our businesses which carry a higher administrative expense load such as mail-order pharmacy, specialty products, and individual medical products. The consolidated...

  • Page 52
    ...) Change Dollars Percentage Premium revenues: Medicare Advantage ...Medicare stand-alone PDP ...Total Medicare ...Military services ...Medicaid ...Total Government ...Fully-insured ...Specialty ...Total Commercial ...Total ...Administrative services fees: Government ...Commercial ...Total ...Income...

  • Page 53
    ... Medicare stand-alone PDP membership increased 19.5% for 2007 compared to 2006. Commercial segment premium revenues increased $81.8 million, or 1.3%, to $6.2 billion for 2007 primarily due to our specialty product offerings, including dental, vision, and other supplemental health and life products...

  • Page 54
    ...membership gains in strategic areas of commercial growth including Smart plans and other consumer offerings, individual, and small group product lines. Average per member premiums for our fully-insured group medical members increased approximately 5.2% from 2006 to 2007. Administrative Services Fees...

  • Page 55
    ... and small group members comprising our total fully-insured block, the CompBenefits and KMG acquisitions which added dental, vision, and other supplemental health and life members, and improving medical cost utilization. Individual and smaller group as well as specialty, primarily dental and vision...

  • Page 56
    ..., acquisitions, capital expenditures, and repayments on borrowings. Because premiums generally are collected in advance of claim payments by a period of up to several months, our business normally should produce positive cash flows during periods of increasing premiums and enrollment. Conversely...

  • Page 57
    ... 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 increase in...

  • Page 58
    ... extent, benefit claims inflation, an increase in the amount of processed but unpaid claims including pharmacy claims which fluctuate due to month-end cutoff, and an increase in amounts owed to providers under capitated and risk sharing arrangements from Medicare Advantage membership growth. Cash...

  • Page 59
    ...in connection with employee stock plans. During the year ended December 31, 2008, we repurchased 2.1 million shares in open market transactions for $92.8 million at an average price of $44.19. On July 28, 2008 (announced August 4, 2008), the Board of Directors increased the authorized amount to $250...

  • Page 60
    also pay an annual facility fee regardless of utilization. This facility fee, currently 10 basis points, may fluctuate between 8 and 20 basis points, depending upon our credit ratings. In addition, a utilization fee of 10 basis points is payable for each day in which borrowings under the facility ...

  • Page 61
    ...authorities, is limited based on the entity's level of statutory income and statutory capital and surplus. In most states, prior notification is provided before paying a dividend even if approval is not required. Although minimum required levels of equity are largely based on premium volume, product...

  • Page 62
    ... provider coding practices under the risk-adjustment model used to reimburse Medicare Advantage plans. These audits will involve a comprehensive review of medical records, and may result in contract-level payment adjustments to premium payments made to a health plan pursuant to its Medicare contract...

  • Page 63
    ...we renewed our Medicaid contracts with the Puerto Rico Insurance Administration for the East and Southeast regions. These contracts expire on June 30, 2009. We also provide services under a three-year ASO contract with the Puerto Rico Health Administration for the Metro North Region. The Puerto Rico...

  • Page 64
    ... overall financial position. Accordingly, it represents a critical accounting estimate. Most benefit claims are paid within a few months of the member receiving service from a physician or other health care provider. As a result, these liabilities generally are described as having a "short-tail". As...

  • Page 65
    ...per member per month claims trends developed from our historical experience in the preceding months, adjusted for known changes in estimates of recent hospital and drug utilization data, provider contracting changes, changes in benefit levels, changes in member cost sharing, product mix, and weekday...

  • Page 66
    ... hospital and physician services ultimately was lower than our original estimates for both our Commercial and Medicare lines of business. Rapid growth in our Medicare private fee-for-service product in new geographic areas resulted in more limited historical information from which to base trend rate...

  • Page 67
    ... provider claim submissions and changes in claim payment and recovery patterns associated with outsourcing claims processing functions for our Medicare private fee-for-service product. Finally, first-year Medicare Part D enrollment and eligibility issues during 2006 led to actual claim settlements...

  • Page 68
    ...military services contracts with the federal government and our contracts with various state Medicaid programs generally are multi-year contracts subject to annual renewal provisions. Our commercial contracts establish rates on a per member basis for each month of coverage. Our Medicare and Medicaid...

  • Page 69
    ... monthly amount per member to provide prescription drug coverage in the catastrophic layer. We chose the demonstration payment option for all of our enhanced benefit plans for 2006 through 2008, but not for 2009. This capitation amount, derived from our annual bid submissions, is recorded as premium...

  • Page 70
    ... fees related to claim processing, customer service, enrollment, disease management and other services. We recognize the insurance premium as revenue ratably over the period coverage is provided. Health care services reimbursements are recognized as revenue in the period health services are provided...

  • Page 71
    ... assume the rating of the government obligations (AAA by S&P) at the time the fund is established. In addition, certain monoline insurers guarantee the timely repayment of bond principal and interest when a bond issuer defaults and generally provide credit enhancement for bond issues related to...

  • Page 72
    ... with an independent lending agent. The cash collateral was invested in money market funds, certificates of deposit, and short-term corporate and asset-backed securities with an average maturity of approximately 250 days. The fair value of securities held as invested collateral was $402.4 million...

  • Page 73
    ... long-term inflation rate. Key assumptions in our cash flow projections, including changes in membership, premium yields, medical and administrative cost trends, and certain government contract extensions, are consistent with those utilized in our long-range business plan and annual planning process...

  • Page 74
    Recently Issued Accounting Pronouncements For a discussion of recently issued accounting pronouncements, see Note 2 to the consolidated financial statements included in Item 8.-Financial Statements and Supplementary Data. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The level ...

  • Page 75
    ... ...Future policy benefits payable ...Other long-term liabilities ...Total liabilities ...Commitments and contingencies Stockholders' equity: Preferred stock, $1 par; 10,000,000 shares authorized; none issued ...Common stock, $0.16 2/3 par; 300,000,000 shares authorized; 187,856,684 shares issued in...

  • Page 76
    Humana Inc. CONSOLIDATED STATEMENTS OF INCOME For the year ended December 31, 2008 2007 2006 (in thousands, except per share results) Revenues: Premiums ...Administrative services fees ...Investment income ...Other revenue ...Total revenues ...Operating expenses: Benefits ...Selling, general and ...

  • Page 77
    Humana Inc. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY Capital In Issued Excess of Shares Amount Par Value Common Stock Accumulated Other Total Retained Comprehensive Treasury Stockholders' Earnings Income (Loss) Stock Equity (in thousands) Balances, January 1, 2006 ...179,063 $29,843 $1,235,...

  • Page 78
    ... notes ...Debt issue costs ...Proceeds from swap termination ...Change in book overdraft ...Change in securities lending payable ...Common stock repurchases ...Tax benefit from stock-based compensation ...Proceeds from stock option exercises and other ...Net cash (used in) provided by financing...

  • Page 79
    ... Government segment consists of beneficiaries of government benefit programs, and includes three lines of business: Medicare, Military, and Medicaid. The Commercial segment consists of members enrolled in our medical and specialty products marketed to employer groups and individuals. We identified...

  • Page 80
    ... commercial membership contracts with employer groups, subject to cancellation by the employer group on 30-day written notice. Our Medicare contracts with CMS renew annually. Our military services contracts with the federal government and our contracts with various state Medicaid programs generally...

  • Page 81
    ... began covering prescription drug benefits in accordance with Medicare Part D under multiple contracts with CMS. The payments we receive monthly from CMS and members, which are determined from our annual bid, represent amounts for providing prescription drug insurance coverage. We recognize premium...

  • Page 82
    ... fees related to claim processing, customer service, enrollment, disease management and other services. We recognize the insurance premium as revenue ratably over the period coverage is provided. Health care services reimbursements are recognized as revenue in the period health services are provided...

  • Page 83
    ... prepaid health services policies as incurred in accordance with the Health Care Organization Audit and Accounting Guide. These short-duration employer-group prepaid health services policies typically have a one-year term and may be cancelled upon 30 days notice by the employer group. Life insurance...

  • Page 84
    ... sheet date. Capitation payments represent monthly contractual fees disbursed to primary care physicians and other providers who are responsible for providing medical care to members. Pharmacy costs represent payments for members' prescription drug benefits, net of rebates from drug manufacturers...

  • Page 85
    ... of the weighted-average number of unrestricted common shares outstanding. Diluted earnings per common share is computed on the basis of the weightedaverage number of unrestricted common shares outstanding plus the dilutive effect of outstanding employee stock options and restricted shares using the...

  • Page 86
    ... observable quoted market does not exist and are generally classified as Level 3. For privately held debt securities, such methodologies include reviewing the value ascribed to the most recent financing, comparing the security with securities of publicly traded companies in similar lines of business...

  • Page 87
    ... On October 31, 2008 we acquired PHP Companies, Inc. (d/b/a Cariten Healthcare), or Cariten, for cash consideration of approximately $256.1 million. The Cariten acquisition increased our commercial fully-insured and ASO presence as well as our Medicare HMO presence in eastern Tennessee. The...

  • Page 88
    ... plus the assumption of $36.1 million of long-term debt. KMG provides long-duration insurance benefits including supplemental health and life products. The acquisition expanded our commercial product offerings allowing for significant cross-selling opportunities with our medical insurance products...

  • Page 89
    ...Inc., or DefenseWeb, a company responsible for delivering customized software solutions for the Department of Defense, for cash consideration of $27.5 million. On May 1, 2006, we acquired CHA Service Company, or CHA Health, a health plan serving employer groups in Kentucky, for cash consideration of...

  • Page 90
    ... the respective states' insurance regulations. Gross unrealized losses and fair value aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position were as follows at December 31, 2008 and 2007: Less than 12 months Fair Unrealized...

  • Page 91
    Humana...included gains from the sale of venture capital investments of $2.4 ...filed...Quoted Prices in Active Markets Significant Other Significant for Identical Observable Unobservable Assets Inputs Inputs (Level 1) (Level 2) (Level...sales, issuances, and settlements, net ...Transfers in and/or out of Level...

  • Page 92
    ... periodic short-term auctions. The auction rate securities we own, which total $74.1 million, or less than 1% of our total invested assets, primarily consist of tax-exempt bonds, rated AAA by S&P and collateralized by federally guaranteed student loans. Liquidity issues in the global credit markets...

  • Page 93
    ... relate to acquired customer contracts and are included with other long-term assets in ...Life 2008 Accumulated Amortization 2007 Accumulated Amortization Cost Net (in thousands) Cost Net Other intangible assets: Customer contracts ...10.8 yrs $341,085 Provider contracts ...18.0 yrs 36,253 Trade...

  • Page 94
    ... lines of business. Rapid growth in our Medicare private fee-for-service product in new geographic areas resulted in more limited historical information from which to base trend rate estimates. A shortening of the cycle time associated with provider claim submissions and changes in claim payment and...

  • Page 95
    Humana Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) Benefit expenses associated with military services and provisions associated with future policy benefits...Current provision: Federal ...States and Puerto Rico ...Total current provision ...Deferred benefit ...Provision for income taxes...

  • Page 96
    ... income and profitability, we have concluded that future operating income will be sufficient to give rise to tax expense to recover all deferred tax assets. We file income tax returns in the United States and certain foreign jurisdictions. In 2007, the Internal Revenue Service (IRS) completed its...

  • Page 97
    ... interest at either a fixed rate or floating rate based on LIBOR plus a spread. The spread, currently 35 basis points, varies depending on our credit ratings ranging from 27 to 80 basis points. We also pay an annual facility fee regardless of utilization. This facility fee, currently 10 basis points...

  • Page 98
    ...each day in which borrowings under the facility exceed 50% of the total $1.0 billion commitment. The competitive advance portion of any borrowings will bear interest at market rates prevailing at the time of borrowing on either a fixed rate or a floating rate based on LIBOR, at our option. The terms...

  • Page 99
    ... to the participant's contribution direction. Stock-Based Compensation We have plans under which options to purchase our common stock and restricted stock awards have been granted to executive officers, directors and key employees. The terms and vesting schedules for stock-based awards vary by...

  • Page 100
    ... Stock options are granted with an exercise price equal to the average market value of the underlying common stock on the date of grant. Our stock plans, as approved by the Board of Directors and stockholders, define average market value as the average of the highest and lowest stock prices reported...

  • Page 101
    .... Beginning in 2005, a greater proportion of stock awards granted to employees, excluding executive officers, were restricted stock awards with a three-year vesting schedule as opposed to stock options, which resulted in an increase in the fair value of shares vested from 2007 to 2008. Total...

  • Page 102
    ...volume, pricing and timing. Due to continued volatility and turmoil in the financial markets, we have not yet repurchased any shares under the July 2008 authorization. The presently-authorized share repurchase program expires on December 31, 2009. In connection with employee stock plans, we acquired...

  • Page 103
    ...the aggregate $2.1 billion in applicable statutory requirements which would trigger any regulatory action by the respective states. 16. COMMITMENTS, GUARANTEES AND CONTINGENCIES Leases We lease facilities, computer hardware, and other furniture and equipment under long-term operating leases that are...

  • Page 104
    ... provider coding practices under the risk-adjustment model used to reimburse Medicare Advantage plans. These audits will involve a comprehensive review of medical records, and may result in contract-level payment adjustments to premium payments made to a health plan pursuant to its Medicare contract...

  • Page 105
    ...we renewed our Medicaid contracts with the Puerto Rico Insurance Administration for the East and Southeast regions. These contracts expire on June 30, 2009. We also provide services under a three-year ASO contract with the Puerto Rico Health Administration for the Metro North Region. The Puerto Rico...

  • Page 106
    ... similar class action lawsuits filed in the Western District of Kentucky, Louisville Division, on behalf of a purported class of participants in and beneficiaries of the Humana Retirement and Savings Plan and the Humana Puerto Rico 1165(d) Retirement Plan (the "Plans") (Benitez et al. v. Humana Inc...

  • Page 107
    ... breached its network agreements with a class of hospitals, including the seven named plaintiffs, in six states that contracted for reimbursement of outpatient services provided to beneficiaries of the Department of Defense's TRICARE health benefits program ("TRICARE"). The Complaint alleges that...

  • Page 108
    ... Government segment consists of beneficiaries of government benefit programs, and includes three lines of business: Medicare, Military, and Medicaid. The Commercial segment consists of members enrolled in our medical and specialty products marketed to employer groups and individuals. We identified...

  • Page 109
    ...(in thousands) 2006 Revenues: Premiums: Medicare Advantage ...Medicare stand-alone PDP ...Total Medicare ...Military services ...Medicaid ...Total premiums ...Administrative services fees ...Investment income ...Other revenue ...Total revenues ...Operating expenses: Benefits ...Selling, general and...

  • Page 110
    Humana Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) 2008 Commercial Segment 2007 (in thousands) 2006 Revenues: Premiums: Fully-insured: PPO ...$3,582,692 HMO ...2,586,711 Total fully-insured ...6,169,403 Specialty ...927,237 Total premiums ...7,096,640 Administrative services fees ...

  • Page 111
    ...are well-known and well-established, as evidenced by the strong financial ratings at December 31, 2008 presented below: Reinsurer Total Recoverable (in thousands) A.M. Best Rating at December 31, 2008 Protective Life Insurance Company ...All others ... $208,844 156,950 $365,794 A+ (superior) A+ to...

  • Page 112
    ..., financial statement schedules and on the Company's internal control over financial reporting based on our integrated audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform...

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    ...management has excluded SecureHorizons, OSF, Metcare, and Cariten from its assessment of internal control over financial reporting as of December 31, 2008 because these entities were acquired by the Company in purchase business... PRICEWATERHOUSECOOPERS LLP Louisville, Kentucky February 20, 2009 103

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    Humana Inc. QUARTERLY FINANCIAL INFORMATION (Unaudited) A summary of our quarterly unaudited results of operations for the years ended December 31, 2008 and 2007 follows: First 2008 Second Third Fourth (in thousands, except per share results) Total revenues ...Income before income taxes ...Net ...

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    ... with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized...

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    ..., the Company is modifying the design and documentation of internal control process and procedures relating to the new system to supplement and complement existing internal controls over financial reporting. Michael B. McCallister President and Chief Executive Officer James H. Bloem Senior...

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    ...and Chief Executive Officer Chief Operating Officer Senior Vice President-Chief Financial Officer and Treasurer Senior Vice President-Chief Service and Information Officer Senior Vice President-Chief Human Resources Officer Senior Vice President-Senior Products Senior Vice President-Chief Innovation...

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    ...our web site at www.humana.com and upon a written request addressed to Humana Inc. Vice President and Corporate Secretary at 500 West Main Street, 27th Floor, Louisville, Kentucky 40202. Any waiver of the application of the Humana Inc. Principles of Business Ethics to directors or executive officers...

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    ...and Senior Financial Officers. Any waivers or amendments for directors or executive officers to the Humana Inc. Principles of Business Ethics and the Code of Ethics for the Chief Executive Officer and Senior Financial Officers will be promptly displayed on our web site. We will provide any of these...

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    ... scheduled to be held on April 23, 2009 appearing under the captions "Security Ownership of Certain Beneficial Owners of Company Common Stock" and "Equity Compensation Plan Information" of such Proxy Statement. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE...

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    ... the rights of the holders of such indebtedness not otherwise filed as an Exhibit to this Annual Report on Form 10-K to the Commission upon request. 1989 Stock Option Plan for Non-Employee Directors (incorporated herein by reference to Exhibit B to Humana Inc.'s Proxy Statement with respect to the...

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    ...). Amendment No. 2 to the 1989 Stock Option Plan for Non-Employee Directors (incorporated herein by reference to Exhibit 10(h) to Humana Inc.'s Annual Report on Form 10-K for the fiscal year ended December 31, 1993). 1989 Stock Option Plan for Non-Employee Directors, as amended and restated in 1998...

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    ... of Contract, dated as of January 16, 2009, by and between Humana Military Healthcare Services, Inc. and the United States Department of Defense TRICARE Management Activity (incorporated herein by reference to Exhibit 10 to Humana Inc.'s Current Report on Form 8-K, filed on January 22, 2009). 113...

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    ...Prescription Drug Plan Contracts between Humana and CMS (incorporated herein by reference to Exhibit 10(nn) to Humana Inc.'s Annual Report on Form 10-K for the fiscal year ended December 31, 2005). Computation of ratio of earnings to fixed charges, filed herewith. Code of Conduct for Chief Executive...

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    ... long-term liabilities ...Total liabilities ...Commitments and contingencies Stockholders' equity: Preferred stock, $1 par; 10,000,000 shares authorized; none issued ...Common stock, $0.16 2⁄ 3 par; 300,000,000 shares authorized; 187,856,684 shares issued in 2008, and 186,738,885 shares issued...

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    Humana Inc. SCHEDULE I-PARENT COMPANY FINANCIAL INFORMATION CONDENSED STATEMENTS OF OPERATIONS For the year ended December 31, 2008 2007 (in thousands) 2006 Revenues: Management fees charged to operating subsidiaries ...Investment and other income, net ...Expenses: Selling, general and ...

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    ......Repayment of notes issued to operating subsidiaries ...Change in book overdraft ...Change in securities lending payable ...Common stock repurchases ...Tax benefit from stock-based compensation ...Proceeds from stock option exercises and other ...Net cash (used in) provided by financing activities...

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    ...state regulatory authorities, Humana Inc., our parent company, charges a management fee for reimbursement of certain centralized services provided to its subsidiaries including information systems, disbursement, investment and cash administration, marketing, legal, finance, and medical and executive...

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    ... action by the respective states. 4. ACQUISITIONS During 2008, we funded a subsidiary's 2008 acquisition of UnitedHealth Group's Las Vegas, Nevada individual SecureHorizons Medicare Advantage HMO business with contributions from Humana Inc., our parent company, of $225.0 million, included in capital...

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    Humana Inc. SCHEDULE II-VALUATION AND QUALIFYING ACCOUNTS For the Years Ended December 31, 2008, 2007, and 2006 (in thousands) Additions Charged (Credited) to Charged to Costs and Other Expenses Accounts (1) Balance at Beginning of Period Acquired Balances Deductions or Write-offs Balance at End...

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    .... HUMANA INC. By: /s/ JAMES H. BLOEM James H. Bloem Senior Vice President, Chief Financial Officer and Treasurer (Principal Financial Officer) Date: February 20, 2009 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on...

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    Corporate Headquarters The Humana Building 500 West Main Street Louisville, Kentucky 40202 (502) 580-1000 More Information About Humana Inc. Copies of the Company's filings with the Securities and Exchange Commission may be obtained without charge via the Investor Relations page of the Company's ...

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    Cert no. SCS-COC-00648