Humana 2008 Annual Report Download - page 28

of long-term care policies. We monitor the loss experience of these long-term care policies, and, when necessary,
apply for premium rate increases through a regulatory filing and approval process in the jurisdictions in which
such products were sold. We expect to file premium rate increases in 2009. To the extent premium rate increases
or loss experience vary from our acquisition date assumptions, future adjustments to reserves could be required.
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 results of operations, financial position, and cash flows.
If we do not design and price our products properly and competitively, our membership and profitability
could be materially adversely affected.
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
Health Savings Accounts (HSAs). We believe that barriers to entry in our 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 results of operations, financial position, and cash
flows 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 Medicare Modernization
Act of 2003, or MMA. The MMA offers opportunities in our Medicare programs including our HMO and PPO,
as well as our stand-alone PDP products. We have made substantial investments in the Medicare program to
enhance our ability to participate in these programs. The expansion of our provider networks and our success in
attracting increasing numbers of PFFS members to our network-based products positions us well for changes in
the Medicare program that will effectively eliminate the PFFS plan option in 2011, although there can be no
assurances that our PFFS members will choose to move to our network-based products. 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
offer the Medicare prescription drug plan in 50 states as well as Puerto Rico and the District of Columbia.
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