Humana 2008 Annual Report Download - page 80

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Humana Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Cash and Cash Equivalents
Cash and cash equivalents include cash, time deposits, money market funds, commercial paper, other money
market instruments, and certain U.S. Government securities with an original maturity of three months or less.
Carrying value approximates fair value due to the short-term maturity of the investments.
Investment Securities
Investment securities, which consist primarily of debt securities, have been categorized as available for sale
and, as a result, are stated at fair value. Investment securities available for current operations are classified as
current assets. Investment securities available for our long-term insurance product and professional liability
funding requirements, as well as restricted statutory deposits and venture capital investments, are classified as
long-term assets. Unrealized holding gains and losses, net of applicable deferred taxes, are included as a
component of stockholders’ equity and comprehensive income until realized from a sale or other than temporary
impairment.
For the purpose of determining gross realized gains and losses, which are included as a component of
investment income in the consolidated statements of income, the cost of investment securities sold is based upon
specific identification. We regularly evaluate our investment securities for impairment. We consider factors
affecting the issuer, factors affecting the industry the issuer operates within, and general debt and equity market
trends. We consider the length of time an investment’s fair value has been below carrying value, the severity of
the decline, the near term prospects for recovery to cost, and our intent and ability to hold the investment until
maturity or market recovery is realized. If and when a determination is made that a decline in fair value below
the cost basis is other than temporary, the related investment is written down to its estimated fair value through a
charge to earnings.
We participate in a securities lending program to optimize investment income. We loan certain investment
securities for short periods of time in exchange for collateral initially equal to at least 102% of the fair value of
the investment securities on loan. The fair value of the loaned investment securities is monitored on a daily basis,
with additional collateral obtained or refunded as the fair value of the loaned investment securities fluctuates.
The collateral, which may be in the form of cash or U.S. Government securities, is deposited by the borrower
with an independent lending agent. Any cash collateral is recorded on our consolidated balance sheets, along
with a liability to reflect our obligation to return the collateral. The cash collateral is invested by the lending
agent according to our investment guidelines, primarily in money market funds, certificates of deposit, and short-
term corporate and asset-backed securities, and accounted for consistent with our investment securities.
Collateral received in the form of securities is not recorded in our consolidated balance sheets because, absent
default by the borrower, we do not have the right to sell, pledge or otherwise reinvest securities collateral.
Loaned securities continue to be carried as investment securities on the consolidated balance sheets. Earnings on
the invested cash collateral, net of expense, associated with the securities lending payable are recorded as
investment income.
Receivables and Revenue Recognition
We generally establish one-year 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 are multi-year contracts subject to annual renewal provisions.
We bill and collect premium and administrative fee remittances from employer groups and members in our
Medicare and individual products monthly. We receive monthly premiums and administrative fees from the
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