Humana 2008 Annual Report Download - page 83

Humana Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Policy Acquisition Costs
Policy acquisition costs are those costs that vary with and primarily are related to the acquisition of new and
renewal business. Such costs include commissions, costs of policy issuance and underwriting, and other costs we
incur to acquire new business or renew existing business. We expense policy acquisition costs related to our
employer-group 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, annuities, health and other supplemental policies sold to individuals are accounted for as
long-duration insurance products under the provisions of SFAS No. 60, Accounting and Reporting by Insurance
Enterprises, or SFAS 60, because they are expected to remain in force for an extended period beyond one year
due to contractual and regulatory requirements.As a result, we defer policy acquisition costs and amortize them
over the estimated life of the policies in proportion to premiums earned. Deferred acquisition costs are reviewed
annually to determine if they are recoverable from future income.
Long-Lived Assets
Property and equipment is recorded at cost. Gains and losses on sales or disposals of property and
equipment are included in administrative expense. Certain costs related to the development or purchase of
internal-use software are capitalized in accordance with AICPA Statement of Position 98-1, Accounting for the
Costs of Computer Software Developed or Obtained for Internal Use. Depreciation is computed using the
straight-line method over estimated useful lives ranging from 3 to 10 years for equipment, 3 to 7 years for
computer software, and 20 to 40 years for buildings. Improvements to leased facilities are depreciated over the
shorter of the remaining lease term or the anticipated life of the improvement.
We periodically review long-lived assets, including property and equipment and other intangible assets, for
impairment whenever adverse events or changes in circumstances indicate the carrying value of the asset may not
be recoverable. Losses are recognized for a long-lived asset to be held and used in our operations when the
undiscounted future cash flows expected to result from the use of the asset are less than its carrying value. We
recognize an impairment loss based on the excess of the carrying value over the fair value of the asset. A long-
lived asset held for sale is reported at the lower of the carrying amount or fair value less costs to sell.
Depreciation expense is not recognized on assets held for sale. Losses are recognized for a long-lived asset to be
abandoned when the asset ceases to be used. In addition, we periodically review the estimated lives of all long-
lived assets for reasonableness.
Goodwill and Other Intangible Assets
Goodwill represents the unamortized excess of cost over the fair value of the net tangible and other
intangible assets acquired. SFAS No. 142, Goodwill and Other Intangible Assets, or SFAS 142, requires that we
test at least annually for impairment at a level of reporting referred to as the reporting unit, and more frequently if
adverse events or changes in circumstances indicate that the asset may be impaired. A reporting unit either is our
operating segments or one level below the operating segments, referred to as a component, which comprise our
reportable Commercial and Government segments. A component is considered a reporting unit if the component
constitutes a business for which discrete financial information is available that is regularly reviewed by
management. We aggregate the components of an operating segment into one reporting unit if they have similar
economic characteristics. Goodwill is assigned to the reporting unit that is expected to benefit from a specific
acquisition.
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