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2009
ANNUAL REPORT

Table of contents

  • Page 1
    2009 A N N U A L R E P O R T

  • Page 2
    ... $7,044 $3,054 $1,687 $6,847 $4,338 $2,509 $610 Cash Flow from Operations Medical Membership Government Segment Medicare Advantage Medicare stand-alone PDPs Medicaid Military Services Commercial Segment Fully-Insured Administrative Services Only Total Medical Membership 1,508,500 1,927,900 401,700...

  • Page 3
    ... connectivity among doctors and patients, and out-of-control health spending - through results-oriented programs that displayed the spirit of renewal and resourcefulness that has characterized our firm since its founding almost 50 years ago. For 2009, company revenues increased by 7 percent, to...

  • Page 4
    ... our plans, employer groups are beginning to see the benefits of Medicare Advantage as a solution to their retiree-health care coverage needs. Our breadth of product offerings nationally positions us well to grow in the group Medicare market. The other major portion of our Government business...

  • Page 5
    ...the third generation TRICARE contract for the South Region to another contractor. However, we were encouraged later in the year when the Government Accountability Office (GAO) upheld Humana Military's protest of that contract award. In December 2009, the DoD's TRICARE Management Activity (TMA) noti...

  • Page 6
    ... Challenge has had on its participants. Similar success was achieved through Humana's signature Freewheelin bikesharing program. As the lead sponsor of the 2009 Summer National Senior Games in Palo Alto, California, Humana provided athletes and spectators with access to Freehweelin bikes. By the...

  • Page 7
    ... programs Medical spending accounts HDHP with Health Savings Account Humana Preferred® 90-Days-at-Retail Program RightSourceRxSM SmartResultsSM HumanaAdvance® Card Clinical Programs and Forecasting Disease Management Transplant Management Utilization Management Concurrent Review Case Management...

  • Page 8
    ... Board of Directors. William E. Mitchell, chairman of the board and former chief executive officer of Arrow Electronics, has created and executed information-technology solutions for a variety of enterprises worldwide. He brings his expertise to bear on Humana's industry-leading health information...

  • Page 9
    ... membership in Medicare while enhancing our coordinated care model to keep increasing the value we offer our members. We also anticipate improved Commercial results associated with contributions from our ancillary and specialty businesses, administrative expense reductions, and pricing actions taken...

  • Page 10
    ... and Managing Director Chrysalis Ventures, LLC Michael B. McCallister President and Chief Executive Officer Humana Inc. James J. O'Brien Chairman of the Board and Chief Executive Officer Ashland Inc. William J. McDonald Executive Vice President Brand Management Capital One Financial Corporation...

  • 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
    ... Qualitative Disclosures about Market Risk Financial Statements and Supplementary Data Changes in and Disagreements with Accountants on Accounting and Financial Disclosure Controls and Procedures Other Information Part III Directors, Executive Officers and Corporate Governance Executive Compensation...

  • Page 13
    ...military services contracts. Under our Medicare Advantage CMS contracts in Florida, we provide health insurance coverage to approximately 377,900 members as of December 31, 2009. Humana Inc. was organized as a Delaware corporation in 1964. Our principal executive offices are located at 500 West Main...

  • Page 14
    ... and administrative services only, or ASO, fees by product for the year ended December 31, 2009: Percent of Total Premiums and ASO Fees Medical Specialty Membership Membership Premiums ASO Fees (dollars in thousands) Total Premiums and ASO Fees Government: Medicare Advantage: HMO ...PFFS ...PPO...

  • Page 15
    ...their health care decisions, disease management programs, wellness and prevention programs and, in some instances, a reduced monthly Part B premium. Since 2006, Medicare beneficiaries have had more health plan options, including a prescription drug benefit option. Most Medicare Advantage plans offer...

  • Page 16
    ...of our total premiums and ASO fees for the year ended December 31, 2009. Under our Medicare Advantage contracts with CMS in Florida, we provided health insurance coverage to approximately 377,900 members. These contracts accounted for premium revenues of approximately $5.2 billion, which represented...

  • Page 17
    ... premiums and ASO fees for the year ended December 31, 2009, consists of contracts in Puerto Rico and Florida, with the vast majority in Puerto Rico. Military Services Under our TRICARE South Region contract with the United States Department of Defense, or DoD, we provide health insurance coverage...

  • Page 18
    ... employer, pays a monthly fee, which generally covers, together with some copayments, health care services received from, or approved by, the member's primary care physician. We participate in the Federal Employee Health Benefits Program, or FEHBP, primarily with our HMO offering in certain markets...

  • Page 19
    ... aggregate annual costs. For the year ended December 31, 2009, commercial ASO fees totaled $373.4 million, or 1.2% of our total premiums and ASO fees. Specialty We also offer various specialty products, including dental, vision, and other supplemental products as well as disease management services...

  • Page 20
    ... our total medical membership at December 31, 2009, by market and product: Government Commercial Medicare Medicare stand-alone Military Advantage PDP Medicaid services PPO HMO ASO (in thousands) Total Percent of Total Florida ...Kentucky ...Texas ...Puerto Rico ...Illinois ...Ohio ...Wisconsin...

  • Page 21
    ... profitability and is computed by taking total 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...

  • Page 22
    ... 31, 2009 and 2008: Government Segment Medicare Military Medicare stand-alone Military Services Total Advantage PDP services ASO Medicaid Segment Medical Membership: December 31, 2009 Capitated HMO hospital system based ...31,000 Capitated HMO physician group based ...50,200 Risk-sharing ...285...

  • Page 23
    ..., or NCQA, to evaluate health plans based on various criteria, including effectiveness of care and member satisfaction. Physicians participating in our networks must satisfy specific criteria, including licensing, patient access, office standards, after-hours coverage, and other factors. Most...

  • Page 24
    ... or prior medical history. Competition The health benefits industry is highly competitive. Our competitors vary by local market and include other managed care companies, national insurance companies, and other HMOs and PPOs, including HMOs and PPOs owned by Blue Cross/Blue Shield plans. Many of...

  • Page 25
    ... 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 relations, marketing, insurance, purchasing, risk management...

  • Page 26
    ...policies including life insurance, annuities, health, and long-term care policies sold to individuals for which some of the premium received in the earlier years is intended to pay anticipated benefits to be incurred in future years. These future policy benefit reserves are recognized on a net level...

  • Page 27
    ... policy benefits payable include $571.9 million at December 31, 2009 associated with a closed block of long-term care policies acquired in connection with the November 30, 2007 KMG acquisition. Long-term care policies provide for long-duration coverage and, therefore, our actual claims experience...

  • Page 28
    ...-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. The growth of our Medicare business...

  • Page 29
    ... denial of health care benefit payments; claims relating to the denial or rescission of insurance coverage; challenges to the use of some software products used in administering claims; claims relating to our administration of our Medicare Part D offerings; medical malpractice actions based on our...

  • Page 30
    ... relates to federal and state government health care coverage programs, including the Medicare, Military, and Medicaid programs. Our Government segment accounted for approximately 75% of our total premiums and ASO fees for the year ended December 31, 2009. These programs involve various risks, as...

  • Page 31
    ... provided health insurance coverage to approximately 349,900 Medicaid members in Puerto Rico. These contracts accounted for approximately 2% of our total premiums and ASO fees for the year ended December 31, 2009. Our Medicaid contracts with the PRHIA for the East and Southeast regions were extended...

  • Page 32
    ... our expenses associated with the non-deductible excise tax, financial position, including goodwill recoverability, and cash flows. • Our CMS contracts which cover members' prescription drugs under Medicare Part D contain provisions for risk sharing and payments for prescription drug costs for...

  • Page 33
    ... the event the settlement represents an amount we owe CMS. In addition, the health care industry in general and health insurance, particularly HMOs and PPOs, are subject to substantial federal and state government regulation: Medicare Improvements for Patients and Providers Act of 2008 The enactment...

  • Page 34
    ... benefits and processes, entry, withdrawal or re-entry into a state or market, 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...

  • Page 35
    .... In 2008, we acquired UnitedHealth Group's Las Vegas, Nevada individual SecureHorizons Medicare Advantage HMO business, OSF Health Plans, Inc., Metcare Health Plans, Inc., and PHP Companies, Inc. (d/b/a Cariten Healthcare), and in late 2007, we acquired KMG America Corporation and CompBenefits...

  • Page 36
    ... and state proposals have sought to change the basis for calculating payment of certain drugs by the Medicare and Medicaid programs. Adoption of ASP in lieu of AWP as the measure for determining payment by Medicare or Medicaid programs for the drugs sold in our mail-order pharmacy business may...

  • Page 37
    ... that provide us with purchase discounts and volume rebates on certain prescription drugs dispensed through our mail-order and specialty pharmacies. These discounts and volume rebates are generally passed on to clients in the form of steeper price discounts. Changes in existing federal or state laws...

  • Page 38
    ... economy may 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
    ...issues and market developments generally in the insurance industry and in the regulatory environment may have caused this volatility. Our stock price has fluctuated and may continue to materially fluctuate in response to a number of events and factors, including the potential for health care reform...

  • 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, all...

  • Page 41
    ...that the number of shares of our common stock purchased by participants under the Humana Retirement and Savings Plan may have exceeded the number of shares registered under the registration statement covering the Plan, and shares purchased under the Humana Puerto Rico 1165(e) Retirement Plan may not...

  • Page 42
    ... open market, by block purchases, or in privately-negotiated transactions, subject to certain restrictions on volume, pricing and timing. We have not yet repurchased any shares under the December 2009 authorization. In connection with employee stock plans, we acquired 0.6 million common shares for...

  • 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
    ... million members in our specialty products. We manage our business with two segments: Government and Commercial. The Government segment consists of beneficiaries of government benefit programs, and includes three lines of business: Medicare, Military, and Medicaid. The Commercial segment consists of...

  • Page 45
    ... Advantage premium revenues have increased 19.1% to $16.4 billion for 2009 from $13.8 billion for 2008. Recently the mix of sales has shifted increasingly to our network-based PPO offerings, which is particularly important given the enactment of the Medicare Improvements for Patients and Providers...

  • Page 46
    ... ratio pattern. Our military services business primarily consists of the TRICARE South Region contract which covers benefits for healthcare services provided to beneficiaries through March 31, 2010. On December 16, 2009, we were notified by Department of Defense TRICARE Management Activity, or TMA...

  • Page 47
    ... with administrative costs associated with increased business for our mail-order pharmacy, led to a higher Commercial segment SG&A expense ratio. We expect Commercial segment medical membership to decline by 160,000 to 180,000 members in 2010. Financial Position At December 31, 2009, cash, cash...

  • Page 48
    .... The acquisition expanded our Medicare HMO membership in central Florida, adding approximately 7,300 members. On May 22, 2008, we acquired OSF Health Plans, Inc., or OSF, a managed care company serving both Medicare and commercial members in central Illinois, for cash consideration of approximately...

  • Page 49
    ...: 2009 2008 (dollars in thousands) 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...

  • Page 50
    ... Advantage ...Medicare stand-alone PDP ...Total Medicare ...Military services ...Military services ASO ...Total military services ...Medicaid ...Medicaid ASO ...Total Medicaid ...Total Government ...Commercial segment: Fully-insured ...ASO ...Total Commercial ...Total medical membership ...Specialty...

  • Page 51
    ... employers reduce their workforce levels. Administrative Services Fees Our administrative services fees were $496.1 million for 2009, an increase of $44.2 million, or 9.8%, from $451.9 million for 2008, primarily due to an increase in per member fees, partially offset by a decline in Commercial ASO...

  • Page 52
    ... increase primarily was due to administrative costs associated with increased business for our mailorder pharmacy and higher average individual product membership. Average individual product membership increased 17.6% during 2009 compared to 2008. Individual accounts bear a higher SG&A expense ratio...

  • Page 53
    ... 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 before income taxes...

  • Page 54
    ... Advantage ...Medicare stand-alone PDP ...Total Medicare ...Military services ...Military services ASO ...Total military services ...Medicaid ...Medicaid ASO ...Total Medicaid ...Total Government ...Commercial segment: Fully-insured ...ASO ...Total Commercial ...Total medical membership ...Specialty...

  • Page 55
    ... December 31, 2007. Commercial segment premium revenues increased $0.9 billion, or 14.5%, to $7.1 billion for 2008 primarily 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...

  • Page 56
    ... 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. Our Government and Commercial segments bear...

  • Page 57
    ... Medicare stand-alone PDPs as discussed previously. Comparisons of our operating cash flows also are impacted by other changes in our working capital. The most significant drivers of changes in our working capital are typically the timing of receipts for premiums and ASO fees and payments of benefit...

  • Page 58
    ... base receivables consist of estimated claims 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...

  • Page 59
    ... 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. In addition to the timing of receipts for premiums and ASO fees and payments of benefit...

  • Page 60
    ... December 31, 2009. On December 10, 2009 (announced December 11, 2009), the Board of Directors renewed its $250 million authorization through December 31, 2011. Under this authorized share repurchase program, shares may be purchased from time to time at prevailing prices in the open market, by block...

  • Page 61
    ...Other long-term borrowings of $37.5 million at December 31, 2009 represent junior subordinated debt assumed in the 2007 KMG acquisition of $36.1 million and financing for the renovation of a building of $1.4 million. The junior subordinated debt, which is due in 2037, may be called by us in 2012 and...

  • Page 62
    ... to December 31, 2009 as follows: Payments Due by Period Less than 1 Year 1-3 Years 3-5 Years (in thousands) More than 5 Years Total Debt ...Interest(1) ...Operating leases(2) ...Purchase obligations(3) ...Future policy benefits payable and other long-term liabilities(4) ...Total ... $1,587,528...

  • Page 63
    ...Management and Others." Government Contracts Our Medicare business, which accounted for approximately 62% of our total premiums and ASO fees for the year ended December 31, 2009, primarily consisted of products covered under the Medicare Advantage and Medicare Part D Prescription Drug Plan contracts...

  • Page 64
    ... total premiums and ASO fees for the year ended December 31, 2009, consists of contracts in Puerto Rico and Florida, with the vast majority in Puerto Rico. Our Medicaid contracts with the Puerto Rico Health Insurance Administration, or PRHIA, for the East and Southeast regions were extended through...

  • Page 65
    ... reduce the health care costs associated with these programs may have a material adverse effect on our results of operations, financial position, and cash flows. In July 2009, we were notified by the Department of Defense that we were not awarded the third generation TRICARE program contract for the...

  • Page 66
    ... of recent hospital and drug utilization data, provider contracting changes, changes in benefit levels, changes in member cost sharing, changes in medical management processes, product mix, and weekday seasonality. The completion factor method is used for the months of incurred claims prior to...

  • Page 67
    ... the most recent three months. (c) The factor change indicated represents the percentage point change. The following table provides a historical perspective regarding the accrual and payment of our benefits payable, excluding military services. Components of the total incurred claims for each year...

  • Page 68
    ...the last three years include lower than originally estimated utilization of hospital and physician services for both our Commercial and Medicare lines of business, as well as rapid growth in our Medicare Advantage and Commercial high deductible products in new geographic areas which resulted in more...

  • Page 69
    ... 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 70
    ... cover 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 revenues...

  • Page 71
    ... accepted by CMS. Military services In 2009, military services revenues represented approximately 12% of total premiums and administrative services fees. Military services revenue primarily is derived from our TRICARE South Region contract with the Department of Defense. The single TRICARE contract...

  • Page 72
    ... as an increase in benefit expenses. We continually review these benefit expense estimates of future payments to the government for cost overruns and make necessary adjustments to our reserves. The military services contracts contain provisions to negotiate change orders. Change orders occur when we...

  • Page 73
    ...898) $2,922,465 $(78,351) In April 2009, the Financial Accounting Standards Board, or the FASB, issued new guidance to address concerns about (1) measuring the fair value of financial instruments when the markets become inactive and quoted prices may reflect distressed transactions and (2) recording...

  • Page 74
    ...its subsidiaries, which filed for bankruptcy protection in 2008, as well as declines in the values of securities primarily associated with the financial services industry. Goodwill and Long-lived Assets At December 31, 2009, goodwill and other long-lived assets represented 21% of total assets and 50...

  • Page 75
    ... the contract award. Our current TRICARE South Region contract covers benefits for healthcare services provided to beneficiaries through March 31, 2010. On December 16, 2009, we were notified by TMA that it intends to exercise its options to extend the TRICARE South Region contract for Option Period...

  • Page 76
    ... no impairment losses in the last three years. Long-lived assets associated with our military services business are not material. Recently Issued Accounting Pronouncements Financial Instruments In January 2010, the FASB issued new guidance that expands and clarifies existing disclosures about fair...

  • Page 77
    ...The modeling technique used to calculate the pro forma net change in pretax earnings considered the cash flows related to fixed income investments and debt, which are subject to interest rate changes during a prospective twelve-month period. This evaluation measures parallel shifts in interest rates...

  • Page 78
    ... payable ...Unearned revenues ...Total current liabilities ...Long-term debt ...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...

  • Page 79
    Humana Inc. CONSOLIDATED STATEMENTS OF INCOME For the year ended December 31, 2009 2008 2007 (in thousands, except per share results) Revenues: Premiums ...Administrative services fees ...Investment income ...Other revenue ...Total revenues ...Operating expenses: Benefits ...Selling, general and ...

  • Page 80
    ... net realized losses included in net earnings, net of tax benefit of $29,090 ...- - - - Comprehensive income ...Common stock repurchases ...Stock-based compensation ...Restricted stock grants ...Restricted stock forfeitures ...Stock option exercises ...Stock option and restricted stock tax benefit...

  • Page 81
    ...and equipment, net ...Benefit from deferred income taxes ...Provision for doubtful accounts ...Changes in operating assets and liabilities, net of effect of businesses acquired: Receivables ...Other assets ...Benefits payable ...Other liabilities ...Unearned revenues ...Other ...Net cash provided by...

  • Page 82
    ... government contracts with the Centers for Medicare and Medicaid Services, or CMS, we provide health insurance coverage for Medicare Advantage members in Florida, accounting for approximately 17% of our total premiums and administrative services fees in 2009. CMS is the federal government's agency...

  • Page 83
    ... impairment, or OTTI. In April 2009, the Financial Accounting Standards Board, or the FASB, issued new guidance to address concerns about (1) measuring the fair value of financial instruments when the markets become inactive and quoted prices may reflect distressed transactions and (2) recording...

  • Page 84
    ... 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 85
    ... to beneficiaries which are in turn reimbursed by the federal government; and (3) administrative services 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...

  • Page 86
    ...STATEMENTS-(Continued) Administrative services fees are recognized as revenue in the period services are performed. Our TRICARE South Region contract contains provisions to share the risk associated with financing the cost of health benefits with the federal government. We earn more revenue or incur...

  • Page 87
    ... under our long-lived asset policy. Benefits Payable and Benefit Expense Recognition Benefit expenses include claim payments, capitation payments, pharmacy costs net of rebates, allocations of certain centralized expenses and various other costs incurred to provide health insurance coverage to...

  • Page 88
    Humana Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) 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. Receivables for...

  • Page 89
    ... value of stock options using the Black-Scholes option-pricing model. In addition, we report certain tax effects of stock-based compensation as a financing activity rather than an operating activity in the consolidated statement of cash flows. Additional detail regarding our stock-based compensation...

  • Page 90
    ...pricing models, discounted cash flow methodologies, or similar techniques reflecting our own assumptions about the assumptions market participants would use as well as those requiring significant management judgment. Fair value of actively traded debt and equity securities are based on quoted market...

  • Page 91
    ... central Florida. On May 22, 2008, we acquired OSF Health Plans, Inc., or OSF, a managed care company serving both Medicare and commercial members in central Illinois, for cash consideration of approximately $87.3 million, including the payment of $3.3 million during 2009 to settle a purchase price...

  • Page 92
    ... provides dental and vision insurance benefits. The acquisition expanded our commercial product offerings allowing for significant cross-selling opportunities with our medical insurance products. The total consideration paid exceeded our estimated fair value of the net tangible assets acquired...

  • Page 93
    ... U.S. government corporations and agencies: U.S. Treasury and agency obligations ...Mortgage-backed securities ...Tax-exempt municipal securities ...Mortgage-backed securities: Residential ...Commercial ...Asset-backed securities ...Corporate debt securities ...Redeemable preferred stock ...Total...

  • Page 94
    ... end of the below investment-grade rating scale. At December 31, 2009, 16% of our tax-exempt municipal securities were pre-refunded, generally with U.S. government and agency securities, and 26% of our tax-exempt securities were insured by bond insurers and have an equivalent S&P credit rating of...

  • Page 95
    ... collateral consisting of prime loans. All commercial mortgage-backed securities are rated AAA at December 31, 2009. All issuers of securities we own trading at an unrealized loss remain current on all contractual payments. After taking into account these and other factors previously described, we...

  • Page 96
    ... Quoted Prices in Active Markets Significant Other Significant for Identical Observable Unobservable Assets Inputs Inputs (Level 1) (Level 2) (Level 3) (in thousands) Fair Value December 31, 2009 Cash equivalents ...$1,507,490 Debt securities: U.S. Treasury and other U.S. government corporations...

  • Page 97
    ... be estimated based on observable market prices and as such unobservable inputs were used. 6. MEDICARE PART D As discussed in Note 2, we cover prescription drug benefits in accordance with Medicare Part D under multiple contracts with CMS. In 2009, we received net proceeds of $59.6 million related...

  • Page 98
    ... $1,992,924 Other intangible assets primarily relate to acquired customer contracts and are included with other long-term assets in the consolidated balance sheets. Amortization expense for other intangible assets was approximately $37.3 million in 2009, $37.1 million in 2008 and $22.4 million in...

  • Page 99
    ... of business, rapid growth in our Medicare Advantage and Commercial high deductible products in new geographic areas which resulted in more limited historical information from which to base trend rate estimates, as well as a shortening of the cycle time associated with provider claim submissions and...

  • Page 100
    Humana Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) Military services benefits payable of $279.2 million and $306.8 million at December 31, 2009 and 2008, respectively, primarily consisted of our estimate of incurred healthcare services provided to beneficiaries which are in turn ...

  • Page 101
    ...taxable 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 2009, the Internal Revenue Service (IRS) completed...

  • Page 102
    ... associated with the completion of the audit of our U.S. income tax returns for 2005 and 2006, reduced tax expense $16.8 million in 2009. As of December 31, 2009, we do not have material uncertain tax positions reflected in our consolidated balance sheet. 11. DEBT The carrying value of long-term...

  • Page 103
    ... by the building, and is payable in various installments through 2014. Fair Value The fair value of our long-term debt was $1,596.4 million and $1,503.4 million at December 31, 2009 and 2008, respectively. The fair value of our long-term debt is determined based on quoted market prices for the...

  • Page 104
    ... to the extent it was deductible for federal income tax purposes. The Company's cash match is invested pursuant to the participant's contribution direction. Based on the closing stock price of $43.89 on December 31, 2009, approximately 15% of the retirement and savings plan's assets were invested in...

  • Page 105
    ... 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 106
    ...equal to the market price of our common stock on the date of grant. Compensation expense is recorded straight-line over the vesting period, generally three years from the date of grant. For restricted stock awards granted on or after January 1, 2010 to retirement eligible employees, the compensation...

  • Page 107
    ... December 31, 2009. On December 10, 2009 (announced December 11, 2009), the Board of Directors renewed its $250 million authorization through December 31, 2011. Under this authorized share repurchase program, shares may be purchased from time to time at prevailing prices in the open market, by block...

  • Page 108
    ... with employee stock plans, we acquired 0.6 million common shares for $22.8 million and 0.2 million common shares for $13.3 million during the years ended December 31, 2009 and 2008, respectively. Regulatory Requirements Certain of our subsidiaries operate in states that regulate the payment of...

  • Page 109
    ...% of our total premiums and ASO fees for the year ended December 31, 2009, 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...

  • Page 110
    ... total premiums and ASO fees for the year ended December 31, 2009, consists of contracts in Puerto Rico and Florida, with the vast majority in Puerto Rico. Our Medicaid contracts with the Puerto Rico Health Insurance Administration, or PRHIA, for the East and Southeast regions were extended through...

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    ... TRICARE program contract for the South Region which had been subject to competing bids. We filed a protest with the Government Accountability Office, or GAO, in connection with the award to another contractor citing discrepancies between the award criteria and procedures prescribed in the request...

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    ... 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...

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    ...2009, the Office of Inspector General (OIG) of the United States Department of Health and Human Services issued subpoenas to us and our subsidiary, Humana Pharmacy, Inc., seeking documents related to our Medicare Part D prescription plans and the operation of RightSourceRxSM, our mail order pharmacy...

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    ... 31, 2009, 2008, and 2007: 2009 Government Segment 2008 (in thousands) 2007 Revenues: Premiums: Medicare Advantage ...Medicare stand-alone PDP ...Total Medicare ...Military services ...Medicaid ...Total premiums ...Administrative services fees ...Investment income ...Other revenue ...Total revenues...

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    ... CONSOLIDATED FINANCIAL STATEMENTS-(Continued) 2009 Commercial Segment 2008 (in thousands) 2007 Revenues: Premiums: Fully-insured: PPO ...$3,188,598 HMO ...2,996,560 Total fully-insured ...6,185,158 Specialty ...927,940 Total premiums ...7,113,098 Administrative services fees ...387,693 Investment...

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    ... at December 31, 2009 presented below: Reinsurer Total Recoverable (in thousands) A.M. Best Rating at December 31, 2009 Protective Life Insurance Company ...All others ... $204,853 173,423 $378,276 A+ (superior) A++ to A-(superior to excellent) The all other category represents approximately 20...

  • Page 117
    ... 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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    ... FINANCIAL INFORMATION (Unaudited) A summary of our quarterly unaudited results of operations for the years ended December 31, 2009 and 2008 follows: First 2009 Second Third Fourth (in thousands, except per share results) Total revenues ...Income before income taxes ...Net income ...Basic earnings...

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    ... preparation of financial statements in accordance 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 109

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    ... to materially affect, the Company's internal control over financial reporting. Michael B. McCallister President and Chief Executive Officer James H. Bloem Senior Vice President, Chief Financial Officer and Treasurer Steven E. McCulley Vice President and Controller, Principal Accounting Officer 110

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    ... Vice President-Chief Service and Information Officer Senior Vice President-Chief Human Resources Officer Senior Vice President-Chief Strategy Officer Senior Vice President-Senior Products Senior Vice President-Chief Innovation and Marketing Officer Senior Vice President-Government Relations Senior...

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    .... All employees and directors are required to annually affirm in writing their acceptance of the code. The Humana Inc. Principles of Business Ethics was adopted by our Board of Directors in February 2004 as the document to comply with the New York Stock Exchange Corporate Governance Standard 303A...

  • Page 123
    ...); our Corporate Governance Guidelines; our Insider Trading Policy; stock ownership guidelines for directors and for executive officers; the Humana Inc. Principles of Business Ethics and any waivers thereto; and the Code of Ethics for the Chief Executive Officer and Senior Financial Officers and any...

  • Page 124
    ...Statement for the Annual Meeting of Stockholders scheduled to be held on April 20, 2010 appearing under the captions "Certain Transactions with Management and Others" and "Independent Directors" of such Proxy Statement. ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES The information required by this...

  • Page 125
    .... Other long-term indebtedness of Humana Inc. is described herein in Note 11 to Consolidated Financial Statements. Humana Inc. agrees to furnish copies of all such instruments defining the rights of the holders of such indebtedness not otherwise filed as an Exhibit to this Annual Report on Form 10...

  • Page 126
    ...Report on Form 8-K filed on August 26, 2004). Form of Company's Stock Option Agreement under the 1996 Stock Incentive Plan for Employees (Incentive Stock Options) (incorporated herein by reference to Exhibit 10(b) to Humana Inc.'s Current Report on Form 8-K filed on August 26, 2004). Form of Company...

  • Page 127
    ... 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 March 3, 2009). (cc) Form of CMS Coordinated Care Plan...

  • Page 128
    ... 2005). Explanatory Note regarding Medicare 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). Form of Company's Restricted Stock Unit Agreement with Non...

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    provisions of the federal securities laws as long as we have made a good faith attempt to comply with the submission requirements and promptly amend the interactive data files after becoming aware that the interactive data files fail to comply with the submission requirements. Users of this data are...

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    ...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; 189,801,119 shares issued in 2009 and 187,856,684 shares issued...

  • Page 131
    Humana Inc. SCHEDULE I-PARENT COMPANY FINANCIAL INFORMATION CONDENSED STATEMENTS OF OPERATIONS For the year ended December 31, 2009 2008 2007 (in thousands) Revenues: Management fees charged to operating subsidiaries ...Investment and other income, net ...Expenses: Selling, general and ...

  • Page 132
    ... 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 ...Increase (decrease) in cash and cash equivalents ...Cash and...

  • Page 133
    ..., if required, by 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...

  • Page 134
    ... SecureHorizons Medicare Advantage HMO business with contributions from Humana Inc., our parent company, of $225.0 million, included in capital contributions in the condensed statement of cash flows. Refer to Note 3 of the notes to consolidated financial statements in the Annual Report on Form 10...

  • Page 135
    Humana Inc. SCHEDULE II-VALUATION AND QUALIFYING ACCOUNTS For the Years Ended December 31, 2009, 2008, and 2007 (in thousands) Additions Charged Balance at (Credited) to Charged to Deductions Balance at Beginning Acquired Costs and Other or End of of Period Balances Expenses Accounts (1) Write-offs ...

  • Page 136
    ... 13 or 15(d) of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned, thereto duly authorized. HUMANA INC. By: /s/ JAMES H. BLOEM James H. Bloem Senior Vice President, Chief Financial Officer and Treasurer (Principal Financial...

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    ...Humana Building • 500 West Main Street • Louisville, KY 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 Internet site at Humana...

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    Cert no. SCS-COC-000648