Humana 2009 Annual Report Download - page 109

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Humana Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Purchase Obligations
We have agreements to purchase services, primarily information technology related services, or to make
improvements to real estate, in each case that are enforceable and legally binding on us and that specify all
significant terms, including: fixed or minimum levels of service to be purchased; fixed, minimum or variable
price provisions; and the appropriate timing of the transaction. We have purchase obligation commitments of
$65.9 million in 2010, $41.8 million in 2011, $16.0 million in 2012, $11.6 million in 2013, and $4.1 million
thereafter. Purchase obligations exclude agreements that are cancelable without penalty.
Off-Balance Sheet Arrangements
As part of our ongoing business, we do not participate or knowingly seek to participate in transactions that
generate relationships with unconsolidated entities or financial partnerships, such as entities often referred to as
structured finance or special purpose entities (SPEs), which would have been established for the purpose of
facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. As of
December 31, 2009, we are not involved in any SPE transactions.
Guarantees and Indemnifications
Through indemnity agreements approved by the state regulatory authorities, certain of our regulated
subsidiaries generally are guaranteed by Humana Inc., our parent company, in the event of insolvency for
(1) member coverage for which premium payment has been made prior to insolvency; (2) benefits for members
then hospitalized until discharged; and (3) payment to providers for services rendered prior to insolvency. Our
parent also has guaranteed the obligations of our military services subsidiaries.
In the ordinary course of business, we enter into contractual arrangements under which we may agree to
indemnify a third party to such arrangement from any losses incurred relating to the services they perform on
behalf of us, or for losses arising from certain events as defined within the particular contract, which may
include, for example, litigation or claims relating to past performance. Such indemnification obligations may not
be subject to maximum loss clauses. Historically, payments made related to these indemnifications have been
immaterial.
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 with the federal government. These contracts are renewed
generally for a one-year term each December 31 unless CMS notifies us of its decision not to renew by August 1
of the calendar year in which the contract would end, or we notify CMS of our decision not to renew by the first
Monday in June of the calendar year in which the contract would end. All material contracts between Humana
and CMS relating to our Medicare business have been renewed for 2010.
CMS is continuing to perform audits of selected Medicare Advantage plans of various companies to validate
the provider coding practices and resulting economics under the actuarial risk-adjustment model used to calculate
the individual member capitation paid to Medicare Advantage plans. Several Humana contracts have been
selected by CMS for audit and we expect that CMS will continue conducting audits for the 2007 contract year
and beyond.
We generally rely on providers to appropriately document all medical data including risk-adjustment data in
their medical records and appropriately code their claim submissions, which we generally send to CMS as the
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