Humana 2009 Annual Report Download - page 28

networks and building network-based plan offerings to address the adequate network requirement. We anticipate
these initiatives, together with certain counties’ exemption from the network requirement, to result in more than
95% of our PFFS members having the choice of remaining in a Humana plan in 2011. Over the last few years we
have increased the size of our Medicare geographic reach 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.
The growth of our Medicare business is an important part of our business strategy. Any failure to achieve
this growth may have a material adverse effect on our results of operations, financial position, or cash flows. In
addition, the expansion of our Medicare business in relation to our other businesses may intensify the risks to us
inherent in the Medicare business. There is significant concentration of our revenues in the Medicare business,
with approximately 62% of our total premiums and ASO fees in 2009 generated from our Medicare business.
These expansion efforts may result in less diversification of our revenue stream and increased risks associated
with operating in a highly regulated industry, as discussed further below.
Additionally, our strategy includes the growth of our Commercial segment business, with emphasis on our
ASO and individual products, introduction of new products and benefit designs, including our Smart products
and other consumer offerings such as HSAs, and our specialty products such as dental, vision and other
supplemental products, as well as the adoption of new technologies and the integration of acquired businesses
and contracts.
There can be no assurance that we will be able to successfully implement our operational and strategic
initiatives, including outsourcing certain business functions, that are intended to position us for future growth or
that the products we design will be accepted or adopted in the time periods assumed. Failure to implement this
strategy may result in a material adverse effect on our results of operations, financial position, and cash flows.
If we fail to properly maintain the integrity of our data, to strategically implement new information
systems, or to protect our proprietary rights to our systems, our business may be materially adversely affected.
Our business depends significantly on effective information systems and the integrity and timeliness of the
data we use to run our business. Our business strategy involves providing members and providers with easy to
use products that leverage our information to meet their needs. Our ability to adequately price our products and
services, provide effective and efficient service to our customers, and to timely and accurately report our
financial results depends significantly on the integrity of the data in our information systems. As a result of our
past and on-going acquisition activities, we have acquired additional information systems. We have been taking
steps to reduce the number of systems we operate, have upgraded and expanded our information systems
capabilities, and are gradually migrating existing business to fewer systems. Our information systems require an
ongoing commitment of significant resources to maintain, protect and enhance existing systems and develop new
systems to keep pace with continuing changes in information processing technology, evolving industry and
regulatory standards, and changing customer preferences. If the information we rely upon to run our businesses
was found to be inaccurate or unreliable or if we fail to maintain effectively our information systems and data
integrity, we could have operational disruptions, have problems in determining medical cost estimates and
establishing appropriate pricing, have customer and physician and other health care provider disputes, have
regulatory or other legal problems, have increases in operating expenses, lose existing customers, have difficulty
in attracting new customers, or suffer other adverse consequences.
We depend on independent third parties for significant portions of our systems-related support, equipment,
facilities, and certain data, including data center operations, data network, voice communication services and
pharmacy data processing. This dependence makes our operations vulnerable to such third parties’ failure to
perform adequately under the contract, due to internal or external factors. A change in service providers could
result in a decline in service quality and effectiveness or less favorable contract terms which may adversely affect
our operating results.
18