Humana 2009 Annual Report Download - page 55

an increase in per member premiums partially offset by a decrease in our Medicare stand-alone PDP
membership. Average Medicare Advantage membership increased 18.7% in 2008 compared to 2007. Sales of our
PPO and PFFS products drove the majority of the 292,900 increase in Medicare Advantage members since
December 31, 2007. The Cariten, OSF, SecureHorizons, and Metcare acquisitions also added 94,900 Medicare
HMO and PPO members. Medicare Advantage per member premiums increased 3.9% during 2008 compared to
2007. Medicare stand-alone PDP premium revenues decreased 7.9% during the 2008 period compared to the
2007 period, primarily due to a 375,400, or 10.9%, decrease in PDP membership since 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 fourth quarter of 2007, as well as strategic
line-of-business organic growth. Our fully-insured membership increased 9.4%, or 170,200 members, to
1,978,800 at December 31, 2008 compared to 1,808,600 at December 31, 2007. Excluding 83,100 fully-insured
members added with the acquisitions of Cariten and OSF, the increase primarily was due to membership gains in
Smart products and other consumer offerings, individual, and small group product lines.
Administrative Services Fees
Our administrative services fees were $451.9 million for 2008, an increase of $60.4 million, or 15.4%, from
$391.5 million for 2007, primarily due to higher rates, a shift in the mix of Commercial segment membership
towards higher rate groups, and the impact from acquisitions.
Investment Income
Investment income totaled $220.2 million for 2008, a decrease of $94.0 million from $314.2 million for
2007, primarily reflecting other-than-temporary impairments in our investment and securities lending portfolios
of $103.1 million recorded during 2008. Of the $103.1 million, $48.5 million was allocated to the Government
segment and $54.6 million was allocated to the Commercial segment. Excluding these realized losses, investment
income increased primarily due to higher average invested balances and net realized capital gains, partially offset
by lower interest rates. Higher average invested balances primarily resulted from the reinvestment of operating
cash flow and the acquired investment portfolio related to the KMG acquisition.
Other Revenue
Other revenue totaled $209.4 million for 2008, an increase of $59.5 million from $149.9 million for 2007.
The increase primarily was attributable to increased revenue from growth related to RightSourceRxSM, our mail-
order pharmacy.
Benefit Expenses
Consolidated benefit expense was $23.7 billion for 2008, an increase of $3.4 billion, or 17.0%, from $20.3
billion for 2007. The increase primarily was driven by an increase in Government segment benefit expense.
The consolidated benefit ratio for 2008 was 84.5%, a 150 basis point increase from 83.0% for 2007. The
increase primarily was attributable to a higher Government segment benefit ratio.
The Government segment’s benefit expenses increased $2.7 billion, or 17.9%, during 2008 compared to
2007 primarily due to an increase in the average number of Medicare Advantage members. The Government
segment’s benefit ratio for 2008 was 85.9%, a 210 basis point increase from 2007 of 83.8% primarily due to a
higher Medicare stand-alone PDP benefit ratio from higher prescription drug utilization and an increase in the
percentage of higher cost members in our Medicare stand-alone prescription drug plans.
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