Humana 2009 Annual Report Download - page 97

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Humana Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
During the years ended December 31, 2009 and 2008, the changes in the fair value of the assets measured
using significant unobservable inputs (Level 3) were comprised of the following:
2009 2008
(in thousands)
Beginning balance at January 1 ...................................... $91,926 $ 18,698
Total gains or losses:
Realized in earnings ....................................... 90 (3,410)
Unrealized in other comprehensive income ..................... 4,651 1,080
Purchases, sales, issuances, and settlements, net ......................... (7,227) (19,965)
Transfers into Level 3 ............................................. 3,283 95,523
Balance at December 31 ........................................... $92,723 $ 91,926
Level 3 assets primarily include auction rate securities. Auction rate securities are debt instruments with
interest rates that reset through periodic short-term auctions. The auction rate securities we own, which had a fair
value of $68.8 million at December 31, 2009, or less than 1% of our total invested assets, primarily consist of
tax-exempt bonds rated AAA and AA and collateralized by federally guaranteed student loans. Liquidity issues
in the global credit markets led to failed auctions. A failed auction is not a default of the debt instrument, but
does set a new, generally higher interest rate in accordance with the original terms of the debt instrument.
Liquidation of auction rate securities results when (1) a successful auction occurs, (2) the securities are called or
refinanced by the issuer, (3) a buyer is found outside the auction process, or (4) the security matures. We
continue to receive income on all auction rate securities and from time to time full and partial redemption calls.
Given the liquidity issues, fair value could not 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 to our reconciliation
with CMS regarding the 2008 Medicare Part D risk corridor provisions compared to our estimate of $55.4
million at December 31, 2008. The consolidated balance sheets include the following amounts associated with
Medicare Part D as of December 31, 2009 and 2008:
2009 2008
Risk
Corridor
Settlement
CMS
Subsidies
Risk
Corridor
Settlement
CMS
Subsidies
(in thousands)
Other current assets .................................... $ 2,165 $ 11,660 $ 78,728 $322,108
Trade accounts payable and accrued expenses ............... (146,750) (402,854) (23,311) (219,676)
Net current (liability) asset .......................... $(144,585) $(391,194) $ 55,417 $102,432
87