Humana 2010 Annual Report Download - page 126

Humana Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Commercial Segment
2010 2009 2008
(in thousands)
Revenues:
Premiums:
Fully-insured:
PPO .......................................... $2,887,860 $3,188,598 $3,582,692
HMO ......................................... 3,026,182 2,996,560 2,586,711
Total fully-insured ........................... 5,914,042 6,185,158 6,169,403
Specialty .......................................... 1,005,993 927,940 927,237
Total premiums ............................. 6,920,035 7,113,098 7,096,640
Administrative services fees ............................... 393,052 387,693 366,011
Investment income ...................................... 116,018 117,176 105,053
Other revenue .......................................... 312,363 237,502 207,652
Total revenues .............................. 7,741,468 7,855,469 7,775,356
Operating expenses:
Benefits ............................................... 5,442,038 5,736,579 5,700,326
Selling, general and administrative .......................... 2,060,062 1,867,359 1,721,499
Depreciation and amortization ............................. 112,023 110,546 96,256
Total operating expenses ...................... 7,614,123 7,714,484 7,518,081
Income from operations ...................................... 127,345 140,985 257,275
Interest expense ............................................. 25,766 36,831 49,667
Income before income taxes ................................... $ 101,579 $ 104,154 $ 207,608
Commercial segment benefit expense for 2010 includes $48.8 million related to prior year favorable reserve
releases not in the ordinary course of business as discussed more fully in Note 9, as well as $138.9 million for
reserve strengthening associated with our closed block of long-term care policies as discussed more fully in Note
18. In addition, Commercial segment selling, general and administrative expense includes $147.5 million for the
write-down of deferred acquisition costs associated with our individual major medical policies as discussed more
fully in Note 18.
18. EXPENSES ASSOCIATED WITH LONG-DURATION INSURANCE PRODUCTS
Premiums associated with our long-duration insurance products accounted for approximately 2% of our
total premiums and ASO fees for the year ended December 31, 2010. We use long-duration accounting for
products such as long-term care, life insurance, annuities, and certain health and other supplemental policies sold
to individuals because they are expected to remain in force for an extended period beyond one year and because
premium received in the earlier years is intended to pay anticipated benefits to be incurred in future years.As a
result, we defer policy acquisition costs and amortize them over the estimated life of the policies in proportion to
premiums earned.
In addition, we establish reserves for future policy benefits in recognition of the fact that some of the
premium received in the earlier years is intended to pay anticipated benefits to be incurred in future years. These
reserves are recognized on a net level premium method based on interest rates, mortality, morbidity, withdrawal
and maintenance expense assumptions from published actuarial tables, modified based upon actual experience.
The assumptions used to determine the liability for future policy benefits are established and locked in at the time
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