Humana 2010 Annual Report Download - page 18

Our Medicaid business, which accounted for premium revenues of approximately $723.6 million, or 2.2%,
of our total premiums and ASO fees for the year ended December 31, 2010, consists of contracts in Puerto Rico
and Florida, with the vast majority in Puerto Rico.
Military Services
Under our TRICARE South Region contract with the United States Department of Defense, or DoD, we
provide health insurance coverage to the dependents of active duty military personnel and to retired military
personnel and their dependents. Currently, three health benefit options are available to TRICARE beneficiaries.
In addition to a traditional indemnity option, participants may enroll in a HMO-like plan with a point-of-service
option or take advantage of reduced copayments by using a network of preferred providers, similar to a PPO.
We have participated in the TRICARE program since 1996 under contracts with the Department of Defense.
Our current TRICARE South Region contract, which we were awarded in 2003, covers approximately
3.0 million eligible beneficiaries as of December 31, 2010 in Florida, Georgia, South Carolina, Mississippi,
Alabama, Tennessee, Louisiana, Arkansas, Texas, and Oklahoma. The South Region is one of the three regions
in the United States as defined by the Department of Defense. Of these eligible beneficiaries, 1.3 million were
TRICARE ASO members representing active duty beneficiaries and seniors over the age of 65 for which the
Department of Defense retains all of the risk of financing the cost of their health benefit. We have subcontracted
with third parties to provide selected administration and specialty services under the contract. The original 5-year
South Region contract expired on March 31, 2009 and was extended through March 31, 2011. On October 5,
2010, we were notified that the Department of Defense TRICARE Management Activity, or TMA, intended to
negotiate with us for an extension of our administration of the TRICARE South Region contract, and on
January 6, 2011, an Amendment of Solicitation/Modification of Contract to the TRICARE South Region
contract, in the form of an undefinitized contract action, became effective. The Amendment adds one additional
one-year option period, Option Period IX (which runs from April 1, 2011 through March 31, 2012). The
Amendment does not include the costs of the underwritten target health care cost and underwritten health care
target fee, which will be negotiated separately. On January 21, 2011, the TMA notified us of their intent to
exercise Option Period IX.
As required under the current contract, the target underwritten health care cost and underwriting fee
amounts for Option Period IX will be negotiated separately. Any variance from the target health care cost is
shared with the federal government. Accordingly, events and circumstances not contemplated in the negotiated
target health care cost amount may have a material adverse effect on us. These changes may include an increase
or reduction in the number of persons enrolled or eligible to enroll due to the federal government’s decision to
increase or decrease U.S. military deployments.
In July 2009, we were notified by the Department of Defense that we were not awarded the third generation
TRICARE program contract for the South Region which had been subject to competing bids. We filed a protest
with the Government Accountability Office, or GAO, in connection with the award to another contractor citing
discrepancies between the award criteria and procedures prescribed in the request for proposals issued by the
DoD and those that appear to have been used by the DoD in making its contractor selection. In October 2009, we
learned that the GAO had upheld our protest, determining that the TMA evaluation of our proposal had
unreasonably failed to fully recognize and reasonably account for the likely cost savings associated with our
record of obtaining network provider discounts from our established network in the South Region. On
December 22, 2009, we were advised that TMA notified the GAO of its intent to implement corrective action
consistent with the discussion contained within the GAO’s decision with respect to our protest. On October 22,
2010, TMA issued its latest amendment to the request for proposal requesting from offerors final proposal
revisions to address, among other things, health care cost savings resulting from provider network discounts in
the South Region. We submitted our final proposal revisions on November 9, 2010. At this time, we are not able
to determine whether or not the protest decision by the GAO will have any effect upon the ultimate disposition of
the contract award.
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