Humana 2010 Annual Report Download - page 78

interest rates and higher actual expenses as compared to acquisition date assumptions, we determined that our
existing future policy benefits payable, together with the present value of future gross premiums, associated with
our long-term care policies were not adequate to provide for future policy benefits under these policies; therefore
we unlocked and modified our assumptions based on current expectations. Accordingly, during the fourth quarter
of 2010 we recorded $138.9 million of additional benefit expense, with a corresponding increase in future policy
benefits payable of $170.3 million partially offset by a related reinsurance recoverable of $31.4 million included
in other long-term assets. In addition, future policy benefits payable include amounts of $218.9 million at
December 31, 2010 and $225.0 million at December 31, 2009 which are subject to 100% coinsurance agreements
as more fully described in Note 19 to the consolidated financial statements included in Item 8.—Financial
Statements and Supplementary Data, and as such are offset by a related reinsurance recoverable included in other
long-term assets.
Revenue Recognition
We generally establish one-year commercial membership contracts with employer groups, subject to
cancellation by the employer group on 30-day written notice. Our Medicare contracts with CMS renew annually.
Our military services contracts with the federal government and our contracts with various state Medicaid
programs generally are multi-year contracts subject to annual renewal provisions.
Our commercial contracts establish rates on a per member basis for each month of coverage. Our Medicare
and Medicaid contracts also establish monthly rates per member. However, our Medicare contracts also have
additional provisions as outlined in the following separate section.
Premium revenues and ASO fees are estimated by multiplying the membership covered under the various
contracts by the contractual rates. In addition, we adjust revenues for estimated changes in an employer’s
enrollment and individuals that ultimately may fail to pay, and beginning January 1, 2011, for estimated rebates
to policyholders under the minimum benefit ratios required under the Health Insurance Reform Legislation.
Enrollment changes not yet processed or not yet reported by an employer group or the government, also known
as retroactive membership adjustments, are estimated based on available data and historical trends. We routinely
monitor the collectibility of specific accounts, the aging of receivables, historical retroactivity trends, as well as
prevailing and anticipated economic conditions, and reflect any required adjustments in the current period’s
revenue.
We bill and collect premium and administrative fee remittances from employer groups and members in our
Medicare and individual products monthly. We receive monthly premiums and administrative fees from the
federal government and various states according to government specified payment rates and various contractual
terms. Changes in revenues from CMS for our Medicare products resulting from the periodic changes in risk-
adjustment scores for our membership are recognized when the amounts become determinable and the
collectibility is reasonably assured.
Medicare Part D Provisions
We cover prescription drug benefits in accordance with Medicare Part D under multiple contracts with
CMS. The payments we receive monthly from CMS and members, which are determined from our annual bid,
represent amounts for providing prescription drug insurance coverage. We recognize premium revenues for
providing this insurance coverage ratably over the term of our annual contract. Our CMS payment is subject to
risk sharing through the Medicare Part D risk corridor provisions. In addition, we receive and disburse amounts
for portions of prescription drug costs for which we are not at risk, as described more fully below.
The risk corridor provisions compare costs targeted in our bids to actual prescription drug costs, limited to
actual costs that would have been incurred under the standard coverage as defined by CMS. Variances exceeding
certain thresholds may result in CMS making additional payments to us or require us to refund to CMS a portion
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