Humana 2011 Annual Report Download - page 101

Humana Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Services Revenue
Patient services revenue
Patient services include workers’ compensation injury care and related services as well as other healthcare
services related to employer needs or statutory requirements. Patient services revenues are recognized in the
period services are provided to the customer when the sales price is fixed or determinable, and are net of
contractual allowances.
Administrative services fees
Administrative services fees cover the processing of claims, offering access to our provider networks and
clinical programs, and responding to customer service inquiries from members of self-funded groups. Revenues
from providing administration services, also known as administrative services only, or ASO, are recognized in
the period services are performed and are net of estimated uncollectible amounts. Under ASO contracts,
self-funded employers retain the risk of financing substantially all of the cost of health benefits. However, many
ASO customers purchase stop loss insurance coverage from us to cover catastrophic claims or to limit aggregate
annual costs. Accordingly, we have recorded premiums revenue and benefit expenses related to these stop loss
insurance contracts. We routinely monitor the collectibility of specific accounts, the aging of receivables, as well
as prevailing and anticipated economic conditions, and reflect any required adjustments in current operations.
ASO fees received prior to the service period are recorded as unearned revenues.
Receivables
Receivables, including premium receivables, patient services revenue receivables, and ASO fee receivables,
are shown net of allowances for estimated uncollectible accounts, retroactive membership adjustments, and
contractual allowances.
Policy Acquisition Costs
Policy acquisition costs are those costs that relate directly to the successful acquisition of new and renewal
business. Such costs include commissions, costs of policy issuance and underwriting, and other costs we incur to
acquire new business or renew existing business. We expense policy acquisition costs related to our employer-
group prepaid health services policies as incurred. These short-duration employer-group prepaid health services
policies typically have a one-year term and may be cancelled upon 30 days notice by the employer group.
Life insurance, annuities, health and other supplemental policies sold to individuals are accounted for as
long-duration insurance products because they are expected to remain in force for an extended period beyond one
year due to contractual and regulatory requirements.As a result, we defer policy acquisition costs, primarily
consisting of commissions, and amortize them over the estimated life of the policies in proportion to premiums
earned. Deferred acquisition costs are reviewed to determine if they are recoverable from future income. See
Note 17.
Long-Lived Assets
Property and equipment is recorded at cost. Gains and losses on sales or disposals of property and
equipment are included in operating costs. Certain costs related to the development or purchase of internal-use
software are capitalized. Depreciation is computed using the straight-line method over estimated useful lives
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