Humana 2011 Annual Report Download - page 115

Humana Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Actuarial standards require the use of assumptions based on moderately adverse experience, which generally
results in favorable reserve development, or reserves that are considered redundant. The amount of redundancy
over the last three years primarily has been impacted by the growth in our Medicare products, coupled with the
application of consistent reserving practices. During 2011 and 2010, we experienced prior year favorable reserve
releases not in the ordinary course of business of approximately $205 million and $231 million, respectively.
This favorable reserve development primarily resulted from improvements in the claims processing environment
and, to a lesser extent, better than originally estimated utilization. In addition, in 2010, a shortening of the cycle
time associated with provider claim submissions was a contributing factor. The improvements in the claims
processing environment benefited all lines of business during 2011, but were most prominent in our Medicare
PFFS line of business in 2010. As a result of these improvements, we experienced a significant increase in claim
overpayment recoveries during 2011 for claims with 2010 and 2009 dates of service and during 2010 for claims
with 2009 and 2008 dates of service, primarily as a result of increased audits of provider billings, as well as
system enhancements that improved the claim recovery functionality. This increase resulted in our historical
completion factors being understated for those periods since they had been developed using our previous
historical experience. The remaining reserve redundancy primarily resulted from our consistent application of
trend and completion factors estimated using an assumption of moderately adverse conditions as described
above.
Military services benefits payable of $339 million and $255 million at December 31, 2011 and 2010,
respectively, primarily consisted of our estimate of incurred healthcare services provided to beneficiaries which
are in turn reimbursed by the federal government, as more fully described in Note 2. This amount is generally
offset by a corresponding receivable due from the federal government.
Benefit expenses associated with military services and provisions associated with future policy benefits
excluded from the previous table were as follows for the years ended December 31, 2011, 2010 and 2009:
2011 2010 2009
(in millions)
Military services .................................... $3,247 $3,059 $3,020
Future policy benefits ................................ 127 306 73
Total ......................................... $3,374 $3,365 $3,093
The increase in benefit expenses associated with future policy benefits payable during 2010 relates to
reserve strengthening for our closed block of long-term care policies acquired in connection with the 2007 KMG
America Corporation, or KMG, acquisition more fully described in Note 17.
10. INCOME TAXES
The provision for income taxes consisted of the following for the years ended December 31, 2011, 2010 and
2009:
2011 2010 2009
(in millions)
Current provision:
Federal ........................................... $732 $ 786 $533
States and Puerto Rico ............................... 62 63 56
Total current provision ........................... 794 849 589
Deferred provision (benefit) .............................. 22 (199) (27)
Provision for income taxes ....................... $816 $ 650 $562
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