Humana 2011 Annual Report Download - page 21

Under the current TRICARE South Region contract, any variance from the negotiated 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.
The TRICARE South Region contract represents approximately 97% of total military services premiums
and services revenue.
Medicaid
Medicaid is a federal program that is state-operated to facilitate the delivery of health care services
primarily to low-income residents. Each electing state develops, through a state-specific regulatory agency, a
Medicaid managed care initiative that must be approved by CMS. CMS requires that Medicaid managed care
plans meet federal standards and cost no more than the amount that would have been spent on a comparable
fee-for-service basis. States currently either use a formal proposal process in which they review many bidders
before selecting one or award individual contracts to qualified bidders who apply for entry to the program. In
either case, the contractual relationship with a state generally is for a one-year period. Under these contracts, we
receive a fixed monthly payment from a government agency for which we are required to provide health
insurance coverage to enrolled members. Due to the increased emphasis on state health care reform and
budgetary constraints, more states are utilizing a managed care product in their Medicaid programs.
Our Medicaid business consists of contracts in Puerto Rico and Florida, with the vast majority in Puerto
Rico.
LI-NET
In 2010, we began to administer CMS’s LI-NET program. This program allows individuals who receive
Medicare’s low-income subsidy to also receive immediate prescription drug coverage at the point of sale if they
are not already enrolled in a Medicare Part D plan. CMS temporarily enrolls newly identified individuals with
both Medicare and Medicaid into the LI-NET program, and subsequently transitions each member into a
Medicare Part D plan that may or may not be a Humana Medicare plan.
Closed Block of Long-Term Care Insurance
We acquired a closed block of approximately 35,000 long-term care policies in connection with our
acquisition of KMG America Corporation in 2007. Long-term care policies are intended to protect the insured
from the cost of long-term care services including those provided by nursing homes, assisted living facilities, and
adult day care as well as home health care services. No new policies have been written since 2005 under this
closed block.
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