Humana 2011 Annual Report Download - page 29

programs, including our HMO and PPO products, as well as our stand-alone PDP products. We have made
substantial investments in the Medicare program to enhance our ability to participate in these programs. Over the
last few years we have increased the size of our Medicare geographic reach through expanded Medicare product
offerings. We are offering both the stand-alone Medicare prescription drug coverage and Medicare Advantage
health plan with prescription drug coverage in addition to our other product offerings. We offer the Medicare
prescription drug plan in 50 states as well as Puerto Rico and the District of Columbia.
The growth of our Medicare products is an important part of our business strategy. Any failure to achieve
this growth may have a material adverse effect on our results of operations, financial position, or cash flows. In
addition, the expansion of our Medicare products in relation to our other businesses may intensify the risks to us
inherent in Medicare products. There is significant concentration of our revenues in Medicare products, with
approximately 65% of our total premiums and services revenue in 2011 generated from our Medicare products.
These expansion efforts may result in less diversification of our revenue stream and increased risks associated
with operating in a highly regulated industry, as discussed further below.
Recently enacted Health Insurance Reform Legislation created a federal Medicare-Medicaid Coordination
Office to serve dual eligibles. This Medicare-Medicaid Coordination Office has initiated a series of state
demonstration projects to experiment with better coordination of care between Medicare and Medicaid.
Depending upon the results of those demonstration projects, CMS may change the way in which dual eligibles
are serviced. If we are unable to implement our strategic initiatives to address the dual eligibles opportunity, or if
our initiatives are not successful at attracting or retaining dual eligible members, our business may be materially
adversely affected.
Additionally, our strategy includes the growth of our commercial products, such as ASO and individual
products, introduction of new products and benefit designs, including HumanaVitality and other wellness
products, expansion of our specialty products such as dental, vision and other supplemental products, the
adoption of new technologies, development of adjacent businesses, and the integration of acquired businesses
and contracts, including the 2010 acquisition of Concentra Inc.
There can be no assurance that we will be able to successfully implement our operational and strategic
initiatives, including outsourcing certain business functions, that are intended to position us for future growth or
that the products we design will be accepted or adopted in the time periods assumed. Failure to implement this
strategy may result in a material adverse effect on our results of operations, financial position, and cash flows.
If we fail to properly maintain the integrity of our data, to strategically implement new information
systems, to protect our proprietary rights to our systems, or to defend against cybersecurity attacks, our
business may be materially adversely affected.
Our business depends significantly on effective information systems and the integrity and timeliness of the data
we use to run our business. Our business strategy involves providing members and providers with easy to use products
that leverage our information to meet their needs. Our ability to adequately price our products and services, provide
effective and efficient service to our customers, and to timely and accurately report our financial results depends
significantly on the integrity of the data in our information systems. As a result of our past and on-going acquisition
activities, we have acquired additional information systems. We took steps to reduce the number of systems we
operate, have upgraded and expanded our information systems capabilities, and are gradually migrating existing
business to fewer systems. Our information systems require an ongoing commitment of significant resources to
maintain, protect, and enhance existing systems and develop new systems to keep pace with continuing changes in
information processing technology, evolving industry and regulatory standards, and changing customer preferences. If
the information we rely upon to run our businesses was found to be inaccurate or unreliable or if we fail to maintain
effectively our information systems and data integrity, we could have operational disruptions, have problems in
determining medical cost estimates and establishing appropriate pricing, have customer and physician and other health
care provider disputes, have regulatory or other legal problems, have increases in operating expenses, lose existing
customers, have difficulty in attracting new customers, or suffer other adverse consequences.
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