Humana 2011 Annual Report Download - page 36

payment rates, stipulating a prescribed minimum ratio for the amount of premiums revenue to be expended on
medical costs for insured products (and particularly how the ratio may apply to Medicare Advantage and possibly
prescription drug plans), additional mandated benefits and guarantee issuance associated with commercial
medical insurance, requirements that limit the ability of health plans to vary premiums based on assessments of
underlying risk, and heightened scrutiny by state and federal regulators of our business practices, including our
Medicare bid and pricing practices. The Health Insurance Reform Legislation also specifies required benefit
designs, limits rating and pricing practices, encourages additional competition (including potential incentives for
new market entrants), establishes state-based exchanges for individuals and small employers (with up to 100
employees) coupled with programs designed to spread risk among insurers, and expands eligibility for Medicaid
programs. In addition, the law will significantly increase federal oversight of health plan premium rates and
could adversely affect our ability to appropriately adjust health plan premiums on a timely basis. Financing for
these reforms will come, in part, from material additional fees and taxes on us and other health insurers, health
plans and individuals beginning in 2014, as well as reductions in certain levels of payments to us and other health
plans under Medicare. Implementation dates of the provisions of the Health Insurance Reform Legislation
generally vary from September 23, 2010 to as late as 2018.
Implementing regulations and related interpretive guidance continue to be issued on several significant
provisions of the Health Insurance Reform Legislation. The implementation of the individual mandate as well as
Medicaid expansion in the Health Insurance Reform Legislation are also being considered by the U.S. Supreme
Court, seeking to have all or portions of the Health Insurance Reform Legislation declared unconstitutional. We
cannot predict the results of these proceedings. Congress may also withhold the funding necessary to implement
the Health Insurance Reform Legislation, or may attempt to replace the legislation with amended provisions or
repeal it altogether. Given the breadth of possible changes and the uncertainties of interpretation,
implementation, and timing of these changes, which we expect to occur over the next several years, the Health
Insurance Reform Legislation could change the way we do business, potentially impacting our pricing, benefit
design, product mix, geographic mix, and distribution channels. In particular, implementing regulations and
related guidance are forthcoming on various aspects of the minimum benefit ratio requirement’s applicability to
Medicare, including aggregation, credibility thresholds, and its possible application to prescription drug plans.
The response of other companies to Health Insurance Reform Legislation and adjustments to their offerings, if
any, could cause meaningful disruption in the local health care markets. Further, various health insurance reform
proposals are also emerging at the state level. It is reasonably possible that the Health Insurance Reform
Legislation and related regulations, as well as future legislative changes, in the aggregate may have a material
adverse effect on our results of operations, including restricting revenue, enrollment and premium growth in
certain products and market segments, restricting our ability to expand into new markets, increasing our medical
and operating costs, lowering our Medicare payment rates and increasing our expenses associated with the
non-deductible federal premium tax and other assessments; our financial position, including our ability to
maintain the value of our goodwill; and our cash flows. If we fail to effectively implement our operational and
strategic initiatives with respect to the implementation of the Health Insurance Reform Legislation, our business
may be materially adversely affected. In addition, if the new non-deductible federal premium tax and other
assessments, including a three-year commercial reinsurance fee, were imposed as enacted, and if we are unable
to adjust our business model to address these new taxes and assessments, such as through the reduction of our
operating costs, there can be no assurance that the non-deductible federal premium tax and other assessments
would not have a material adverse effect on our results of operations, financial position, and cash flows.
Our business activities are subject to substantial government regulation. New laws or regulations, or
changes in existing laws or regulations or their manner of application, could increase our cost of doing
business and may adversely affect our business, profitability, financial condition, and cash flows.
The health care industry in general and health insurance are subject to substantial federal and state
government regulation:
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