Humana 2011 Annual Report Download - page 51

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Executive Overview
General
Headquartered in Louisville, Kentucky, Humana is a leading health care company that offers a wide range
of insurance products and health and wellness services that incorporate an integrated approach to lifelong well-
being. By leveraging the strengths of our core businesses, we believe that we can better explore opportunities for
existing and emerging adjacencies in health care that can further enhance wellness opportunities for the millions
of people across the nation with whom we have relationships.
Our industry relies on two key statistics to measure performance. The benefit ratio, which is computed by
taking total benefit expenses as a percentage of premiums revenue, represents a statistic used to measure
underwriting profitability. The operating cost ratio, which is computed by taking total operating costs as a
percentage of total revenue less investment income, represents a statistic used to measure administrative
spending efficiency.
2011 Business Segment Realignment
During the first quarter of 2011, we realigned our business segments to reflect our evolving business model.
As a result, we reassessed and changed our operating and reportable segments in the first quarter of 2011 to
reflect management’s view of the business and to align our external financial reporting with our new operating
and internal financial reporting model. Historical segment information has been retrospectively adjusted to reflect
the effect of this change. Our new reportable segments and the basis for determining those segments are
discussed below.
Business Segments
We currently manage our business with three reportable segments: Retail, Employer Group, and Health and
Well-Being Services. In addition, we include businesses that are not individually reportable because they do not
meet the quantitative thresholds required by generally accepted accounting principles in an Other Businesses
category. These segments are based on a combination of the type of health plan customer and adjacent businesses
centered on well-being solutions for our health plans and other customers, as described below. These segment
groupings are consistent with information used by our Chief Executive Officer to assess performance and
allocate resources.
The Retail segment consists of Medicare and commercial fully-insured medical and specialty health
insurance benefits, including dental, vision, and other supplemental health and financial protection products,
marketed directly to individuals. The Employer Group segment consists of Medicare and commercial fully-
insured medical and specialty health insurance benefits, including dental, vision, and other supplemental health
and financial protection products, as well as administrative services only products marketed to employer groups.
The Health and Well-Being Services segment includes services offered to our health plan members as well as to
third parties that promote health and wellness, including primary care, pharmacy, integrated wellness, and home
care services. The Other Businesses category consists of our Military services, primarily our TRICARE South
Region contract, Medicaid, and closed-block long-term care businesses as well as our contract with CMS to
administer the LI-NET program.
The results of each segment are measured by income before income taxes. Transactions between reportable
segments consist of sales of services rendered by our Health and Well-Being Services segment, primarily
pharmacy and behavioral health services, to our Retail and Employer Group customers. Intersegment sales and
expenses are recorded at fair value and eliminated in consolidation. Members served by our segments often
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