Humana 2011 Annual Report Download - page 65

Summary
Net income was $1.1 billion, or $6.47 per diluted common share, in 2010 compared to $1.0 billion, or $6.15
per diluted common share, in 2009 primarily as a result of an increase in average Medicare Advantage
membership and favorable prior-period medical claims reserve development in 2010 in both our Retail and
Employer Group segments. Our diluted earnings per common share for 2010 include the beneficial impact of
favorable prior-period medical claims reserve development of approximately $0.86 per diluted common share.
These increases were partially offset by a $147 million ($0.55 per diluted common share) write-down of deferred
acquisition costs associated with our individual commercial medical policies in our Retail segment and a net
charge of $139 million ($0.52 per diluted common share) for reserve strengthening associated with our closed
block of long-term care policies in our Other Businesses in 2010 as discussed in Note 17 to the consolidated
financial statements included in Item 8. – Financial Statements and Supplementary Data. Net income for 2009
also included the favorable impact of the reduction of the liability for unrecognized tax benefits ($0.10 per
diluted common share) as a result of Internal Revenue Service audit settlements.
Premiums revenue
Consolidated premiums increased $2.8 billion, or 9.3%, from 2009 to $32.7 billion for 2010. The increase
primarily was due to higher premiums revenue in the Employer Group and Retail segments primarily as a result
of higher average Medicare Advantage membership and an increase in per member premiums, as well as
increased premiums for Other Businesses as a result of our new contract with CMS to administer the LI-NET
program in 2010.
Services Revenue
Consolidated services revenue increased $35 million, or 6.7%, from 2009 to $555 million for 2010,
primarily due to an increase in services revenue in our Employer Group segment primarily as a result of a new
group Medicare ASO account in 2010 partially offset by a decline in commercial ASO membership, as well as an
increase in primary care services revenue in our Health and Well-Being Services segment primarily as a result of
the acquisition of Concentra on December 21, 2010.
Investment Income
Investment income totaled $329 million for 2010, an increase of $33 million from $296 million for 2009,
primarily reflecting higher average invested balances as a result of the reinvestment of operating cash flows,
partially offset by lower interest rates.
Benefit Expenses
Consolidated benefit expenses were $27.1 billion for 2010, an increase of $2.3 billion, or 9.4%, from $24.8
billion for 2009. The increase primarily was driven by an increase in the average number of Medicare Advantage
members.
The consolidated benefit ratio for 2010 was 82.9%, essentially unchanged, increasing only 10 basis points
from the 2009 benefit ratio of 82.8%.
Operating Costs
Our segments incur both direct and shared indirect operating costs. We allocate the indirect costs shared by
the segments primarily as a function of revenues. As a result, the profitability of each segment is interdependent.
Consolidated operating costs increased $366 million, or 9.1%, during 2010 compared to 2009, primarily due
to the $147 million write-down of deferred acquisition costs associated with our individual commercial medical
55