Humana 2011 Annual Report Download - page 86

reimbursed by the federal government; and (3) administrative services fees related to claim processing, customer
service, enrollment, and other services. We recognize the insurance premium as revenue ratably over the period
coverage is provided. Health care services reimbursements are recognized as revenue in the period health
services are provided. Administrative services fees are recognized as revenue in the period services are
performed.
The current TRICARE South Region contract contains provisions whereby the federal government bears a
substantial portion of the risk associated with financing the cost of health benefits. Annually, we negotiate a
target health care cost amount, or target cost, with the federal government and determine an underwriting fee.
Any variance from the target cost is shared. We earn more revenue or incur additional costs based on the
variance of actual health care costs versus the negotiated target cost. We receive 20% for any cost underrun,
subject to a ceiling that limits the underwriting profit to 10% of the target cost. We pay 20% for any cost overrun,
subject to a floor that limits the underwriting loss to negative 4% of the target cost. A final settlement occurs 12
to 18 months after the end of each contract year to which it applies. We defer the recognition of any revenues for
favorable contingent underwriting fee adjustments related to cost underruns until the amount is determinable and
the collectibility is reasonably assured. We estimate and recognize unfavorable contingent underwriting fee
adjustments related to cost overruns currently in operations as an increase in benefit expenses. We continually
review these benefit expense estimates of future payments to the government for cost overruns and make
necessary adjustments to our reserves.
The military services contracts contain provisions to negotiate change orders. Change orders occur when we
perform services or incur costs under the directive of the federal government that were not originally specified in
our contract. Under federal regulations we may be entitled to an equitable adjustment to the contract price in
these situations. Change orders may be negotiated and settled at any time throughout the year. We record revenue
applicable to change orders when services are performed and these amounts are determinable and the
collectibility is reasonably assured.
Patient Services
Patient services revenue associated with the December 21, 2010 acquisition of Concentra includes
(1) workers’ compensation injury care and related services and (2) other healthcare services related to employer
needs or statutory requirements. Patient services revenues are recognized in the period services are provided to
the customer when the sales price is fixed or determinable, and are net of contractual allowances.
The provider reimbursement methods for workers’ compensation injury care and related services vary on a
state-by-state basis. Most states have fee schedules pursuant to which all healthcare providers are uniformly
reimbursed. The fee schedules are determined by each state and generally prescribe the maximum amounts that
may be reimbursed for a designated procedure. In the states without fee schedules, healthcare providers are
reimbursed based on usual, customary, and reasonable fees charged in the particular state in which the services
are provided. We include billings for services in revenue net of allowance for estimated differences between list
prices and allowable fee schedule rates or amounts allowed as usual, customary and reasonable, as applicable.
Revenue for other healthcare services is recognized on a fee-for-service basis at estimated collectible
amounts at the time services are rendered. Our fees are determined in advance for each type of service
performed.
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