Humana 2011 Annual Report Download - page 96

Humana Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. REPORTING ENTITY
Nature of Operations
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. References throughout these notes to consolidated financial statements to “we,” “us,” “our,” “Company,”
and “Humana,” mean Humana Inc. and its subsidiaries. We derived approximately 76% of our premiums and
services revenue from contracts with the federal government in 2011. Under our federal government contracts
with the Centers for Medicare and Medicaid Services, or CMS, we provide health insurance coverage for
Medicare Advantage members in Florida, accounting for approximately 16% of our consolidated premiums and
services revenue in 2011. CMS is the federal government’s agency responsible for administering the Medicare
program. Under federal government contracts with the Department of Defense we primarily provide health
insurance coverage to TRICARE members, accounting for approximately 10% of our consolidated premiums and
services revenue in 2011.
Health Insurance Reform
In March 2010, the President signed into law The Patient Protection and Affordable Care Act and The
Health Care and Education Reconciliation Act of 2010 (which we collectively refer to as the Health Insurance
Reform Legislation) which enact significant reforms to various aspects of the U.S. health insurance industry.
There are many significant provisions of the legislation that will require additional guidance and clarification in
the form of regulations and interpretations in order to fully understand the impacts of the legislation on our
overall business, which we expect to occur over the next several years.
Certain significant provisions of the Health Insurance Reform Legislation include, among others, mandated
coverage requirements, rebates to policyholders based on minimum benefit ratios, adjustments to Medicare
Advantage premiums, the establishment of state-based exchanges coupled with programs designed to spread risk
among insurers, an annual insurance industry premium-based assessment, and a three-year commercial
reinsurance fee. Implementation dates of the Health Insurance Reform Legislation vary from September 30, 2010
to as late as 2018.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
Our financial statements and accompanying notes are prepared in accordance with accounting principles
generally accepted in the United States of America. Our consolidated financial statements include the accounts of
Humana Inc. and subsidiaries that the Company controls including variable interest entities associated with
medical practices for which the Company is the primary beneficiary. Generally, we do not own medical practices
but instead enter into exclusive long-term management agreements with the affiliated Professional Associations,
or P.A.s, that operate the medical practices. Based upon the provisions of these agreements, these affiliated P.A.s
are variable interest entities and we are the primary beneficiary, and accordingly we consolidated the affiliated
P.A.s. All significant intercompany balances and transactions have been eliminated.
The preparation of financial statements in accordance with accounting principles generally accepted in the
United States of America requires us to make estimates and assumptions that affect the amounts reported in the
consolidated financial statements and accompanying notes. The areas involving the most significant use of
estimates are the estimation of benefits payable, the impact of risk sharing provisions related to our Medicare and
TRICARE contracts, the valuation and related impairment recognition of investment securities, and the valuation
86