Humana 2012 Annual Report Download - page 101

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Humana Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Cash and Cash Equivalents
Cash and cash equivalents include cash, time deposits, money market funds, commercial paper, other money
market instruments, and certain U.S. Government securities with an original maturity of three months or less.
Carrying value approximates fair value due to the short-term maturity of the investments.
Investment Securities
Investment securities, which consist entirely of debt securities, have been categorized as available for sale
and, as a result, are stated at fair value. Investment securities available for current operations are classified as
current assets. Investment securities available for our long-term insurance products and professional liability
funding requirements, as well as restricted statutory deposits and venture capital investments, are classified as
long-term assets. For the purpose of determining gross realized gains and losses, which are included as a
component of investment income in the consolidated statements of income, the cost of investment securities sold
is based upon specific identification. Unrealized holding gains and losses, net of applicable deferred taxes, are
included as a component of stockholders’ equity and comprehensive income until realized from a sale or other-
than-temporary impairment.
Under the other-than-temporary impairment model for debt securities held, we recognize an impairment loss
in income in an amount equal to the full difference between the amortized cost basis and the fair value when we
have the intent to sell the debt security or it is more likely than not we will be required to sell the debt security
before recovery of our amortized cost basis. However, if we do not intend to sell the debt security, we evaluate
the expected cash flows to be received as compared to amortized cost and determine if a credit loss has occurred.
In the event of a credit loss, only the amount of the impairment associated with the credit loss is recognized
currently in income with the remainder of the loss recognized in other comprehensive income.
When we do not intend to sell a security in an unrealized loss position, potential other-than-temporary
impairment is considered using a variety of factors, including the length of time and extent to which the fair
value has been less than cost; adverse conditions specifically related to the industry, geographic area or financial
condition of the issuer or underlying collateral of a security; payment structure of the security; changes in credit
rating of the security by the rating agencies; the volatility of the fair value changes; and changes in fair value of
the security after the balance sheet date. For debt securities, we take into account expectations of relevant market
and economic data. For example, with respect to mortgage and asset-backed securities, such data includes
underlying loan level data and structural features such as seniority and other forms of credit enhancements. A
decline in fair value is considered other-than-temporary when we do not expect to recover the entire amortized
cost basis of the security. We estimate the amount of the credit loss component of a debt security as the
difference between the amortized cost and the present value of the expected cash flows of the security. The
present value is determined using the best estimate of future cash flows discounted at the implicit interest rate at
the date of purchase.
Receivables and Revenue Recognition
We generally establish one-year commercial membership contracts with employer groups, subject to
cancellation by the employer group on 30-day written notice. Our Medicare contracts with CMS renew annually.
Our military services contracts with the federal government and our contracts with various state Medicaid
programs generally are multi-year contracts subject to annual renewal provisions.
Premiums Revenue
We bill and collect premium remittances from employer groups and members in our Medicare and other
individual products monthly. We receive monthly premiums from the federal government and various states
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