Humana 2012 Annual Report Download - page 104

Humana Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
reimbursements were recognized as revenue in the period health services were provided. Administrative services
fees were recognized as revenue in the period services were performed. We deferred the recognition of any
contingent revenues for favorable variances until the end of the contract period when the amount was
determinable and the collectibility was reasonably assured. We estimated and recognized contingent benefits
expense for unfavorable variances currently in our results of operations.
Revenues also may include change orders attributable to our military services contracts. Change orders
represent equitable adjustments for services not originally specified in the contracts. Revenues for these
adjustments are recognized when a settlement amount becomes determinable and the collectibility is reasonably
assured.
Services Revenue
Patient services revenue
Patient services include workers’ compensation injury care and related services as well as 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.
Administrative services fees
Administrative services fees cover the processing of claims, offering access to our provider networks and
clinical programs, and responding to customer service inquiries from members of self-funded groups. Revenues
from providing administration services, also known as administrative services only, or ASO, are recognized in
the period services are performed and are net of estimated uncollectible amounts. Under ASO contracts, self-
funded employers retain the risk of financing substantially all of the cost of health benefits. However, many ASO
customers purchase stop loss insurance coverage from us to cover catastrophic claims or to limit aggregate
annual costs. Accordingly, we have recorded premiums revenue and benefits expense related to these stop loss
insurance contracts. We routinely monitor the collectibility of specific accounts, the aging of receivables, as well
as prevailing and anticipated economic conditions, and reflect any required adjustments in current operations.
ASO fees received prior to the service period are recorded as unearned revenues.
On April 1, 2012, we began delivering services under a new TRICARE South Region contract with the
DoD. As discussed previously, under the new contract, we provide administrative services, including offering
access to our provider networks and clinical programs, claim processing, customer service, enrollment, and other
services, while the federal government retains all of the risk of the cost of health benefits. We account for
revenues under the new contract net of estimated health care costs similar to an administrative services fee only
agreement. The new contract includes fixed administrative services fees and incentive fees and penalties.
Administrative services fees are recognized as services are performed.
Receivables
Receivables, including premium receivables, patient services revenue receivables, and ASO fee receivables,
are shown net of allowances for estimated uncollectible accounts, retroactive membership adjustments, and
contractual allowances.
Policy Acquisition Costs
Policy acquisition costs are those costs that relate directly to the successful acquisition of new and renewal
insurance policies. Such costs include commissions, costs of policy issuance and underwriting, and other costs
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