Humana 2012 Annual Report Download - page 16

Individual Medicare Advantage Products
We contract with CMS under the Medicare Advantage program to provide a comprehensive array of health
insurance benefits, including wellness programs, to Medicare eligible persons under HMO, PPO, and Private
Fee-For-Service, or PFFS, plans in exchange for contractual payments received from CMS, usually a fixed
payment per member per month. With each of these products, the beneficiary receives benefits in excess of
original Medicare, typically including reduced cost sharing, enhanced prescription drug benefits, care
coordination, data analysis techniques to help identify member needs, complex case management, tools to guide
members in their health care decisions, care management programs, wellness and prevention programs and, in
some instances, a reduced monthly Part B premium. Most Medicare Advantage plans offer the prescription drug
benefit under Part D as part of the basic plan, subject to cost sharing and other limitations. Accordingly, all of the
provisions of the Medicare Part D program described in connection with our stand-alone prescription drug plans
in the following section also are applicable to most of our Medicare Advantage plans. Medicare Advantage plans
may charge beneficiaries monthly premiums and other copayments for Medicare-covered services or for certain
extra benefits. Generally, Medicare-eligible individuals enroll in one of our plan choices between October 15 and
December 7 for coverage that begins on the following January 1.
Our Medicare HMO and PPO plans, which cover Medicare-eligible individuals residing in certain counties,
may eliminate or reduce coinsurance or the level of deductibles on many other medical services while seeking
care from participating in-network providers or in emergency situations. Except in emergency situations or as
specified by the plan, most HMO plans provide no out-of-network benefits. PPO plans carry an out-of network
benefit that is subject to higher member cost-sharing. In some cases, these beneficiaries are required to pay a
monthly premium to the HMO or PPO plan in addition to the monthly Part B premium they are required to pay
the Medicare program.
On January 1, 2011, most of our members enrolled in PFFS plans transitioned to networked-based PPO type
products due to a requirement that Medicare Advantage organizations establish adequate provider networks,
except in geographic areas that CMS determines have fewer than two network-based Medicare Advantage plans.
Our Medicare PFFS plans generally have no preferred network. Individuals in these plans pay us a monthly
premium to receive typical Medicare Advantage benefits along with the freedom to choose any health care
provider that accepts individuals at rates equivalent to original Medicare payment rates.
CMS uses monthly rates per person for each county to determine the fixed monthly payments per member to
pay to health benefit plans. These rates are adjusted under CMS’s risk-adjustment model which uses health status
indicators, or risk scores, to improve the accuracy of payment. The risk-adjustment model, which CMS
implemented pursuant to the Balanced Budget Act of 1997 (BBA) and the Benefits and Improvement Protection
Act of 2000 (BIPA), generally pays more for members with predictably higher costs and uses principal hospital
inpatient diagnoses as well as diagnosis data from ambulatory treatment settings (hospital outpatient department
and physician visits) to establish the risk-adjustment payments. Under the risk-adjustment methodology, all
health benefit organizations must collect from providers and submit the necessary diagnosis code information to
CMS within prescribed deadlines.
At December 31, 2012, we provided health insurance coverage under CMS contracts to approximately
1,927,600 individual Medicare Advantage members, including approximately 384,200 members in Florida.
These Florida contracts accounted for premiums revenue of approximately $5.9 billion, which represented
approximately 28% of our individual Medicare Advantage premiums revenue, or 15% of our consolidated
premiums and services revenue for the year ended December 31, 2012.
Our HMO and PPO products covered under Medicare Advantage contracts with CMS are renewed generally for
a calendar year term unless CMS notifies us of its decision not to renew by August 1 of the calendar year in which the
contract would end, or we notify CMS of our decision not to renew by the first Monday in June of the calendar year in
which the contract would end. All material contracts between Humana and CMS relating to our Medicare Advantage
products have been renewed for 2013, and all of our product offerings filed with CMS for 2013 have been approved.
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