Humana 2012 Annual Report Download - page 25

At December 31, 2012, we employed approximately 1,700 sales representatives, as well as approximately
900 telemarketing representatives who assisted in the marketing of individual Medicare and individual
commercial health insurance and specialty products in our Retail segment, including making appointments for
sales representatives with prospective members. We also market our individual Medicare products via a strategic
alliance with Wal-Mart Stores, Inc., or Wal-Mart. This alliance includes stationing Humana representatives in
certain Wal-Mart stores, SAM’S CLUB locations, and Neighborhood Markets across the country providing an
opportunity to enroll Medicare eligible individuals in person. In addition, we market our individual Medicare and
individual commercial health insurance and specialty products through licensed independent brokers and agents.
For our Medicare products, commissions paid to employed sales representatives and independent brokers and
agents are based on a per unit commission structure, regulated in structure and amount by CMS. For our
individual commercial health insurance and specialty products, we generally pay brokers a commission based on
premiums, with commissions varying by market and premium volume. In addition to a commission based
directly on premium volume for sales to particular customers, we also have programs that pay brokers and agents
based on other metrics. These include commission bonuses based on sales that attain certain levels or involve
particular products. We also pay additional commissions based on aggregate volumes of sales involving multiple
customers.
In our Employer Group segment, individuals may become members of our commercial HMOs and PPOs
through their employers or other groups, which typically offer employees or members a selection of health
insurance products, pay for all or part of the premiums, and make payroll deductions for any premiums payable
by the employees. We attempt to become an employer’s or group’s exclusive source of health insurance benefits
by offering a variety of HMO, PPO, and specialty products that provide cost-effective quality health care
coverage consistent with the needs and expectations of their employees or members. We also sell group
Medicare Advantage products through large employers. We use licensed independent brokers, independent
agents, and employees to sell our group products. Many of our larger employer group customers are represented
by insurance brokers and consultants who assist these groups in the design and purchase of health care products.
We pay brokers and agents using the same commission structure described above for our individual commercial
health insurance and specialty products.
Underwriting
Through the use of internally developed underwriting criteria, we determine the risk we are willing to
assume and the amount of premium to charge for our commercial products. In most instances, employer and
other groups must meet our underwriting standards in order to qualify to contract with us for coverage. Small
group laws in some states have imposed regulations which provide for guaranteed issue of certain health
insurance products and prescribe certain limitations on the variation in rates charged based upon assessment of
health conditions. Beginning in 2014, the Health Insurance Reform Legislation requires all individual and group
health plans to guarantee issuance and renew coverage without pre-existing condition exclusions or health-status
rating adjustments.
Underwriting techniques are not employed in connection with our Medicare, military services, or Medicaid
products because government regulations require us to accept all eligible applicants regardless of their health or
prior medical history.
Competition
The health benefits industry is highly competitive. Our competitors vary by local market and include other
managed care companies, national insurance companies, and other HMOs and PPOs, including HMOs and PPOs
owned by Blue Cross/Blue Shield plans. Many of our competitors have larger memberships and/or greater
financial resources than our health plans in the markets in which we compete. Our ability to sell our products and
to retain customers may be influenced by such factors as those described in the section entitled “Risk Factors” in
this 2012 Form 10-K.
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