Humana 2012 Annual Report Download - page 53

Retail Segment
• On February 15, 2013, CMS issued its Advance Notice for methodological changes for 2014 Medicare
Advantage capitation rates and Part C and Part D payment policies. We believe the Advance Notice
indicates a mid-single-digit decline in the benchmark payment rates from CMS for 2014. This excludes
the impact of the industry premium tax, county rebasing, and risk factor recalibration, which are
anticipated to be discussed in the final rate notice. However, the Advance Notice is subject to
comment, and the final rates will not be published until April 1, 2013. We are closely analyzing all
operational avenues available to address these preliminary rates and the related impact on our ability to
grow both our Medicare membership and our earnings for 2014. We are committed to providing
quality care and service to our members through the Medicare Advantage program. We will be drawing
upon our program expertise to comment on the impact of these preliminary rate changes upon
beneficiaries as we provide comments to CMS. Nonetheless, there can be no assurance that we will be
able to successfully execute operational and strategic initiatives with respect to changes in the
Medicare Advantage program. Failure to execute these strategies may result in a material adverse
effect on our results of operations, financial position, and cash flows.
• As discussed in the detailed Retail segment results of operations discussion that follows, we
experienced a significant increase in the benefit ratio in the Retail segment, with the segment’s benefit
ratio increasing 290 basis points to 84.1% for the year ended December 31, 2012. The increase
primarily was due to a planned increase in the target benefit ratio associated with positioning for Health
Insurance Reform Legislation funding changes and minimum benefit ratio requirements and a higher
individual Medicare Advantage benefit ratio experienced on new membership than the assumptions
used in our 2012 Medicare bids.
• Individual Medicare Advantage membership of 1,927,600 at December 31, 2012 increased 287,300
members, or 17.5%, from 1,640,300 at December 31, 2011 primarily due to the 2012 enrollment
season, as well as age-in enrollment throughout the year. We acquired approximately 62,600 members
with Arcadian Management Services, Inc., or Arcadian, effective March 31, 2012. As discussed below,
we divested approximately 12,600 members acquired with Arcadian effective January 1, 2013 in
accordance with our agreement with the United States Department of Justice. January 2013 individual
Medicare Advantage membership of approximately 2,011,000 increased more than 83,000 members, or
approximately 4%, from December 31, 2012, reflecting net membership additions for the 2013
enrollment season and the Arcadian related divestitures discussed below. In addition, we significantly
expanded our Health Maintenance Organization, or HMO, offerings in 2013, which we believe allow
our integrated care delivery model to work more effectively for our members than any other plan
option. The percentage of individual Medicare Advantage members who chose an HMO offering
during the 2013 enrollment period reached approximately 48%.
• Individual Medicare stand-alone PDP membership of 2,985,600 at December 31, 2012 increased
445,200 members, or 17.5%, from 2,540,400 at December 31, 2011 primarily from higher gross sales
during the 2012 enrollment season, particularly for our national stand-alone Medicare Part D
prescription drug plan co-branded with Wal-Mart Stores, Inc., or the Humana-Walmart plan,
supplemented by dual-eligible and age-in enrollments throughout the year. January 2013 individual
Medicare stand-alone PDP membership grew to approximately 3,113,000, increasing approximately
127,000 members, or 4%, from December 31, 2012, reflecting net membership additions for the 2013
enrollment season.
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