Humana 2012 Annual Report Download - page 64

Benefits expense
• The Employer Group segment benefit ratio of 84.1% for 2012 increased 170 basis points from 82.4%
in 2011 primarily due to higher membership in our group Medicare Advantage products which
generally carry a higher benefit ratio than our fully-insured commercial group products. In addition,
year-over-year comparisons of the benefit ratio were negatively impacted by lower favorable prior-
period medical claims reserve development in 2012 than in 2011. These increases were partially offset
by the beneficial effect on the benefit ratio in 2012 of a reduction in prior-year premium rebate
estimates discussed above. Fully-insured group Medicare Advantage members represented 13.0% of
total Employer Group segment medical membership at December 31, 2012 compared to 10.4% at
December 31, 2011. The Employer Group segment’s pretax income for 2012 included the beneficial
effect of $48 million in favorable prior-period medical claims reserve development versus $114 million
in 2011. This favorable prior-period medical claims reserve development decreased the Employer
Group segment benefit ratio by approximately 50 basis points in 2012 versus approximately 130 basis
points in 2011.
Operating costs
• The Employer Group segment operating cost ratio of 16.1% for 2012 improved 170 basis points from
17.8% for 2011 primarily reflecting growth in our group Medicare Advantage products which
generally carry a lower operating cost ratio than our fully-insured commercial group products and
continued savings as a result of our operating cost reduction initiatives.
Health and Well-Being Services Segment
Change
2012 2011 Dollars Percentage
(in millions)
Revenues:
Services:
Provider services ..................................... $ 967 $ 880 $ 87 9.9%
Home care services ................................... 40 0 40 100.0%
Pharmacy solutions ................................... 16 11 5 45.5%
Integrated wellness services ............................ 13 12 1 8.3%
Total services revenues ............................ 1,036 903 133 14.7%
Intersegment revenues:
Pharmacy solutions ................................... 11,352 9,886 1,466 14.8%
Provider services ..................................... 214 185 29 15.7%
Integrated wellness services ............................ 219 175 44 25.1%
Home care services ................................... 167 84 83 98.8%
Total intersegment revenues ........................ 11,952 10,330 1,622 15.7%
Total services and intersegment revenues .............. $12,988 $11,233 $1,755 15.6%
Income before income taxes $ 486 $ 353 $ 133 37.7%
Operating cost ratio ....................................... 95.5% 96.1% (0.6)%
Pretax results
• Health and Well-Being Services segment pretax income increased $133 million, or 37.7%, from 2011
to $486 million in 2012 primarily due to growth in our pharmacy solutions business, including higher
utilization of our mail-order pharmacy by our members.
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