Humana 2012 Annual Report Download - page 67

earnings per common share. Net income for 2010 included the negative impact of a $147 million ($0.55 per
diluted common share) write-down of deferred acquisition costs associated with our individual commercial
medical policies in our Retail Segment, and a net charge of $139 million ($0.52 per diluted common share) for
reserve strengthening associated with our closed block of long-term care policies in our Other Businesses as
discussed in Note 17 to the consolidated financial statements included in Item 8. – Financial Statements and
Supplementary Data.
Premiums Revenue
Consolidated premiums increased $2.4 billion, or 7.3%, from 2010 to $35.1 billion for 2011, primarily due
to an increase in Retail segment premiums, partially offset by a decline in Employer Group segment premiums.
The increase in Retail segment premiums primarily resulted from higher average individual Medicare Advantage
membership. The decrease in Employer Group segment premiums primarily resulted from lower average fully-
insured commercial group medical membership.
Services Revenue
Consolidated services revenue increased $805 million, or 145.0%, from 2010 to $1.4 billion for 2011,
primarily due to an increase in provider services revenue in our Health and Well-Being Services segment,
primarily as a result of the acquisition of Concentra on December 21, 2010.
Investment Income
Investment income totaled $366 million for 2011, an increase of $37 million from 2010, primarily reflecting
higher interest rates as well as higher average invested balances as a result of the reinvestment of operating cash
flows.
Benefits Expense
Consolidated benefits expense was $28.8 billion for 2011, an increase of $1.7 billion, or 6.3%, from 2010.
The increases were primarily due to a $1.8 billion, or 11.3%, year-over-year increase in Retail segment benefits
expense in 2011, primarily driven by an increase in the average number of Medicare members, partially offset by
a decline in Employer Group segment benefits expense. We experienced favorable medical claims reserve
development related to prior fiscal years of $372 million in 2011 and $434 million in 2010.
The consolidated benefit ratio for 2011 was 82.1%, declining 80 basis points from the 2010 benefit ratio of
82.9%, primarily driven by a decline in the Retail segment benefit ratio and a net charge for reserve
strengthening associated with our closed block of long-term care policies in our Other Businesses in 2010 that
did not recur in 2011. Year-over-year comparisons of the benefit ratio were negatively impacted by the $62
million decline in favorable prior-period medical claims reserve development from 2010 to 2011.
Operating Costs
Our segments incur both direct and shared indirect operating costs. We allocate the indirect costs shared by
the segments primarily as a function of revenues. As a result, the profitability of each segment is interdependent.
Consolidated operating costs increased $1.0 billion, or 23.2%, during 2011 compared to 2010, primarily due
to an increase in operating costs in our Health and Well-Being Segment as a result of the acquisition of
Concentra on December 21, 2010, as well as an increase in operating costs in our Retail segment as a result of
increased expenses associated with servicing higher average Medicare Advantage membership. Operating costs
for 2010 include $147 million for the write-down of deferred acquisition costs associated with our individual
commercial medical policies in our Retail Segment.
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