Humana 2012 Annual Report Download - page 90

that limited the underwriting profit to 10% of the target cost. We paid 20% for any cost overrun, subject to a
floor that limited the underwriting loss to negative 4% of the target cost. A final settlement occurred 12 to 18
months after the end of each contract year to which it applied. We deferred the recognition of any revenues for
favorable contingent underwriting fee adjustments related to cost underruns until the amount was determinable
and the collectibility was reasonably assured. We estimated and recognized unfavorable contingent underwriting
fee adjustments related to cost overruns currently in operations as an increase in benefits expense.
The military services contracts contain provisions to negotiate change orders. Change orders occur when we
perform services or incur costs under the directive of the federal government that were not originally specified in
our contract. Under federal regulations we may be entitled to an equitable adjustment to the contract price in
these situations. Change orders may be negotiated and settled at any time throughout the year. We record revenue
applicable to change orders when services are performed and these amounts are determinable and the
collectibility is reasonably assured.
Patient Services
Patient services revenue associated with provider services in our Health and Well-Being Services segment
primarily related to Concentra, acquired December 21, 2010. Patient services revenue includes (1) workers’
compensation injury care and related services and (2) other healthcare services related to employer needs or
statutory requirements. Patient services revenues are recognized in the period services are provided to the
customer when the sales price is fixed or determinable, and are net of contractual allowances.
The provider reimbursement methods for workers’ compensation injury care and related services vary on a
state-by-state basis. Most states have fee schedules pursuant to which all healthcare providers are uniformly
reimbursed. The fee schedules are determined by each state and generally prescribe the maximum amounts that
may be reimbursed for a designated procedure. In the states without fee schedules, healthcare providers are
reimbursed based on usual, customary, and reasonable fees charged in the particular state in which the services
are provided. We include billings for services in revenue net of allowance for estimated differences between list
prices and allowable fee schedule rates or amounts allowed as usual, customary and reasonable, as applicable.
Revenue for other healthcare services is recognized on a fee-for-service basis at estimated collectible amounts
at the time services are rendered. Our fees are determined in advance for each type of service performed.
Investment Securities
Investment securities totaled $9.8 billion, or 49% of total assets at December 31, 2012, and $9.5 billion, or
53% of total assets at December 31, 2011. Debt securities, detailed below, comprised this entire investment
portfolio at December 31, 2012 and at December 31, 2011. The fair value of debt securities were as follows at
December 31, 2012 and 2011:
December 31,
2012
Percentage
of Total
December 31,
2011
Percentage
of Total
(dollars in millions)
U.S. Treasury and other U.S. government corporations and
agencies:
U.S. Treasury and agency obligations ............. $ 618 6.3% $ 725 7.7%
Mortgage-backed securities ..................... 1,603 16.3% 1,784 18.9%
Tax-exempt municipal securities ..................... 3,071 31.2% 2,856 30.2%
Mortgage-backed securities:
Residential .................................. 34 0.3% 44 0.4%
Commercial ................................. 659 6.7% 381 4.0%
Asset-backed securities ............................ 68 0.7% 83 0.9%
Corporate debt securities ........................... 3,794 38.5% 3,580 37.9%
Total debt securities ....................... $9,847 100.0% $9,453 100.0%
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