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Humana.com
2013
Annual Report

Table of contents

  • Page 1
    2013 Annual Report Humana.com

  • Page 2
    ... share results) 2013 Operating Results Revenues Net income Diluted earnings per common share $41,313 $1,231 $7.73 2012 $39,126 $1,222 $7.47 2011 $36,832 $1,419 $8.46 2010 $33,596 $1,099 $6.47 2009 $30,743 $1,040 $6.15 Financial Position Total assets Total liabilities Total shareholder equity...

  • Page 3
    ... health care system. Meanwhile, the system wastes 30 cents of every dollar - up to $750 billion a year, according to a 2012 report from the Institute of Medicine. And we're all struggling to deal with the problem of rapidly rising health care costs. Humana's long-term strategy is designed to address...

  • Page 4
    ... need health care services, proactive data analytics, care-management planning, and consistent engagement techniques help ensure our customers receive the right care at the right time in the right setting. By improving care delivery, by improving our customers' experience with Humana and the health...

  • Page 5
    ... electronic health record systems and Humana to share data that gives providers a comprehensive view of the patient and enables the exchange of essential health information in real-time. Average Humana Medicare Advantage Star Quality Rating (member weighted) 4.5 Medicare Advantage Members (in...

  • Page 6
    ... associates RightSource members lower higher out-of-pocket costs adherence than retail pharmacy customers Vitality HealthyFoodTM, a feature of the HumanaVitality wellness and rewards program, enables people to save money on healthy foods at participating Walmart® locations. 6 2013 Annual...

  • Page 7
    ... is working with health care providers to more effectively promote prevention. As a care provider, Humana is transitioning from volume- to valuebased care while helping our providerpartners do the same. Humana Chronic Care Program Membership 300,000 200,000 100,000 0 2011 2012 2013 2013 Annual...

  • Page 8
    ... in the Humana Chronic Care Program (HCCP) increased to 280,200 members at December 31, 2013, compared with 151,000 at December 31, 2012, an increase of 86 percent. • Medical costs in our commercial plans are lower than we had projected when we priced the related business. We priced in line with...

  • Page 9
    .... Sincerely, $5.00 $2.50 Bruce D. Broussard President and Chief Executive Officer $0.00 2011 2012 2013 * Includes $0.99 per share of benefits expense for our closed block longterm care insurance policies reserve strengthening. Kurt J. Hilzinger Chairman of the Board 2013 Annual Report 9

  • Page 10
    ... Chief Executive Officer Ashland Inc. W. Roy Dunbar Former Chairman of the Board NetworkSolutions Marissa T. Peterson Former Executive Vice President Worldwide Operations, Services and Customer Advocacy Sun Microsystems, Inc. David A. Jones, Jr. Chairman Chrysalis Ventures, LLC 10 2013 Annual...

  • Page 11
    ... Commission file number 1-5975 (Exact name of registrant as specified in its charter) HUMANA INC. Delaware (State of incorporation) 61-0647538 (I.R.S. Employer Identification Number) 500 West Main Street Louisville, Kentucky (Address of principal executive offices) 40202 (Zip Code) Registrant...

  • Page 12
    ... on Accounting and Financial Disclosure . . Controls and Procedures ...Other Information ...Part III Item 10. Item 11. Item 12. Item 13. Item 14. Directors, Executive Officers and Corporate Governance ...Executive Compensation ...Security Ownership of Certain Beneficial Owners and Management and...

  • Page 13
    ..., 75% of our total premiums and services revenue were derived from contracts with the federal government, including 15% derived from our individual Medicare Advantage contracts in Florida with the Centers for Medicare and Medicaid Services, or CMS, under which we provide health insurance coverage to...

  • Page 14
    ... contracts with various states to provide Medicaid, dual eligible, and Long-Term Support Services benefits, collectively our state-based contracts. The Employer Group segment consists of Medicare and commercial fully-insured medical and specialty health insurance benefits, including dental, vision...

  • Page 15
    ...'s fee in the event the member chooses not to use a provider participating in the PPO's network. Point of Service, or POS, plans combine the advantages of HMO plans with the flexibility of PPO plans. In general, POS plans allow members to choose, at the time medical services are needed, to seek care...

  • Page 16
    ... We contract with CMS under the Medicare Advantage program to provide a comprehensive array of health insurance benefits, including wellness programs, chronic care management, and care coordination, to Medicare eligible persons under HMO, PPO, and Private Fee-For-Service, or PFFS, plans in exchange...

  • Page 17
    ... with both Medicare and Medicaid into the LI-NET prescription drug plan program, and subsequently transitions each member into a Medicare Part D plan that may or may not be a Humana Medicare plan. Medicare and Medicaid Dual Eligible and Long-Term Care Support Services Medicare beneficiaries who...

  • Page 18
    ... and integrated care, and has contracts to provide Medicaid long-term support services across the entire state of Florida. The enrollment effective dates for the various regions range from August 2013 to March 2014. Individual Commercial Coverage Our individual health plans are marketed under the...

  • Page 19
    ... commercial products sold to employer groups include a broad spectrum of major medical benefits with multiple in-network coinsurance levels and annual deductible choices that employers of all sizes can offer to their employees on either a fully-insured, through HMO, PPO, or POS plans, or self-funded...

  • Page 20
    ... insurance coverage from us to cover catastrophic claims or to limit aggregate annual costs. As with individual commercial policies, employers can customize their offerings with optional benefits such as dental, vision, life, and a portfolio of voluntary benefit products. Group Medicare Advantage...

  • Page 21
    ... line of business for the year ended December 31, 2013: Healthcare Services Percent of Segment Consolidated Premiums and Premiums and Services Revenue Services Revenue (dollars in millions) Intersegment revenue: Pharmacy solutions ...Provider services ...Home based services ...Integrated behavioral...

  • Page 22
    ... ...Puerto Rico Medicaid ...Closed-block long-term care insurance policies ...Total premiums ...Services ...Total premiums and services revenue ...Military Services $ 25 629 41 695 454 0.1% 1.5% 0.1% 1.7% 1.1% 2.8% $1,149 Under our TRICARE South Region contract with the United States Department...

  • Page 23
    ... of health benefits. Accordingly, we account for revenues under the current contract net of estimated health care costs similar to an administrative services fee only agreement. Our current TRICARE South Region contract covers approximately 3,101,800 eligible beneficiaries as of December 31, 2013 in...

  • Page 24
    ...our members, product and benefit designs, hospital inpatient management systems, the use of sophisticated analytics, and enrolling members into various care management programs. The focal point for health care services in many of our HMO networks is the primary care provider who, under contract with...

  • Page 25
    ... in our HMO networks are reimbursed based upon a fixed fee schedule, which typically provides for reimbursement based upon a percentage of the standard Medicare allowable fee schedule. The terms of our contracts with hospitals and physicians may also vary between Medicare and commercial business...

  • Page 26
    ... of the underlying claims experience was approximately $693 million, or 2.1% of total benefits expense, for the year ended December 31, 2013. We remain financially responsible for health care services to our members in the event our providers fail to provide such services. Accreditation Assessment...

  • Page 27
    ... 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...

  • Page 28
    ... Services We provide centralized management services to each of our health plans and to our business segments from our headquarters and service centers. These services include management information systems, product development and administration, finance, human resources, accounting, law, public...

  • Page 29
    ... of future payments to hospitals and others for medical care provided to our members. Generally, premiums in the health care business are fixed for one-year periods. Accordingly, costs we incur in excess of our benefit cost projections generally are not recovered in the contract year through higher...

  • Page 30
    ... benefits payable include $1.4 billion at December 31, 2013 associated with a non-strategic closed block of long-term care insurance policies acquired in connection with the 2007 KMG America Corporation acquisition. Long-term care insurance policies provide nursing home and home health coverage...

  • Page 31
    ... our HMO, PPO, and stand-alone PDP products, the successful implementation of our integrated care delivery model, our strategy with respect to state-based contracts, including those covering members dually eligible for the Medicare and Medicaid programs, and our participation in health insurance...

  • Page 32
    ...our information systems and data integrity, we could have operational disruptions, have problems in determining medical cost estimates and establishing appropriate pricing, have customer and physician and other health care provider disputes, have regulatory or other legal problems, have increases in...

  • Page 33
    ...of protected health information. ICD-9, the current system of assigning codes to diagnoses and procedures associated with hospital utilization in the United States, will be replaced by ICD-10 code sets on October 1, 2014. For dates of service on or after that date, health plans and providers will be...

  • Page 34
    ...and Medicaid programs. These programs accounted for approximately 77% of our total premiums and services revenue for the year ended December 31, 2013. These programs involve various risks, as described further below. • At December 31, 2013, under our contracts with CMS we provided health insurance...

  • Page 35
    ... TRICARE South Region contract, should it occur, may have a material adverse effect on our results of operations, financial position, and cash flows. • There is a possibility of temporary or permanent suspension from participating in government health care programs, including Medicare and Medicaid...

  • Page 36
    ...have a material adverse effect on our results of operations, financial position, or cash flows. • Our CMS contracts which cover members' prescription drugs under Medicare Part D contain provisions for risk sharing and certain payments for prescription drug costs for which we are not at risk. These...

  • Page 37
    ... new markets, increasing our medical and operating costs by, among other things, requiring a minimum benefit ratio on insured products, lowering our Medicare payment rates and increasing our expenses associated with a non-deductible health insurance industry fee and other assessments); our financial...

  • Page 38
    ...central to both the enrollment process and our ability to understand and service this new member population. The Health Care Reform Law requires insurers participating on the health insurance exchanges to offer a minimum level of benefits and includes guidelines on setting premium rates and coverage...

  • Page 39
    ... their manner of application, including reductions in Medicare Advantage payment rates, could increase our cost of doing business and may adversely affect our business, profitability, financial condition, and cash flows. In addition to the Health Care Reform Law, the health care industry in general...

  • Page 40
    ... and related legal costs of work-related illnesses and injuries. These laws generally establish the rights of workers to receive benefits and to appeal benefit denials, prohibit charging medical co-payments or deductibles to employees, may restrict employers' rights to select healthcare providers or...

  • Page 41
    ..., PPOs and other health insurance-related services regulate our operations including: licensing requirements, policy language describing benefits, mandated benefits and processes, entry, withdrawal or re-entry into a state or market, rate increases, delivery systems, utilization review procedures...

  • Page 42
    ... financial incentives to deliver quality medical services in a cost-effective manner. In any particular market, providers could refuse to contract with us, demand higher payments, or take other actions that could result in higher health care costs for us, less desirable products for customers and...

  • Page 43
    ... and other health care products, and the application of state laws related to the operation of internet and mail-order pharmacies. The failure to adhere to these laws and regulations may expose us to civil and criminal penalties. Changes in the prescription drug industry pricing benchmarks may...

  • Page 44
    ...as the measure for determining payment by Medicare or Medicaid programs for the drugs sold in our mail-order pharmacy business may reduce the revenues and gross margins of this business which may result in a material adverse effect on our results of operations, financial position, and cash flows. If...

  • Page 45
    ... in attempts to reduce payments in our federal and state government health care coverage programs, including the Medicare, military services, and Medicaid programs, and could result in an increase in taxes and assessments on our activities. We cannot predict the future funding levels of, or other...

  • Page 46
    ...capacity, as well as the possibility that customers or lenders could develop a negative perception of our long or short-term financial prospects. Similarly, our access to funds could be limited if regulatory authorities or rating agencies were to take negative actions against us. If a combination of...

  • Page 47
    ...on premium levels or the ability to raise premiums on existing policies; increases in minimum capital, reserves, and other financial strength requirements; and limitations on our ability to repurchase our common stock. These factors could materially reduce our stock price. In addition, broad market...

  • Page 48
    .... Our principal executive office is located in the Humana Building, 500 West Main Street, Louisville, Kentucky 40202. In addition to the headquarters in Louisville, Kentucky, we maintain other principal operating facilities used for customer service, enrollment, and/or claims processing and certain...

  • Page 49
    ... may include employment matters, claims of medical malpractice, bad faith, nonacceptance or termination of providers, anticompetitive practices, improper rate setting, provider contract rate disputes, failure to disclose network discounts and various other provider arrangements, general contractual...

  • Page 50
    ... Market Information Our common stock trades on the New York Stock Exchange under the symbol HUM. The following table shows the range of high and low closing sales prices as reported on the New York Stock Exchange Composite Price for each quarter in the years ended December 31, 2013 and 2012...

  • Page 51
    ... Performance The following graph compares our total return to stockholders with the returns of the Standard & Poor's Composite 500 Index ("S&P 500") and the Dow Jones US Select Health Care Providers Index ("Peer Group") for the five years ended December 31, 2013. The graph assumes an investment of...

  • Page 52
    ... following table provides information about purchases by us during the three months ended December 31, 2013 of equity securities that are registered by us pursuant to Section 12 of the Exchange Act: Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (1)(2) Dollar Value...

  • Page 53
    ... associated with our non-strategic closed block of long-term care insurance policies. (b) Includes the acquired operations of Arcadian Management Services, Inc. from March 31, 2012, SeniorBridge Family Companies, Inc. from July 6, 2012, and Metropolitan Health Networks, Inc. from December 21, 2012...

  • Page 54
    ... with various states to provide Medicaid, dual eligible, and Long-Term Support Services benefits, collectively our state-based contracts. The Employer Group segment consists of Medicare and commercial fullyinsured medical and specialty health insurance benefits, including dental, vision, and other...

  • Page 55
    ... care program, including increased care management professional staffing and clinical assessments. Comparisons of the benefit ratios and operating cost ratios for the years ended December 31, 2013 and December 31, 2012 are impacted by the transition to the current TRICARE South Region contract...

  • Page 56
    ...-service medical cost trend estimates from CMS, the impact of payment cuts associated with the Health Care Reform Law, quality bonuses, sunset of the Star quality CMS demo in 2015, risk coding and recalibration, and the impact of the health insurance industry fee, we estimate 2015 Medicare Advantage...

  • Page 57
    ... seniors and disabled individuals with a unique focus on individualized and integrated care, and has contracts to provide Medicaid long-term support services across the entire state of Florida. The enrollment effective dates for the various regions range from August 2013 to March 2014. While we...

  • Page 58
    ...our Medicare Advantage membership. We believe these initiatives lead to better health outcomes for our members and lower health care costs. Year-over-year comparisons of results for the Healthcare Services segment are impacted by the December 21, 2012 acquisition of Metropolitan Health Networks, Inc...

  • Page 59
    ... claims. On January 27, 2014, we were notified by the Defense Health Agency of its intent to exercise its option to extend our TRICARE South Region contract through March 31, 2015. Comparisons of the benefit ratios for the year ended December 31, 2013 and December 31, 2012 within Other Businesses...

  • Page 60
    ... two to six years, depending on the level of payment reduction in a county. In addition, since 2011 the gap in coverage for Medicare Part D prescription drug coverage has been incrementally closing. Certain provisions in the Health Care Reform Law tie Medicare Advantage premiums to the achievement...

  • Page 61
    ... ability to expand into new markets, increasing our medical and operating costs, further lowering our Medicare payment rates and increasing our expenses associated with the non-deductible health insurance industry fee and other assessments); our financial position (including our ability to maintain...

  • Page 62
    ... of our major business lines, including Medicare Advantage membership growth in our Retail and Employer group segments. These increases were partially offset by benefits expense of $0.99 per diluted common share in 2013 for reserve strengthening associated with our closed-block of long-term care 52

  • Page 63
    ... and Supplementary Data, on April 1, 2012, we began delivering services under the current TRICARE South Region contract that the DHA awarded to us on February 25, 2011. We account for revenues under the current contract net of estimated healthcare costs similar to an administrative services fee only...

  • Page 64
    ... Law and new state-based contracts as well as increased marketing spending for Medicare. The consolidated operating cost ratio for 2013 was 15.5%, increasing 40 basis points from 2012. The impact of the current TRICARE South Region contract being accounted for as an administrative services fee only...

  • Page 65
    ... to enroll in multiple products. 2013 2012 (in millions) Change Dollars Percentage Premiums and Services Revenue: Premiums: Individual Medicare Advantage ...Medicare stand-alone PDP ...Total Retail Medicare ...Individual commercial ...State-based Medicaid ...Individual specialty ...Total premiums...

  • Page 66
    ... metropolitan areas in the 14 states where Humana has public exchange offerings. State-based Medicaid membership increased 33,400 members, or 64.1%, from December 31, 2012 to December 31, 2013, primarily driven by the addition of our Kentucky Medicaid contract and Florida Long-Term Support Services...

  • Page 67
    ... to enroll in multiple products. Change 2013 2012 (in millions) Dollars Percentage Premiums and Services Revenue: Premiums: Fully-insured commercial group ...Group Medicare Advantage ...Group Medicare stand-alone PDP ...Total group Medicare ...Group specialty ...Total premiums ...Services ...Total...

  • Page 68
    ... 30 basis points from 2012. This decrease primarily reflects continued savings as a result of our operating cost reduction initiatives and growth in our group Medicare Advantage products which generally carry a lower operating cost ratio than our fully-insured commercial group products, partially...

  • Page 69
    ... in pretax income associated with our home based services business reflects the increase in home health services provided to our Medicare Advantage members. Script Volume • Humana Pharmacy Solutions® script volumes for the Retail and Employer Group segment membership increased to approximately...

  • Page 70
    ...-block of long-term care insurance policies further discussed in Note 17 to the consolidated financial statements included in Item 8. - Financial Statements and Supplementary Data. In addition, 2013 reflects the loss of our Medicaid contracts in Puerto Rico effective September 30, 2013 offset by...

  • Page 71
    ... under the current TRICARE South Region contract that the TMA awarded to us on February 25, 2011. We account for revenues under the current contract net of estimated healthcare costs similar to an administrative services fee only agreement, and as such there are no premiums recognized under the...

  • Page 72
    ... result of Medicare Advantage growth. The consolidated operating cost ratio for 2012 was 15.1%, increasing 30 basis points from the 2011 operating cost ratio of 14.8% as the impact of the current TRICARE South Region contract being accounted for as an administrative services fee only arrangement was...

  • Page 73
    ...enroll in multiple products. 2012 2011 (in millions) Dollars Change Percentage Premiums and Services Revenue: Premiums: Individual Medicare Advantage ...Individual Medicare stand-alone PDP ...Total individual Medicare ...Individual commercial ...State-based Medicaid ...Individual specialty ...Total...

  • Page 74
    ... our Humana-Walmart plan offering, supplemented by dual-eligible and age-in enrollments throughout the year. Individual specialty membership increased 166,200, or 21.2%, from December 31, 2011 to December 31, 2012 primarily driven by increased membership in dental offerings. • Premiums revenue...

  • Page 75
    ... to enroll in multiple products. 2012 2011 (in millions) Dollars Change Percentage Premiums and Services Revenue: Premiums: Fully-insured commercial group ...Group Medicare Advantage ...Group Medicare stand-alone PDP ...Total group Medicare ...Group specialty ...Total premiums ...Services ...Total...

  • Page 76
    ... average group Medicare Advantage and fully-insured commercial group medical membership. In addition, 2012 included the beneficial effect of approximately $25 million associated with revising estimates regarding calculations of 2011 premium rebates payable associated with minimum benefit ratios...

  • Page 77
    ... million in 2011. The year-over-year increase primarily reflects growth associated with higher average medical membership together with an increase in mail order penetration for our Retail segment medical membership in 2012 than in 2011. Services revenue • Provider services revenue increased $87...

  • Page 78
    ...pretax income of $41 million for 2011. The year-over-year decline primarily reflects the combined effect of costs in connection with a litigation settlement associated with our military services business in 2012, reserve strengthening for our closed block of long-term care insurance policies in 2012...

  • Page 79
    ... the acquisition date. Commercial and other receivables also reflect the timing of reimbursements from the Puerto Rico Health Insurance Administration under our Medicaid contracts that terminated effective September 30, 2013. As discussed above, we expect receivables to increase in 2014 as a result...

  • Page 80
    ...in benefits payable in 2011 primarily was due to an increase in processed but unpaid claims, including amounts due to our pharmacy benefit administrator, which fluctuate due to month-end cutoff, and an increase in military services benefits payable. In addition to the timing of receipts for premiums...

  • Page 81
    ... claim payments during 2011. Under our current administrative services only TRICARE South Region contract that began April 1, 2012, health care cost payments for which we do not assume risk were less than reimbursements from the federal government by $5 million in 2013 and exceeded reimbursements...

  • Page 82
    ...table provides details of dividend payments in 2011, 2012, and 2013 under our Board approved quarterly cash dividend policy: Record Date Payment Date Amount per Share Total Amount (in millions) 2011 payments 6/30/2011 9/30/2011 2012 payments 12/30/2011 3/30/2012 6/29/2012 9/28/2012 2013 payments 12...

  • Page 83
    ...non-regulated businesses. Our use of operating cash flows derived from our non-insurance subsidiaries, such as in our Healthcare Services segment, is generally not restricted by Departments of Insurance. Our subsidiaries paid dividends to the parent of $967 million in 2013, $1.2 billion in 2012, and...

  • Page 84
    ... accounting principles, under which the fee is expensed ratably throughout the payment year. In September 2014, we expect to pay the federal government in the range of $525 million to $575 million for the annual health insurance industry fee. In 2015, the health insurance industry fee increases...

  • Page 85
    ... cost of services which have been incurred but not yet reported, or IBNR. IBNR represents a substantial portion of our benefits payable as follows: December 31, 2013 Percentage December 31, of Total 2012 (dollars in millions) Percentage of Total IBNR ...Reported claims in process ...Other benefits...

  • Page 86
    ... of recent hospital and drug utilization data, provider contracting changes, changes in benefit levels, changes in member cost sharing, changes in medical management processes, product mix, and weekday seasonality. The completion factor method is used for the months of incurred claims prior to...

  • Page 87
    ... recent three months. (c) The factor change indicated represents the percentage point change. The following table provides a historical perspective regarding the accrual and payment of our benefits payable, excluding military services. Components of the total incurred claims for each year include...

  • Page 88
    ... 2011. The table below details our favorable medical claims reserve development related to prior fiscal years by segment for 2013, 2012, and 2011. Favorable Medical Claims Reserve Development 2013 2012 2011 (in millions) Change 2013 2012 Retail Segment ...Employer Group Segment ...Other Businesses...

  • Page 89
    ... be adequate to provide for future expected policy benefits and maintenance costs. Future policy benefits payable include $1.4 billion at December 31, 2013 and $1.1 billion at December 31, 2012 associated with a non-strategic closed block of long-term care insurance policies acquired in connection...

  • Page 90
    Long-term care insurance policies provide nursing home and home health coverage for which premiums are collected many years in advance of benefits paid, if any. Therefore, our actual claims experience will emerge many years after assumptions have been established. The risk of a deviation of the ...

  • Page 91
    ... cover prescription drug benefits in accordance with Medicare Part D under multiple contracts with CMS. The payments we receive monthly from CMS and members, which are determined from our annual bid, represent amounts for providing prescription drug insurance coverage. We recognize premiums revenue...

  • Page 92
    ... to our provider networks and clinical programs, claim processing, customer service, enrollment, and other services, while the federal government retains all of the risk of the cost of health benefits. Under the terms of the current TRICARE South Region contract, we do not record premiums revenue or...

  • Page 93
    .... For 2013, health care cost reimbursement were $3.2 billion, exceeding payments of $3.2 billion by $5 million. Our previous TRICARE South Region contract that expired on March 31, 2012 provided a financial interest in the underlying health care cost; therefore, we reported revenues on a gross...

  • Page 94
    ...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 47.3% of total assets at December 31, 2013, and $9.8 billion, or 49% of total assets at December 31, 2012. Debt securities, detailed...

  • Page 95
    ... of corporate securities associated with the financial services industry was 23% at December 31, 2013 and 2012. Gross unrealized losses and fair values aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position were as follows...

  • Page 96
    ..., premium yields, medical and operating cost trends, and certain government contract extensions, are consistent with those utilized in our long-range business plan and annual planning process. If these assumptions differ from actual, including the impact of the ultimate outcome of the Health Care...

  • Page 97
    ... of $728 million at December 31, 2012 to a net unrealized gain position of $250 million at December 31, 2013. At December 31, 2013, we had gross unrealized losses of $127 million on our investment portfolio primarily due to an increase in market interest rates and tighter liquidity conditions in the...

  • Page 98
    ... points five times. Increase (decrease) in Increase (decrease) in pretax earnings given an pretax earnings given an interest rate decrease of interest rate increase of X basis points X basis points (300) (200) (100) 100 200 300 (in millions) As of December 31, 2013 Investment income (a) ...Interest...

  • Page 99
    ... accounts of $118 in 2013 and $94 in 2012: ...950 733 Other current assets ...2,122 1,670 Total current assets ...Property and equipment, net ...Long-term investment securities ...Goodwill ...Other long-term assets ...Total assets ...LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Benefits...

  • Page 100
    Humana Inc. CONSOLIDATED STATEMENTS OF INCOME For the year ended December 31, 2013 2012 2011 (in millions, except per share results) Revenues: Premiums ...Services ...Investment income ...Total revenues ...Operating expenses: Benefits ...Operating costs ...Depreciation and amortization ...Total ...

  • Page 101
    Humana Inc. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME For the year ended December 31, 2013 2012 2011 (in millions) Net income ...Other comprehensive (loss) income: Change in gross unrealized investment gains/losses ...Effect of income taxes ...Total change in unrealized investment gains/...

  • Page 102
    ... 31, 2012 ...194,471 Net income ...Other comprehensive loss ...Common stock repurchases ...Dividends declared ...Stock-based compensation ...Restricted stock unit vesting ...563 Stock option exercises ...1,242 Stock option and restricted stock tax benefit ...Balances, December 31, 2013 ...196...

  • Page 103
    ...the year ended December 31, 2013 2012 2011 (in millions) Cash flows from operating activities Net income ...Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization ...Stock-based compensation ...Net realized capital gains ...Provision (benefit...

  • Page 104
    ... government contracts with the Centers for Medicare and Medicaid Services, or CMS, to provide health insurance coverage for individual Medicare Advantage members in Florida. CMS is the federal government's agency responsible for administering the Medicare program. Health Care Reform The Patient...

  • Page 105
    ... contract with the Centers for Medicare and Medicaid Services, or CMS, to administer the Limited Income Newly Eligible Transition, or LI-NET, prescription drug plan program as well as our state-based contracts for Medicaid members, both of which had historically been reported in our Other Businesses...

  • Page 106
    ... cover prescription drug benefits in accordance with Medicare Part D under multiple contracts with CMS. The payments we receive monthly from CMS and members, which are determined from our annual bid, represent amounts for providing prescription drug insurance coverage. We recognize premiums revenue...

  • Page 107
    ... to our provider networks and clinical programs, claim processing, customer service, enrollment, and other services, while the federal government retains all of the risk of the cost of health benefits. Under the terms of the current TRICARE South Region contract, we do not record premiums revenue or...

  • Page 108
    ... clinical programs, claim processing, customer service, enrollment, and other services, while the federal government retains all of the risk of the cost of health benefits. We account for revenues under the current contract net of estimated health care costs similar to an administrative services fee...

  • Page 109
    ...in 2014, health policies sold to individuals that conform to the Health Care Reform Law are accounted for under a short-duration model and accordingly policy acquisition costs are expensed as incurred because premiums received in the current year are intended to pay anticipated benefits in that year...

  • Page 110
    ... our long-lived asset policy. Benefits Payable and Benefits Expense Recognition Benefits expense includes claim payments, capitation payments, pharmacy costs net of rebates, allocations of certain centralized expenses and various other costs incurred to provide health insurance coverage to members...

  • Page 111
    Humana Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) Future policy benefits payable Future policy benefits payable include liabilities for long-duration insurance policies including long-term care, life insurance, annuities, and certain health and other supplemental policies sold to ...

  • Page 112
    ..., as determined on the date of grant at fair value, on a straight-line basis over the period during which an employee is required to provide service in exchange for the award (the vesting period). However, for awards granted to retirement eligible employees, the compensation expense is recognized on...

  • Page 113
    ...seniors and disabled individuals with a unique focus on individualized and integrated care, and has contracts to provide Medicaid long-term support services across the entire state of Florida. The enrollment effective dates for the various regions range from August 2013 to March 2014. The allocation...

  • Page 114
    ... agreements with Humana and third party health plans, Metropolitan and MCCI assume financial risk associated with these Medicare Advantage and Medicaid members. On July 6, 2012, we acquired SeniorBridge Family Companies, Inc., or SeniorBridge, a chronic-care provider of in-home care for seniors...

  • Page 115
    Humana Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) 4. INVESTMENT SECURITIES Investment securities classified as current and long-term were as follows at December 31, 2013 and 2012, respectively: Amortized Cost Gross Gross Unrealized Unrealized Gains Losses (in millions) Fair Value ...

  • Page 116
    ... that were not prerefunded in the portfolio. Special revenue bonds, issued by a municipality to finance a specific public works project such as utilities, water and sewer, transportation, or education, and supported by the revenues of that project, accounted for the remaining 60% of these municipals...

  • Page 117
    ... of corporate securities associated with the financial services industry at December 31, 2013 and 2012 was 23%. All issuers of securities we own that were trading at an unrealized loss at December 31, 2013 remain current on all contractual payments. After taking into account these and other...

  • Page 118
    ...our fair value measurements at December 31, 2013 and 2012, respectively, for financial assets measured at fair value on a recurring basis: Fair Value Measurements Using Quoted Prices Other in Active Observable Unobservable Markets Inputs Inputs (Level 1) (Level 2) (Level 3) (in millions) Fair Value...

  • Page 119
    ... Basis As disclosed in Note 3, we completed our acquisitions of American Eldercare, Metropolitan, SeniorBridge, Arcadian, Anvita, and other companies during 2013, 2012, and 2011. The values of net tangible assets acquired and the resulting goodwill and other intangible assets were recorded at...

  • Page 120
    Humana Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) 6. MEDICARE PART D As discussed in Note 2, we cover prescription drug benefits in accordance with Medicare Part D under multiple contracts with CMS. The consolidated balance sheets include the following amounts associated with ...

  • Page 121
    ... of goodwill for our reportable segments for the years ended December 31, 2013 and 2012 were as follows: Employer Group Health & Well -Being Other Services Businesses (in millions) Retail Total Balance at December 31, 2011 ...Acquisitions ...Subsequent payments/adjustments ...Balance at December...

  • Page 122
    ... provider billings as well as system enhancements that improved claim recovery functionality. Benefits expense associated with military services and provisions associated with future policy benefits excluded from the previous table was as follows for the years ended December 31, 2013, 2012 and 2011...

  • Page 123
    ... rate for the years ended December 31, 2013, 2012 and 2011 due to the following: 2013 2012 2011 (in millions) Income tax provision at federal statutory rate ...States, net of federal benefit, and Puerto Rico ...Tax exempt investment income ...Nondeductible executive compensation ...Other, net...

  • Page 124
    ... Assets (Liabilities) 2013 2012 (in millions) Future policy benefits payable ...Compensation and other accrued expenses ...Benefits payable ...Net operating loss carryforward ...Deferred acquisition costs ...Unearned premiums ...Capital loss carryforward ...Other ...Total deferred income tax assets...

  • Page 125
    ...foreign jurisdictions. The U.S. Internal Revenue Service, or IRS, has completed its examinations of our consolidated income tax returns for 2011 and prior years. Our 2012 tax return is in the post-filing review period under the Compliance Assurance Process (CAP). Our 2013 tax return is under advance...

  • Page 126
    ... retirement savings plans covering eligible employees which include matching contributions based on the amount of our employees' contributions to the plans. The cost of these plans amounted to approximately $155 million in 2013, $138 million in 2012, and $126 million in 2011, all of which was funded...

  • Page 127
    ...service, as retirement-eligible. Upon exercise, stock-based compensation awards are settled with authorized but unissued company stock or treasury stock. The compensation expense that has been charged against income for these plans was as follows for the years ended December 31, 2013, 2012, and 2011...

  • Page 128
    ... 2011, our Board of Directors approved the initiation of a quarterly cash dividend policy. When valuing employee stock options, we stratify the employee population into three homogenous groups that historically have exhibited similar exercise behaviors. These groups are executive officers, directors...

  • Page 129
    ... SHARE COMPUTATION Detail supporting the computation of basic and diluted earnings per common share was as follows for the years ended December 31, 2013, 2012 and 2011: 2012 2011 2013 (dollars in millions, except per common share results, number of shares/options in thousands) Net income available...

  • Page 130
    Humana Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) 14. STOCKHOLDERS' EQUITY Dividends The following table provides details of dividend payments in 2011, 2012, and 2013 under our Board approved quarterly cash dividend policy: Record Date Payment Date Amount per Share Total Amount (in ...

  • Page 131
    ...Rent with scheduled escalation terms are accounted for on a straight-line basis over the lease term. Rent expense and sublease rental income, which are recorded net as an operating cost, for all operating leases were as follows for the years ended December 31, 2013, 2012 and 2011: 2013 2012 2011 (in...

  • Page 132
    ... regulated subsidiaries generally are guaranteed by Humana Inc., our parent company, in the event of insolvency for (1) member coverage for which premium payment has been made prior to insolvency; (2) benefits for members then hospitalized until discharged; and (3) payment to providers for services...

  • Page 133
    ...) Government Contracts Our Medicare products, which accounted for approximately 74% of our total premiums and services revenue for the year ended December 31, 2013, primarily consisted of products covered under the Medicare Advantage and Medicare Part D Prescription Drug Plan contracts with the...

  • Page 134
    ... Medicaid business, which accounted for approximately 2% of our total premiums and services revenue for the year ended December 31, 2013, primarily consisted of contracts in Puerto Rico, Florida, and Kentucky, with the vast majority in Puerto Rico. On June 26, 2013, the Puerto Rico Health Insurance...

  • Page 135
    ... Medicare Part D prescription drug program and other litigation. A limited number of the claims asserted against us are subject to insurance coverage. Personal injury claims, claims for extracontractual damages, care delivery malpractice, and claims arising from medical benefit denials are covered...

  • Page 136
    ... services, primarily our TRICARE South Region contract, Puerto Rico Medicaid, and closed-block long-term care insurance policies. Our Healthcare Services intersegment revenues primarily relate to managing prescription drug coverage for members of our other segments through Humana Pharmacy Solutions...

  • Page 137
    ...owned providers by our health plans. The owned provider assumes the economic risk of funding the assigned members' healthcare services and related administrative costs. Accordingly, our Healthcare Services segment reports provider services related revenues on a gross basis. Capitation fee revenue is...

  • Page 138
    ... ...Total Medicare ...Fully-insured ...Specialty ...Military services ...Medicaid and other ...Total premiums ...Services revenue: Provider ...ASO and other ...Pharmacy ...Total services revenue ...Total revenues-external customers ...Intersegment revenues Services ...Products ...Total intersegment...

  • Page 139
    ... 2012 Revenues-external customers Premiums: Medicare Advantage ...Medicare stand-alone PDP ...Total Medicare ...Fully-insured ...Specialty ...Military services ...Medicaid and other ...Total premiums ...Services revenue: Provider ...ASO and other ...Pharmacy ...Total services revenue ...Total...

  • Page 140
    ... Premiums associated with our long-duration insurance products accounted for approximately 2% of our consolidated premiums and services revenue for the year ended December 31, 2013. We use long-duration accounting for products such as long-term care, life insurance, annuities, and certain health...

  • Page 141
    ... 31, 2012. Amounts charged to accumulated other comprehensive income are net of applicable deferred taxes. Long-term care insurance policies provide nursing home and home health coverage for which premiums are collected many years in advance of benefits paid, if any. Therefore, our actual claims...

  • Page 142
    ... recognition date, particularly as they related to emerging experience due to an increase in life expectancies and utilization of home health care services. Based on this deterioration, and combined with lower interest rates, we determined that our existing future policy benefits payable, together...

  • Page 143
    ...-established, as evidenced by the strong financial ratings at December 31, 2013 presented below: Reinsurer Total Recoverable (in millions) A.M. Best Rating at December 31, 2013 Protective Life Insurance Company ...Munich American Reassurance Company ...Employers Reassurance Corporation ...General...

  • Page 144
    ... position of Humana Inc. and its subsidiaries ("Company") at December 31, 2013 and 2012, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2013 in conformity with accounting principles generally accepted in the United States...

  • Page 145
    ... FINANCIAL INFORMATION (Unaudited) A summary of our quarterly unaudited results of operations for the years ended December 31, 2013 and 2012 follows: 2013 First Second Third Fourth (1) (in millions, except per share results) Total revenues ...$10,486 Income (loss) before income taxes ...730 Net...

  • Page 146
    ...over financial reporting and is embodied in our Principles of Business Ethics. It sets the tone of our organization and includes factors such as integrity and ethical values. Our internal control over financial reporting is supported by formal policies and procedures which are reviewed, modified and...

  • Page 147
    ... control over financial reporting as of December 31, 2013 has been audited by PricewaterhouseCoopers LLP, our independent registered public accounting firm, who also audited the Company's consolidated financial statements included in our Annual Report on Form 10-K, as stated in their report which...

  • Page 148
    ... President and Chief Strategy Officer Senior Vice President and Chief Human Resources Officer Senior Vice President and Chief Information Officer President - Retail Segment Senior Vice President - Public Affairs President, Government and Other Businesses President, Healthcare Services Segment Senior...

  • Page 149
    ..., Mr. Huval spent 10 years at Bank of America in multiple senior-level roles, including Human Resources executive and Chief Information Officer for Global Wealth & Investment Management, as well as Human Resources executive for both Global Treasury Services and Technology & Global Operations. (9) Mr...

  • Page 150
    ... amendment to or waiver of the application of the Code of Ethics for the Chief Executive Officer and Senior Financial Officers will be promptly disclosed through the Investor Relations section of our web site at www.humana.com. Code of Business Conduct and Ethics Since 1995, we have operated under...

  • Page 151
    ...; stock ownership guidelines for directors and for executive officers; the Humana Inc. Principles of Business Ethics and any waivers thereto; and the Code of Ethics for the Chief Executive Officer and Senior Financial Officers and any waivers thereto. Additional information about these items can be...

  • Page 152
    ...awards, see Note 12. (2) The Humana Inc. 2011 Stock Incentive Plan was approved by stockholders at the Annual Meeting held on April 21, 2011. On July 5, 2011, 18.5 million shares were registered with the Securities and Exchange Commission on Form S-8. (3) Of the number listed above, 5,839,017 can be...

  • Page 153
    ...included herein: Schedule I Schedule II Parent Company Financial Information Valuation and Qualifying Accounts All other schedules have been omitted because they are not applicable. (3) Exhibits: 3(a) Restated Certificate of Incorporation of Humana Inc. filed with the Secretary of State of Delaware...

  • Page 154
    ... on Form 10-K filed on February 17, 2011). Letter agreement with Humana Inc. officers concerning health insurance availability (incorporated herein by reference to Exhibit 10(mm) to Humana Inc.'s Annual Report on Form 10-K for the fiscal year ended December 31, 1994). Executive Long-Term Disability...

  • Page 155
    ... Providing for the Operation of a Medicare Advantage Regional Coordinated Care Plan (incorporated herein by reference to Exhibit 10.6 to Humana Inc.'s Quarterly Report on Form 10-Q for the quarter ended September 30, 2005). Explanatory Note regarding Medicare Prescription Drug Plan Contracts...

  • Page 156
    ...-K filed on February 24, 2012). Computation of ratio of earnings to fixed charges. Code of Conduct for Chief Executive Officer & Senior Financial Officers (incorporated herein by reference to Exhibit 14 to Humana Inc.'s Annual Report on Form 10-K for the fiscal year ended December 31, 2003). List of...

  • Page 157
    ...Extensible Business Reporting Language): (i) the Consolidated Balance Sheets at December 31, 2013 and 2012; (ii) the Consolidated Statements of Income for the years ended December 31, 2013, 2012 and 2011; (iii) the Consolidated Statements of Comprehensive Income for the years ended December 31, 2013...

  • Page 158
    Humana Inc. SCHEDULE I-PARENT COMPANY FINANCIAL INFORMATION CONDENSED BALANCE SHEETS December 31, 2013 2012 (in millions, except share amounts) ASSETS Current assets: Cash and cash equivalents ...Investment securities ...Receivable from operating subsidiaries ...Other current assets ...Total ...

  • Page 159
    Humana Inc. SCHEDULE I-PARENT COMPANY FINANCIAL INFORMATION CONDENSED STATEMENTS OF INCOME For the year ended December 31, 2013 2012 2011 (in millions) Revenues: Management fees charged to operating subsidiaries ...Investment and other income, net ...Expenses: Operating costs ...Depreciation ......

  • Page 160
    Humana Inc. SCHEDULE I-PARENT COMPANY FINANCIAL INFORMATION CONDENSED STATEMENTS OF COMPREHENSIVE INCOME For the year ended December 31, 2013 2012 2011 (in millions) Net income ...Other comprehensive (loss) income: Change in gross unrealized investment gains/losses ...Effect of income taxes ......

  • Page 161
    Humana Inc. SCHEDULE I-PARENT COMPANY FINANCIAL INFORMATION CONDENSED STATEMENTS OF CASH FLOWS For the year ended December 31, 2013 2012 2011 (in millions) Net cash provided by operating activities ...Cash flows from investing activities: Acquisitions ...Capital contributions to operating ...

  • Page 162
    ...state regulatory authorities, Humana Inc., our parent company, charges a management fee for reimbursement of certain centralized services provided to its subsidiaries including information systems, disbursement, investment and cash administration, marketing, legal, finance, and medical and executive...

  • Page 163
    ... accepted accounting principles, under which the fee is expensed ratably throughout the payment year. 4. ACQUISITIONS Refer to Note 3 of the notes to consolidated financial statements in this Annual Report on Form 10-K for a description of acquisitions. During 2013, we funded certain non-regulated...

  • Page 164
    Humana Inc. SCHEDULE II-VALUATION AND QUALIFYING ACCOUNTS For the Years Ended December 31, 2013, 2012, and 2011 (in millions) Additions Charged (Credited) to Charged to Costs and Other Expenses Accounts (1) Balance at Beginning of Period Acquired Balances Deductions or Write-offs Balance at End ...

  • Page 165
    ..., thereto duly authorized. HUMANA INC. By: /s/ STEVEN E. MCCULLEY Steven E. McCulley Interim Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer) Date: February 19, 2014 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been...

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    ... 40201-1438 Transfer Agent and Registrar American Stock Transfer & Trust Company, LLC Shareholder Services - ATTN: Operations Center 6201 15th Avenue Brooklyn, New York 11219 800.937.5449 Shareholder Services Direct Dial: 718.921.8124 www.amstock.com Email: [email protected] 2013 Annual Report 11

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    Humana.com BY = Bonus Year GCHHUDQEN 0214 1 2013 Annual Report