Humana 2013 Annual Report Download - page 104

Humana Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. REPORTING ENTITY
Nature of Operations
Headquartered in Louisville, Kentucky, Humana is a leading health care company that offers a wide range
of insurance products and health and wellness services that incorporate an integrated approach to lifelong well-
being. References throughout these notes to consolidated financial statements to “we,” “us,” “our,” “Company,”
and “Humana,” mean Humana Inc. and its subsidiaries. We derived approximately 75% of our total premiums
and services revenue from contracts with the federal government in 2013, including 15% related to our federal
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 Protection and Affordable Care Act and The Health Care and Education Reconciliation Act of
2010 (which we collectively refer to as the Health Care Reform Law) enacted significant reforms to various
aspects of the U.S. health insurance industry. While regulations and interpretive guidance on many provisions of
the Health Care Reform Law have been issued to date by the Department of Health and Human Services, or
HHS, the Department of Labor, the Treasury Department, and the National Association of Insurance
Commissioners, or NAIC, there are certain provisions of the law that will require additional guidance and
clarification in the form of regulations and interpretations in order to fully understand the impact of the law on
our overall business.
Certain significant provisions of the Health Care Reform Law include, among others, mandated coverage
requirements, mandated benefits and guarantee issuance associated with commercial medical insurance, rebates
to policyholders based on minimum benefit ratios, adjustments to Medicare Advantage premiums, the
establishment of federally facilitated or state-based exchanges coupled with programs designed to spread risk
among insurers, an annual insurance industry premium-based assessment, and a three-year commercial
reinsurance fee. Implementation dates of the Health Care Reform Law began in September 2010 and continue
through 2018.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
Our financial statements and accompanying notes are prepared in accordance with accounting principles
generally accepted in the United States of America. Our consolidated financial statements include the accounts of
Humana Inc. and subsidiaries that the Company controls, including variable interest entities associated with
medical practices for which we are the primary beneficiary. We do not own many of our medical practices but
instead enter into exclusive long-term management agreements with the affiliated Professional Associations, or
P.A.s, that operate these medical practices. Based upon the provisions of these agreements, these affiliated P.A.s
are variable interest entities and we are the primary beneficiary, and accordingly we consolidated the affiliated
P.A.s. All significant intercompany balances and transactions have been eliminated.
The preparation of financial statements in accordance with accounting principles generally accepted in the
United States of America requires us to make estimates and assumptions that affect the amounts reported in the
consolidated financial statements and accompanying notes. The areas involving the most significant use of
estimates are the estimation of benefits payable, future policy benefits payable, the impact of risk sharing
provisions related to our Medicare contracts, the valuation and related impairment recognition of investment
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