Humana 2013 Annual Report Download - page 107

Humana Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
certain thresholds may result in CMS making additional payments to us or require us to refund to CMS a portion
of the premiums we received. As risk corridor provisions are considered in our overall annual bid process, we
estimate and recognize an adjustment to premiums revenue related to these provisions based upon pharmacy
claims experience to date as if the annual contract were to terminate at the end of the reporting period.
Accordingly, this estimate provides no consideration to future pharmacy claims experience. We record a
receivable or payable at the contract level and classify the amount as current or long-term in the consolidated
balance sheets based on the timing of expected settlement.
Reinsurance and low-income cost subsidies represent funding from CMS in connection with the Medicare
Part D program for which we assume no risk. Reinsurance subsidies represent funding from CMS for its portion
of prescription drug costs which exceed the member’s out-of-pocket threshold, or the catastrophic coverage level.
Low-income cost subsidies represent funding from CMS for all or a portion of the deductible, the coinsurance
and co-payment amounts above the out-of-pocket threshold for low-income beneficiaries. Monthly prospective
payments from CMS for reinsurance and low-income cost subsidies are based on assumptions submitted with our
annual bid. A reconciliation and related settlement of CMS’s prospective subsidies against actual prescription
drug costs we paid is made after the end of the year. The Health Care Reform Law mandates consumer discounts
of 50% on brand name prescription drugs for Part D plan participants in the coverage gap. These discounts are
funded by CMS and pharmaceutical manufacturers while we administer the application of these funds. We
account for these subsidies and discounts as a deposit in our consolidated balance sheets and as a financing
activity in our consolidated statements of cash flows. We do not recognize premiums revenue or benefit expenses
for these subsidies or discounts. Receipt and payment activity is accumulated at the contract level and recorded in
our consolidated balance sheets in other current assets or trade accounts payable and accrued expenses depending
on the contract balance at the end of the reporting period.
Settlement of the reinsurance and low-income cost subsidies as well as the risk corridor payment is based on
a reconciliation made approximately 9 months after the close of each calendar year. Settlement with CMS for
brand name prescription drug discounts is based on a reconciliation made approximately 14 to 18 months after
the close of each calendar year. We continue to revise our estimates with respect to the risk corridor provisions
based on subsequent period pharmacy claims data. See Note 6 for detail regarding amounts recorded to the
consolidated balance sheets related to the risk corridor settlement and subsidies from CMS.
Military services
Military services premiums and services revenue primarily is derived from our TRICARE South Region
contract with the Department of Defense, or DoD. On April 1, 2012, we began delivering services under the
current TRICARE South Region contract with the DoD. Under the current contract, we provide administrative
services, including offering access 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
benefits expense in our consolidated statements of income related to these health care costs and related
reimbursements. Instead, we account for revenues under the current contract net of estimated health care costs
similar to an administrative services fee only agreement.
Our TRICARE members are served by both in-network and out-of-network providers in accordance with the
current contract. We pay health care costs related to these services to the providers and are subsequently
reimbursed by the DoD for such payments. We account for the payments of the federal government’s claims and
the related reimbursements under deposit accounting in our consolidated balance sheets and as a financing
activity under receipts (withdrawals) from contract deposits in our consolidated statements of cash flows. For the
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