Humana 2013 Annual Report Download - page 108

Humana Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
first nine months of the current contract, April 1, 2012 to December 31, 2012, health care cost payments were
$2.1 billion, exceeding reimbursements of $2.0 billion by $56 million. For 2013, health care cost reimbursements
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 basis. We shared the risk with the
federal government for the cost of health benefits incurred under our previous contract, earning more revenue or
incurring additional cost based on the variance of actual health care costs from an annually negotiated target
health care cost. TRICARE revenues consisted generally of (1) an insurance premium for assuming underwriting
risk for the cost of civilian health care services delivered to eligible beneficiaries; (2) health care services
provided to beneficiaries which were in turn reimbursed by the federal government; and (3) administrative
services fees related to claim processing, customer service, enrollment, and other services. We recognized the
insurance premium as revenue ratably over the period coverage was provided. Health care services
reimbursements were recognized as revenue in the period health services were provided. Administrative services
fees were recognized as revenue in the period services were performed. We deferred the recognition of any
contingent revenues for favorable variances until the end of the contract period when the amount was
determinable and the collectibility was reasonably assured. We estimated and recognized contingent benefits
expense for unfavorable variances currently in our results of operations.
Services Revenue
Patient services revenue
Patient services include workers’ compensation injury care and related services as well as 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.
Administrative services fees
Administrative services fees cover the processing of claims, offering access to our provider networks and
clinical programs, and responding to customer service inquiries from members of self-funded groups. Revenues
from providing administration services, also known as administrative services only, or ASO, are recognized in
the period services are performed and are net of estimated uncollectible amounts. ASO fees are estimated by
multiplying the membership covered under the various contracts by the contractual rates. Under ASO contracts,
self-funded employers retain the risk of financing substantially all of the cost of health benefits. However, many
ASO customers purchase stop loss insurance coverage from us to cover catastrophic claims or to limit aggregate
annual costs. Accordingly, we have recorded premiums revenue and benefits expense related to these stop loss
insurance contracts. We routinely monitor the collectibility of specific accounts, the aging of receivables, as well
as prevailing and anticipated economic conditions, and reflect any required adjustments in current operations.
ASO fees received prior to the service period are recorded as unearned revenues.
On April 1, 2012, we began delivering services under our current TRICARE South Region contract with the
DoD. As discussed previously, 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. We account for
revenues under the current contract net of estimated health care costs similar to an administrative services fee
only agreement. The current contract includes fixed administrative services fees and incentive fees and penalties.
Administrative services fees are recognized as services are performed.
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