Humana 2013 Annual Report Download - page 137

Humana Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
by third party retail pharmacies in our networks are recognized when the claim is processed and product revenues
from dispensing prescriptions from our mail order pharmacies are recorded when the prescription or product is
shipped. Our pharmacy operations, which are responsible for designing pharmacy benefits, including defining
member co-share responsibilities, determining formulary listings, contracting with retail pharmacies, confirming
member eligibility, reviewing drug utilization, and processing claims, act as a principal in the arrangement on
behalf of members in our other segments. As principal, our Healthcare Services segment reports revenues on a
gross basis including co-share amounts from members collected by third party retail pharmacies at the point of
service.
In addition, our Healthcare Services intersegment revenues include revenues earned by certain owned
providers derived from risk-based managed care agreements with our health plans. Under these agreements, the
provider receives a monthly capitated fee that varies depending on the demographics and health status of the
member, for each member assigned to these 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 recognized in the period in which the assigned members are entitled to receive
healthcare services.
We present our consolidated results of operations from the perspective of the health plans. As a result, the
cost of providing benefits to our members, whether provided via a third party provider or internally through a
stand-alone subsidiary, is classified as benefits expense and excludes the portion of the cost for which the health
plans do not bear responsibility, including member co-share amounts and government subsidies of $7.3 billion in
2013, $6.3 billion in 2012, and $5.4 billion in 2011. In addition, depreciation and amortization expense
associated with certain businesses in our Healthcare Services segment delivering benefits to our members,
primarily associated with our provider services and pharmacy operations, are included with benefits expense. The
amount of this expense was $93 million in 2013, $43 million in 2012, and $33 million in 2011. The increase in
2013 primarily was due to amortization expense associated with the December 21, 2012 acquisition of
Metropolitan.
Other than those described previously, the accounting policies of each segment are the same and are
described in Note 2. Transactions between reportable segments consist of sales of services rendered by our
Healthcare Services segment, primarily provider, pharmacy, and behavioral health services, to our Retail and
Employer Group customers. Intersegment sales and expenses are recorded at fair value and eliminated in
consolidation. Members served by our segments often utilize the same provider networks, enabling us in some
instances to obtain more favorable contract terms with providers. Our segments also share indirect costs and
assets. As a result, the profitability of each segment is interdependent. We allocate most operating expenses to
our segments. Assets and certain corporate income and expenses are not allocated to the segments, including the
portion of investment income not supporting segment operations, interest expense on corporate debt, and certain
other corporate expenses. These items are managed at a corporate level. These corporate amounts are reported
separately from our reportable segments and included with intersegment eliminations in the tables presenting
segment results below.
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