Humana 2013 Annual Report Download - page 34

• claims related to the failure to disclose some business practices;
• claims relating to customer audits and contract performance;
• claims relating to dispensing of drugs associated with our in-house mail-order pharmacy; and
• professional liability claims arising out of the delivery of healthcare and related services to the public.
In some cases, substantial non-economic or punitive damages as well as treble damages under the federal
False Claims Act, Racketeer Influenced and Corrupt Organizations Act and other statutes may be sought.
While we currently have insurance coverage for some of these potential liabilities, other potential liabilities
may not be covered by insurance, insurers may dispute coverage, or the amount of our insurance may not be
enough to cover the damages awarded. In addition, some types of damages, like punitive damages, may not be
covered by insurance. In some jurisdictions, coverage of punitive damages is prohibited. Insurance coverage for
all or some forms of liability may become unavailable or prohibitively expensive in the future.
The health benefits industry continues to receive significant negative publicity reflecting the public
perception of the industry. This publicity and perception have been accompanied by increased litigation,
including some large jury awards, legislative activity, regulation, and governmental review of industry practices.
These factors may adversely affect our ability to market our products or services, may require us to change our
products or services, may increase the regulatory burdens under which we operate, and may require us to pay
large judgments or fines. Any combination of these factors could further increase our cost of doing business and
adversely affect our results of operations, financial position, and cash flows.
See “Legal Proceedings and Certain Regulatory Matters” in Note 15 to the consolidated financial statements
included in Item 8. – Financial Statements and Supplementary Data. We cannot predict the outcome of these
matters with certainty.
As a government contractor, we are exposed to risks that may materially adversely affect our business or
our willingness or ability to participate in government health care programs.
A significant portion of our revenues relates to federal and state government health care coverage programs,
including the Medicare, military, 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 coverage to
approximately 415,200 individual Medicare Advantage members in Florida. These contracts accounted
for approximately 15% of our total premiums and services revenue for the year ended December 31,
2013. The loss of these and other CMS contracts or significant changes in the Medicare program as a
result of legislative or regulatory action, including reductions in premium payments to us or increases
in member benefits without corresponding increases in premium payments to us, may have a material
adverse effect on our results of operations, financial position, and cash flows.
• At December 31, 2013, our military services business primarily consisted of the TRICARE South
Region contract which covers approximately 3,101,800 beneficiaries. For the year ended December 31,
2013, premiums and services revenue associated with the TRICARE South Region contract accounted
for approximately 1% of our total premiums and services revenue. On April 1, 2012, we began
delivering services under the current TRICARE South Region contract that the Defense Health
Agency, or DHA (formerly known as the TRICARE Management Activity), awarded to us on
February 25, 2011. The current 5-year South Region contract, which expires March 31, 2017, is subject
to annual renewals on April 1 of each year during its term at the government’s option. On January 27,
2014, we received notice from the DHA of its intent to exercise its option to extend the TRICARE
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