Humana 2013 Annual Report Download - page 54

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Executive Overview
General
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. By leveraging the strengths of our core businesses, we believe that we can better explore opportunities for
existing and emerging adjacencies in health care that can further enhance wellness opportunities for the millions
of people across the nation with whom we have relationships. We believe we have an obligation to make
achievement and maintenance of good health easier for everyone.
Our industry relies on two key statistics to measure performance. The benefit ratio, which is computed by
taking total benefits expense as a percentage of premiums revenue, represents a statistic used to measure
underwriting profitability. The operating cost ratio, which is computed by taking total operating costs as a
percentage of total revenue less investment income, represents a statistic used to measure administrative
spending efficiency.
Business Segments
On January 1, 2013, we reclassified certain of our businesses to correspond with internal management
reporting changes and renamed our Health and Well-Being Services segment as Healthcare Services as further
described in Note 2 to the consolidated financial statements included in Item 8. – Financial Statements and
Supplementary Data. Prior period segment financial information has been recast to conform to the 2013
presentation.
We manage our business with three reportable segments: Retail, Employer Group, and Healthcare Services.
In addition, the Other Businesses category includes businesses that are not individually reportable because they
do not meet the quantitative thresholds required by generally accepted accounting principles. These segments are
based on a combination of the type of health plan customer and adjacent businesses centered on integrated care
delivery for our health plans and other customers, as described below. These segment groupings are consistent
with information used by our Chief Executive Officer to assess performance and allocate resources.
The Retail segment consists of Medicare and commercial fully-insured medical and specialty health
insurance benefits, including dental, vision, and other supplemental health and financial protection products,
marketed directly to individuals, and includes our contract with Centers for Medicare and Medicaid Services, or
CMS, to administer the Limited Income Newly Eligible Transition, or LI-NET, prescription drug plan program,
and contracts with various states to provide Medicaid, dual eligible, and Long-Term Support Services benefits,
collectively our state-based contracts. The Employer Group segment consists of Medicare and commercial fully-
insured medical and specialty health insurance benefits, including dental, vision, and other supplemental health
and voluntary benefit products, as well as administrative services only products, or ASO, and our health and
wellness products primarily marketed to employer groups. The Healthcare Services segment includes services
offered to our health plan members as well as to third parties, including pharmacy, provider services, home based
services, integrated behavioral health services, and predictive modeling and informatics services. The Other
Businesses category consists of our military services, primarily our TRICARE South Region contract, Puerto
Rico Medicaid, and our closed-block of long-term care insurance policies.
The results of each segment are measured by income before income taxes. Transactions between reportable
segments consist of sales of services rendered by our Healthcare Services segment, primarily pharmacy,
provider, and behavioral health, 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.
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