Humana 2013 Annual Report Download - page 74

• Individual Medicare stand-alone PDP membership increased 438,900 members, or 16.8%, from
December 31, 2011 to December 31, 2012 primarily from higher gross sales during the 2012
enrollment season, particularly for our Humana-Walmart plan offering, supplemented by dual-eligible
and age-in enrollments throughout the year.
• Individual specialty membership increased 166,200, or 21.2%, from December 31, 2011 to
December 31, 2012 primarily driven by increased membership in dental offerings.
Premiums revenue
• Retail segment premiums increased $3.2 billion, or 14.5%, from 2011 to 2012 primarily due to a 17.6%
increase in average individual Medicare Advantage membership. Individual Medicare Advantage per
member premiums decreased approximately 2% in 2012 compared to 2011, primarily driven by a
higher percentage of members that aged-in that generally carry a lower risk score than other members
and accordingly a lower premium per member as well as lower per member premiums for members
acquired in connection with the Arcadian acquisition effective March 31, 2012. Individual Medicare
stand-alone PDP premiums revenue increased $283 million, or 11.0%, in 2012 compared to 2011
primarily due to an 18.9% increase in average individual PDP membership, partially offset by a
decrease in individual Medicare stand-alone PDP per member premiums. This was primarily a result of
sales of our Humana-Walmart plan.
Benefits expense
• The Retail segment benefit ratio increased 290 basis points from 81.3% in 2011 to 84.2% in 2012.
During 2012, we experienced a significant increase in the benefit ratio for our individual Medicare
Advantage products primarily due to a planned increase in the target benefit ratio associated with
positioning for the Health Care Reform Law funding changes and minimum benefit ratio requirements,
a higher benefit ratio experienced on new membership than the assumptions used in our 2012 Medicare
bids, and increased outpatient utilization for both new and existing members. In addition, year-over-
year comparisons of the benefit ratio were negatively impacted by lower favorable prior-period
medical claims reserve development in 2012 than in 2011 and a year-over-year increase in clinicians
and other health care quality expenditures given our continuing growth in membership. The Retail
segment’s pretax income for 2012 included the beneficial effect of $192 million in favorable prior-
period medical claims reserve development versus $245 million in 2011. This favorable prior-period
medical claims reserve development decreased the Retail segment benefit ratio by approximately 80
basis points in 2012 versus approximately 110 basis points in 2011.
Operating costs
• The Retail segment operating cost ratio of 11.1% for 2012 was comparable of that for 2011 primarily
due to scale efficiencies associated with servicing higher year-over-year membership together with our
continued focus on operating cost efficiencies, partially offset by higher year-over-year clinical,
provider, and technological infrastructure spending.
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