Humana 2013 Annual Report Download - page 85

(4) Includes future policy benefits payable ceded to third parties through 100% coinsurance agreements as more
fully described in Note 18 to the consolidated financial statements included in Item 8. – Financial
Statements and Supplementary Data. We expect the assuming reinsurance carriers to fund these obligations
and reflected these amounts as reinsurance recoverables included in other long-term assets on our
consolidated balance sheet. Amounts payable in less than one year are included in trade accounts payable
and accrued expenses in the consolidated balance sheet.
Off-Balance Sheet Arrangements
As of December 31, 2013, we were not involved in any special purpose entity, or SPE, transactions. For a
detailed discussion off-balance sheet arrangements, please refer to Note 15 to the consolidated financial
statements included in Item 8. – Financial Statements and Supplementary Data.
Guarantees and Indemnifications
For a detailed discussion our guarantees and indemnifications, please refer to Note 15 to the consolidated
financial statements included in Item 8. – Financial Statements and Supplementary Data.
Government Contracts
For a detailed discussion of our government contracts, including our Medicare, Military, and Medicaid
contracts, please refer to Note 15 to the consolidated financial statements included in Item 8. – Financial
Statements and Supplementary Data.
Critical Accounting Policies and Estimates
The discussion and analysis of our financial condition and results of operations is based upon our
consolidated financial statements and accompanying notes, which have been prepared in accordance with
accounting principles generally accepted in the United States of America. The preparation of these financial
statements and accompanying notes requires us to make estimates and assumptions that affect the amounts
reported in the consolidated financial statements and accompanying notes. We continuously evaluate our
estimates and those critical accounting policies related primarily to benefits expense and revenue recognition as
well as accounting for impairments related to our investment securities, goodwill, and long-lived assets. These
estimates are based on knowledge of current events and anticipated future events and, accordingly, actual results
ultimately may differ from those estimates. We believe the following critical accounting policies involve the
most significant judgments and estimates used in the preparation of our consolidated financial statements.
Benefits Expense Recognition
Benefits expense is recognized in the period in which services are provided and includes an estimate of the
cost of services which have been incurred but not yet reported, or IBNR. IBNR represents a substantial portion of
our benefits payable as follows:
December 31,
2013
Percentage
of Total
December 31,
2012
Percentage
of Total
(dollars in millions)
IBNR .......................................... $2,586 66.4% $2,552 67.5%
Reported claims in process ......................... 381 9.8% 315 8.3%
Other benefits payable ............................. 926 23.8% 912 24.2%
Total benefits payable ......................... $3,893 100.0% $3,779 100.0%
Our reserving practice is to consistently recognize the actuarial best point estimate within a level of
confidence required by actuarial standards. Actuarial standards of practice generally require a level of confidence
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