Humana 2014 Annual Report Download - page 32

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as indicated, we are awaiting additional guidance from CMS regarding the benchmark audit data in Medicare
FFS. Accordingly, we cannot determine whether such RADV audits will have a material adverse effect on
our results of operations, financial position, or cash flows.
In addition, CMS’ recent comments in formalized guidance regarding “overpayments” to Medicare
Advantage plans appear to be inconsistent with CMS’ prior RADV audit guidance. These statements,
contained in the preamble to CMS’ final rule release regarding Medicare Advantage and Part D prescription
drug benefit program regulations for Contract Year 2015, appear to equate each Medicare Advantage risk
adjustment data error with an “overpayment” without reconciliation to the principles underlying the FFS
Adjuster referenced above. We will continue to work with CMS to ensure that Medicare Advantage plans
are paid accurately and that payment model principles are in accordance with the requirements of the Social
Security Act, which if not implemented correctly, could have material adverse effect on our results of
operations, financial position, or cash flows.
• Our CMS contracts which cover members’ prescription drugs under Medicare Part D contain provisions for
risk sharing and certain payments for prescription drug costs for which we are not at risk. These provisions,
certain of which are described below, affect our ultimate payments from CMS.
The premiums from CMS are subject to risk corridor provisions which compare costs targeted in our annual
bids to actual prescription drug costs, limited to actual costs that would have been incurred under the standard
coverage as defined by CMS. Variances exceeding certain thresholds may result in CMS making additional
payments to us or require us to refund to CMS a portion of the premiums we received (known as a “risk
corridor”). We estimate and recognize an adjustment to premiums revenue related to the risk corridor payment
settlement based upon pharmacy claims experience. The estimate of the settlement associated with these
risk corridor provisions requires us to consider factors that may not be certain, including member eligibility
differences with CMS. Our estimate of the settlement associated with the Medicare Part D risk corridor
provisions was a net receivable of $69 million at December 31, 2014.
Reinsurance and low-income cost subsidies represent payments from CMS in connection with the Medicare
Part D program for which we assume no risk. Reinsurance subsidies represent payments for CMS’s portion
of claims costs which exceed the member’s out-of-pocket threshold, or the catastrophic coverage level.
Low-income cost subsidies represent payments from CMS for all or a portion of the deductible, the
coinsurance and co-payment amounts above the out-of-pocket threshold for low-income beneficiaries.
Monthly prospective payments from CMS for reinsurance and low-income cost subsidies are based on
assumptions submitted with our annual bid. A reconciliation and settlement of CMS’s prospective subsidies
against actual prescription drug costs we paid is made after the end of the year.
Settlement of the reinsurance and low-income cost subsidies as well as the risk corridor payment is based
on a reconciliation made approximately 9 months after the close of each calendar year. This reconciliation
process requires us to submit claims data necessary for CMS to administer the program. Our claims data
may not pass CMS’s claims edit processes due to various reasons, including discrepancies in eligibility or
classification of low-income members. To the extent our data does not pass CMS’s claim edit processes,
we may bear the risk for all or a portion of the claim which otherwise may have been subject to the risk
corridor provision or payment which we would have otherwise received as a low-income subsidy or
reinsurance claim. In addition, in the event the settlement represents an amount CMS owes us, there is a
negative impact on our cash flows and financial condition as a result of financing CMS’s share of the risk.
The opposite is true in the event the settlement represents an amount we owe CMS.
• The Budget Control Act of 2011, enacted on August 2, 2011, increased the United States debt ceiling
conditioned on deficit reductions to be achieved over the next ten years. The Budget Control Act of 2011
also established a twelve-member joint committee of Congress known as the Joint Select Committee on
Deficit Reduction to propose legislation to reduce the United States federal deficit by $1.5 trillion for fiscal
years 2012-2021. The failure of the Joint Select Committee on Deficit Reduction to achieve a targeted deficit
reduction by December 23, 2011 triggered an automatic reduction, including aggregate reductions to
Medicare payments to providers of up to 2 percent per fiscal year. These reductions took effect on April 1,
2013, and the Bipartisan Budget Act of 2013, enacted on December 26, 2013, extended the reductions for