Humana 2014 Annual Report Download - page 33

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two years. We expect a corresponding substantial reduction in our obligations to providers. Due to the
uncertainty around the application of any such reductions, there can be no assurances that we can completely
offset any reductions to the Medicare healthcare programs applied by the Budget Control Act of 2011.
• We are also subject to various other governmental audits and investigations. Under state laws, our HMOs
and health insurance companies are audited by state departments of insurance for financial and contractual
compliance. Our HMOs are audited for compliance with health services by state departments of health.
Audits and investigations are also conducted by state attorneys general, CMS, the Office of the Inspector
General of Health and Human Services, the Office of Personnel Management, the Department of Justice,
the Department of Labor, and the Defense Contract Audit Agency. All of these activities could result in the
loss of licensure or the right to participate in various programs, including a limitation on our ability to market
or sell products, the imposition of fines, penalties and other civil and criminal sanctions, or changes in our
business practices. The outcome of any current or future governmental or internal investigations cannot be
accurately predicted, nor can we predict any resulting penalties, fines or other sanctions that may be imposed
at the discretion of federal or state regulatory authorities. Nevertheless, it is reasonably possible that any
such outcome of litigation, penalties, fines or other sanctions could be substantial, and the outcome of these
matters may have a material adverse effect on our results of operations, financial position, and cash flows.
Certain of these matters could also affect our reputation. In addition, disclosure of any adverse investigation
or audit results or sanctions could negatively affect our industry or our reputation in various markets and
make it more difficult for us to sell our products and services.
The Patient Protection and Affordable Care Act and The Health Care and Education Reconciliation Act of 2010
could have a material adverse effect on our results of operations (including restricting revenue, enrollment and
premium growth in certain products and market segments, restricting our ability to expand into new markets,
increasing our medical and operating costs by, among other things, requiring a minimum benefit ratio on insured
products, lowering our Medicare payment rates and increasing our expenses associated with a non-deductible health
insurance industry fee and other assessments); our financial position (including our ability to maintain the value
of our goodwill); and our cash flows.
The Patient Protection and Affordable Care Act and The Health Care and Education Reconciliation Act of 2010
(which we collectively refer to as the Health Care Reform Law) enacted significant reforms to various aspects of the
U.S. health insurance industry. The provisions of the Health Care Reform Law include, among others, imposing a
significant new non-deductible health insurance industry fee and other assessments on health insurers, limiting Medicare
Advantage payment rates, stipulating a prescribed minimum ratio for the amount of premiums revenue to be expended
on medical costs for insured products, additional mandated benefits and guarantee issuance associated with commercial
medical insurance, requirements that limit the ability of health plans to vary premiums based on assessments of
underlying risk, and heightened scrutiny by state and federal regulators of our business practices, including our Medicare
bid and pricing practices. The Health Care Reform Law also specifies benefit design guidelines, limits rating and pricing
practices, encourages additional competition (including potential incentives for new market entrants), establishes
federally-facilitated or state-based exchanges for individuals and small employers (with up to 100 employees) coupled
with programs designed to spread risk among insurers (subject to federal administrative action), and expands eligibility
for Medicaid programs (subject to state-by-state implementation of this expansion). In addition, the Health Care Reform
Law has increased and will continue to increase federal oversight of health plan premium rates and could adversely
affect our ability to appropriately adjust health plan premiums on a timely basis. Financing for these reforms will come,
in part, from material additional fees and taxes on us and other health plans and individuals which began in 2014, as
well as reductions in certain levels of payments to us and other health plans under Medicare. Implementation dates of
the provisions of the Health Care Reform Law began in September 2010 and continue through 2018. If we fail to
effectively implement our operational and strategic initiatives with respect to the implementation of the Health Care
Reform Law, our business may be materially adversely affected. For additional information, please refer to the section
entitled, “Health Care Reform” in “Item 7 - Management’s Discussion and Analysis of Financial Condition and Results
of Operations” appearing in this annual report.