Humana 2014 Annual Report Download - page 51

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Other Businesses
• Year-over-year comparisons within Other Businesses are impacted by the loss of our Medicaid contracts in
Puerto Rico effective September 30, 2013 and a reduction in benefits expense in 2013 related to a favorable
settlement of contract claims with the United States Department of Defense, or DoD, associated with previously
disclosed litigation. In addition, as discussed in Note 18 to the consolidated financial statements included in
Item 8. – Financial Statements and Supplementary Data, during 2013, we recorded net benefits expense of
$243 million ($154 million after-tax, or $0.99 per diluted common share) for reserve strengthening related to
our non-strategic closed-block of long-term care insurance policies acquired in connection with the 2007
acquisition of KMG.
Health Care Reform
The Health Care Reform Law enacted significant reforms to various aspects of the U.S. health insurance industry.
Implementation dates of the Health Care Reform Law began in September 2010 and will continue through 2018, and
many aspects of the Health Care Reform Law are already effective and have been implemented by us. Certain significant
provisions of the Health Care Reform Law include, among others, mandated coverage requirements, mandated benefits
and guarantee issuance associated with commercial medical insurance, rebates to policyholders based on minimum
benefit ratios, adjustments to Medicare Advantage premiums, the establishment of federally-facilitated or state-based
exchanges coupled with programs designed to spread risk among insurers, an annual insurance industry premium-based
assessment, and a three-year commercial reinsurance fee. Certain provisions of the Health Care Reform Law became
effective in 2014, including:
• All individual and group health plans must guarantee issuance and renew coverage without pre-existing
condition exclusions or health-status rating adjustments;
• The elimination of annual limits on coverage on certain benefits;
• The establishment of federally-facilitated, federal-state partnerships or state-based exchanges for individuals
and small employers (with up to 100 employees) coupled with programs designed to spread risk among insurers;
• The introduction of plan designs based on set actuarial values;
• The establishment of a minimum benefit ratio of 85% for Medicare Advantage plans with penalties up to and
including termination of Medicare Advantage contracts for continued failure to meet the minimum; and
• Insurance industry assessments, including an annual health insurance industry fee and a three-year $25 billion
industry wide commercial reinsurance fee. The annual health insurance industry fee levied on the insurance
industry is $8 billion in 2014 with increasing annual amounts thereafter, growing to $14 billion by 2017, and
is not deductible for income tax purposes, which significantly increased our effective income tax rate in 2014
to approximately 47.2%. In 2014, we paid the federal government $562 million for the annual health insurance
industry fee. In 2015, the health insurance industry fee increases by 41% for the industry taken as a whole.
Accordingly, absent changes in market share, we would expect a 41% increase in our fee in 2015. In addition,
statutory accounting for the health insurance industry fee required us to restrict surplus in the year preceding
payment of the health insurance industry fee beginning in 2014. Accordingly, in addition to recording the full-
year 2014 assessment in the first quarter of 2014, we were required to restrict surplus for the 2015 assessment
ratably in 2014.