Humana 2014 Annual Report Download - page 93

85
Humana, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. REPORTING ENTITY
Nature of Operations
Humana Inc., headquartered in Louisville, Kentucky, is a leading health and well-being company focused on
making it easy for people to achieve their best health with clinical excellence through coordinated care. The company’s
strategy integrates care delivery, the member experience, and clinical and consumer insights to encourage engagement,
behavior change, proactive clinical outreach and wellness for the millions of people we serve across the country.
References throughout these notes to consolidated financial statements to “we,” “us,” “our,” “Company,” and “Humana,”
mean Humana Inc. and its subsidiaries. We derived approximately 73% of our total premiums and services revenue
from contracts with the federal government in 2014, including 15% related to our federal government contracts with
the Centers for Medicare and Medicaid Services, or CMS, to provide health insurance coverage for individual Medicare
Advantage members in Florida. CMS is the federal government’s agency responsible for administering the Medicare
program.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
Our financial statements and accompanying notes are prepared in accordance with accounting principles generally
accepted in the United States of America. Our consolidated financial statements include the accounts of Humana Inc.
and subsidiaries that the Company controls, including variable interest entities associated with medical practices for
which we are the primary beneficiary. We do not own many of our medical practices but instead enter into exclusive
long-term management agreements with the affiliated Professional Associations, or P.A.s, that operate these medical
practices. Based upon the provisions of these agreements, these affiliated P.A.s are variable interest entities and we are
the primary beneficiary, and accordingly we consolidated the affiliated P.A.s. All significant intercompany balances
and transactions have been eliminated.
The preparation of financial statements in accordance with accounting principles generally accepted in the United
States of America requires us to make estimates and assumptions that affect the amounts reported in the consolidated
financial statements and accompanying notes. The areas involving the most significant use of estimates are the estimation
of benefits payable, future policy benefits payable, the impact of risk adjustment provisions related to our Medicare
contracts, the valuation and related impairment recognition of investment securities, and the valuation and related
impairment recognition of long-lived assets, including goodwill. These estimates are based on knowledge of current
events and anticipated future events, and accordingly, actual results may ultimately differ materially from those
estimates.
Business Segment Reclassifications
On January 1, 2014, we reclassified certain of our businesses from our Healthcare Services segment to our Employer
Group segment to correspond with internal management reporting changes. Our reportable segments remain the same
and prior period segment financial information has been recast to conform to the 2014 presentation. See Note 17 for
segment financial information.
Health Care Reform
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. Certain of these reforms became effective January 1, 2014, including an annual insurance
industry premium-based fee and the establishment of federally-facilitated or state-based exchanges coupled with three
premium stabilization programs, as described more fully below.