Humana 2014 Annual Report Download - page 99

Humana Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
91
Receivables
Receivables, including premium receivables, patient services revenue receivables, and ASO fee receivables, are
shown net of allowances for estimated uncollectible accounts, retroactive membership adjustments, and contractual
allowances.
Policy Acquisition Costs
Policy acquisition costs are those costs that relate directly to the successful acquisition of new and renewal insurance
policies. Such costs include commissions, costs of policy issuance and underwriting, and other costs we incur to acquire
new business or renew existing business. We expense policy acquisition costs related to our employer-group prepaid
health services policies as incurred. These short-duration employer-group prepaid health services policies typically
have a 1-year term and may be cancelled upon 30 days notice by the employer group.
Life insurance, annuities, and certain health and other supplemental policies sold to individuals are accounted for
as long-duration insurance products because they are expected to remain in force for an extended period beyond one
year and premium received in the earlier years is intended to pay anticipated benefits to be incurred in future years. As
a result, we defer policy acquisition costs, primarily consisting of commissions, and amortize them over the estimated
life of the policies in proportion to premiums earned. Deferred acquisition costs are reviewed to determine if they are
recoverable from future income. See Note 18.
Beginning in 2014, health policies sold to individuals that conform to the Health Care Reform Law are accounted
for under a short-duration model and accordingly policy acquisition costs are expensed as incurred because premiums
received in the current year are intended to pay anticipated benefits in that year.
Long-Lived Assets
Property and equipment is recorded at cost. Gains and losses on sales or disposals of property and equipment are
included in operating costs. Certain costs related to the development or purchase of internal-use software are capitalized.
Depreciation is computed using the straight-line method over estimated useful lives ranging from 3 to 10 years for
equipment, 3 to 7 years for computer software, and 20 to 40 years for buildings. Improvements to leased facilities are
depreciated over the shorter of the remaining lease term or the anticipated life of the improvement.
We periodically review long-lived assets, including property and equipment and other intangible assets, for
impairment whenever adverse events or changes in circumstances indicate the carrying value of the asset may not be
recoverable. Losses are recognized for a long-lived asset to be held and used in our operations when the undiscounted
future cash flows expected to result from the use of the asset are less than its carrying value. We recognize an impairment
loss based on the excess of the carrying value over the fair value of the asset. A long-lived asset held for sale is reported
at the lower of the carrying amount or fair value less costs to sell. Depreciation expense is not recognized on assets
held for sale. Losses are recognized for a long-lived asset to be abandoned when the asset ceases to be used. In addition,
we periodically review the estimated lives of all long-lived assets for reasonableness.
Goodwill and Other Intangible Assets
Goodwill represents the unamortized excess of cost over the fair value of the net tangible and other intangible
assets acquired. We are required to test at least annually for impairment at a level of reporting referred to as the reporting
unit, and more frequently if adverse events or changes in circumstances indicate that the asset may be impaired. A
reporting unit either is our operating segments or one level below the operating segments, referred to as a component,
which comprise our reportable segments. A component is considered a reporting unit if the component constitutes a
business for which discrete financial information is available that is regularly reviewed by management. We aggregate
the components of an operating segment into one reporting unit if they have similar economic characteristics. Goodwill
is assigned to the reporting unit that is expected to benefit from a specific acquisition.
We use a two-step process to review goodwill for impairment. The first step is a screen for potential impairment,
and the second step measures the amount of impairment, if any. Impairment tests are performed, at a minimum, in the
fourth quarter of each year supported by our long-range business plan and annual planning process. We rely on an