16. SEGMENT INFORMATION
On January 1, 2013, we reclassified certain of our businesses to correspond with internal management reporting changes and renamed our Health and Well-Being Services segment as Healthcare Services. Our Employer Group segment now includes our health and wellness businesses, including HumanaVitality and Lifesynch’s employee assistance programs, which had historically been reported in our Healthcare Services segment. The Retail segment now includes our contract with CMS to administer the LI-NET prescription drug plan program as well as our state-based contracts for Medicaid members, both of which had historically been reported in our Other Businesses category. Prior period segment financial information has been recast to conform to the 2013 presentation.
We manage our business with three reportable segments: Retail, Employer Group, and Healthcare Services. In addition, the Other Businesses category includes businesses that are not individually reportable because they do not meet the quantitative thresholds required by generally accepted accounting principles. These segments are based on a combination of the type of health plan customer and adjacent businesses centered on well-being solutions for our health plans and other customers, as described below. These segment groupings are consistent with information used by our Chief Executive Officer to assess performance and allocate resources.
The Retail segment consists of Medicare and commercial fully-insured medical and specialty health insurance benefits, including dental, vision, and other supplemental health and financial protection products, marketed directly to individuals, and includes our contract with CMS to administer the LI-NET prescription drug plan program and contracts with various states to provide Medicaid, dual eligible, and Long-Term Support Services benefits, collectively our state-based contracts. The Employer Group segment consists of Medicare and commercial fully-insured medical and specialty health insurance benefits, including dental, vision, and other supplemental health and voluntary benefit products, as well as administrative services only, or ASO, products and our health and wellness products primarily marketed to employer groups. The Healthcare Services segment includes services offered to our health plan members as well as to third parties including pharmacy, provider services, home based services, and integrated behavioral health services. The Other Businesses category consists of our military services, primarily our TRICARE South Region contract, Puerto Rico Medicaid, and closed-block long-term care insurance policies.
Our Healthcare Services intersegment revenues primarily relate to managing prescription drug coverage for members of our other segments through Humana Pharmacy Solutions®, or HPS, and includes the operations of RightSourceRx®, our mail order pharmacy business. These revenues consist of the prescription price (ingredient cost plus dispensing fee), including the portion to be settled with the member (co-share) or with the government (subsidies), plus any associated administrative fees. Services revenues related to the distribution of prescriptions by third party retail pharmacies in our networks are recognized when the claim is processed and product revenues from dispensing prescriptions from our mail order pharmacies are recorded when the prescription or product is shipped. Our pharmacy operations, which are responsible for designing pharmacy benefits, including defining member co-share responsibilities, determining formulary listings, contracting with retail pharmacies, confirming member eligibility, reviewing drug utilization, and processing claims, act as a principal in the arrangement on behalf of members in our other segments. As principal, our Healthcare Services segment reports revenues on a gross basis including co-share amounts from members collected by third party retail pharmacies at the point of service.
In addition, our Healthcare Services intersegment revenues include revenues earned by certain owned providers derived from risk-based managed care agreements with our health plans. Under these agreements, the provider receives a monthly capitated fee that varies depending on the demographics and health status of the member, for each member assigned to these owned providers by our health plans. The owned provider assumes the economic risk of funding the assigned members’ healthcare services and related administrative costs. Accordingly, our Healthcare Services segment reports provider services related revenues on a gross basis. Capitation fee revenue is recognized in the period in which the assigned members are entitled to receive healthcare services.
We present our consolidated results of operations from the perspective of the health plans. As a result, the cost of providing benefits to our members, whether provided via a third party provider or internally through a stand-alone subsidiary, is classified as benefits expense and excludes the portion of the cost for which the health plans do not bear responsibility, including member co-share amounts and government subsidies of $7.3 billion in 2013, $6.3 billion in 2012, and $5.4 billion in 2011. In addition, depreciation and amortization expense associated with certain businesses in our Healthcare Services segment delivering benefits to our members, primarily associated with our provider services and pharmacy operations, are included with benefits expense. The amount of this expense was $93 million in 2013, $43 million in 2012, and $33 million in 2011. The increase in 2013 primarily was due to amortization expense associated with the December 21, 2012 acquisition of Metropolitan.
Other than those described previously, the accounting policies of each segment are the same and are described in Note 2. Transactions between reportable segments consist of sales of services rendered by our Healthcare Services segment, primarily provider, pharmacy, and behavioral health services, to our Retail and Employer Group customers. Intersegment sales and expenses are recorded at fair value and eliminated in consolidation. Members served by our segments often utilize the same provider networks, enabling us in some instances to obtain more favorable contract terms with providers. Our segments also share indirect costs and assets. As a result, the profitability of each segment is interdependent. We allocate most operating expenses to our segments. Assets and certain corporate income and expenses are not allocated to the segments, including the portion of investment income not supporting segment operations, interest expense on corporate debt, and certain other corporate expenses. These items are managed at a corporate level. These corporate amounts are reported separately from our reportable segments and included with intersegment eliminations in the tables presenting segment results below.
Our segment results were as follows for the years ended December 31, 2013, 2012, and 2011:
| Retail | Employer Group |
Healthcare Services |
Other Businesses |
Eliminations/ Corporate |
Consolidated | |||||||||||||||||||
| (in millions) | ||||||||||||||||||||||||
|
2013 |
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Revenues—external customers |
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Premiums: |
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|
Medicare Advantage |
$ | 22,481 | $ | 4,710 | $ | 0 | $ | 0 | $ | 0 | $ | 27,191 | ||||||||||||
|
Medicare stand-alone PDP |
3,025 | 8 | 0 | 0 | 0 | 3,033 | ||||||||||||||||||
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|
|
|
|
|
|
|
|
|
|
|
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Total Medicare |
25,506 | 4,718 | 0 | 0 | 0 | 30,224 | ||||||||||||||||||
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|
|
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|
|
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Fully-insured |
1,160 | 5,117 | 0 | 0 | 0 | 6,277 | ||||||||||||||||||
|
Specialty |
210 | 1,095 | 0 | 0 | 0 | 1,305 | ||||||||||||||||||
|
Military services |
0 | 0 | 0 | 25 | 0 | 25 | ||||||||||||||||||
|
Medicaid and other |
328 | 0 | 0 | 670 | 0 | 998 | ||||||||||||||||||
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|
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Total premiums |
27,204 | 10,930 | 0 | 695 | 0 | 38,829 | ||||||||||||||||||
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|
Services revenue: |
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|
Provider |
0 | 19 | 1,223 | 0 | 0 | 1,242 | ||||||||||||||||||
|
ASO and other |
16 | 338 | 0 | 454 | 0 | 808 | ||||||||||||||||||
|
Pharmacy |
0 | 0 | 59 | 0 | 0 | 59 | ||||||||||||||||||
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|
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|
|
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Total services revenue |
16 | 357 | 1,282 | 454 | 0 | 2,109 | ||||||||||||||||||
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|
|
|
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Total revenues—external customers |
27,220 | 11,287 | 1,282 | 1,149 | 0 | 40,938 | ||||||||||||||||||
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|
Intersegment revenues |
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|
Services |
0 | 51 | 11,848 | 0 | (11,899 | ) | 0 | |||||||||||||||||
|
Products |
0 | 0 | 2,803 | 0 | (2,803 | ) | 0 | |||||||||||||||||
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Total intersegment revenues |
0 | 51 | 14,651 | 0 | (14,702 | ) | 0 | |||||||||||||||||
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|
Investment income |
74 | 42 | 0 | 59 | 200 | 375 | ||||||||||||||||||
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|
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Total revenues |
27,294 | 11,380 | 15,933 | 1,208 | (14,502 | ) | 41,313 | |||||||||||||||||
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|
Operating expenses: |
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|
Benefits |
22,914 | 9,124 | 0 | 935 | (409 | ) | 32,564 | |||||||||||||||||
|
Operating costs |
2,963 | 1,832 | 15,237 | 446 | (14,123 | ) | 6,355 | |||||||||||||||||
|
Depreciation and amortization |
134 | 102 | 147 | 20 | (70 | ) | 333 | |||||||||||||||||
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Total operating expenses |
26,011 | 11,058 | 15,384 | 1,401 | (14,602 | ) | 39,252 | |||||||||||||||||
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|
Income (loss) from operations |
1,283 | 322 | 549 | (193 | ) | 100 | 2,061 | |||||||||||||||||
|
Interest expense |
0 | 0 | 0 | 0 | 140 | 140 | ||||||||||||||||||
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|
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Income (loss) before income taxes |
$ | 1,283 | $ | 322 | $ | 549 | $ | (193 | ) | $ | (40 | ) | $ | 1,921 | ||||||||||
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Premium and services revenues derived from our contracts with the federal government, as a percentage of our total premium and services revenues, were approximately 75% for 2013, 75% for 2012, and 76% for 2011.
Benefits expense for Other Businesses for 2013 includes $243 million for reserve strengthening associated with our closed block of long-term care insurance policies as discussed more fully in Note 17.
| Retail | Employer Group |
Healthcare Services |
Other Businesses |
Eliminations/ Corporate |
Consolidated | |||||||||||||||||||
| (in millions) | ||||||||||||||||||||||||
|
2012 |
||||||||||||||||||||||||
|
Revenues—external customers |
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|
Premiums: |
||||||||||||||||||||||||
|
Medicare Advantage |
$ | 20,788 | $ | 4,064 | $ | 0 | $ | 0 | $ | 0 | $ | 24,852 | ||||||||||||
|
Medicare stand-alone PDP |
2,853 | 8 | 0 | 0 | 0 | 2,861 | ||||||||||||||||||
|
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|
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|
|||||||||||||
|
Total Medicare |
23,641 | 4,072 | 0 | 0 | 0 | 27,713 | ||||||||||||||||||
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|
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|
Fully-insured |
1,004 | 4,996 | 0 | 0 | 0 | 6,000 | ||||||||||||||||||
|
Specialty |
171 | 1,070 | 0 | 0 | 0 | 1,241 | ||||||||||||||||||
|
Military services |
0 | 0 | 0 | 1,017 | 0 | 1,017 | ||||||||||||||||||
|
Medicaid and other |
185 | 0 | 0 | 853 | 0 | 1,038 | ||||||||||||||||||
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|
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|
|
|||||||||||||
|
Total premiums |
25,001 | 10,138 | 0 | 1,870 | 0 | 37,009 | ||||||||||||||||||
|
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|
|||||||||||||
|
Services revenue: |
||||||||||||||||||||||||
|
Provider |
0 | 12 | 1,008 | 0 | 0 | 1,020 | ||||||||||||||||||
|
ASO and other |
24 | 358 | 0 | 308 | 0 | 690 | ||||||||||||||||||
|
Pharmacy |
0 | 0 | 16 | 0 | 0 | 16 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
|
Total services revenue |
24 | 370 | 1,024 | 308 | 0 | 1,726 | ||||||||||||||||||
|
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|
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|
|
|
|
|
|||||||||||||
|
Total revenues—external customers |
25,025 | 10,508 | 1,024 | 2,178 | 0 | 38,735 | ||||||||||||||||||
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|
|||||||||||||
|
Intersegment revenues |
||||||||||||||||||||||||
|
Services |
2 | 31 | 9,720 | 0 | (9,753 | ) | 0 | |||||||||||||||||
|
Products |
0 | 0 | 2,342 | 0 | (2,342 | ) | 0 | |||||||||||||||||
|
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|
|
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|
|||||||||||||
|
Total intersegment revenues |
2 | 31 | 12,062 | 0 | (12,095 | ) | 0 | |||||||||||||||||
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|
|||||||||||||
|
Investment income |
79 | 42 | 0 | 58 | 212 | 391 | ||||||||||||||||||
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|
|
|
|
|
|||||||||||||
|
Total revenues |
25,106 | 10,581 | 13,086 | 2,236 | (11,883 | ) | 39,126 | |||||||||||||||||
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|
|||||||||||||
|
Operating expenses: |
||||||||||||||||||||||||
|
Benefits |
21,048 | 8,471 | 0 | 1,802 | (336 | ) | 30,985 | |||||||||||||||||
|
Operating costs |
2,767 | 1,744 | 12,536 | 436 | (11,653 | ) | 5,830 | |||||||||||||||||
|
Depreciation and amortization |
130 | 89 | 87 | 16 | (27 | ) | 295 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
|
Total operating expenses |
23,945 | 10,304 | 12,623 | 2,254 | (12,016 | ) | 37,110 | |||||||||||||||||
|
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|
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|
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|
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|
|
|||||||||||||
|
Income (loss) from operations |
1,161 | 277 | 463 | (18 | ) | 133 | 2,016 | |||||||||||||||||
|
Interest expense |
0 | 0 | 0 | 0 | 105 | 105 | ||||||||||||||||||
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|
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|
Income (loss) before income taxes |
$ | 1,161 | $ | 277 | $ | 463 | $ | (18 | ) | $ | 28 | $ | 1,911 | |||||||||||
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| Retail | Employer Group |
Healthcare Services |
Other Businesses |
Eliminations/ Corporate |
Consolidated | |||||||||||||||||||
| (in millions) | ||||||||||||||||||||||||
|
2011 |
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|
Revenues—external customers |
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|
Premiums: |
||||||||||||||||||||||||
|
Medicare Advantage |
$ | 18,100 | $ | 3,152 | $ | 0 | $ | 0 | $ | 0 | $ | 21,252 | ||||||||||||
|
Medicare stand-alone PDP |
2,570 | 8 | 0 | 0 | 0 | 2,578 | ||||||||||||||||||
|
|
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|
|
|
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|
|||||||||||||
|
Total Medicare |
20,670 | 3,160 | 0 | 0 | 0 | 23,830 | ||||||||||||||||||
|
|
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|
|
|
|
|
|
|
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|
|||||||||||||
|
Fully-insured |
861 | 4,782 | 0 | 0 | 0 | 5,643 | ||||||||||||||||||
|
Specialty |
124 | 935 | 0 | 0 | 0 | 1,059 | ||||||||||||||||||
|
Military services |
0 | 0 | 0 | 3,616 | 0 | 3,616 | ||||||||||||||||||
|
Medicaid and other |
176 | 0 | 0 | 782 | 0 | 958 | ||||||||||||||||||
|
|
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|
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|
|
|
|
|
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|
|
|||||||||||||
|
Total premiums |
21,831 | 8,877 | 0 | 4,398 | 0 | 35,106 | ||||||||||||||||||
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|
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|
|
|
|
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|
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|
|||||||||||||
|
Services revenue: |
||||||||||||||||||||||||
|
Provider |
0 | 0 | 892 | 0 | 0 | 892 | ||||||||||||||||||
|
ASO and other |
16 | 356 | 0 | 85 | 0 | 457 | ||||||||||||||||||
|
Pharmacy |
0 | 0 | 11 | 0 | 0 | 11 | ||||||||||||||||||
|
|
|
|
|
|
|
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|
|
|
|
|
|||||||||||||
|
Total services revenue |
16 | 356 | 903 | 85 | 0 | 1,360 | ||||||||||||||||||
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|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
|
Total revenues—external customers |
21,847 | 9,233 | 903 | 4,483 | 0 | 36,466 | ||||||||||||||||||
|
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|
|||||||||||||
|
Intersegment revenues |
||||||||||||||||||||||||
|
Services |
0 | 18 | 8,689 | 0 | (8,707 | ) | 0 | |||||||||||||||||
|
Products |
0 | 0 | 1,820 | 0 | (1,820 | ) | 0 | |||||||||||||||||
|
|
|
|
|
|
|
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|
|
|
|
|
|||||||||||||
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Total intersegment revenues |
0 | 18 | 10,509 | 0 | (10,527 | ) | 0 | |||||||||||||||||
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|
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|
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|
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|
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|
Investment income |
76 | 48 | 0 | 54 | 188 | 366 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
|
Total revenues |
21,923 | 9,299 | 11,412 | 4,537 | (10,339 | ) | 36,832 | |||||||||||||||||
|
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|
|
|
|
|
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|
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|
|
|||||||||||||
|
Operating expenses: |
||||||||||||||||||||||||
|
Benefits |
17,753 | 7,318 | 0 | 4,041 | (289 | ) | 28,823 | |||||||||||||||||
|
Operating costs |
2,421 | 1,675 | 10,956 | 445 | (10,102 | ) | 5,395 | |||||||||||||||||
|
Depreciation and amortization |
119 | 88 | 79 | 10 | (26 | ) | 270 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
|
Total operating expenses |
20,293 | 9,081 | 11,035 | 4,496 | (10,417 | ) | 34,488 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
|
Income (loss) from operations |
1,630 | 218 | 377 | 41 | 78 | 2,344 | ||||||||||||||||||
|
Interest expense |
0 | 0 | 0 | 0 | 109 | 109 | ||||||||||||||||||
|
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|
|
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|
Income (loss) before income taxes |
$ | 1,630 | $ | 218 | $ | 377 | $ | 41 | $ | (31 | ) | $ | 2,235 | |||||||||||
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