SEGMENT INFORMATION

During the three months ended March 31, 2017, we realigned certain of our businesses among our reportable segments to correspond with internal management reporting changes and our previously announced planned exit from the Individual Commercial medical business on January 1, 2018. Additionally, we renamed our Group segment to the Group and Specialty segment, and began presenting the Individual Commercial business results as a separate segment rather than as part of the Retail segment. Specialty health insurance benefits, including dental, vision, other supplement health, and financial protection products, marketed to individuals are now included in the Group and Specialty segment. Specialty health insurance benefits marketed to employer groups continue to be included in the Group and Specialty segment. As a result of this realignment, our reportable segments now include Retail, Group and Specialty, Healthcare Services, and Individual Commercial. Prior period segment financial information has been recast to conform to the 2017 presentation.

We manage our business with four reportable segments: Retail, Group and Specialty, Healthcare Services and Individual Commercial. 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 benefits, marketed to individuals or directly via group accounts. In addition, the Retail segment also includes our contract with CMS to administer the Limited Income Newly Eligible Transition, or 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 Group and Specialty segment consists of employer group commercial fully-insured medical and specialty health insurance benefits marketed to individuals and employer groups, including dental, vision, and other supplemental health and voluntary insurance benefits and financial protection products, as well as administrative services only, or ASO products. In addition, our Group and Specialty segment includes military services business, primarily our TRICARE South Region contract. The Healthcare Services segment includes services offered to our health plan members as well as to third parties, including pharmacy solutions, provider services, and clinical care service, as well as services and capabilities to promote wellness and advance population health. The Individual Commercial segment consists of our individual commercial fully-insured medical health insurance benefits. We report under the category of Other Businesses those businesses which do not align with the reportable segments described above, primarily our 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 Humana Pharmacy, Inc., 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 and non-risk-based managed care agreements with our health plans. Under risk based 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. Under non risk-based agreements, our health plans retain the economic risk of funding the assigned members' healthcare services. Our Healthcare Services segment reports provider services revenues associated with risk-based agreements on a gross basis, whereby capitation fee revenue is recognized in the period in which the assigned members are entitled to receive healthcare services. Provider services revenues associated with non-risk-based agreements are presented net of associated healthcare costs.

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 $3.2 billion for the three months ended June 30, 2017 and 2016. For the six months ended June 30, 2017 and 2016 these amounts were $6.2 billion. 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 $27 million for the three months ended June 30, 2017 and 2016. For the six months ended June 30, 2017 and 2016, the amount of this expense was $53 million and $54 million, respectively.

Other than those described previously, the accounting policies of each segment are the same and are described in Note 2 to the consolidated financial statements included in our 2016 Form 10-K. Transactions between reportable segments primarily consist of sales of services rendered by our Healthcare Services segment, primarily pharmacy, provider, and clinical care services, to our Retail, Group and Specialty, and Individual Commercial segment customers. Intersegment sales and expenses are recorded at fair value and eliminated in consolidation. Members served by our segments often use 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 are included with intersegment eliminations in the tables presenting segment results below.

Our segment results were as follows for the three and six months ended June 30, 2017 and 2016:





	Retail		Group and Specialty		Healthcare Services		Individual Commercial		Other Businesses			Eliminations/ Corporate			Consolidated
	(in millions)
Three months ended June 30, 2017
Revenues - external customers
Premiums:
Individual Medicare Advantage	$	8,282	$	—	$	—	$	—	$	—		$	—		$	8,282
Group Medicare Advantage	1,277		—		—		—		—			—			1,277
Medicare stand-alone PDP	925		—		—		—		—			—			925
Total Medicare	10,484		—		—		—		—			—			10,484
Fully-insured	118		1,350		—		247		—			—			1,715
Specialty	—		323		—		—		—			—			323
Medicaid and other	671		—		—		—		10			—			681
Total premiums	11,273		1,673		—		247		10			—			13,203
Services revenue:
Provider	—		—		63		—		—			—			63
ASO and other	2		143		—		—		2			—			147
Pharmacy	—		—		20		—		—			—			20
Total services revenue	2		143		83		—		2			—			230
Total revenues - external customers	11,275		1,816		83		247		12			—			13,433
Intersegment revenues
Services	—		5		4,309		—		—			(4,314		)	—
Products	—		—		1,582		—		—			(1,582		)	—
Total intersegment revenues	—		5		5,891		—		—			(5,896		)	—
Investment income	24		7		8		1		21			40			101
Total revenues	11,299		1,828		5,982		248		33			(5,856		)	13,534
Operating expenses:
Benefits	9,672		1,312		—		86		32			(213		)	10,889
Operating costs	963		394		5,677		40		2			(5,623		)	1,453
Depreciation and amortization	57		21		35		4		—			(25		)	92
Total operating expenses	10,692		1,727		5,712		130		34			(5,861		)	12,434
Income (loss) from operations	607		101		270		118		(1		)	5			1,100
Interest expense	—		—		—		—		—			58			58
Income (loss) before income taxes	$	607	$	101	$	270	$	118	$	(1	)	$	(53	)	$	1,042





	Retail		Group and Specialty		Healthcare Services		Individual Commercial			Other Businesses			Eliminations/ Corporate			Consolidated
	(in millions)
Three months ended June 30, 2016
Revenues - external customers
Premiums:
Individual Medicare Advantage	$	8,050	$	—	$	—	$	—		$	—		$	—		$	8,050
Group Medicare Advantage	1,085		—		—		—			—			—			1,085
Medicare stand-alone PDP	1,015		—		—		—			—			—			1,015
Total Medicare	10,150		—		—		—			—			—			10,150
Fully-insured	106		1,357		—		1,024			—			—			2,487
Specialty	—		321		—		—			—			—			321
Medicaid and other	678		5		—		—			9			—			692
Total premiums	10,934		1,683		—		1,024			9			—			13,650
Services revenue:
Provider	—		—		74		—			—			—			74
ASO and other	2		176		—		—			3			—			181
Pharmacy	—		—		7		—			—			—			7
Total services revenue	2		176		81		—			3			—			262
Total revenues - external customers	10,936		1,859		81		1,024			12			—			13,912
Intersegment revenues
Services	—		6		4,767		—			—			(4,773		)	—
Products	—		—		1,433		—			—			(1,433		)	—
Total intersegment revenues	—		6		6,200		—			—			(6,206		)	—
Investment income	22		6		7		1			16			43			95
Total revenues	10,958		1,871		6,288		1,025			28			(6,163		)	14,007
Operating expenses:
Benefits	9,327		1,302		—		1,089			31			(240		)	11,509
Operating costs	1,069		423		5,974		152			4			(5,923		)	1,699
Merger termination fee and related costs, net	—		—		—		—			—			27			27
Depreciation and amortization	48		22		35		9			—			(25		)	89
Total operating expenses	10,444		1,747		6,009		1,250			35			(6,161		)	13,324
Income (loss) from operations	514		124		279		(225		)	(7		)	(2		)	683
Interest expense	—		—		—		—			—			47			47
Income (loss) before income taxes	$	514	$	124	$	279	$	(225	)	$	(7	)	$	(49	)	$	636




	Retail		Group and Specialty		Healthcare Services		Individual Commercial		Other Businesses			Eliminations/ Corporate			Consolidated
	(in millions)
Six months ended June 30, 2017
Revenues - external customers
Premiums:
Individual Medicare Advantage	$	16,658	$	—	$	—	$	—	$	—		$	—		$	16,658
Group Medicare Advantage	2,595		—		—		—		—			—			2,595
Medicare stand-alone PDP	1,866		—		—		—		—			—			1,866
Total Medicare	21,119		—		—		—		—			—			21,119
Fully-insured	236		2,728		—		530		—			—			3,494
Specialty	—		645		—		—		—			—			645
Medicaid and other	1,324		—		—		—		19			—			1,343
Total premiums	22,679		3,373		—		530		19			—			26,601
Services revenue:
Provider	—		—		133		—		—			—			133
ASO and other	4		304		—		—		4			—			312
Pharmacy	—		—		38		—		—			—			38
Total services revenue	4		304		171		—		4			—			483
Total revenues - external customers	22,683		3,677		171		530		23			—			27,084
Intersegment revenues
Services	—		10		8,619		—		—			(8,629		)	—
Products	—		—		3,134		—		—			(3,134		)	—
Total intersegment revenues	—		10		11,753		—		—			(11,763		)	—
Investment income	49		18		16		2		42			85			212
Total revenues	22,732		3,705		11,940		532		65			(11,678		)	27,296
Operating expenses:
Benefits	19,723		2,598		—		242		61			(409		)	22,215
Operating costs	1,917		793		11,357		102		6			(11,169		)	3,006
Merger termination fee and related costs, net	—		—		—		—		—			(947		)	(947		)
Depreciation and amortization	115		42		69		7		—			(49		)	184
Total operating expenses	21,755		3,433		11,426		351		67			(12,574		)	24,458
Income (loss) from operations	977		272		514		181		(2		)	896			2,838
Interest expense	—		—		—		—		—			107			107
Income (loss) before income taxes	$	977	$	272	$	514	$	181	$	(2	)	$	789		$	2,731



	Retail		Group and Specialty		Healthcare Services		Individual Commercial			Other Businesses			Eliminations/ Corporate			Consolidated
	(in millions)
Six months ended June 30, 2016
Revenues - external customers
Premiums:
Individual Medicare Advantage	$	16,077	$	—	$	—	$	—		$	—		$	—		$	16,077
Group Medicare Advantage	2,162		—		—		—			—			—			2,162
Medicare stand-alone PDP	2,054		—		—		—			—			—			2,054
Total Medicare	20,293		—		—		—			—			—			20,293
Fully-insured	210		2,694		—		1,917			—			—			4,821
Specialty	—		639		—		—			—			—			639
Medicaid and other	1,308		10		—		—			19			—			1,337
Total premiums	21,811		3,343		—		1,917			19			—			27,090
Services revenue:
Provider	—		—		145		—			—			—			145
ASO and other	3		353		1		—			6			—			363
Pharmacy	—		—		14		—			—			—			14
Total services revenue	3		353		160		—			6			—			522
Total revenues - external customers	21,814		3,696		160		1,917			25			—			27,612
Intersegment revenues
Services	—		12		9,551		—			—			(9,563		)	—
Products	—		—		2,793		—			—			(2,793		)	—
Total intersegment revenues	—		12		12,344		—			—			(12,356		)	—
Investment income	46		12		14		3			31			89			195
Total revenues	21,860		3,720		12,518		1,920			56			(12,267		)	27,807
Operating expenses:
Benefits	18,960		2,524		—		1,818			56			(452		)	22,906
Operating costs	2,151		857		11,916		321			8			(11,820		)	3,433
Merger termination fee and related costs, net	—		—		—		—			—			61			61
Depreciation and amortization	94		43		71		18			—			(49		)	177
Total operating expenses	21,205		3,424		11,987		2,157			64			(12,260		)	26,577
Income (loss) from operations	655		296		531		(237		)	(8		)	(7		)	1,230
Interest expense	—		—		—		—			—			94			94
Income (loss) before income taxes	$	655	$	296	$	531	$	(237	)	$	(8	)	$	(101	)	$	1,136