þ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Delaware | 61-0647538 | |
(State of incorporation) | (I.R.S. Employer Identification Number) | |
500 West Main Street Louisville, Kentucky | 40202 | |
(Address of principal executive offices) | (Zip Code) | |
Registrant’s telephone number, including area code: (502) 580-1000 Securities registered pursuant to Section 12(b) of the Act: | ||
Title of each class | Name of exchange on which registered | |
Common stock, $0.16 2/3 par value | New York Stock Exchange |
Page | ||
Part I | ||
Item 1. | ||
Item 1A. | ||
Item 1B. | ||
Item 2. | ||
Item 3. | ||
Item 4. | ||
Part II | ||
Item 5. | ||
Item 6. | ||
Item 7. | ||
Item 7A. | ||
Item 8. | ||
Item 9. | ||
Item 9A. | ||
Item 9B. | ||
Part III | ||
Item 10. | ||
Item 11. | ||
Item 12. | ||
Item 13. | ||
Item 14. | ||
Part IV | ||
Item 15. | ||
Retail Segment Premiums and Services Revenue | Percent of Consolidated Premiums and Services Revenue | ||||||
(dollars in millions) | |||||||
Premiums: | |||||||
Individual Medicare Advantage | $ | 32,720 | 61.3 | % | |||
Group Medicare Advantage | 5,155 | 9.7 | % | ||||
Medicare stand-alone PDP | 3,702 | 6.9 | % | ||||
Total Retail Medicare | 41,577 | 77.9 | % | ||||
State-based Medicaid | 2,571 | 4.8 | % | ||||
Medicare Supplement | 478 | 0.9 | % | ||||
Total premiums | 44,626 | 83.6 | % | ||||
Services | 10 | — | % | ||||
Total premiums and services revenue | $ | 44,636 | 83.6 | % |
Group and Specialty Segment Premiums and Services Revenue | Percent of Consolidated Premiums and Services Revenue | ||||||
(dollars in millions) | |||||||
External Revenue: | |||||||
Premiums: | |||||||
Fully-insured commercial group | $ | 5,462 | 10.2 | % | |||
Specialty | 1,310 | 2.5 | % | ||||
Total premiums | 6,772 | 12.7 | % | ||||
Services | 626 | 1.2 | % | ||||
Total premiums and services revenue | $ | 7,398 | 13.9 | % | |||
Intersegment services revenue | $ | 20 | n/a |
Healthcare Services Segment Services Revenue | Percent of Consolidated Premiums and Services Revenue | ||||||
(dollars in millions) | |||||||
Intersegment revenue: | |||||||
Pharmacy solutions | $ | 20,881 | n/a | ||||
Provider services | 1,593 | n/a | |||||
Clinical care services | 1,111 | n/a | |||||
Total intersegment revenue | $ | 23,585 | |||||
External services revenue: | |||||||
Pharmacy solutions | $ | 80 | 0.2 | % | |||
Provider services | 77 | 0.1 | % | ||||
Clinical care services | 181 | 0.3 | % | ||||
Total external services revenue | $ | 338 | 0.6 | % |
Retail Segment | Group and Specialty Segment | ||||||||||||||||||||||||
(in thousands) | |||||||||||||||||||||||||
Individual Medicare Advantage | Group Medicare Advantage | Medicare stand- alone PDP | Medicare Supplement | State- based contracts | Fully- insured commercial Group | ASO | Military services | Individual Commercial | Other Businesses | Total | Percent of Total | ||||||||||||||
Florida | 609.6 | 16.0 | 388.7 | 7.2 | 339.7 | 124.6 | 34.0 | — | 13.9 | — | 1,533.7 | 11.0 | % | ||||||||||||
Texas | 225.0 | 189.6 | 331.9 | 8.7 | — | 201.3 | 23.8 | — | 5.2 | — | 985.5 | 7.0 | % | ||||||||||||
Kentucky | 79.7 | 58.9 | 221.6 | 5.6 | — | 109.6 | 144.4 | — | 1.5 | — | 621.3 | 4.4 | % | ||||||||||||
California | 64.8 | 0.4 | 490.5 | 19.5 | — | — | — | — | — | — | 575.2 | 4.1 | % | ||||||||||||
Ohio | 119.3 | 20.3 | 194.9 | 47.7 | — | 50.6 | 51.2 | — | 1.2 | — | 485.2 | 3.5 | % | ||||||||||||
Illinois | 95.1 | 22.0 | 190.9 | 4.5 | 12.8 | 59.9 | 76.0 | — | 6.4 | — | 467.6 | 3.3 | % | ||||||||||||
Georgia | 113.9 | 1.8 | 135.9 | 10.5 | — | 163.7 | 27.6 | — | 1.7 | — | 455.1 | 3.3 | % | ||||||||||||
Missouri/Kansas | 81.7 | 5.0 | 228.0 | 8.5 | — | 51.3 | 10.3 | — | 14.0 | — | 398.8 | 2.9 | % | ||||||||||||
Tennessee | 146.1 | 3.9 | 119.2 | 4.4 | — | 42.3 | 10.1 | — | 57.6 | — | 383.6 | 2.7 | % | ||||||||||||
Louisiana | 158.5 | 11.6 | 61.3 | 1.9 | — | 69.0 | 9.8 | — | 19.8 | — | 331.9 | 2.4 | % | ||||||||||||
North Carolina | 142.4 | 0.4 | 184.5 | 0.7 | — | — | — | — | — | — | 328.0 | 2.3 | % | ||||||||||||
Wisconsin | 59.9 | 10.9 | 121.7 | 5.7 | — | 84.2 | 30.1 | — | — | — | 312.5 | 2.2 | % | ||||||||||||
Virginia | 116.6 | 2.6 | 158.3 | 8.6 | 7.6 | — | — | — | — | — | 293.7 | 2.1 | % | ||||||||||||
Indiana | 93.0 | 7.0 | 146.6 | 8.2 | — | 20.1 | 12.3 | — | — | — | 287.2 | 2.1 | % | ||||||||||||
Michigan | 49.1 | 12.5 | 150.3 | 3.0 | — | 3.7 | 0.4 | — | 4.9 | — | 223.9 | 1.6 | % | ||||||||||||
Pennsylvania | 42.8 | 0.6 | 166.1 | 4.6 | — | — | — | — | — | — | 214.1 | 1.5 | % | ||||||||||||
Arizona | 59.2 | 0.2 | 100.1 | 4.1 | — | 29.0 | 2.8 | — | — | — | 195.4 | 1.4 | % | ||||||||||||
South Carolina | 88.5 | 0.4 | 89.0 | 5.0 | — | — | — | — | — | — | 182.9 | 1.3 | % | ||||||||||||
Military services | — | — | — | — | — | — | — | 3,081.8 | — | — | 3,081.8 | 22.0 | % | ||||||||||||
Others | 515.6 | 77.3 | 1,828.6 | 77.5 | — | 88.4 | 25.9 | — | 2.6 | 29.8 | 2,645.7 | 18.9 | % | ||||||||||||
Totals | 2,860.8 | 441.4 | 5,308.1 | 235.9 | 360.1 | 1,097.7 | 458.7 | 3,081.8 | 128.8 | 29.8 | 14,003.1 | 100.0 | % |
• | increased use of medical facilities and services; |
• | increased cost of such services; |
• | increased use or cost of prescription drugs, including specialty prescription drugs; |
• | the introduction of new or costly treatments, including new technologies; |
• | our membership mix; |
• | variances in actual versus estimated levels of cost associated with new products, benefits or lines of business, product changes or benefit level changes; |
• | changes in the demographic characteristics of an account or market; |
• | changes or reductions of our utilization management functions such as preauthorization of services, concurrent review or requirements for physician referrals; |
• | changes in our pharmacy volume rebates received from drug manufacturers; |
• | catastrophes, including acts of terrorism, public health epidemics, or severe weather (e.g. hurricanes and earthquakes); |
• | medical cost inflation; and |
• | government mandated benefits or other regulatory changes, including any that result from the Health Care Reform Law. |
• | claims relating to the methodologies for calculating premiums; |
• | claims relating to the denial of health care benefit payments; |
• | claims relating to the denial or rescission of insurance coverage; |
• | challenges to the use of some software products used in administering claims; |
• | claims relating to our administration of our Medicare Part D offerings; |
• | medical malpractice actions based on our medical necessity decisions or brought against us on the theory that we are liable for providers' alleged malpractice; |
• | claims arising from any adverse medical consequences resulting from our recommendations about the appropriateness of providers’ proposed medical treatment plans for patients; |
• | allegations of anti-competitive and unfair business activities; |
• | provider disputes over compensation or non-acceptance or termination of provider contracts or provider contract disputes relating to rate adjustments resulting from the Balance Budget and Emergency Deficit Control Act of 1985, as amended (commonly referred to as “sequestration”); |
• | disputes related to ASO business, including actions alleging claim administration errors; |
• | qui tam litigation brought by individuals who seek to sue on behalf of the government, alleging that we, as a government contractor, submitted false claims to the government including, among other allegations, resulting from coding and review practices under the Medicare risk-adjustment model; |
• | claims related to the failure to disclose some business practices; |
• | claims relating to customer audits and contract performance; |
• | claims relating to dispensing of drugs associated with our in-house mail-order pharmacy; and |
• | professional liability claims arising out of the delivery of healthcare and related services to the public. |
• | At December 31, 2017, under our contracts with CMS we provided health insurance coverage to approximately 609,600 individual Medicare Advantage members in Florida. These contracts accounted for approximately 15% of our total premiums and services revenue for the year ended December 31, 2017. The loss of these and other CMS contracts or significant changes in the Medicare program as a result of legislative or regulatory action, including reductions in premium payments to us or increases in member benefits without corresponding increases in premium payments to us, may have a material adverse effect on our results of operations, financial position, and cash flows. |
• | Our military services business, which accounted for approximately 1% of our total premiums and services revenue for the year ended December 31, 2017, primarily consisted of the T3 TRICARE South Region contract. The 5-year T3 South Region contract expired on December 31, 2017. On July 21, 2016, we were notified by the Defense Health Agency, or DHA, that we were awarded the contract for the new TRICARE T2017 East Region. The T2017 East Region contract is a consolidation of the former T3 North and South Regions, comprising thirty-two states and approximately six million TRICARE beneficiaries, with delivery of health care services commencing on January 1, 2018. The loss of the TRICARE T2017 East Region contract may have a material adverse effect on our results of operations, financial position, and cash flows. |
• | There is a possibility of temporary or permanent suspension from participating in government health care programs, including Medicare and Medicaid, if we are convicted of fraud or other criminal conduct in the performance of a health care program or if there is an adverse decision against us under the federal False Claims Act. As a government contractor, we may be subject to qui tam litigation brought by individuals who seek to sue on behalf of the government, alleging that the government contractor submitted false claims to the government. Litigation of this nature is filed under seal to allow the government an opportunity to investigate and to decide if it wishes to intervene and assume control of the litigation. If the government |
• | CMS uses a risk-adjustment model which adjusts premiums paid to Medicare Advantage, or MA, plans according to health status of covered members. The risk-adjustment model, which CMS implemented pursuant to the Balanced Budget Act of 1997 (BBA) and the Benefits Improvement and Protection Act of 2000 (BIPA), generally pays more where a plan's membership has higher expected costs. Under this model, rates paid to MA plans are based on actuarially determined bids, which include a process whereby our prospective payments are based on our estimated cost of providing standard Medicare-covered benefits to an enrollee with a "national average risk profile." That baseline payment amount is adjusted to reflect the health status of our enrolled membership. Under the risk-adjustment methodology, all MA plans must collect and submit the necessary diagnosis code information from hospital inpatient, hospital outpatient, and physician providers to CMS within prescribed deadlines. The CMS risk-adjustment model uses the diagnosis data to calculate the risk-adjusted premium payment to MA plans, which CMS adjusts for coding pattern differences between the health plans and the government fee-for-service program. We generally rely on providers, including certain providers in our network who are our employees, to code their claim submissions with appropriate diagnoses, which we send to CMS as the basis for our payment received from CMS under the actuarial risk-adjustment model. We also rely on these providers to document appropriately all medical data, including the diagnosis data submitted with claims. In addition, we conduct medical record reviews as part of our data and payment accuracy compliance efforts, to more accurately reflect diagnosis conditions under the risk adjustment model. These compliance efforts include the internal contract level audits described in more detail below, as well as ordinary course reviews of our internal business processes. |
• | Our CMS contracts which cover members’ prescription drugs under Medicare Part D contain provisions for risk sharing and certain payments for prescription drug costs for which we are not at risk. These provisions, certain of which are described below, affect our ultimate payments from CMS. |
• | We are also subject to various other governmental audits and investigations. Under state laws, our HMOs and health insurance companies are audited by state departments of insurance for financial and contractual compliance. Our HMOs are audited for compliance with health services by state departments of health. Audits and investigations are also conducted by state attorneys general, CMS, the Office of the Inspector General of Health and Human Services, the Office of Personnel Management, the Department of Justice, the Department of Labor, and the Defense Contract Audit Agency. All of these activities could result in the loss of licensure or the right to participate in various programs, including a limitation on our ability to market or sell products, the imposition of fines, penalties and other civil and criminal sanctions, or changes in our business practices. The outcome of any current or future governmental or internal investigations cannot be accurately predicted, nor can we predict any resulting penalties, fines or other sanctions that may be imposed at the discretion of federal or state regulatory authorities. Nevertheless, it is reasonably possible that any such outcome of litigation, penalties, fines or other sanctions could be substantial, and the outcome of these matters may have a material adverse effect on our results of operations, financial position, and cash flows. Certain of these matters could also affect our reputation. In addition, disclosure of any adverse investigation or audit results or sanctions could negatively affect our industry or our reputation in various markets and make it more difficult for us to sell our products and services. |
Medical Centers | Administrative Offices | |||||||||||||
Owned | Leased | Owned | Leased | Total | ||||||||||
Florida | 11 | 147 | — | 68 | 226 | |||||||||
Texas | — | 19 | 2 | 15 | 36 | |||||||||
Kentucky | 2 | 1 | 11 | 10 | 24 | |||||||||
Arizona | — | 12 | — | 6 | 18 | |||||||||
Louisiana | — | 5 | — | 11 | 16 | |||||||||
Virginia | — | 9 | — | 7 | 16 | |||||||||
California | — | — | 2 | 13 | 15 | |||||||||
South Carolina | — | 6 | 4 | 5 | 15 | |||||||||
Illinois | — | 5 | — | 8 | 13 | |||||||||
New York | — | — | — | 13 | 13 | |||||||||
Ohio | — | 1 | — | 11 | 12 | |||||||||
Indiana | — | 4 | — | 7 | 11 | |||||||||
Nevada | — | 7 | — | 4 | 11 | |||||||||
Puerto Rico | — | — | — | 11 | 11 | |||||||||
Tennessee | — | — | — | 8 | 8 | |||||||||
Colorado | — | 5 | — | 3 | 8 | |||||||||
Georgia | — | 5 | — | 3 | 8 | |||||||||
New Jersey | — | — | — | 8 | 8 | |||||||||
Michigan | — | 5 | — | 3 | 8 | |||||||||
Washington | — | 4 | — | 3 | 7 | |||||||||
North Carolina | — | 2 | — | 5 | 7 | |||||||||
Others | — | 7 | 1 | 37 | 45 | |||||||||
Total | 13 | 244 | 20 | 259 | 536 |
High | Low | ||||||
Year Ended December 31, 2017 | |||||||
First quarter | $ | 219.25 | $ | 195.24 | |||
Second quarter | $ | 240.62 | $ | 209.77 | |||
Third quarter | $ | 258.75 | $ | 230.77 | |||
Fourth quarter | $ | 260.86 | $ | 233.28 | |||
Year Ended December 31, 2016 | |||||||
First quarter | $ | 186.91 | $ | 156.96 | |||
Second quarter | $ | 190.07 | $ | 165.23 | |||
Third quarter | $ | 180.86 | $ | 153.38 | |||
Fourth quarter | $ | 216.76 | $ | 165.31 |
Record Date | Payment Date | Amount per Share | Total Amount | |||
(in millions) | ||||||
2016 payments | ||||||
12/30/2015 | 1/29/2016 | $0.29 | $43 | |||
3/31/2016 | 4/29/2016 | $0.29 | $43 | |||
6/30/2016 | 7/29/2016 | $0.29 | $43 | |||
10/13/2016 | 10/28/2016 | $0.29 | $43 | |||
2017 payments | ||||||
1/12/2017 | 1/27/2017 | $0.29 | $43 | |||
3/31/2017 | 4/28/2017 | $0.40 | $58 | |||
6/30/2017 | 7/31/2017 | $0.40 | $58 | |||
9/29/2017 | 10/27/2017 | $0.40 | $57 |
12/31/2012 | 12/31/2013 | 12/31/2014 | 12/31/2015 | 12/31/2016 | 12/31/2017 | ||||||||||||||||||
HUM | $ | 100 | $ | 152 | $ | 214 | $ | 267 | $ | 307 | $ | 377 | |||||||||||
S&P 500 | $ | 100 | $ | 132 | $ | 150 | $ | 153 | $ | 171 | $ | 208 | |||||||||||
Peer Group | $ | 100 | $ | 137 | $ | 175 | $ | 186 | $ | 188 | $ | 238 |
Period | Total Number of Shares Purchased (1) | Average Price Paid per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (1)(2) | Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs (1) (2) | |||||||||
October 2017 | 916,505 | $ | 244.44 | 916,505 | $ | 286,200,345 | |||||||
November 2017 | 846,752 | 244.54 | 846,752 | 79,136,387 | |||||||||
December 2017 | 3,595,536 | 244.51 | 3,595,536 | 2,200,000,000 | |||||||||
Total | 5,358,793 | $ | 244.50 | 5,358,793 |
(1) | On February 14, 2017, we and Aetna agreed to mutually terminate the Merger Agreement. We also announced that the Board had approved a new authorization for share repurchases of up to $2.25 billion of our common stock exclusive of shares repurchased in connection with employee stock plans, expiring on December 31, 2017. We repurchased shares under an accelerated stock repurchase agreement and in the open market, utilizing the $2.25 billion authorization prior to expiration. |
(2) | Excludes 0.14 million shares repurchased in connection with employee stock plans. |
2017 | 2016 (a) | 2015 (b) | 2014 | 2013 (c) | |||||||||||||||
(dollars in millions, except per common share results) | |||||||||||||||||||
Summary of Operating Results: | |||||||||||||||||||
Revenues: | |||||||||||||||||||
Premiums | $ | 52,380 | $ | 53,021 | $ | 52,409 | $ | 45,959 | $ | 38,829 | |||||||||
Services | 982 | 969 | 1,406 | 2,164 | 2,109 | ||||||||||||||
Investment income | 405 | 389 | 474 | 377 | 375 | ||||||||||||||
Total revenues | 53,767 | 54,379 | 54,289 | 48,500 | 41,313 | ||||||||||||||
Operating expenses: | |||||||||||||||||||
Benefits | 43,496 | 45,007 | 44,269 | 38,166 | 32,564 | ||||||||||||||
Operating costs | 6,567 | 7,173 | 7,295 | 7,639 | 6,355 | ||||||||||||||
Merger termination fee and related costs, net | (936 | ) | 104 | 23 | — | — | |||||||||||||
Depreciation and amortization | 378 | 354 | 355 | 333 | 333 | ||||||||||||||
Total operating expenses | 49,505 | 52,638 | 51,942 | 46,138 | 39,252 | ||||||||||||||
Income from operations | 4,262 | 1,741 | 2,347 | 2,362 | 2,061 | ||||||||||||||
Gain on sale of business | — | — | 270 | — | — | ||||||||||||||
Interest expense | 242 | 189 | 186 | 192 | 140 | ||||||||||||||
Income before income taxes | 4,020 | 1,552 | 2,431 | 2,170 | 1,921 | ||||||||||||||
Provision for income taxes | 1,572 | 938 | 1,155 | 1,023 | 690 | ||||||||||||||
Net income | $ | 2,448 | $ | 614 | $ | 1,276 | $ | 1,147 | $ | 1,231 | |||||||||
Basic earnings per common share | $ | 16.94 | $ | 4.11 | $ | 8.54 | $ | 7.44 | $ | 7.81 | |||||||||
Diluted earnings per common share | $ | 16.81 | $ | 4.07 | $ | 8.44 | $ | 7.36 | $ | 7.73 | |||||||||
Dividends declared per common share | $ | 1.60 | $ | 1.16 | $ | 1.15 | $ | 1.11 | $ | 1.07 | |||||||||
Financial Position: | |||||||||||||||||||
Cash and investments | $ | 16,344 | $ | 13,675 | $ | 11,681 | $ | 11,482 | $ | 10,938 | |||||||||
Total assets | 27,178 | 25,396 | 24,678 | 23,497 | 20,719 | ||||||||||||||
Benefits payable | 4,668 | 4,563 | 4,976 | 4,475 | 3,893 | ||||||||||||||
Debt | 4,920 | 4,092 | 4,093 | 3,795 | 2,584 | ||||||||||||||
Stockholders’ equity | 9,842 | 10,685 | 10,346 | 9,646 | 9,316 | ||||||||||||||
Cash flows from operations | $ | 4,051 | $ | 1,936 | $ | 868 | $ | 1,618 | $ | 1,716 | |||||||||
Key Financial Indicators: | |||||||||||||||||||
Benefit ratio | 83.0 | % | 84.9 | % | 84.5 | % | 83.0 | % | 83.9 | % | |||||||||
Operating cost ratio | 12.3 | % | 13.3 | % | 13.6 | % | 15.9 | % | 15.5 | % | |||||||||
Membership by Segment: | |||||||||||||||||||
Retail segment: | |||||||||||||||||||
Medical membership | 9,206,300 | 8,751,300 | 8,327,700 | 7,360,300 | 5,953,900 | ||||||||||||||
Group and Specialty segment: | |||||||||||||||||||
Medical membership | 4,638,200 | 4,793,300 | 4,963,400 | 5,430,200 | 5,501,600 | ||||||||||||||
Specialty membership | 6,986,000 | 6,961,200 | 7,221,800 | 7,668,500 | 7,823,300 | ||||||||||||||
Individual commercial segment: | |||||||||||||||||||
Medical membership | 128,800 | 654,800 | 899,100 | 1,016,200 | 505,400 | ||||||||||||||
Other Businesses: | |||||||||||||||||||
Medical membership | 29,800 | 30,800 | 32,600 | 35,000 | 23,400 | ||||||||||||||
Consolidated: | |||||||||||||||||||
Total medical membership | 14,003,100 | 14,230,200 | 14,222,800 | 13,841,700 | 11,984,300 | ||||||||||||||
Total specialty membership | 6,986,000 | 6,961,200 | 7,221,800 | 7,668,500 | 7,823,300 |
(a) | Includes a reduction in premiums revenue of $583 million ($367 million after tax, or $2.43 per diluted common share) associated with the write-off of commercial risk corridor receivables. Also includes benefits expense of $505 million ($318 million after tax, or $2.11 per diluted common share) for reserve strengthening associated with our non-strategic closed block of long-term care insurance policies. |
(b) | Includes a gain on the sale of Concentra Inc., net of transaction costs, of $270 million ($238 million after tax, or $1.57 per diluted common share). Also includes benefits expense of $176 million ($112 million after tax, or 0.74 per diluted common share) for a provision for probable |
(c) | Includes benefits expense of $243 million ($154 million after tax, or $0.99 per diluted common share) for reserve strengthening associated with our non-strategic closed block of long-term care insurance policies. |
• | Our 2017 results reflect the continued implementation of our strategy to offer our members affordable health care combined with a positive consumer experience in growing markets. At the core of this strategy is our integrated care delivery model, which unites quality care, high member engagement, and sophisticated data analytics. Our approach to primary, physician-directed care for our members aims to provide quality care that is consistent, integrated, cost-effective, and member-focused, provided by both employed physicians and physicians with network contract arrangements. The model is designed to improve health outcomes and affordability for individuals and for the health system as a whole, while offering our members a simple, seamless healthcare experience. We believe this strategy is positioning us for long-term growth in both membership and earnings. We offer providers a continuum of opportunities to increase the integration of care and offer assistance to providers in transitioning from a fee-for-service to a value-based arrangement. These include performance bonuses, shared savings and shared risk relationships. At December 31, 2017, approximately 1,901,300 members, or 66.5%, of our individual Medicare Advantage members were in value-based relationships under our integrated care delivery model, as compared to 1,816,300 members, or 64.0%, at December 31, 2016. |
• | Our consolidated pretax results of $4.02 billion for 2017, an increase of $2.47 billion, from $1.55 billion in 2016, primarily reflects the net gain associated with the terminated Merger Agreement, mainly the break-up fee, along with the year-over-year improvement in earnings for our Individual Commercial, Retail and Group and Specialty segments. The year-over-year comparison was also favorably impacted by the reserve strengthening for our non-strategic closed block of long-term care insurance business recorded in 2016. These items were partially offset by lower pretax earnings in the Healthcare Services segment, charges associated with voluntary and involuntary workforce reduction programs recorded during the second half of 2017, as well as the estimated guaranty fund assessment expense to support the policyholder obligations of Penn Treaty (an unaffiliated long-term care insurance company). |
• | Year-over-year comparisons of diluted earnings per common share reflect the same factors impacting our consolidated pretax income comparisons year-over-year as well as the beneficial effect of the lower effective tax rate in light of pricing and benefit design assumptions associated with the 2017 temporary suspension of the health insurance industry fee. In addition the year-over-year comparisons were favorably impacted by lower number of shares, primarily reflecting share repurchases. |
• | We recorded a net gain associated with the terminated Merger Agreement, consisting primarily of the breakup fee, of approximately $936 million, or $4.31 per diluted common share, during 2017. During 2016, we recorded transaction costs in connection with the Merger of approximately $104 million, or $0.64 per diluted common share. Certain costs associated with the Merger were previously not deductible for tax purposes, but became deductible, and were recorded as such, in the first quarter 2017 as a result of the termination of the Merger Agreement. |
• | During 2017, we initiated a voluntary early retirement program and an involuntary workforce reduction program. These programs impacted approximately 3,600 associates, or 7.8% of our workforce. As a result, we recorded charges of $148 million, or $0.64 per diluted common share. This charge is included with operating costs in the consolidated statements of income for the year ended December 31, 2017 and included at the corporate level in the segment financial information. Payments under these programs are made upon termination during the early retirement or severance pay period, beginning in the first quarter of 2018. We expect this liability to be primarily paid within the next 12 months and classified it as a current liability, included in our consolidated balance sheet in the trade accounts payable and accrued expenses line. |
• | On March 1, 2017, a court ordered the liquidation of Penn Treaty (an unaffiliated long-term care insurance company), which triggered assessments from state guaranty associations that resulted in our recording a $54 million, or $0.24 per diluted common share, charge in operating costs. |
• | The annual health insurance industry fee has been suspended for calendar year 2017 but has resumed in calendar year 2018. Operating cost associated with the health insurer fee attributable to 2016 was $916 million. This fee is not deductible for tax purposes, which significantly increased our effective income tax rate. The one-year suspension in 2017 of the health insurer fee has significantly reduced our operating costs and effective tax rate during 2017. The Continuing Resolution bill, H.R. 195, enacted on January 22, 2018, included a one year suspension in 2019 of the health insurer fee, but the fee is scheduled to resume in calendar year 2020. |
• | Investment income increased $16 million in 2017, primarily due to higher average invested balances and interest rates in 2017, partially offset by lower realized capital gains. |
• | Operating cash flow provided by operations was $4.1 billion for the year ended December 31, 2017 as compared to operating cash flow provided by operations of $1.9 billion for the year ended December 31, 2016. The increase in operating cash flow primarily was due to the receipt of the merger termination fee, net of related expenses and taxes paid, higher earnings and the timing of working capital items. |
• | We paid dividends to stockholders of $220 million in 2017 as compared to $177 million in 2016. |
• | In 2017, our Retail segment pretax income increased by $288 million, or 17.0%, from 2016 primarily driven by the year-over-year improvement in our Medicare Advantage business. |
• | On February 1, 2018, CMS issued its preliminary 2019 Medicare Advantage and Part D payment rates and proposed policy changes, which we refer to collectively as the Advance Notice. CMS has invited public comment on the Advance Notice before publishing final rates on April 2, 2018 (the Final Notice). In the Advance Notice, CMS estimates Medicare Advantage plans across the sector will, on average, experience a 1.84 percent increase in benchmark funding based on proposals included therein. As indicated by CMS, its estimate excludes the impact of fee‐for‐service county re-basing/re-pricing since the related impact is dependent upon finalization of certain data, which will be available with the publication of the Final Notice. CMS’ estimate includes 30 basis points of negative impact associated with the proposed Employer Group Waiver Plan Payment Policy for 2019. Excluding that item, CMS’ estimate would be a 2.14 percent increase. Based on our preliminary analysis using the same factors CMS included in its estimate, the components of which are detailed on CMS’ web site, we anticipate the proposals in the Advance Notice would result in a change to our benchmark funding relatively in line with CMS’ estimate, excluding the impact attributable to the Employer Group Waiver Plan Payment Policy. |
• | Group and Specialty segment pretax income was $412 million in 2017, an increase of $68 million, or 19.8%, from $344 million in 2016 primarily reflecting the impact of higher pretax earnings associated with our fully-insured commercial medical products as well as higher earnings from our military services business resulting from higher performance incentives earned under the TRICARE contract. |
• | On July 21, 2016, we were notified by the Defense Health Agency, or DHA, that we were awarded the contract for the new TRICARE T2017 East Region. The T2017 East Region contract is a consolidation of the former T3 North and South Regions, comprising thirty-two states and approximately six million TRICARE beneficiaries, with delivery of health care services commencing on January 1, 2018. The T2017 East contract is a 5-year contract set to expire on December 31, 2022. |
• | Healthcare Services segment pretax income was $967 million in 2017, a decrease $129 million, or 11.8%, from 2016 primarily due to the impact of the optimization process associated with our chronic care management programs, as well as lower earnings in our provider services business reflecting lower Medicare rates year-over-year in geographies where our provider assets are primarily located. The reductions in pharmacy solutions intersegment revenues were offset by similar reductions in operating costs associated with the pharmacy solutions business. |
• | At December 31, 2017, approximately 52,200 primary care providers were in value-based relationships, an increase of 3.6% from 50,400 at December 31, 2016. At December 31, 2017, 66% of our individual Medicare Advantage members were in value-based relationships compared to 64% at December 31, 2016. |
• | Medicare Advantage and dual demonstration program membership enrolled in a Humana chronic care management program was 794,900 at December 31, 2017, a decrease of 27.7% from 1,099,200 at December 31, 2016. We have undergone an optimization process that ensures the appropriate level of member interaction with clinicians to drive quality outcomes, which has resulted in reduced segment earnings but higher returns on investment. |
• | As announced on February 14, 2017, we exited our Individual Commercial medical business January 1, 2018. |
• | In 2017, our Individual Commercial segment pretax income was $193 million, an increase of $1.1 billion, from a pretax loss of $869 million in 2016 primarily due to the exit of certain markets in 2017, and per-member premium increases, as well as the reduction of premiums related to the write-off of receivables associated with the commercial risk corridor premium stabilization program. |
Change | |||||||||||||||
2017 | 2016 | Dollars | Percentage | ||||||||||||
(dollars in millions, except per common share results) | |||||||||||||||
Revenues: | |||||||||||||||
Premiums: | |||||||||||||||
Retail | $ | 44,626 | $ | 43,223 | $ | 1,403 | 3.2 | % | |||||||
Group and Specialty | 6,772 | 6,696 | 76 | 1.1 | % | ||||||||||
Individual Commercial | 947 | 3,064 | (2,117 | ) | (69.1 | )% | |||||||||
Other Businesses | 35 | 38 | (3 | ) | (7.9 | )% | |||||||||
Total premiums | 52,380 | 53,021 | (641 | ) | (1.2 | )% | |||||||||
Services: | |||||||||||||||
Retail | 10 | 6 | 4 | 66.7 | % | ||||||||||
Group and Specialty | 626 | 643 | (17 | ) | (2.6 | )% | |||||||||
Healthcare Services | 338 | 310 | 28 | 9.0 | % | ||||||||||
Other Businesses | 8 | 10 | (2 | ) | (20.0 | )% | |||||||||
Total services | 982 | 969 | 13 | 1.3 | % | ||||||||||
Investment income | 405 | 389 | 16 | 4.1 | % | ||||||||||
Total revenues | 53,767 | 54,379 | (612 | ) | (1.1 | )% | |||||||||
Operating expenses: | |||||||||||||||
Benefits | 43,496 | 45,007 | (1,511 | ) | (3.4 | )% | |||||||||
Operating costs | 6,567 | 7,173 | (606 | ) | (8.4 | )% | |||||||||
Merger termination fee and related costs, net | (936 | ) | 104 | (1,040 | ) | (1,000.0 | )% | ||||||||
Depreciation and amortization | 378 | 354 | 24 | 6.8 | % | ||||||||||
Total operating expenses | 49,505 | 52,638 | (3,133 | ) | (6.0 | )% | |||||||||
Income from operations | 4,262 | 1,741 | 2,521 | 144.8 | % | ||||||||||
Interest expense | 242 | 189 | 53 | 28.0 | % | ||||||||||
Income before income taxes | 4,020 | 1,552 | 2,468 | 159.0 | % | ||||||||||
Provision for income taxes | 1,572 | 938 | 634 | 67.6 | % | ||||||||||
Net income | $ | 2,448 | $ | 614 | $ | 1,834 | 298.7 | % | |||||||
Diluted earnings per common share | $ | 16.81 | $ | 4.07 | $ | 12.74 | 313.0 | % | |||||||
Benefit ratio (a) | 83.0 | % | 84.9 | % | (1.9 | )% | |||||||||
Operating cost ratio (b) | 12.3 | % | 13.3 | % | (1.0 | )% | |||||||||
Effective tax rate | 39.1 | % | 60.5 | % | (21.4 | )% |
(a) | Represents total benefits expense as a percentage of premiums revenue. |
(b) | Represents total operating costs, excluding depreciation and amortization, as a percentage of total revenues less investment income. |
Change | ||||||||||||
2017 | 2016 | Members | Percentage | |||||||||
Membership: | ||||||||||||
Medical membership: | ||||||||||||
Individual Medicare Advantage | 2,860,800 | 2,837,600 | 23,200 | 0.8 | % | |||||||
Group Medicare Advantage | 441,400 | 355,400 | 86,000 | 24.2 | % | |||||||
Medicare stand-alone PDP | 5,308,100 | 4,951,400 | 356,700 | 7.2 | % | |||||||
Total Retail Medicare | 8,610,300 | 8,144,400 | 465,900 | 5.7 | % | |||||||
State-based Medicaid | 360,100 | 388,100 | (28,000 | ) | (7.2 | )% | ||||||
Medicare Supplement | 235,900 | 218,800 | 17,100 | 7.8 | % | |||||||
Total Retail medical members | 9,206,300 | 8,751,300 | 455,000 | 5.2 | % |
Change | |||||||||||||||
2017 | 2016 | Dollars | Percentage | ||||||||||||
(in millions) | |||||||||||||||
Premiums and Services Revenue: | |||||||||||||||
Premiums: | |||||||||||||||
Individual Medicare Advantage | $ | 32,720 | $ | 31,863 | $ | 857 | 2.7 | % | |||||||
Group Medicare Advantage | 5,155 | 4,283 | 872 | 20.4 | % | ||||||||||
Medicare stand-alone PDP | 3,702 | 4,009 | (307 | ) | (7.7 | )% | |||||||||
Total Retail Medicare | 41,577 | 40,155 | 1,422 | 3.5 | % | ||||||||||
State-based Medicaid | 2,571 | 2,640 | (69 | ) | (2.6 | )% | |||||||||
Medicare Supplement | 478 | 428 | 50 | 11.7 | % | ||||||||||
Total premiums | 44,626 | 43,223 | 1,403 | 3.2 | % | ||||||||||
Services | 10 | 6 | 4 | 66.7 | % | ||||||||||
Total premiums and services revenue | $ | 44,636 | $ | 43,229 | $ | 1,407 | 3.3 | % | |||||||
Income before income taxes | $ | 1,978 | $ | 1,690 | $ | 288 | 17.0 | % | |||||||
Benefit ratio | 85.6 | % | 85.1 | % | 0.5 | % | |||||||||
Operating cost ratio | 9.6 | % | 10.8 | % | (1.2 | )% |
• | Retail segment pretax income was $2.0 billion in 2017, an increase of $288 million, or 17.0%, compared to 2016 primarily driven by the year-over-year improvement in our Medicare Advantage business. |
• | Individual Medicare Advantage membership increased 23,200 members, or 0.8%, from December 31, 2016 to December 31, 2017 reflecting net membership additions for Medicare beneficiaries including the effect of planned market and product exits in 2017. We decided certain markets and/or products were not meeting long term strategic and financial objectives. Additionally, membership growth was muted due to competitive actions including the uncertainty associated with the then-pending Merger transaction during last year's AEP. For full year 2018, we anticipate net membership growth in our individual Medicare Advantage offerings of 180,000 to 200,000. |
• | Group Medicare Advantage membership increased 86,000 members, or 24.2%, from December 31, 2016 to December 31, 2017 reflecting the addition of a large account in January 2017. For full year 2018, we anticipate net membership growth in our group Medicare Advantage offerings of 65,000 to 70,000. |
• | Medicare stand-alone PDP membership increased 356,700 members, or 7.2%, from December 31, 2016 to December 31, 2017 reflecting net membership additions, primarily for our Humana-Walmart plan offering, for the 2017 plan year. For full year 2018, we anticipate a net membership decline in our Medicare stand-alone PDP offerings of 280,000 to 320,000, primarily attributable to the loss of auto assign members in Florida and South Carolina due to pricing over the CMS low income benchmark and continued membership declines in our Enhanced Plan offering. |
• | State-based Medicaid membership decreased 28,000 members, or 7.2%, from December 31, 2016 to December 31, 2017, primarily driven by lower membership associated with our Florida contracts resulting from network realignments. |
• | Retail segment premiums increased $1.4 billion, or 3.2%, from 2016 to 2017 primarily due to Medicare Advantage membership growth and increased per-member premiums for certain of the segment's products. Average group and individual Medicare Advantage membership increased 3.4% in 2017. Average membership is calculated by summing the ending membership for each month in a period and dividing the result by the number of months in a period. Premiums revenue reflects changes in membership and average per-member premiums. Items impacting average per-member premiums include changes in premium rates as well as changes in the geographic mix of membership, the mix of product offerings, and the mix of benefit plans selected by our membership. |
• | The Retail segment benefit ratio of 85.6% for 2017 increased 50 basis points from 2016 primarily due to the impact of the temporary suspension of the health insurance industry fee for calendar year 2017 which was contemplated in the pricing and benefit design of our products, margin compression associated with the competitive environment in the group Medicare Advantage business and slightly lower favorable prior-period medical claims reserve development. These increases were partially offset by the impact of planned exits from certain Medicare Advantage markets that carried a higher benefit ratio than other markets as well as lower than expected medical costs as compared to the assumptions used in the pricing of our individual Medicare Advantage business. |
• | The Retail segment’s benefits expense for 2017 included the beneficial effect of $386 million in favorable prior-year medical claims reserve development versus $429 million in 2016. This favorable prior-year medical claims reserve development decreased the Retail segment benefit ratio by approximately 90 basis points in 2017 versus approximately 100 basis points in 2016. |
• | The Retail segment operating cost ratio of 9.6% for 2017 decreased 120 basis points from 2016 primarily due to the temporary suspension of the health insurance industry fee for calendar year 2017, partially offset by increased spending associated with AEP, investments in our integrated care delivery model, and the increase in employee compensation costs resulting from the continued strong performance. The non-deductible health insurance industry fee increased the operating cost ratio by approximately 170 basis points in 2016. |
Change | ||||||||||||
2017 | 2016 | Members | Percentage | |||||||||
Membership: | ||||||||||||
Medical membership: | ||||||||||||
Fully-insured commercial group | 1,097,700 | 1,136,000 | (38,300 | ) | (3.4 | )% | ||||||
ASO | 458,700 | 573,200 | (114,500 | ) | (20.0 | )% | ||||||
Military services | 3,081,800 | 3,084,100 | (2,300 | ) | (0.1 | )% | ||||||
Total group medical members | 4,638,200 | 4,793,300 | (155,100 | ) | (3.2 | )% | ||||||
Specialty membership (a) | 6,986,000 | 6,961,200 | 24,800 | 0.4 | % |
(a) | Specialty products include dental, vision, voluntary benefit products and other supplemental health and financial protection products. Members included in these products may not be unique to each product since members have the ability to enroll in multiple products. |
Change | |||||||||||||||
2017 | 2016 | Dollars | Percentage | ||||||||||||
(in millions) | |||||||||||||||
Premiums and Services Revenue: | |||||||||||||||
Premiums: | |||||||||||||||
Fully-insured commercial group | $ | 5,462 | $ | 5,405 | $ | 57 | 1.1 | % | |||||||
Specialty | 1,310 | 1,279 | 31 | 2.4 | % | ||||||||||
Military services | — | 12 | (12 | ) | (100.0 | )% | |||||||||
Total premiums | 6,772 | 6,696 | 76 | 1.1 | % | ||||||||||
Services | 626 | 643 | (17 | ) | (2.6 | )% | |||||||||
Total premiums and services revenue | $ | 7,398 | $ | 7,339 | $ | 59 | 0.8 | % | |||||||
Income before income taxes | $ | 412 | $ | 344 | $ | 68 | 19.8 | % | |||||||
Benefit ratio | 79.2 | % | 78.2 | % | 1.0 | % | |||||||||
Operating cost ratio | 21.4 | % | 23.5 | % | (2.1 | )% |
• | Group and Specialty segment pretax income was $412 million in 2017, an increase of $68 million, or 19.8%, from $344 million in 2016 primarily reflecting the impact of higher pretax earnings associated with our fully-insured commercial business as well as higher earnings from our military services business resulting from higher performance incentives earned under the TRICARE contract. |
• | Fully-insured commercial group medical membership decreased 38,300 members, or 3.4% from December 31, 2016 reflecting lower membership in small group accounts due in part to more small group accounts selecting ASO products in 2017. |
• | Group ASO commercial medical membership decreased 114,500 members, or 20.0%, from December 31, 2016 to December 31, 2017 primarily due to the loss of certain large group accounts as a result of continued discipline in pricing of services for self-funded accounts amid a highly competitive environment, partially offset by more small group accounts selecting ASO products in 2017. |
• | Specialty membership increased 24,800 members, or 0.4%, from December 31, 2016 to December 31, 2017 primarily due to strong growth in vision products marketed to employer groups. |
• | Group and Specialty segment premiums increased $76 million, or 1.1%, from 2016 to 2017 primarily due to an increase in group fully-insured commercial medical per-member premiums, partially offset by a decline in average group fully-insured commercial medical membership. |
• | Group and Specialty segment services revenue decreased $17 million, or 2.6%, from 2016 to 2017 primarily due to a decline in revenue in our group ASO commercial medical business mainly due to membership declines partially offset by higher revenue from our military services business resulting from higher performance incentives earned under the TRICARE contract. |
• | The Group and Specialty segment benefit ratio increased 100 basis points from 78.2% in 2016 to 79.2% in 2017 primarily due to the impact of the temporary suspension of the health insurance industry fee for calendar year 2017 which was contemplated in the pricing of our products. The increase was further impacted by an increased proportion of small group members transitioning to community rated plans that carry a higher benefit ratio. These increases were partially offset by lower utilization for the fully-insured commercial medical business in 2017, primarily associated with the large group business. |
• | The Group and Specialty segment’s benefits expense included the beneficial effect of $40 million in favorable prior-year medical claims reserve development in 2017 versus $46 million in 2016. This favorable prior-year medical claims reserve development decreased the Group and Specialty segment benefit ratio by approximately 60 basis points in 2017 versus approximately 70 basis points in 2016. |
• | The Group and Specialty segment operating cost ratio of 21.4% for 2017 decreased 210 basis points from 23.5% for 2016 primarily due to the temporary suspension of the health insurance industry fee for calendar year 2017 as well as operating cost efficiencies, partially offset by an increase in employee compensation costs resulting from the continued strong performance. The non-deductible health insurance industry fee increased the operating cost ratio by approximately 150 basis points in 2016. |
Change | |||||||||||||||
2017 | 2016 | Dollars | Percentage | ||||||||||||
(in millions) | |||||||||||||||
Revenues: | |||||||||||||||
Services: | |||||||||||||||
Clinical care services | $ | 181 | $ | 201 | $ | (20 | ) | (10.0 | )% | ||||||
Pharmacy solutions | 80 | 31 | 49 | 158.1 | % | ||||||||||
Provider services | 77 | 78 | (1 | ) | (1.3 | )% | |||||||||
Total services revenues | 338 | 310 | 28 | 9.0 | % | ||||||||||
Intersegment revenues: | |||||||||||||||
Pharmacy solutions | 20,881 | 21,952 | (1,071 | ) | (4.9 | )% | |||||||||
Provider services | 1,593 | 1,677 | (84 | ) | (5.0 | )% | |||||||||
Clinical care services | 1,111 | 1,343 | (232 | ) | (17.3 | )% | |||||||||
Total intersegment revenues | 23,585 | 24,972 | (1,387 | ) | (5.6 | )% | |||||||||
Total services and intersegment revenues | $ | 23,923 | $ | 25,282 | $ | (1,359 | ) | (5.4 | )% | ||||||
Income before income taxes | $ | 967 | $ | 1,096 | $ | (129 | ) | (11.8 | )% | ||||||
Operating cost ratio | 95.5 | % | 95.2 | % | 0.3 | % |
• | Healthcare Services segment pretax income was $967 million in 2017, a decrease of $129 million, or 11.8%, from 2016 primarily was due to the impact of the optimization process associated with our chronic care management programs, as well as lower earnings in our provider services business reflecting lower Medicare rates year-over-year in geographies where our provider assets are primarily located. The reductions in pharmacy solutions intersegment revenues were offset by similar reductions in operating costs associated with the pharmacy solutions business. |
• | Humana Pharmacy Solutions® script volumes for the Retail and Group and Specialty segment membership increased to approximately 433 million in 2017, up 2% versus scripts of approximately 426 million in 2016. The increase primarily reflects growth associated with higher Medicare membership for 2017 than in 2016, partially offset by the decline in Individual Commercial membership. |
• | Services revenue increased $28 million, or 9.0%, from 2016 to $338 million for 2017 primarily due to service revenue growth from our pharmacy solutions business. |
• | Intersegment revenues decreased $1.4 billion, or 5.6%, from 2016 to $23.6 billion for 2017 primarily due to our pharmacy solutions business as well as the result of the optimization process associated with our chronic care management programs discussed previously, as well as lower revenue in our provider services business reflecting lower Medicare rates year-over-year in geographies where our provider assets are primarily located. Our pharmacy solutions business revenues were impacted by improvements in net pharmacy costs driven by our pharmacy benefit manager and an increase in the generic dispensing rate. These items were partially offset by higher year-over-year script volume from growth in our Medicare Advantage and standalone PDP membership, partially offset by the impact of lower Individual Commercial membership. Our generic dispensing rate improved to 91.3% during 2017 from 90.5% during 2016. The higher generic dispensing rate |
• | The Healthcare Services segment operating cost ratio of 95.5% for 2017 was relatively unchanged from 95.2% for 2016. |
• | As announced on February 14, 2017, we exited our Individual Commercial medical business January 1, 2018. |
• | In 2017, our Individual Commercial segment pretax income was $193 million, an increase of $1.1 billion, from a pretax loss of $869 million in 2016 primarily due to the exit of certain markets in 2017, and per-member premium increases, as well as the reduction of premiums related to the write-off of receivables associated with the commercial risk corridor premium stabilization program. |
• | Individual commercial medical membership decreased 526,000 members, or 80.3%, from December 31, 2016 to December 31, 2017 reflecting the decline in the number of counties we offered on-exchange coverage and the discontinuance of offering off-exchange products. |
• | The Individual Commercial segment benefit ratio of 57.4% for 2017 decreased from 107.7% in 2016 primarily due to the reduction of premiums related to the write-off of receivables associated with the commercial risk corridor premium stabilization program, as well as the planned exits in 2017 in certain markets that carried a higher benefit ratio and per-member premium increases. |
• | The Individual Commercial segment operating cost ratio of 21.2% for 2017 increased 160 basis points from 2016 primarily due to the loss of scale efficiency from market exits in 2017, partially offset by the write-off of receivables associated with the commercial risk corridor premium stabilization program and the temporary suspension of the health insurance industry fee for calendar year 2017. |
Change | |||||||||||||||
2016 | 2015 | Dollars | Percentage | ||||||||||||
(dollars in millions, except per common share results) | |||||||||||||||
Revenues: | |||||||||||||||
Premiums: | |||||||||||||||
Retail | $ | 43,223 | $ | 41,605 | $ | 1,618 | 3.9 | % | |||||||
Group and Specialty | 6,696 | 6,830 | (134 | ) | (2.0 | )% | |||||||||
Individual Commercial | 3,064 | 3,939 | (875 | ) | (22.2 | )% | |||||||||
Other Businesses | 38 | 35 | 3 | 8.6 | % | ||||||||||
Total premiums | 53,021 | 52,409 | 612 | 1.2 | % | ||||||||||
Services: | |||||||||||||||
Retail | 6 | 8 | (2 | ) | (25.0 | )% | |||||||||
Group and Specialty | 643 | 658 | (15 | ) | (2.3 | )% | |||||||||
Healthcare Services | 310 | 726 | (416 | ) | (57.3 | )% | |||||||||
Other Businesses | 10 | 14 | (4 | ) | (28.6 | )% | |||||||||
Total services | 969 | 1,406 | (437 | ) | (31.1 | )% | |||||||||
Investment income | 389 | 474 | (85 | ) | (17.9 | )% | |||||||||
Total revenues | 54,379 | 54,289 | 90 | 0.2 | % | ||||||||||
Operating expenses: | |||||||||||||||
Benefits | 45,007 | 44,269 | 738 | 1.7 | % | ||||||||||
Operating costs | 7,173 | 7,295 | (122 | ) | (1.7 | )% | |||||||||
Merger termination fee and related costs, net | 104 | 23 | 81 | 352.2 | % | ||||||||||
Depreciation and amortization | 354 | 355 | (1 | ) | (0.3 | )% | |||||||||
Total operating expenses | 52,638 | 51,942 | 696 | 1.3 | % | ||||||||||
Income from operations | 1,741 | 2,347 | (606 | ) | (25.8 | )% | |||||||||
Gain on sale of business | — | 270 | (270 | ) | (100.0 | )% | |||||||||
Interest expense | 189 | 186 | 3 | 1.6 | % | ||||||||||
Income before income taxes | 1,552 | 2,431 | (879 | ) | (36.2 | )% | |||||||||
Provision for income taxes | 938 | 1,155 | (217 | ) | (18.8 | )% | |||||||||
Net income | $ | 614 | $ | 1,276 | $ | (662 | ) | (51.9 | )% | ||||||
Diluted earnings per common share | $ | 4.07 | $ | 8.44 | $ | (4.37 | ) | (51.8 | )% | ||||||
Benefit ratio (a) | 84.9 | % | 84.5 | % | 0.4 | % | |||||||||
Operating cost ratio (b) | 13.3 | % | 13.6 | % | (0.3 | )% | |||||||||
Effective tax rate | 60.5 | % | 47.5 | % | 13.0 | % |
(a) | Represents total benefits expense as a percentage of premiums revenue. |
(b) | Represents total operating costs, excluding depreciation and amortization, as a percentage of total revenues less investment income. |
Change | ||||||||||||
2016 | 2015 | Members | Percentage | |||||||||
Membership: | ||||||||||||
Medical membership: | ||||||||||||
Individual Medicare Advantage | 2,837,600 | 2,753,400 | 84,200 | 3.1 | % | |||||||
Group Medicare Advantage | 355,400 | 484,100 | (128,700 | ) | (26.6 | )% | ||||||
Medicare stand-alone PDP | 4,951,400 | 4,557,900 | 393,500 | 8.6 | % | |||||||
Total Retail Medicare | 8,144,400 | 7,795,400 | 349,000 | 4.5 | % | |||||||
State-based Medicaid | 388,100 | 373,700 | 14,400 | 3.9 | % | |||||||
Medicare Supplement | 218,800 | 158,600 | 60,200 | 38.0 | % | |||||||
Total Retail medical members | 8,751,300 | 8,327,700 | 423,600 | 5.1 | % |
Change | |||||||||||||||
2016 | 2015 | Dollars | Percentage | ||||||||||||
(in millions) | |||||||||||||||
Premiums and Services Revenue: | |||||||||||||||
Premiums: | |||||||||||||||
Individual Medicare Advantage | $ | 31,863 | $ | 29,526 | $ | 2,337 | 7.9 | % | |||||||
Group Medicare Advantage | 4,283 | 5,588 | (1,305 | ) | (23.4 | )% | |||||||||
Medicare stand-alone PDP | 4,009 | 3,846 | 163 | 4.2 | % | ||||||||||
Total Retail Medicare | 40,155 | 38,960 | 1,195 | 3.1 | % | ||||||||||
State-based Medicaid | 2,640 | 2,341 | 299 | 12.8 | % | ||||||||||
Medicare Supplement | 428 | 304 | 124 | 40.8 | % | ||||||||||
Total premiums | 43,223 | 41,605 | 1,618 | 3.9 | % | ||||||||||
Services | 6 | 8 | (2 | ) | (25.0 | )% | |||||||||
Total premiums and services revenue | $ | 43,229 | $ | 41,613 | $ | 1,616 | 3.9 | % | |||||||
Income before income taxes | $ | 1,690 | $ | 1,259 | $ | 431 | 34.2 | % | |||||||
Benefit ratio | 85.1 | % | 86.7 | % | (1.6 | )% | |||||||||
Operating cost ratio | 10.8 | % | 10.3 | % | 0.5 | % |
• | Retail segment pretax income was $1,690 million in 2016, an increase of $431 million, or 34.2%, compared to 2015 primarily driven by the year-over-year improvement in our individual Medicare Advantage and state-based Medicaid businesses. |
• | Individual Medicare Advantage membership increased 84,200 members, or 3.1%, from December 31, 2015 to December 31, 2016 reflecting net membership additions, particularly for our HMO offerings, for the 2016 plan year. |
• | Group Medicare Advantage membership decreased 128,700 members, or 26.6%, from December 31, 2015 to December 31, 2016 reflecting the loss of a large account that moved to a private exchange offering on January 1, 2016. |
• | Medicare stand-alone PDP membership increased 393,500 members, or 8.6%, from December 31, 2015 to December 31, 2016 reflecting net membership additions, primarily for our Humana-Walmart plan offering, for the 2016 plan year. |
• | State-based Medicaid membership increased 14,400 members, or 3.9%, from December 31, 2015 to December 31, 2016 primarily driven by the addition of members under our Florida Medicaid contract. |
• | Retail segment premiums increased $1,618 million, or 3.9%, from 2015 to 2016 primarily due to higher average membership for our individual Medicare Advantage and state-based Medicaid businesses and per member premium increases for certain lines of business. Average individual Medicare Advantage membership increased 3.9% in 2016. |
• | The Retail segment benefit ratio of 85.1% for 2016 decreased 160 basis points from 2015 primarily due to lower year-over-year Medicare Advantage utilization, and favorable comparisons of prior-year medical claims reserve development. |
• | The Retail segment’s benefits expense for 2016 included the beneficial effect of $429 million in favorable prior-year medical claims reserve development versus $248 million in 2015. This favorable prior-year medical claims reserve development decreased the Retail segment benefit ratio by approximately 100 basis points in 2016 versus approximately 60 basis points in 2015. The year-over-year increase in prior-period medical claims reserve development primarily was due to favorable year-over-year comparisons for our Medicare Advantage business. |
• | The Retail segment operating cost ratio of 10.8% for 2016 increased 50 basis points from 2015 primarily due to the unfavorable comparison to unusually low operating expenses in 2015 resulting from the temporary suspension of certain discretionary administrative costs, and the loss of a large group Medicare Advantage account which carried a lower operating cost ratio than that for our individual Medicare Advantage business. The non-deductible health insurance industry fee increased the operating cost ratio by approximately 170 basis points in 2016 as compared to 160 basis points in 2015. |
Change | ||||||||||||
2016 | 2015 | Members | Percentage | |||||||||
Membership: | ||||||||||||
Medical membership: | ||||||||||||
Fully-insured commercial group | 1,136,000 | 1,178,300 | (42,300 | ) | (3.6 | )% | ||||||
ASO | 573,200 | 710,700 | (137,500 | ) | (19.3 | )% | ||||||
Military services | 3,084,100 | 3,074,400 | 9,700 | 0.3 | % | |||||||
Total group medical members | 4,793,300 | 4,963,400 | (170,100 | ) | (3.4 | )% | ||||||
Specialty membership (a) | 6,961,200 | 7,221,800 | (260,600 | ) | (3.6 | )% |
(a) | Specialty products include dental, vision, voluntary benefit products and other supplemental health and financial protection products. Members included in these products may not be unique to each product since members have the ability to enroll in multiple products. |
Change | |||||||||||||||
2016 | 2015 | Dollars | Percentage | ||||||||||||
(in millions) | |||||||||||||||
Premiums and Services Revenue: | |||||||||||||||
Premiums: | |||||||||||||||
Fully-insured commercial group | $ | 5,405 | $ | 5,493 | $ | (88 | ) | (1.6 | )% | ||||||
Specialty | 1,279 | 1,316 | (37 | ) | (2.8 | )% | |||||||||
Military services | 12 | 21 | (9 | ) | (42.9 | )% | |||||||||
Total premiums | 6,696 | 6,830 | (134 | ) | (2.0 | )% | |||||||||
Services | 643 | 658 | (15 | ) | (2.3 | )% | |||||||||
Total premiums and services revenue | $ | 7,339 | $ | 7,488 | $ | (149 | ) | (2.0 | )% | ||||||
Income before income taxes | $ | 344 | $ | 321 | $ | 23 | 7.2 | % | |||||||
Benefit ratio | 78.2 | % | 78.8 | % | (0.6 | )% | |||||||||
Operating cost ratio | 23.5 | % | 23.4 | % | 0.1 | % |
• | Group and Specialty segment pretax income was $344 million in 2016, an increase of $23 million, or 7.2%, from $321 million in 2015 driven by the improvement in the benefit ratio as discussed below. |
• | Fully-insured commercial group medical membership decreased 42,300 members, or 3.6% from December 31, 2015 reflecting lower membership in both large and small group accounts. |
• | Group ASO commercial medical membership decreased 137,500 members, or 19.3%, from December 31, 2015 to December 31, 2016 primarily due to the loss of certain large group accounts as a result of continued discipline in pricing of services for self-funded accounts amid a highly competitive environment. |
• | Specialty membership decreased 260,600 members, or 3.6%, from December 31, 2015 to December 31, 2016 primarily due to the loss of several large stand-alone dental and vision accounts as well as the loss of certain fully-insured group medical accounts that also had specialty coverage. The decrease includes the loss of certain individual commercial medical members that also had specialty coverage. |
• | Group and Specialty segment premiums decreased $134 million, or 2.0%, from 2015 to 2016 primarily due to a decline in fully-insured commercial medical membership as described above, partially offset by an increase in fully-insured commercial medical per member premiums. |
• | Group and Specialty segment services revenue decreased $15 million, or 2.3%, from 2015 to 2016 primarily due to a decline in group ASO commercial medical membership. |
• | The Group and Specialty segment benefit ratio decreased 60 basis points from 78.8% in 2015 to 78.2% in 2016 primarily reflecting the beneficial effect of higher prior-year medical claims reserve development in 2016 and lower utilization. |
• | The Group and Specialty segment’s benefits expense included the beneficial effect of $46 million in favorable prior-year medical claims reserve development in 2016 versus $7 million in 2015. This favorable prior-year |
• | The Group and Specialty segment operating cost ratio of 23.5% for 2016 increased 10 basis points from 23.4% for 2015, primarily due to the unfavorable comparison to unusually low operating expenses in 2015 resulting from the temporary suspension of certain discretionary administrative costs. The non-deductible health insurance industry fee increased the operating cost ratio by approximately 150 basis points in 2016 as compared to 140 basis points in 2015. |
Change | |||||||||||||||
2016 | 2015 | Dollars | Percentage | ||||||||||||
(in millions) | |||||||||||||||
Revenues: | |||||||||||||||
Services: | |||||||||||||||
Clinical care services | $ | 201 | $ | 181 | $ | 20 | 11.0 | % | |||||||
Provider services | 78 | 515 | (437 | ) | (84.9 | )% | |||||||||
Pharmacy solutions | 31 | 30 | 1 | 3.3 | % | ||||||||||
Total services revenues | 310 | 726 | (416 | ) | (57.3 | )% | |||||||||
Intersegment revenues: | |||||||||||||||
Pharmacy solutions | 21,952 | 20,551 | 1,401 | 6.8 | % | ||||||||||
Provider services | 1,677 | 1,291 | 386 | 29.9 | % | ||||||||||
Clinical care services | 1,343 | 1,208 | 135 | 11.2 | % | ||||||||||
Total intersegment revenues | 24,972 | 23,050 | 1,922 | 8.3 | % | ||||||||||
Total services and intersegment revenues | $ | 25,282 | $ | 23,776 | $ | 1,506 | 6.3 | % | |||||||
Income before income taxes | $ | 1,096 | $ | 1,022 | $ | 74 | 7.2 | % | |||||||
Operating cost ratio | 95.2 | % | 95.0 | % | 0.2 | % |
• | Healthcare Services segment pretax income of $1,096 million for 2016 increased $74 million, or 7.2%, from 2015 primarily due to incremental earnings associated with revenue growth from our pharmacy solutions business as it increased mail-order penetration and served our growing individual Medicare membership. The increase was partially offset by lower earnings in our provider services business reflecting significantly lower Medicare rates year-over-year associated with CMS' risk coding recalibration for 2016 in geographies where our provider assets are primarily located. |
• | Humana Pharmacy Solutions® script volumes for the Retail and Group and Specialty segment membership increased to approximately 426 million in 2016, up 7% versus scripts of approximately 398 million in 2015. The increase primarily reflects growth associated with higher average medical membership for 2016 than in 2015. |
• | Services revenue decreased $416 million, or 57.3%, from 2015 to $310 million for 2016 primarily due to the completion of the sale of Concentra on June 1, 2015. |
• | Intersegment revenues increased $1.9 billion, or 8.3%, from 2015 to $25.0 billion for 2016 primarily due to increased mail order penetration and growth in our individual Medicare Advantage and Medicare stand-alone PDP membership which resulted in increased engagement of members in clinical programs and higher utilization of services across the segment. |
• | The Healthcare Services segment operating cost ratio of 95.2% for 2016 increased slightly from 2015 primarily due to a higher operating cost ratio for our provider services business reflecting significantly lower Medicare rates year-over-year as discussed above, partially offset by operating cost efficiencies associated with our pharmacy operations. |
• | In 2016, our Individual Commercial segment pretax loss decreased by $436 million, or 100.7%, from 2015 primarily driven by the write-off of commercial risk corridor receivables, partially offset by the impact of the premium deficiency reserve recorded in the fourth quarter of 2015 associated with certain individual commercial medical policies from the 2016 coverage year. |
• | Individual commercial medical membership decreased 244,300 members, or 27.2%, from December 31, 2015 to December 31, 2016 primarily reflecting the loss of on-exchange members due to product competitiveness, the loss of membership associated with the discontinuance of certain Health Care Reform Law compliant plans in 2016, the loss of membership associated with non-payment of premiums or termination by CMS due to lack of eligibility documentation, and the loss of members subscribing to plans that are not compliant with the Health Care Reform Law. |
• | The Individual Commercial segment benefit ratio of 107.7% for 2016 increased from 91.1% in 2015 primarily due to the reduction of premiums related to the write-off of receivables associated with the commercial risk corridor premium stabilization program, partially offset by the impact of the premium deficiency reserve recorded in the fourth quarter of 2015 for certain of our individual commercial medical products for the 2016 coverage year. As previously disclosed, in the fourth quarter of 2015 we recorded a premium deficiency reserve associated with our 2016 individual commercial offerings compliant with the Health Care Reform Law. During 2016, we increased the premium deficiency reserve for the 2016 coverage year and recorded a change in estimate of $208 million with a corresponding increase in benefits expense primarily as a result of unfavorable current and projected claims experience. |
• | The Individual Commercial segment operating cost ratio of 19.6% for 2016 increased 40 basis points from 2015 primarily due to the impact on premiums of the write-off of receivables associated with the commercial risk corridor premium stabilization program. The non-deductible health insurance industry fee increased the operating cost ratio by approximately 200 basis points in 2016 as compared to 170 basis points in 2015. |
2017 | 2016 | 2015 | |||||||||
(in millions) | |||||||||||
Net cash provided by operating activities | $ | 4,051 | $ | 1,936 | $ | 868 | |||||
Net cash (used in) provided by investing activities | (2,941 | ) | (1,362 | ) | 320 | ||||||
Net cash (used in) provided by financing activities | (945 | ) | 732 | (552 | ) | ||||||
Increase in cash and cash equivalents | $ | 165 | $ | 1,306 | $ | 636 |
Change | |||||||||||||||||||||||
2017 | 2016 | 2015 | 2017 | 2016 | 2015 | ||||||||||||||||||
(in millions) | |||||||||||||||||||||||
IBNR (1) | $ | 3,154 | $ | 3,422 | $ | 3,730 | $ | (268 | ) | $ | (308 | ) | $ | 476 | |||||||||
Reported claims in process (2) | 614 | 654 | 600 | (40 | ) | 54 | 125 | ||||||||||||||||
Premium deficiency reserve (3) | — | — | 176 | — | (176 | ) | 176 | ||||||||||||||||
Other benefits payable (4) | 900 | 487 | 470 | 413 | 17 | (276 | ) | ||||||||||||||||
Total benefits payable | $ | 4,668 | $ | 4,563 | $ | 4,976 | $ | 105 | $ | (413 | ) | $ | 501 |
(1) | IBNR represents an estimate of benefits payable for claims incurred but not reported (IBNR) at the balance sheet date and includes unprocessed claim inventories. The level of IBNR is primarily impacted by membership levels, medical claim trends and the receipt cycle time, which represents the length of time between when a claim is initially incurred and when the claim form is received (i.e. a shorter time span results in a lower IBNR). |
(2) | Reported claims in process represents the estimated valuation of processed claims that are in the post claim adjudication process, which consists of administrative functions such as audit and check batching and handling, as well as amounts owed to our pharmacy benefit administrator which fluctuate due to bi-weekly payments and the month-end cutoff. |
(3) | Premium deficiency reserve recognized for our individual commercial medical business compliant with the Health Care Reform Law associated with the 2016 coverage year. |
(4) | Other benefits payable include amounts owed to providers under capitated and risk sharing arrangements. |
Change | |||||||||||||||||||||||
2017 | 2016 | 2015 | 2017 | 2016 | 2015 | ||||||||||||||||||
(in millions) | |||||||||||||||||||||||
Medicare | $ | 511 | $ | 787 | $ | 765 | $ | (276 | ) | $ | 22 | $ | 101 | ||||||||||
Commercial and other | 273 | 579 | 420 | (306 | ) | 159 | 39 | ||||||||||||||||
Military services | 166 | 32 | 77 | 134 | (45 | ) | (29 | ) | |||||||||||||||
Allowance for doubtful accounts | (96 | ) | (118 | ) | (101 | ) | 22 | (17 | ) | (3 | ) | ||||||||||||
Total net receivables | $ | 854 | $ | 1,280 | $ | 1,161 | (426 | ) | 119 | 108 | |||||||||||||
Reconciliation to cash flow statement: | |||||||||||||||||||||||
Provision for doubtful accounts | 20 | 39 | 61 | ||||||||||||||||||||
Change in receivables acquired, held-for-sale, or disposed from sale of business | — | — | 11 | ||||||||||||||||||||
Change in receivables per cash flow statement resulting in cash from operations | $ | (406 | ) | $ | 158 | $ | 180 |
Payments Due by Period | ||||||||||||||||||||
Total | Less than 1 Year | 1-3 Years | 3-5 Years | More than 5 Years | ||||||||||||||||
(in millions) | ||||||||||||||||||||
Debt | $ | 4,950 | $ | 150 | $ | 1,200 | $ | 600 | $ | 3,000 | ||||||||||
Interest (1) | 3,021 | 200 | 379 | 347 | 2,095 | |||||||||||||||
Operating leases (2) | 519 | 152 | 218 | 97 | 52 | |||||||||||||||
Purchase obligations (3) | 429 | 226 | 188 | 15 | — | |||||||||||||||
Future policy benefits payable and other long-term liabilities (4) | 3,396 | 91 | 482 | 208 | 2,615 | |||||||||||||||
Total | $ | 12,315 | $ | 819 | $ | 2,467 | $ | 1,267 | $ | 7,762 |
(1) | Interest includes the estimated contractual interest payments under our debt agreements. |
(2) | We lease facilities, computer hardware, and other furniture and equipment under long-term operating leases that are noncancelable and expire on various dates through 2046. We sublease facilities or partial facilities to third party tenants for space not used in our operations which partially mitigates our operating lease commitments. An operating lease is a type of off-balance sheet arrangement. Assuming we acquired the asset, rather than leased such asset, we would have recognized a liability for the financing of these assets. See also Note 16 to the consolidated financial statements included in Item 8. – Financial Statements and Supplementary Data. |
(3) | Purchase obligations include agreements to purchase services, primarily information technology related services, or to make improvements to real estate, in each case that are enforceable and legally binding on us and that specify all significant terms, including: fixed or minimum levels of service to be purchased; fixed, minimum or variable price provisions; and the appropriate timing of the transaction. Purchase obligations exclude agreements that are cancelable without penalty. |
(4) | Includes future policy benefits payable ceded to third parties through 100% coinsurance agreements as more fully described in Note 19 to the consolidated financial statements included in Item 8. – Financial Statements and Supplementary Data. We expect the assuming reinsurance carriers to fund these obligations and reflected these amounts as reinsurance recoverables included in other long-term assets on our consolidated balance sheet. Amounts payable in less than one year are included in trade accounts payable and accrued expenses in the consolidated balance sheet. |
December 31, 2017 | Percentage of Total | December 31, 2016 | Percentage of Total | ||||||||||
(dollars in millions) | |||||||||||||
IBNR | $ | 3,154 | 67.6 | % | $ | 3,422 | 75.0 | % | |||||
Reported claims in process | 614 | 13.1 | % | 654 | 14.3 | % | |||||||
Other benefits payable | 900 | 19.3 | % | 487 | 10.7 | % | |||||||
Total benefits payable | $ | 4,668 | 100.0 | % | $ | 4,563 | 100.0 | % |
Completion Factor (a): | Claims Trend Factor (b): | |||||
Factor Change (c) | Decrease in Benefits Payable | Factor Change (c) | Decrease in Benefits Payable | |||
(dollars in millions) | ||||||
0.60% | $(182) | (2.75)% | $(287) | |||
0.50% | $(152) | (2.50)% | $(261) | |||
0.40% | $(121) | (2.25)% | $(235) | |||
0.30% | $(91) | (2.00)% | $(209) | |||
0.20% | $(61) | (1.75)% | $(183) | |||
0.10% | $(30) | (1.50)% | $(157) | |||
—% | $— | (1.25)% | $(131) |
(a) | Reflects estimated potential changes in benefits payable at December 31, 2017 caused by changes in completion factors for incurred months prior to the most recent two months. |
(b) | Reflects estimated potential changes in benefits payable at December 31, 2017 caused by changes in annualized claims trend used for the estimation of per member per month incurred claims for the most recent two months. |
(c) | The factor change indicated represents the percentage point change. |
2017 | 2016 | 2015 | ||||||||||
(in millions) | ||||||||||||
Balances at January 1 | $ | 4,563 | $ | 4,976 | $ | 4,475 | ||||||
Less: Premium deficiency reserve | — | (176 | ) | — | ||||||||
Less: Reinsurance recoverables | (76 | ) | (85 | ) | (78 | ) | ||||||
Balances at January 1, net | 4,487 | 4,715 | 4,397 | |||||||||
Incurred related to: | ||||||||||||
Current year | 44,001 | 45,318 | 44,397 | |||||||||
Prior years | (483 | ) | (582 | ) | (236 | ) | ||||||
Total incurred | 43,518 | 44,736 | 44,161 | |||||||||
Paid related to: | ||||||||||||
Current year | (39,496 | ) | (40,852 | ) | (39,802 | ) | ||||||
Prior years | (3,911 | ) | (4,112 | ) | (4,041 | ) | ||||||
Total paid | (43,407 | ) | (44,964 | ) | (43,843 | ) | ||||||
Premium deficiency reserve | — | — | 176 | |||||||||
Reinsurance recoverable | 70 | 76 | 85 | |||||||||
Balances at December 31 | $ | 4,668 | $ | 4,563 | $ | 4,976 |
Favorable Development by Changes in Key Assumptions | ||||||||||||||||||||
2017 | 2016 | 2015 | ||||||||||||||||||
Amount | Factor Change (a) | Amount | Factor Change (a) | Amount | Factor Change (a) | |||||||||||||||
(dollars in millions) | ||||||||||||||||||||
Trend factors | $ | (279 | ) | (2.6 | )% | $ | (316 | ) | (2.9 | )% | $ | (145 | ) | (1.5 | )% | |||||
Completion factors | (204 | ) | 0.7 | % | (266 | ) | 0.9 | % | (91 | ) | 0.4 | % | ||||||||
Total | $ | (483 | ) | $ | (582 | ) | $ | (236 | ) |
(a) | The factor change indicated represents the percentage point change. |
Favorable Medical Claims Reserve Development | Change | ||||||||||||||||||
2017 | 2016 | 2015 | 2017 | 2016 | |||||||||||||||
(in millions) | |||||||||||||||||||
Retail Segment | $ | (386 | ) | $ | (429 | ) | $ | (248 | ) | $ | 43 | $ | (181 | ) | |||||
Group and Specialty Segment | (40 | ) | (46 | ) | (7 | ) | 6 | (39 | ) | ||||||||||
Individual Commercial Segment | (56 | ) | (106 | ) | 20 | 50 | (126 | ) | |||||||||||
Other Businesses | (1 | ) | (1 | ) | (1 | ) | — | — | |||||||||||
Total | $ | (483 | ) | $ | (582 | ) | $ | (236 | ) | $ | 99 | $ | (346 | ) |
2017 | 2016 | 2015 | |||||||||
(in millions) | |||||||||||
Premium deficiency reserve for short-duration policies | $ | — | $ | (176 | ) | $ | 176 | ||||
Military services | — | 8 | 12 | ||||||||
Future policy benefits | (22 | ) | 439 | (80 | ) | ||||||
Total | $ | (22 | ) | $ | 271 | $ | 108 |
December 31, 2017 | Percentage of Total | December 31, 2016 | Percentage of Total | |||||||||||
(dollars in millions) | ||||||||||||||
U.S. Treasury and other U.S. government corporations and agencies: | ||||||||||||||
U.S. Treasury and agency obligations | $ | 531 | 4.3 | % | $ | 786 | 8.0 | % | ||||||
Mortgage-backed securities | 1,610 | 13.1 | % | 1,637 | 16.7 | % | ||||||||
Tax-exempt municipal securities | 3,889 | 31.6 | % | 3,305 | 33.7 | % | ||||||||
Mortgage-backed securities: | ||||||||||||||
Residential | 26 | 0.2 | % | 9 | 0.1 | % | ||||||||
Commercial | 456 | 3.7 | % | 304 | 3.1 | % | ||||||||
Asset-backed securities | 408 | 3.3 | % | 160 | 1.7 | % | ||||||||
Corporate debt securities | 5,382 | 43.8 | % | 3,597 | 36.7 | % | ||||||||
Total debt securities | $ | 12,302 | 100.0 | % | $ | 9,798 | 100.0 | % |
Less than 12 months | 12 months or more | Total | ||||||||||||||||||||||
Fair Value | Gross Unrealized Losses | Fair Value | Gross Unrealized Losses | Fair Value | Gross Unrealized Losses | |||||||||||||||||||
(in millions) | ||||||||||||||||||||||||
December 31, 2017 | ||||||||||||||||||||||||
U.S. Treasury and other U.S. government corporations and agencies: | ||||||||||||||||||||||||
U.S. Treasury and agency obligations | $ | 273 | $ | (1 | ) | $ | 130 | $ | (1 | ) | $ | 403 | $ | (2 | ) | |||||||||
Mortgage-backed securities | 581 | (2 | ) | 672 | (17 | ) | 1,253 | (19 | ) | |||||||||||||||
Tax-exempt municipal securities | 1,590 | (16 | ) | 661 | (12 | ) | 2,251 | (28 | ) | |||||||||||||||
Mortgage-backed securities: | ||||||||||||||||||||||||
Residential | 20 | — | 3 | — | 23 | — | ||||||||||||||||||
Commercial | 131 | (1 | ) | 28 | (1 | ) | 159 | (2 | ) | |||||||||||||||
Asset-backed securities | 107 | — | 10 | — | 117 | — | ||||||||||||||||||
Corporate debt securities | 1,297 | (10 | ) | 804 | (27 | ) | 2,101 | (37 | ) | |||||||||||||||
Total debt securities | $ | 3,999 | $ | (30 | ) | $ | 2,308 | $ | (58 | ) | $ | 6,307 | $ | (88 | ) |
Increase (decrease) in pretax earnings given an interest rate decrease of X basis points | Increase (decrease) in pretax earnings given an interest rate increase of X basis points | |||||||||||||||||||||||
(300) | (200) | (100) | 100 | 200 | 300 | |||||||||||||||||||
(in millions) | ||||||||||||||||||||||||
As of December 31, 2017 | ||||||||||||||||||||||||
Investment income (a) | $ | (87 | ) | $ | (83 | ) | $ | (67 | ) | $ | 67 | $ | 134 | $ | 202 | |||||||||
Interest expense (b) | 2 | 2 | 2 | (2 | ) | (3 | ) | (5 | ) | |||||||||||||||
Pretax | $ | (85 | ) | $ | (81 | ) | $ | (65 | ) | $ | 65 | $ | 131 | $ | 197 | |||||||||
As of December 31, 2016 | ||||||||||||||||||||||||
Investment income (a) | $ | (49 | ) | $ | (44 | ) | $ | (36 | ) | $ | 53 | $ | 107 | $ | 162 | |||||||||
Interest expense (b) | 3 | 3 | 3 | (2 | ) | (5 | ) | (9 | ) | |||||||||||||||
Pretax | $ | (46 | ) | $ | (41 | ) | $ | (33 | ) | $ | 51 | $ | 102 | $ | 153 |
(a) | As of December 31, 2017 and 2016, some of our investments had interest rates below 3% so the assumed hypothetical change in pretax earnings does not reflect the full 3% point reduction. |
(b) | The interest rate under our senior notes is fixed. There were no borrowings outstanding under the credit agreement at December 31, 2017 or December 31, 2016. There was $150 million outstanding under our commercial paper program at December 31, 2017. As of December 31, 2017, our interest rate under our commercial paper program was less than 2% so the assumed hypothetical change in pretax earnings does not reflect the full 2% point reduction. |
December 31, | |||||||
2017 | 2016 | ||||||
(in millions, except share amounts) | |||||||
ASSETS | |||||||
Current assets: | |||||||
Cash and cash equivalents | $ | 4,042 | $ | 3,877 | |||
Investment securities | 9,557 | 7,595 | |||||
Receivables, less allowance for doubtful accounts of $96 in 2017 and $118 in 2016 | 854 | 1,280 | |||||
Other current assets | 2,949 | 3,438 | |||||
Total current assets | 17,402 | 16,190 | |||||
Property and equipment, net | 1,584 | 1,505 | |||||
Long-term investment securities | 2,745 | 2,203 | |||||
Goodwill | 3,281 | 3,272 | |||||
Other long-term assets | 2,166 | 2,226 | |||||
Total assets | $ | 27,178 | $ | 25,396 | |||
LIABILITIES AND STOCKHOLDERS’ EQUITY | |||||||
Current liabilities: | |||||||
Benefits payable | $ | 4,668 | $ | 4,563 | |||
Trade accounts payable and accrued expenses | 4,069 | 2,467 | |||||
Book overdraft | 141 | 212 | |||||
Unearned revenues | 378 | 280 | |||||
Short-term borrowings | 150 | 300 | |||||
Total current liabilities | 9,406 | 7,822 | |||||
Long-term debt | 4,770 | 3,792 | |||||
Future policy benefits payable | 2,923 | 2,834 | |||||
Other long-term liabilities | 237 | 263 | |||||
Total liabilities | 17,336 | 14,711 | |||||
Commitments and contingencies (Note 16) | |||||||
Stockholders’ equity: | |||||||
Preferred stock, $1 par; 10,000,000 shares authorized; none issued | — | — | |||||
Common stock, $0.16 2/3 par; 300,000,000 shares authorized; 198,572,458 shares issued at December 31, 2017 and 198,495,007 shares issued at December 31, 2016 | 33 | 33 | |||||
Capital in excess of par value | 2,445 | 2,562 | |||||
Retained earnings | 13,670 | 11,454 | |||||
Accumulated other comprehensive income (loss) | 19 | (66 | ) | ||||
Treasury stock, at cost, 60,893,762 shares at December 31, 2017 and 49,189,811 shares at December 31, 2016 | (6,325 | ) | (3,298 | ) | |||
Total stockholders’ equity | 9,842 | 10,685 | |||||
Total liabilities and stockholders’ equity | $ | 27,178 | $ | 25,396 |
For the year ended December 31, | |||||||||||
2017 | 2016 | 2015 | |||||||||
(in millions, except per share results) | |||||||||||
Revenues: | |||||||||||
Premiums | $ | 52,380 | $ | 53,021 | $ | 52,409 | |||||
Services | 982 | 969 | 1,406 | ||||||||
Investment income | 405 | 389 | 474 | ||||||||
Total revenues | 53,767 | 54,379 | 54,289 | ||||||||
Operating expenses: | |||||||||||
Benefits | 43,496 | 45,007 | 44,269 | ||||||||
Operating costs | 6,567 | 7,173 | 7,295 | ||||||||
Merger termination fee and related costs, net | (936 | ) | 104 | 23 | |||||||
Depreciation and amortization | 378 | 354 | 355 | ||||||||
Total operating expenses | 49,505 | 52,638 | 51,942 | ||||||||
Income from operations | 4,262 | 1,741 | 2,347 | ||||||||
Gain on sale of business | — | — | 270 | ||||||||
Interest expense | 242 | 189 | 186 | ||||||||
Income before income taxes | 4,020 | 1,552 | 2,431 | ||||||||
Provision for income taxes | 1,572 | 938 | 1,155 | ||||||||
Net income | $ | 2,448 | $ | 614 | $ | 1,276 | |||||
Basic earnings per common share | $ | 16.94 | $ | 4.11 | $ | 8.54 | |||||
Diluted earnings per common share | $ | 16.81 | $ | 4.07 | $ | 8.44 |
For the year ended December 31, | |||||||||||
2017 | 2016 | 2015 | |||||||||
(in millions) | |||||||||||
Net income | $ | 2,448 | $ | 614 | $ | 1,276 | |||||
Other comprehensive income (loss): | |||||||||||
Change in gross unrealized investment gains/losses | 149 | (101 | ) | (114 | ) | ||||||
Effect of income taxes | (55 | ) | 38 | 42 | |||||||
Total change in unrealized investment gains/losses, net of tax | 94 | (63 | ) | (72 | ) | ||||||
Reclassification adjustment for net realized gains included in investment income | (14 | ) | (96 | ) | (146 | ) | |||||
Effect of income taxes | 5 | 35 | 53 | ||||||||
Total reclassification adjustment, net of tax | (9 | ) | (61 | ) | (93 | ) | |||||
Other comprehensive income (loss), net of tax | 85 | (124 | ) | (165 | ) | ||||||
Comprehensive income | $ | 2,533 | $ | 490 | $ | 1,111 |
Common Stock | Capital In Excess of Par Value | Retained Earnings | Accumulated Other Comprehensive Income (Loss) | Treasury Stock | Total Stockholders’ Equity | |||||||||||||||||||||
Issued Shares | Amount | |||||||||||||||||||||||||
(dollars in millions, share amounts in thousands) | ||||||||||||||||||||||||||
Balances, January 1, 2015 | 197,952 | $ | 33 | $ | 2,330 | $ | 9,916 | $ | 223 | $ | (2,856 | ) | $ | 9,646 | ||||||||||||
Net income | 1,276 | 1,276 | ||||||||||||||||||||||||
Other comprehensive loss | (165 | ) | (165 | ) | ||||||||||||||||||||||
Common stock repurchases | 100 | (485 | ) | (385 | ) | |||||||||||||||||||||
Dividends and dividend equivalents | — | (175 | ) | (175 | ) | |||||||||||||||||||||
Stock-based compensation | 109 | 109 | ||||||||||||||||||||||||
Restricted stock unit vesting | 159 | — | (49 | ) | 49 | — | ||||||||||||||||||||
Stock option exercises | 261 | — | 23 | 23 | ||||||||||||||||||||||
Stock option and restricted stock tax benefit | 17 | 17 | ||||||||||||||||||||||||
Balances, December 31, 2015 | 198,372 | 33 | 2,530 | 11,017 | 58 | (3,292 | ) | 10,346 | ||||||||||||||||||
Net income | 614 | 614 | ||||||||||||||||||||||||
Other comprehensive loss | (124 | ) | (124 | ) | ||||||||||||||||||||||
Common stock repurchases | — | (104 | ) | (104 | ) | |||||||||||||||||||||
Dividends and dividend equivalents | — | (177 | ) | (177 | ) | |||||||||||||||||||||
Stock-based compensation | 115 | 115 | ||||||||||||||||||||||||
Restricted stock unit vesting | 13 | — | (98 | ) | 98 | — | ||||||||||||||||||||
Stock option exercises | 110 | — | 13 | 13 | ||||||||||||||||||||||
Stock option and restricted stock tax benefit | 2 | 2 | ||||||||||||||||||||||||
Balances, December 31, 2016 | 198,495 | 33 | 2,562 | 11,454 | (66 | ) | (3,298 | ) | 10,685 | |||||||||||||||||
Net income | 2,448 | 2,448 | ||||||||||||||||||||||||
Other comprehensive income | 85 | 85 | ||||||||||||||||||||||||
Common stock repurchases | (200 | ) | (3,165 | ) | (3,365 | ) | ||||||||||||||||||||
Dividends and dividend equivalents | — | (232 | ) | (232 | ) | |||||||||||||||||||||
Stock-based compensation | 157 | 157 | ||||||||||||||||||||||||
Restricted stock unit vesting | — | — | (138 | ) | 138 | — | ||||||||||||||||||||
Stock option exercises | 77 | — | 64 | 64 | ||||||||||||||||||||||
Balances, December 31, 2017 | 198,572 | $ | 33 | $ | 2,445 | $ | 13,670 | $ | 19 | $ | (6,325 | ) | $ | 9,842 |
For the year ended December 31, | |||||||||||
2017 | 2016 | 2015 | |||||||||
(in millions) | |||||||||||
Cash flows from operating activities | |||||||||||
Net income | $ | 2,448 | $ | 614 | $ | 1,276 | |||||
Adjustments to reconcile net income to net cash provided by operating activities: | |||||||||||
Gain on sale of business | — | — | (270 | ) | |||||||
Depreciation | 410 | 388 | 354 | ||||||||
Amortization | 75 | 77 | 93 | ||||||||
Stock-based compensation | 157 | 115 | 109 | ||||||||
Net realized capital gains | (14 | ) | (96 | ) | (146 | ) | |||||
Provision (benefit) for deferred income taxes | 132 | (71 | ) | (2 | ) | ||||||
Provision for doubtful accounts | 20 | 39 | 61 | ||||||||
Changes in operating assets and liabilities, net of effect of businesses acquired and dispositions: | |||||||||||
Receivables | 406 | (158 | ) | (180 | ) | ||||||
Other assets | (582 | ) | 426 | (872 | ) | ||||||
Benefits payable | 105 | (413 | ) | 501 | |||||||
Other liabilities | 641 | 937 | (129 | ) | |||||||
Unearned revenues | 98 | (84 | ) | 3 | |||||||
Other | 155 | 162 | 70 | ||||||||
Net cash provided by operating activities | 4,051 | 1,936 | 868 | ||||||||
Cash flows from investing activities | |||||||||||
Acquisitions, net of cash acquired | (31 | ) | (7 | ) | (38 | ) | |||||
Proceeds from sale of business | — | — | 1,061 | ||||||||
Purchases of property and equipment | (526 | ) | (527 | ) | (523 | ) | |||||
Proceeds from sales of property and equipment | 2 | — | 1 | ||||||||
Purchases of investment securities | (6,265 | ) | (6,566 | ) | (6,739 | ) | |||||
Maturities of investment securities | 1,111 | 1,426 | 1,065 | ||||||||
Proceeds from sales of investment securities | 2,768 | 4,312 | 5,493 | ||||||||
Net cash (used in) provided by investing activities | (2,941 | ) | (1,362 | ) | 320 | ||||||
Cash flows from financing activities | |||||||||||
Receipts (withdrawals) from contract deposits, net | 1,823 | 1,093 | (296 | ) | |||||||
Proceeds from issuance of senior notes, net | 1,779 | — | — | ||||||||
(Repayments) proceeds from issuance of commercial paper, net | (153 | ) | (2 | ) | 298 | ||||||
Repayment of long-term debt | (800 | ) | — | — | |||||||
Common stock repurchases | (3,365 | ) | (104 | ) | (385 | ) | |||||
Dividends paid | (220 | ) | (177 | ) | (172 | ) | |||||
Excess tax benefit from stock-based compensation | — | — | 15 | ||||||||
Change in book overdraft | (71 | ) | (89 | ) | (33 | ) | |||||
Proceeds from stock option exercises and other, net | 62 | 11 | 21 | ||||||||
Net cash (used in) provided by financing activities | (945 | ) | 732 | (552 | ) | ||||||
Increase in cash and cash equivalents | 165 | 1,306 | 636 | ||||||||
Cash and cash equivalents at beginning of year | 3,877 | 2,571 | 1,935 | ||||||||
Cash and cash equivalents at end of year | $ | 4,042 | $ | 3,877 | $ | 2,571 | |||||
Supplemental cash flow disclosures: | |||||||||||
Interest payments | $ | 216 | $ | 185 | $ | 187 | |||||
Income tax payments, net | $ | 1,498 | $ | 916 | $ | 1,179 | |||||
Details of businesses acquired in purchase transactions: | |||||||||||
Fair value of assets acquired, net of cash acquired | $ | 31 | $ | 7 | $ | 38 | |||||
Less: Fair value of liabilities assumed | — | — | — | ||||||||
Cash paid for acquired businesses, net of cash acquired | $ | 31 | $ | 7 | $ | 38 |
Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value | ||||||||||||
(in millions) | |||||||||||||||
December 31, 2017 | |||||||||||||||
U.S. Treasury and other U.S. government corporations and agencies: | |||||||||||||||
U.S. Treasury and agency obligations | $ | 532 | $ | 1 | $ | (2 | ) | $ | 531 | ||||||
Mortgage-backed securities | 1,625 | 4 | (19 | ) | 1,610 | ||||||||||
Tax-exempt municipal securities | 3,884 | 33 | (28 | ) | 3,889 | ||||||||||
Mortgage-backed securities: | |||||||||||||||
Residential | 26 | — | — | 26 | |||||||||||
Commercial | 455 | 3 | (2 | ) | 456 | ||||||||||
Asset-backed securities | 407 | 1 | — | 408 | |||||||||||
Corporate debt securities | 5,175 | 244 | (37 | ) | 5,382 | ||||||||||
Total debt securities | $ | 12,104 | $ | 286 | $ | (88 | ) | $ | 12,302 | ||||||
December 31, 2016 | |||||||||||||||
U.S. Treasury and other U.S. government corporations and agencies: | |||||||||||||||
U.S. Treasury and agency obligations | $ | 800 | $ | 1 | $ | (15 | ) | $ | 786 | ||||||
Mortgage-backed securities | 1,662 | 6 | (31 | ) | 1,637 | ||||||||||
Tax-exempt municipal securities | 3,358 | 15 | (68 | ) | 3,305 | ||||||||||
Mortgage-backed securities: | |||||||||||||||
Residential | 9 | — | — | 9 | |||||||||||
Commercial | 307 | 1 | (4 | ) | 304 | ||||||||||
Asset-backed securities | 160 | — | — | 160 | |||||||||||
Corporate debt securities | 3,530 | 145 | (78 | ) | 3,597 | ||||||||||
Total debt securities | $ | 9,826 | $ | 168 | $ | (196 | ) | $ | 9,798 |
Less than 12 months | 12 months or more | Total | ||||||||||||||||||||||
Fair Value | Gross Unrealized Losses | Fair Value | Gross Unrealized Losses | Fair Value | Gross Unrealized Losses | |||||||||||||||||||
(in millions) | ||||||||||||||||||||||||
December 31, 2017 | ||||||||||||||||||||||||
U.S. Treasury and other U.S. government corporations and agencies: | ||||||||||||||||||||||||
U.S. Treasury and agency obligations | $ | 273 | $ | (1 | ) | $ | 130 | $ | (1 | ) | $ | 403 | $ | (2 | ) | |||||||||
Mortgage-backed securities | 581 | (2 | ) | 672 | (17 | ) | 1,253 | (19 | ) | |||||||||||||||
Tax-exempt municipal securities | 1,590 | (16 | ) | 661 | (12 | ) | 2,251 | (28 | ) | |||||||||||||||
Mortgage-backed securities: | ||||||||||||||||||||||||
Residential | 20 | — | 3 | — | 23 | — | ||||||||||||||||||
Commercial | 131 | (1 | ) | 28 | (1 | ) | 159 | (2 | ) | |||||||||||||||
Asset-backed securities | 107 | — | 10 | — | 117 | — | ||||||||||||||||||
Corporate debt securities | 1,297 | (10 | ) | 804 | (27 | ) | 2,101 | (37 | ) | |||||||||||||||
Total debt securities | $ | 3,999 | $ | (30 | ) | $ | 2,308 | $ | (58 | ) | $ | 6,307 | $ | (88 | ) | |||||||||
December 31, 2016 | ||||||||||||||||||||||||
U.S. Treasury and other U.S. government corporations and agencies: | ||||||||||||||||||||||||
U.S. Treasury and agency obligations | $ | 697 | $ | (15 | ) | $ | 3 | $ | — | $ | 700 | $ | (15 | ) | ||||||||||
Mortgage-backed securities | 1,528 | (31 | ) | 3 | — | 1,531 | (31 | ) | ||||||||||||||||
Tax-exempt municipal securities | 2,756 | (67 | ) | 43 | (1 | ) | 2,799 | (68 | ) | |||||||||||||||
Mortgage-backed securities: | ||||||||||||||||||||||||
Residential | — | — | 4 | — | 4 | — | ||||||||||||||||||
Commercial | 182 | (3 | ) | 24 | (1 | ) | 206 | (4 | ) | |||||||||||||||
Asset-backed securities | 51 | — | 63 | — | 114 | — | ||||||||||||||||||
Corporate debt securities | 1,544 | (71 | ) | 69 | (7 | ) | 1,613 | (78 | ) | |||||||||||||||
Total debt securities | $ | 6,758 | $ | (187 | ) | $ | 209 | $ | (9 | ) | $ | 6,967 | $ | (196 | ) |
2017 | 2016 | 2015 | |||||||||
(in millions) | |||||||||||
Gross realized gains | $ | 35 | $ | 120 | $ | 179 | |||||
Gross realized losses | (21 | ) | (24 | ) | (33 | ) | |||||
Net realized capital gains | $ | 14 | $ | 96 | $ | 146 |
Amortized Cost | Fair Value | ||||||
(in millions) | |||||||
Due within one year | $ | 712 | $ | 711 | |||
Due after one year through five years | 2,872 | 2,867 | |||||
Due after five years through ten years | 2,661 | 2,657 | |||||
Due after ten years | 3,346 | 3,567 | |||||
Mortgage and asset-backed securities | 2,513 | 2,500 | |||||
Total debt securities | $ | 12,104 | $ | 12,302 |
Fair Value Measurements Using | |||||||||||||||
Fair Value | Quoted Prices in Active Markets (Level 1) | Other Observable Inputs (Level 2) | Unobservable Inputs (Level 3) | ||||||||||||
(in millions) | |||||||||||||||
December 31, 2017 | |||||||||||||||
Cash equivalents | $ | 4,564 | $ | 4,564 | $ | — | $ | — | |||||||
Debt securities: | |||||||||||||||
U.S. Treasury and other U.S. government corporations and agencies: | |||||||||||||||
U.S. Treasury and agency obligations | 531 | — | 531 | — | |||||||||||
Mortgage-backed securities | 1,610 | — | 1,610 | — | |||||||||||
Tax-exempt municipal securities | 3,889 | — | 3,889 | — | |||||||||||
Mortgage-backed securities: | |||||||||||||||
Residential | 26 | — | 26 | — | |||||||||||
Commercial | 456 | — | 456 | — | |||||||||||
Asset-backed securities | 408 | — | 408 | — | |||||||||||
Corporate debt securities | 5,382 | — | 5,381 | 1 | |||||||||||
Total debt securities | 12,302 | — | 12,301 | 1 | |||||||||||
Total invested assets | $ | 16,866 | $ | 4,564 | $ | 12,301 | $ | 1 | |||||||
December 31, 2016 | |||||||||||||||
Cash equivalents | $ | 3,654 | $ | 3,654 | $ | — | $ | — | |||||||
Debt securities: | |||||||||||||||
U.S. Treasury and other U.S. government corporations and agencies: | |||||||||||||||
U.S. Treasury and agency obligations | 786 | — | 786 | — | |||||||||||
Mortgage-backed securities | 1,637 | — | 1,637 | — | |||||||||||
Tax-exempt municipal securities | 3,305 | — | 3,302 | 3 | |||||||||||
Mortgage-backed securities: | |||||||||||||||
Residential | 9 | — | 9 | — | |||||||||||
Commercial | 304 | — | 304 | — | |||||||||||
Asset-backed securities | 160 | — | 160 | — | |||||||||||
Corporate debt securities | 3,597 | — | 3,593 | 4 | |||||||||||
Total debt securities | 9,798 | — | 9,791 | 7 | |||||||||||
Total invested assets | $ | 13,452 | $ | 3,654 | $ | 9,791 | $ | 7 |
For the years ended December 31, | |||||||||||||||||||||||||||||||||||
2017 | 2016 | 2015 | |||||||||||||||||||||||||||||||||
Private Placements | Auction Rate Securities | Total | Private Placements | Auction Rate Securities | Total | Private Placements | Auction Rate Securities | Total | |||||||||||||||||||||||||||
(in millions) | |||||||||||||||||||||||||||||||||||
Beginning balance at January 1 | $ | 4 | $ | 3 | $ | 7 | $ | 6 | $ | 5 | $ | 11 | $ | 24 | $ | 8 | $ | 32 | |||||||||||||||||
Total gains or losses: | |||||||||||||||||||||||||||||||||||
Realized in earnings | — | — | — | — | — | — | (1 | ) | — | (1 | ) | ||||||||||||||||||||||||
Unrealized in other comprehensive income | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||
Purchases | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||
Sales | (3 | ) | — | (3 | ) | — | — | — | (17 | ) | (3 | ) | (20 | ) | |||||||||||||||||||||
Settlements | — | (3 | ) | (3 | ) | (2 | ) | (2 | ) | (4 | ) | — | — | — | |||||||||||||||||||||
Balance at December 31 | $ | 1 | $ | — | $ | 1 | $ | 4 | $ | 3 | $ | 7 | $ | 6 | $ | 5 | $ | 11 |
2017 | 2016 | |||||||||||||||
Risk Corridor Settlement | CMS Subsidies/ Discounts | Risk Corridor Settlement | CMS Subsidies/ Discounts | |||||||||||||
(in millions) | ||||||||||||||||
Other current assets | $ | 4 | $ | 101 | $ | 8 | $ | 1,001 | ||||||||
Trade accounts payable and accrued expenses | (255 | ) | (1,085 | ) | (158 | ) | (128 | ) | ||||||||
Net current (liability) asset | (251 | ) | (984 | ) | (150 | ) | $ | 873 | ||||||||
Other long-term liabilities | (28 | ) | — | — | — | |||||||||||
Total net (liability) asset | $ | (279 | ) | $ | (984 | ) | $ | (150 | ) | $ | 873 |
2017 | 2016 | ||||||||||||||||||||||||||
Risk Adjustment Settlement | Reinsurance Recoverables | Risk Corridor Settlement | Risk Adjustment Settlement | Reinsurance Recoverables | Risk Corridor Settlement | ||||||||||||||||||||||
(in millions) | |||||||||||||||||||||||||||
Prior Coverage Years | |||||||||||||||||||||||||||
Premiums receivable | $ | — | $ | — | $ | — | $ | 307 | $ | — | $ | — | |||||||||||||||
Other current assets | — | 44 | — | — | 260 | — | |||||||||||||||||||||
Trade accounts payable and accrued expenses | — | — | — | (117 | ) | — | — | ||||||||||||||||||||
Net current asset | — | 44 | — | 190 | 260 | — | |||||||||||||||||||||
Other long-term assets | — | — | — | 6 | — | — | |||||||||||||||||||||
Total prior coverage years' net asset | — | 44 | — | 196 | 260 | — | |||||||||||||||||||||
Current Coverage Year | |||||||||||||||||||||||||||
Premiums receivable | 62 | — | — | — | — | — | |||||||||||||||||||||
Trade accounts payable and accrued expenses | (80 | ) | — | — | — | — | — | ||||||||||||||||||||
Net current liability | (18 | ) | — | — | — | — | — | ||||||||||||||||||||
Other long-term assets | 5 | — | — | — | — | — | |||||||||||||||||||||
Total prior coverage years' net liability | (13 | ) | — | — | — | — | — | ||||||||||||||||||||
Total net (liability) asset | $ | (13 | ) | $ | 44 | $ | — | $ | 196 | $ | 260 | $ | — |
2017 | 2016 | |||||||
(in millions) | ||||||||
Land | $ | 20 | $ | 20 | ||||
Buildings and leasehold improvements | 713 | 681 | ||||||
Equipment | 824 | 750 | ||||||
Computer software | 2,003 | 1,744 | ||||||
3,560 | 3,195 | |||||||
Accumulated depreciation | (1,976 | ) | (1,690 | ) | ||||
Property and equipment, net | $ | 1,584 | $ | 1,505 |
Retail | Group and Specialty | Healthcare Services | Total | |||||||||||||
(in millions) | ||||||||||||||||
Balance at January 1, 2016 | $ | 1,059 | $ | 261 | $ | 1,945 | $ | 3,265 | ||||||||
Acquisitions | — | — | 7 | 7 | ||||||||||||
Balance at December 31, 2016 | 1,059 | 261 | 1,952 | 3,272 | ||||||||||||
Acquisitions | — | — | 9 | 9 | ||||||||||||
Balance at December 31, 2017 | $ | 1,059 | $ | 261 | $ | 1,961 | $ | 3,281 |
Weighted Average Life | 2017 | 2016 | ||||||||||||||||||||||||
Cost | Accumulated Amortization | Net | Cost | Accumulated Amortization | Net | |||||||||||||||||||||
(in millions) | ||||||||||||||||||||||||||
Other intangible assets: | ||||||||||||||||||||||||||
Customer contracts/relationships | 9.8 years | $ | 566 | $ | 401 | $ | 165 | $ | 566 | $ | 347 | $ | 219 | |||||||||||||
Trade names and technology | 8.2 years | 104 | 84 | 20 | 104 | 69 | 35 | |||||||||||||||||||
Provider contracts | 11.9 years | 68 | 30 | 38 | 51 | 29 | 22 | |||||||||||||||||||
Noncompetes and other | 8.1 years | 32 | 29 | 3 | 32 | 28 | 4 | |||||||||||||||||||
Total other intangible assets | 9.7 years | $ | 770 | $ | 544 | $ | 226 | $ | 753 | $ | 473 | $ | 280 |
(in millions) | |||
For the years ending December 31, | |||
2018 | $ | 64 | |
2019 | 54 | ||
2020 | 52 | ||
2021 | 19 | ||
2022 | 16 |
2017 | 2016 | 2015 | ||||||||||
(in millions) | ||||||||||||
Balances at January 1 | $ | 4,563 | $ | 4,976 | $ | 4,475 | ||||||
Less: Premium deficiency reserve | — | (176 | ) | — | ||||||||
Less: Reinsurance recoverables | (76 | ) | (85 | ) | (78 | ) | ||||||
Balances at January 1, net | 4,487 | 4,715 | 4,397 | |||||||||
Incurred related to: | ||||||||||||
Current year | 44,001 | 45,318 | 44,397 | |||||||||
Prior years | (483 | ) | (582 | ) | (236 | ) | ||||||
Total incurred | 43,518 | 44,736 | 44,161 | |||||||||
Paid related to: | ||||||||||||
Current year | (39,496 | ) | (40,852 | ) | (39,802 | ) | ||||||
Prior years | (3,911 | ) | (4,112 | ) | (4,041 | ) | ||||||
Total paid | (43,407 | ) | (44,964 | ) | (43,843 | ) | ||||||
Premium deficiency reserve | — | — | 176 | |||||||||
Reinsurance recoverable | 70 | 76 | 85 | |||||||||
Balances at December 31 | $ | 4,668 | $ | 4,563 | $ | 4,976 |
Favorable Medical Claims Reserve Development | |||||||||||
2017 | 2016 | 2015 | |||||||||
Retail Segment | $ | (386 | ) | $ | (429 | ) | $ | (248 | ) | ||
Group and Specialty Segment | (40 | ) | (46 | ) | (7 | ) | |||||
Individual Commercial Segment | (56 | ) | (106 | ) | 20 | ||||||
Other Businesses | (1 | ) | (1 | ) | (1 | ) | |||||
Total | $ | (483 | ) | $ | (582 | ) | $ | (236 | ) |
2017 | 2016 | 2015 | ||||||||||
(in millions) | ||||||||||||
Premium deficiency reserve for short-duration policies | $ | — | $ | (176 | ) | $ | 176 | |||||
Military services | — | 8 | 12 | |||||||||
Future policy benefits | (22 | ) | 439 | (80 | ) | |||||||
Total | $ | (22 | ) | $ | 271 | $ | 108 |
2017 | 2016 | 2015 | ||||||||||
(in millions) | ||||||||||||
Balances at January 1 | $ | 3,506 | $ | 3,600 | $ | 3,428 | ||||||
Less: Reinsurance recoverables | (76 | ) | (85 | ) | (78 | ) | ||||||
Balances at January 1, net | 3,430 | 3,515 | 3,350 | |||||||||
Incurred related to: | ||||||||||||
Current year | 38,604 | 37,212 | 36,299 | |||||||||
Prior years | (386 | ) | (429 | ) | (248 | ) | ||||||
Total incurred | 38,218 | 36,783 | 36,051 | |||||||||
Paid related to: | ||||||||||||
Current year | (34,781 | ) | (33,784 | ) | (32,874 | ) | ||||||
Prior years | (2,974 | ) | (3,084 | ) | (3,012 | ) | ||||||
Total paid | (37,755 | ) | (36,868 | ) | (35,886 | ) | ||||||
Reinsurance recoverable | 70 | 76 | 85 | |||||||||
Balances at December 31 | $ | 3,963 | $ | 3,506 | $ | 3,600 |
Incurred Claims, Net of Reinsurance | ||||||||||||
For the Years Ended December 31, | ||||||||||||
Claims Incurred Year | 2015 Unaudited | 2016 Unaudited | 2017 | |||||||||
(in millions) | ||||||||||||
2015 | $ | 36,299 | $ | 35,928 | $ | 35,877 | ||||||
2016 | 37,212 | 36,891 | ||||||||||
2017 | 38,604 | |||||||||||
Total | $ | 111,372 |
Cumulative Paid Claims, Net of Reinsurance | ||||||||||||
For the Years Ended December 31, | ||||||||||||
Claims Incurred Year | 2015 Unaudited | 2016 Unaudited | 2017 | |||||||||
(in millions) | ||||||||||||
2015 | $ | 32,874 | $ | 35,918 | $ | 35,857 | ||||||
2016 | 33,784 | 36,841 | ||||||||||
2017 | 34,781 | |||||||||||
Total | $ | 107,479 | ||||||||||
All outstanding benefit liabilities before 2015, net of reinsurance | N/A | |||||||||||
Benefits payable, net of reinsurance | $ | 3,893 |
2017 | 2016 | 2015 | ||||||||||
(in millions) | ||||||||||||
Balances at January 1 | $ | 579 | $ | 616 | $ | 603 | ||||||
Less: Reinsurance recoverables | — | — | — | |||||||||
Balances at January 1, net | 579 | 616 | 603 | |||||||||
Incurred related to: | ||||||||||||
Current year | 5,403 | 5,271 | 5,377 | |||||||||
Prior years | (40 | ) | (46 | ) | (7 | ) | ||||||
Total incurred | 5,363 | 5,225 | 5,370 | |||||||||
Paid related to: | ||||||||||||
Current year | (4,843 | ) | (4,700 | ) | (4,774 | ) | ||||||
Prior years | (531 | ) | (562 | ) | (583 | ) | ||||||
Total paid | (5,374 | ) | (5,262 | ) | (5,357 | ) | ||||||
Balances at December 31 | $ | 568 | $ | 579 | $ | 616 |
Incurred Claims, Net of Reinsurance | ||||||||||||
For the Years Ended December 31, | ||||||||||||
Claims Incurred Year | 2015 Unaudited | 2016 Unaudited | 2017 | |||||||||
(in millions) | ||||||||||||
2015 | $ | 5,377 | $ | 5,333 | $ | 5,333 | ||||||
2016 | 5,271 | 5,234 | ||||||||||
2017 | 5,403 | |||||||||||
Total | $ | 15,970 |
Cumulative Paid Claims, Net of Reinsurance | ||||||||||||
For the Years Ended December 31, | ||||||||||||
Claims Incurred Year | 2015 Unaudited | 2016 Unaudited | 2017 | |||||||||
(in millions) | ||||||||||||
2015 | $ | 4,774 | $ | 5,327 | $ | 5,333 | ||||||
2016 | 4,700 | 5,226 | ||||||||||
2017 | 4,843 | |||||||||||
Total | $ | 15,402 | ||||||||||
All outstanding benefit liabilities before 2015, net of reinsurance | N/A | |||||||||||
Benefits payable, net of reinsurance | $ | 568 |
2017 | 2016 | 2015 | ||||||||||
(in millions) | ||||||||||||
Balances at January 1 | $ | 454 | $ | 741 | $ | 424 | ||||||
Less: Premium deficiency reserve | — | (176 | ) | — | ||||||||
Balances at January 1, net | 454 | 565 | 424 | |||||||||
Incurred related to: | ||||||||||||
Current year | 669 | 3,677 | 3,512 | |||||||||
Prior years | (56 | ) | (106 | ) | 20 | |||||||
Total incurred | 613 | 3,571 | 3,532 | |||||||||
Paid related to: | ||||||||||||
Current year | (583 | ) | (3,233 | ) | (2,966 | ) | ||||||
Prior years | (383 | ) | (449 | ) | (425 | ) | ||||||
Total paid | (966 | ) | (3,682 | ) | (3,391 | ) | ||||||
Premium deficiency reserve | — | — | 176 | |||||||||
Balances at December 31 | $ | 101 | $ | 454 | $ | 741 |
Incurred Claims, Net of Reinsurance | ||||||||||||
For the Years Ended December 31, | ||||||||||||
Claims Incurred Year | 2015 Unaudited | 2016 Unaudited | 2017 | |||||||||
2015 | $ | 3,512 | $ | 3,412 | $ | 3,412 | ||||||
2016 | 3,677 | 3,621 | ||||||||||
2017 | 669 | |||||||||||
Total | $ | 7,702 |
Cumulative Paid Claims, Net of Reinsurance | ||||||||||||
For the Years Ended December 31, | ||||||||||||
Claims Incurred Year | 2015 Unaudited | 2016 Unaudited | 2017 | |||||||||
(in millions) | ||||||||||||
2015 | $ | 2,966 | $ | 3,400 | $ | 3,412 | ||||||
2016 | 3,233 | 3,606 | ||||||||||
2017 | 583 | |||||||||||
Total | $ | 7,601 | ||||||||||
All outstanding benefit liabilities before 2015, net of reinsurance | N/A | |||||||||||
Benefits payable, net of reinsurance | $ | 101 |
December 31, 2017 | |||
Net outstanding liabilities | |||
Retail | $ | 3,893 | |
Group and Specialty | 568 | ||
Individual Commercial | 101 | ||
Other insurance lines | 36 | ||
Benefits payable, net of reinsurance | 4,598 | ||
Reinsurance recoverable on unpaid claims | |||
Retail | 70 | ||
Group and Specialty | — | ||
Individual Commercial | — | ||
Other insurance lines | — | ||
Total reinsurance recoverable on unpaid claims | 70 | ||
Total benefits payable, gross | $ | 4,668 |
2017 | 2016 | 2015 | |||||||||
(in millions) | |||||||||||
Current provision: | |||||||||||
Federal | $ | 1,324 | $ | 921 | $ | 1,067 | |||||
States and Puerto Rico | 116 | 88 | 90 | ||||||||
Total current provision | 1,440 | 1,009 | 1,157 | ||||||||
Deferred expense (benefit) | 132 | (71 | ) | (2 | ) | ||||||
Provision for income taxes | $ | 1,572 | $ | 938 | $ | 1,155 |
2017 | 2016 | 2015 | |||||||||
(in millions) | |||||||||||
Income tax provision at federal statutory rate | $ | 1,407 | $ | 543 | $ | 851 | |||||
States, net of federal benefit, and Puerto Rico | 80 | 41 | 44 | ||||||||
Tax exempt investment income | (22 | ) | (20 | ) | (24 | ) | |||||
Health insurer fee | — | 336 | 314 | ||||||||
Nondeductible executive compensation | 36 | 30 | 18 | ||||||||
Tax reform | 133 | — | — | ||||||||
Concentra sale | — | — | (67 | ) | |||||||
Other, net | (62 | ) | 8 | 19 | |||||||
Provision for income taxes | $ | 1,572 | $ | 938 | $ | 1,155 |
Assets (Liabilities) | |||||||
2017 | 2016 | ||||||
(in millions) | |||||||
Future policy benefits payable | $ | 231 | $ | 355 | |||
Benefits payable | 113 | 196 | |||||
Compensation and other accrued expenses | 138 | 153 | |||||
Net operating loss carryforward | 53 | 52 | |||||
Deferred acquisition costs | 48 | 72 | |||||
Unearned revenues | 12 | 18 | |||||
Investment securities | — | 12 | |||||
Other | 1 | 6 | |||||
Total deferred income tax assets | 596 | 864 | |||||
Valuation allowance | (49 | ) | (49 | ) | |||
Total deferred income tax assets, net of valuation allowance | 547 | 815 | |||||
Depreciable property and intangible assets | (237 | ) | (363 | ) | |||
Prepaid expenses | (44 | ) | (53 | ) | |||
Investment securities | (49 | ) | — | ||||
Total deferred income tax liabilities | (330 | ) | (416 | ) | |||
Total net deferred income tax assets | $ | 217 | $ | 399 |
2017 | 2016 | ||||||
(in millions) | |||||||
Long-term debt: | |||||||
Senior notes: | |||||||
$500 million, 7.20% due June 15, 2018 | $ | — | $ | 501 | |||
$300 million, 6.30% due August 1, 2018 | — | 304 | |||||
$400 million, 2.625% due October 1, 2019 | 399 | 398 | |||||
$400 million, 2.50% due December 15, 2020 | 397 | — | |||||
$400 million, 2.90% due December 15, 2022 | 396 | — | |||||
$600 million, 3.15% due December 1, 2022 | 595 | 595 | |||||
$600 million, 3.85% due October 1, 2024 | 595 | 595 | |||||
$600 million, 3.95% due March 15, 2027 | 594 | — | |||||
$250 million, 8.15% due June 15, 2038 | 263 | 264 | |||||
$400 million, 4.625% due December 1, 2042 | 396 | 396 | |||||
$750 million, 4.95% due October 1, 2044 | 739 | 739 | |||||
$400 million, 4.80% due March 15, 2047 | 396 | — | |||||
Total long-term debt | $ | 4,770 | $ | 3,792 |
2017 | 2016 | 2015 | |||||||||
(in millions) | |||||||||||
Stock-based compensation expense by type: | |||||||||||
Restricted stock | $ | 145 | $ | 106 | $ | 99 | |||||
Stock options | 12 | 9 | 10 | ||||||||
Total stock-based compensation expense | 157 | 115 | 109 | ||||||||
Tax benefit recognized | (32 | ) | (20 | ) | (26 | ) | |||||
Stock-based compensation expense, net of tax | $ | 125 | $ | 95 | $ | 83 |
Shares | Weighted- Average Grant-Date Fair Value | |||||
(shares in thousands) | ||||||
Nonvested restricted stock at December 31, 2016 | 2,492 | $ | 121.94 | |||
Granted | 731 | 222.35 | ||||
Vested | (1,386 | ) | 128.08 | |||
Forfeited | (184 | ) | 138.99 | |||
Nonvested restricted stock at December 31, 2017 | 1,653 | $ | 171.68 |
2017 | 2016 | 2015 | |||||||||
Weighted-average fair value at grant date | $ | 49.81 | $ | 37.12 | $ | 36.91 | |||||
Expected option life (years) | 4.1 years | 4.2 years | 4.2 years | ||||||||
Expected volatility | 27.1 | % | 27.6 | % | 27.4 | % | |||||
Risk-free interest rate at grant date | 2.0 | % | 1.1 | % | 1.4 | % | |||||
Dividend yield | 0.7 | % | 0.7 | % | 0.7 | % |
Shares Under Option | Weighted-Average Exercise Price | |||||
(shares in thousands) | ||||||
Options outstanding at December 31, 2016 | 1,022 | $ | 143.04 | |||
Granted | 358 | 218.06 | ||||
Exercised | (492 | ) | 128.34 | |||
Forfeited | (25 | ) | 182.46 | |||
Options outstanding at December 31, 2017 | 863 | $ | 181.44 | |||
Options exercisable at December 31, 2017 | 182 | $ | 137.54 |
2017 | 2016 | 2015 | |||||||||
(dollars in millions, except per common share results, number of shares/options in thousands) | |||||||||||
Net income available for common stockholders | $ | 2,448 | $ | 614 | $ | 1,276 | |||||
Weighted-average outstanding shares of common stock used to compute basic earnings per common share | 144,493 | 149,375 | 149,455 | ||||||||
Dilutive effect of: | |||||||||||
Employee stock options | 172 | 219 | 192 | ||||||||
Restricted stock | 920 | 1,323 | 1,495 | ||||||||
Shares used to compute diluted earnings per common share | 145,585 | 150,917 | 151,142 | ||||||||
Basic earnings per common share | $ | 16.94 | $ | 4.11 | $ | 8.54 | |||||
Diluted earnings per common share | $ | 16.81 | $ | 4.07 | $ | 8.44 | |||||
Number of antidilutive stock options and restricted stock awards excluded from computation | 539 | 748 | 415 |
Payment Date | Amount per Share | Total Amount | ||
(in millions) | ||||
2015 | $1.14 | $170 | ||
2016 | $1.16 | $172 | ||
2017 | $1.49 | $216 |
2017 | 2016 | 2015 | ||||||||||||||||||||||||
Authorization Date | Purchase Not to Exceed | Shares | Cost | Shares | Cost | Shares | Cost | |||||||||||||||||||
(in millions) | ||||||||||||||||||||||||||
September 2014 | $ | 2,000 | — | $ | — | — | $ | — | 1.85 | $ | 329 | |||||||||||||||
February 2017 | 2,250 | 9.71 | 2,250 | — | — | — | — | |||||||||||||||||||
December 2017 | 3,000 | 3.28 | 800 | — | — | — | — | |||||||||||||||||||
Total repurchases | 12.99 | $ | 3,050 | — | $ | — | 1.85 | $ | 329 |
2017 | 2016 | 2015 | |||||||||
(in millions) | |||||||||||
Rent expense | $ | 204 | $ | 179 | $ | 201 | |||||
Sublease rental income | (33 | ) | (26 | ) | (25 | ) | |||||
Net rent expense | $ | 171 | $ | 153 | $ | 176 |
Minimum Lease Payments | Sublease Rental Receipts | Net Lease Commitments | |||||||||
(in millions) | |||||||||||
For the years ending December 31,: | |||||||||||
2018 | $ | 152 | $ | (14 | ) | $ | 138 | ||||
2019 | 129 | (13 | ) | 116 | |||||||
2020 | 89 | (10 | ) | 79 | |||||||
2021 | 58 | (8 | ) | 50 | |||||||
2022 | 39 | (7 | ) | 32 | |||||||
Thereafter | 52 | (51 | ) | 1 | |||||||
Total | $ | 519 | $ | (103 | ) | $ | 416 |
Retail | Group and Specialty | Healthcare Services | Individual Commercial | Other Businesses | Eliminations/ Corporate | Consolidated | |||||||||||||||||||||
(in millions) | |||||||||||||||||||||||||||
2017 | |||||||||||||||||||||||||||
Revenues—external customers | |||||||||||||||||||||||||||
Premiums: | |||||||||||||||||||||||||||
Individual Medicare Advantage | $ | 32,720 | $ | — | $ | — | $ | — | $ | — | $ | — | $ | 32,720 | |||||||||||||
Group Medicare Advantage | 5,155 | — | — | — | — | — | 5,155 | ||||||||||||||||||||
Medicare stand-alone PDP | 3,702 | — | — | — | — | — | 3,702 | ||||||||||||||||||||
Total Medicare | 41,577 | — | — | — | — | — | 41,577 | ||||||||||||||||||||
Fully-insured | 478 | 5,462 | — | 947 | — | — | 6,887 | ||||||||||||||||||||
Specialty | — | 1,310 | — | — | — | — | 1,310 | ||||||||||||||||||||
Medicaid and other | 2,571 | — | — | — | 35 | — | 2,606 | ||||||||||||||||||||
Total premiums | 44,626 | 6,772 | — | 947 | 35 | — | 52,380 | ||||||||||||||||||||
Services revenue: | |||||||||||||||||||||||||||
Provider | — | — | 258 | — | — | — | 258 | ||||||||||||||||||||
ASO and other | 10 | 626 | — | — | 8 | — | 644 | ||||||||||||||||||||
Pharmacy | — | — | 80 | — | — | — | 80 | ||||||||||||||||||||
Total services revenue | 10 | 626 | 338 | — | 8 | — | 982 | ||||||||||||||||||||
Total revenues—external customers | 44,636 | 7,398 | 338 | 947 | 43 | — | 53,362 | ||||||||||||||||||||
Intersegment revenues | |||||||||||||||||||||||||||
Services | — | 20 | 17,293 | — | — | (17,313 | ) | — | |||||||||||||||||||
Products | — | — | 6,292 | — | — | (6,292 | ) | — | |||||||||||||||||||
Total intersegment revenues | — | 20 | 23,585 | — | — | (23,605 | ) | — | |||||||||||||||||||
Investment income | 90 | 31 | 35 | 4 | 87 | 158 | 405 | ||||||||||||||||||||
Total revenues | 44,726 | 7,449 | 23,958 | 951 | 130 | (23,447 | ) | 53,767 | |||||||||||||||||||
Operating expenses: | |||||||||||||||||||||||||||
Benefits | 38,218 | 5,363 | — | 544 | 131 | (760 | ) | 43,496 | |||||||||||||||||||
Operating costs | 4,292 | 1,590 | 22,848 | 201 | 12 | (22,376 | ) | 6,567 | |||||||||||||||||||
Merger termination fee and related costs, net | — | — | — | — | — | (936 | ) | (936 | ) | ||||||||||||||||||
Depreciation and amortization | 238 | 84 | 143 | 13 | — | (100 | ) | 378 | |||||||||||||||||||
Total operating expenses | 42,748 | 7,037 | 22,991 | 758 | 143 | (24,172 | ) | 49,505 | |||||||||||||||||||
Income (loss) from operations | 1,978 | 412 | 967 | 193 | (13 | ) | 725 | 4,262 | |||||||||||||||||||
Interest expense | — | — | — | — | — | 242 | 242 | ||||||||||||||||||||
Income (loss) before income taxes | $ | 1,978 | $ | 412 | $ | 967 | $ | 193 | $ | (13 | ) | $ | 483 | $ | 4,020 |
Retail | Group and Specialty | Healthcare Services | Individual Commercial | Other Businesses | Eliminations/ Corporate | Consolidated | |||||||||||||||||||||
(in millions) | |||||||||||||||||||||||||||
2016 | |||||||||||||||||||||||||||
Revenues—external customers | |||||||||||||||||||||||||||
Premiums: | |||||||||||||||||||||||||||
Individual Medicare Advantage | $ | 31,863 | $ | — | $ | — | $ | — | $ | — | $ | — | $ | 31,863 | |||||||||||||
Group Medicare Advantage | 4,283 | — | — | — | — | — | 4,283 | ||||||||||||||||||||
Medicare stand-alone PDP | 4,009 | — | — | — | — | — | 4,009 | ||||||||||||||||||||
Total Medicare | 40,155 | — | — | — | — | — | 40,155 | ||||||||||||||||||||
Fully-insured | 428 | 5,405 | — | 3,064 | — | — | 8,897 | ||||||||||||||||||||
Specialty | — | 1,279 | — | — | — | — | 1,279 | ||||||||||||||||||||
Medicaid and other | 2,640 | 12 | — | — | 38 | — | 2,690 | ||||||||||||||||||||
Total premiums | 43,223 | 6,696 | — | 3,064 | 38 | — | 53,021 | ||||||||||||||||||||
Services revenue: | |||||||||||||||||||||||||||
Provider | — | — | 278 | — | — | — | 278 | ||||||||||||||||||||
ASO and other | 6 | 643 | 1 | — | 10 | — | 660 | ||||||||||||||||||||
Pharmacy | — | — | 31 | — | — | — | 31 | ||||||||||||||||||||
Total services revenue | 6 | 643 | 310 | — | 10 | — | 969 | ||||||||||||||||||||
Total revenues—external customers | 43,229 | 7,339 | 310 | 3,064 | 48 | — | 53,990 | ||||||||||||||||||||
Intersegment revenues | |||||||||||||||||||||||||||
Services | — | 22 | 18,979 | — | — | (19,001 | ) | — | |||||||||||||||||||
Products | — | — | 5,993 | — | — | (5,993 | ) | — | |||||||||||||||||||
Total intersegment revenues | — | 22 | 24,972 | — | — | (24,994 | ) | — | |||||||||||||||||||
Investment income | 90 | 25 | 30 | 5 | 66 | 173 | 389 | ||||||||||||||||||||
Total revenues | 43,319 | 7,386 | 25,312 | 3,069 | 114 | (24,821 | ) | 54,379 | |||||||||||||||||||
Operating expenses: | |||||||||||||||||||||||||||
Benefits | 36,783 | 5,233 | — | 3,301 | 617 | (927 | ) | 45,007 | |||||||||||||||||||
Operating costs | 4,650 | 1,727 | 24,073 | 601 | 16 | (23,894 | ) | 7,173 | |||||||||||||||||||
Merger termination fee and related costs, net | — | — | — | — | — | 104 | 104 | ||||||||||||||||||||
Depreciation and amortization | 196 | 82 | 143 | 36 | 1 | (104 | ) | 354 | |||||||||||||||||||
Total operating expenses | 41,629 | 7,042 | 24,216 | 3,938 | 634 | (24,821 | ) | 52,638 | |||||||||||||||||||
Income (loss) from operations | 1,690 | 344 | 1,096 | (869 | ) | (520 | ) | — | 1,741 | ||||||||||||||||||
Interest expense | — | — | — | — | — | 189 | 189 | ||||||||||||||||||||
Income (loss) before income taxes | $ | 1,690 | $ | 344 | $ | 1,096 | $ | (869 | ) | $ | (520 | ) | $ | (189 | ) | $ | 1,552 |
Retail | Group and Specialty | Healthcare Services | Individual Commercial | Other Businesses | Eliminations/ Corporate | Consolidated | |||||||||||||||||||||
(in millions) | |||||||||||||||||||||||||||
2015 | |||||||||||||||||||||||||||
Revenues—external customers | |||||||||||||||||||||||||||
Premiums: | |||||||||||||||||||||||||||
Individual Medicare Advantage | $ | 29,526 | $ | — | $ | — | $ | — | $ | — | $ | — | $ | 29,526 | |||||||||||||
Group Medicare Advantage | 5,588 | — | — | — | — | — | 5,588 | ||||||||||||||||||||
Medicare stand-alone PDP | 3,846 | — | — | — | — | — | 3,846 | ||||||||||||||||||||
Total Medicare | 38,960 | — | — | — | — | — | 38,960 | ||||||||||||||||||||
Fully-insured | 304 | 5,493 | — | 3,939 | — | — | 9,736 | ||||||||||||||||||||
Specialty | — | 1,316 | — | — | — | — | 1,316 | ||||||||||||||||||||
Medicaid and other | 2,341 | 21 | — | — | 35 | — | 2,397 | ||||||||||||||||||||
Total premiums | 41,605 | 6,830 | — | 3,939 | 35 | — | 52,409 | ||||||||||||||||||||
Services revenue: | |||||||||||||||||||||||||||
Provider | — | — | 695 | — | — | — | 695 | ||||||||||||||||||||
ASO and other | 8 | 658 | 1 | — | 14 | — | 681 | ||||||||||||||||||||
Pharmacy | — | — | 30 | — | — | — | 30 | ||||||||||||||||||||
Total services revenue | 8 | 658 | 726 | — | 14 | — | 1,406 | ||||||||||||||||||||
Total revenues—external customers | 41,613 | 7,488 | 726 | 3,939 | 49 | — | 53,815 | ||||||||||||||||||||
Intersegment revenues | |||||||||||||||||||||||||||
Services | — | 20 | 18,127 | — | — | (18,147 | ) | — | |||||||||||||||||||
Products | — | — | 4,923 | — | — | (4,923 | ) | — | |||||||||||||||||||
Total intersegment revenues | — | 20 | 23,050 | — | — | (23,070 | ) | — | |||||||||||||||||||
Investment income | 122 | 34 | — | 4 | 76 | 238 | 474 | ||||||||||||||||||||
Total revenues | 41,735 | 7,542 | 23,776 | 3,943 | 125 | (22,832 | ) | 54,289 | |||||||||||||||||||
Operating expenses: | |||||||||||||||||||||||||||
Benefits | 36,052 | 5,382 | — | 3,589 | 87 | (841 | ) | 44,269 | |||||||||||||||||||
Operating costs | 4,267 | 1,755 | 22,598 | 756 | 14 | (22,095 | ) | 7,295 | |||||||||||||||||||
Merger termination fee and related costs, net | — | — | — | — | — | 23 | 23 | ||||||||||||||||||||
Depreciation and amortization | 157 | 84 | 156 | 31 | — | (73 | ) | 355 | |||||||||||||||||||
Total operating expenses | 40,476 | 7,221 | 22,754 | 4,376 | 101 | (22,986 | ) | 51,942 | |||||||||||||||||||
Income (loss) from operations | 1,259 | 321 | 1,022 | (433 | ) | 24 | 154 | 2,347 | |||||||||||||||||||
Gain on sale of business | — | — | — | — | — | 270 | 270 | ||||||||||||||||||||
Interest expense | — | — | — | — | — | 186 | 186 | ||||||||||||||||||||
Income (loss) before income taxes | $ | 1,259 | $ | 321 | $ | 1,022 | $ | (433 | ) | $ | 24 | $ | 238 | $ | 2,431 |
2017 | 2016 | ||||||||||||||
Deferred acquisition costs | Future policy benefits payable | Deferred acquisition costs | Future policy benefits payable | ||||||||||||
(in millions) | |||||||||||||||
Other long-term assets | $ | 103 | $ | — | $ | 119 | $ | — | |||||||
Trade accounts payable and accrued expenses | — | (56 | ) | — | (62 | ) | |||||||||
Long-term liabilities | — | (2,923 | ) | — | (2,834 | ) | |||||||||
Total asset (liability) | $ | 103 | $ | (2,979 | ) | $ | 119 | $ | (2,896 | ) |
Reinsurer | Total Recoverable | A.M. Best Rating at December 31, 2017 | ||||
(in millions) | ||||||
Munich American Reassurance Company | $ | 259 | A+ (superior) | |||
Protective Life Insurance Company | 181 | A+ (superior) | ||||
Westport Insurance Corporation, a Swiss Re Corporation subsidiary | 134 | A+ (superior) | ||||
General Re Life Corporation, a Berkshire Hathaway subsidiary | 133 | A++ (superior) | ||||
All others | 117 | A+ to A- (superior to excellent) | ||||
$ | 824 |
2017 | |||||||||||||||
First | Second | Third | Fourth | ||||||||||||
(in millions, except per share results) | |||||||||||||||
Total revenues | $ | 13,762 | $ | 13,534 | $ | 13,282 | $ | 13,189 | |||||||
Income before income taxes | 1,689 | 1,042 | 799 | 490 | |||||||||||
Net income | 1,115 | 650 | 499 | 184 | |||||||||||
Basic earnings per common share (1) | $ | 7.54 | $ | 4.49 | $ | 3.46 | $ | 1.30 | |||||||
Diluted earnings per common share (1) | $ | 7.49 | $ | 4.46 | $ | 3.44 | $ | 1.29 | |||||||
2016 | |||||||||||||||
First | Second | Third | Fourth (2)(3) | ||||||||||||
(in millions, except per share results) | |||||||||||||||
Total revenues | $ | 13,800 | $ | 14,007 | $ | 13,694 | $ | 12,878 | |||||||
Income (loss) before income taxes | 500 | 636 | 902 | (486 | ) | ||||||||||
Net income (loss) | 254 | 311 | 450 | (401 | ) | ||||||||||
Basic earnings (loss) per common share | $ | 1.70 | $ | 2.08 | $ | 3.01 | $ | (2.68 | ) | ||||||
Diluted earnings (loss) per common share (1) | $ | 1.68 | $ | 2.06 | $ | 2.98 | $ | (2.68 | ) |
(1) | The calculation of earnings per common share is based on the weighted average shares outstanding during each quarter and, accordingly, the sum may not equal the total for the year. For 2017, the sum of quarterly amounts do not equal full year results due to share repurchases throughout the year including two different accelerated share repurchase programs. In addition, for 2016, the sum of quarterly amounts do not equal full year results due to the anti-dilutive impact of a loss in the fourth quarter. The loss position in the fourth quarter required the use of basic weighted-average common shares outstanding in the calculation of diluted loss per share. |
(2) | The fourth quarter of 2016 includes an expense of $505 million ($318 million after tax, or $2.11 per diluted common share) for reserve strengthening associated with our closed block of long-term care insurance policies. |
(3) | Total revenue for 2016 includes a reduction of $583 million ($367 million after-tax, or $2.43 per diluted common share) in premiums associated with the write-off of risk corridor receivables. |
Name | Age | Position | First Elected Officer | |||||
Bruce D. Broussard | 55 | President and Chief Executive Officer, Director | 12/11 | (1) | ||||
Roy A. Beveridge, M.D. | 60 | Chief Medical Officer | 06/13 | (2) | ||||
Beth Bierbower | 59 | Segment President, Group Business | 03/17 | (3) | ||||
Jody L. Bilney | 56 | Chief Consumer Officer | 04/13 | (4) | ||||
Sam Deshpande | 54 | Chief Risk Officer | 07/17 | (5) | ||||
William Fleming, PharmD | 50 | Segment President, Healthcare Services | 03/17 | (6) | ||||
Christopher H. Hunter | 49 | Chief Strategy Officer | 01/14 | (7) | ||||
Timothy S. Huval | 51 | Chief Human Resources Officer | 12/12 | (8) | ||||
Brian A. Kane | 45 | Chief Financial Officer | 06/14 | (9) | ||||
Brian P. LeClaire | 57 | Chief Information Officer | 08/11 | (10) | ||||
Heidi S. Margulis | 64 | Chief Corporate Affairs Officer | 12/95 | (11) | ||||
Christopher M. Todoroff | 55 | Chief Legal Counsel | 08/08 | (12) | ||||
Alan Wheatley | 50 | Segment President, Retail | 03/17 | (13) | ||||
Cynthia H. Zipperle | 55 | Senior Vice President and Chief Accounting Officer | 12/14 | (14) |
(1) | Mr. Broussard currently serves as Director, President and Chief Executive Officer (Principal Executive Officer), having held these positions since January 1, 2013. Mr. Broussard was elected President upon joining the Company in December 2011 and served in that capacity through December 2012. Prior to joining the Company, Mr. Broussard was Chief Executive Officer of McKesson Specialty/US Oncology, Inc. US Oncology was purchased by McKesson in December 2010. At US Oncology, Mr. Broussard served in a number of senior executive roles, including Chief Financial Officer, Chief Executive Officer, and Chairman of the Board. |
(2) | Dr. Beveridge currently serves as Chief Medical Officer, having held this position since joining the Company in June 2013. Prior to joining the Company, Dr. Beveridge served as Chief Medical Officer for McKesson Specialty Health from December 2010 until June 2013. Prior to McKesson’s acquisition of US Oncology, Dr. Beveridge served as the Executive Vice President and Medical Director at US Oncology from September 2009 through December 2010. |
(3) | Ms. Bierbower currently serves as Segment President, Group Business, having held this position since March 2017. Prior to that, she served as the Segment President, Employer Group, and also previously led the Company’s Specialty Benefits area, including dental, vision, life, disability and workplace voluntary benefits. Ms. Bierbower joined the Company in 2001. |
(4) | Ms. Bilney currently serves as Chief Consumer Officer, having held this position since joining the Company in April 2013. Prior to joining the Company, Ms. Bilney served as Executive Vice President and Chief Brand Officer for Bloomin’ Brands, Inc. from 2006 until April 2013. |
(5) | Mr. Deshpande currently serves as Chief Risk Officer, having held this position since joining the Company in July 2017. Before joining Humana, Mr. Deshpande spent 17 years at Capital One in key leadership positions, most recently as Business Chief Risk Officer for the U.S. and international card business. He previously served as the Business Chief Risk Officer and Head of Enterprise Services for the Financial Services Division, responsible for Business Risk, Data Science, Data Quality, Process Excellence and Project Management. He also led marketing and analysis for the Home Loans, Auto Finance, and Credit Card businesses, with responsibilities for business strategy, credit, product and marketing. |
(6) | Mr. Fleming currently serves as Segment President, Healthcare Services, where he is responsible for Humana’s clinical and pharmacy businesses that service all Humana segments, having held this position since March of 2017. Prior to that, he served as President of the Company’s pharmacy business. Mr. Fleming joined the Company in 1994. |
(7) | Mr. Hunter currently serves as Chief Strategy Officer, having held this position since joining the Company in January 2014. Prior to joining the Company, Mr. Hunter served as President of Provider Markets at The TriZetto Group, Inc. from July 2012 until December 2013, and as Senior Vice President, Emerging Markets at BlueCross BlueShield of Tennessee from 2009 through July 2012. While at BlueCross BlueShield of Tennessee, Mr. Hunter was simultaneously President and Chief Executive Officer of Onlife Health, a national health and wellness subsidiary of BlueCross BlueShield of Tennessee. |
(8) | Mr. Huval currently serves as Chief Human Resources Officer, having been elected to this position in December 2012. Prior to joining the Company, Mr. Huval spent 10 years at Bank of America in multiple senior-level roles, including Human Resources executive and Chief Information Officer for Global Wealth & Investment Management, as well as Human Resources executive for both Global Treasury Services and Technology & Global Operations. |
(9) | Mr. Kane currently serves as Chief Financial Officer, having been elected to this position in June 2014. Prior to joining the Company, Mr. Kane spent nearly 17 years at Goldman, Sachs & Co. As a managing director, he was responsible for client relationships as well as for leading strategic and financing transactions for a number of companies in multiple industries. |
(10) | Mr. LeClaire currently serves as Chief Information Officer, having held this position since January 2014. Prior to that, he served as Senior Vice President and Chief Service and Information Officer from August 2011 to January 2014, and as Chief Technology Officer from 2002 to August 2011. Mr. LeClaire joined the Company in August 1999. |
(11) | Ms. Margulis currently serves as Chief Corporate Affairs Officer, leading strategy development and execution for Humana's state and federal government relations, advocacy and public policy initiatives, including strategic alliance relationships in national and key local markets. Ms. Margulis joined the Company in November 1985, and has held her current position since December 2014. |
(12) | Mr. Todoroff currently serves as Chief Legal Officer, having held this position since August 2008. Prior to joining the Company, Mr. Todoroff served as Vice President, Senior Corporate Counsel and Corporate Secretary for Aetna Inc. from 2006 through July 2008. Mr. Todoroff joined Aetna’s Legal Department in 1995 and held various positions of increasing responsibility. |
(13) | Mr. Wheatley currently serves as Segment President, Retail, having held this position since March 2017. During his 25-year career with the Company, Mr. Wheatley has served in a number of key leadership roles, including Vice President of Medicare Service Operations and President of the East Region, one of the Company’s key Medicare geographies. |
(14) | Mrs. Zipperle currently serves as Senior Vice President, Chief Accounting Officer, having held this position since December 2014. Mrs. Zipperle previously served as the Vice President - Finance from January 2013 until her election to her current role, and as the Assistant Controller from January 1998 until January 2013. |
• | a determination of independence for each member of our Board of Directors; |
• | the name, membership, role, and charter of each of the various committees of our Board of Directors; |
• | the name(s) of the directors designated as a financial expert under rules and regulations promulgated by the SEC; |
• | the responsibility of the Company’s Lead Independent Director, if applicable, to convene, set the agenda for, and lead executive sessions of the non-management directors; |
• | the pre-approval process of non-audit services provided by our independent accountants; |
• | our by-laws and Certificate of Incorporation; |
• | our Majority Vote policy; |
• | our Related Persons Transaction Policy; |
• | the process by which interested parties can communicate with directors; |
• | the process by which stockholders can make director nominations (pursuant to our By-laws); |
• | our Corporate Governance Guidelines; |
• | our Policy Regarding Transactions in Company Securities, Inside Information and Confidentiality; |
• | Stock Ownership Guidelines for directors and for executive officers; |
• | the Humana Inc. Ethics Every Day and any waivers thereto; and |
• | the Code of Conduct for the Chief Executive Officer and Senior Financial Officers and any waivers thereto. |
Plan category | (a) Number of securities to be issued upon exercise of outstanding options, warrants and rights | (b) Weighted-average exercise price of outstanding options, warrants and rights | (c) Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column(a)) | ||||||||
Equity compensation plans approved by security holders (1) | 863,128 | $ | 181.436 | 5,467,598 | (2)(3) | ||||||
Equity compensation plans not approved by security holders | — | — | — | ||||||||
Total | 863,128 | $ | 181.436 | 5,467,598 |
(1) | The above table does not include awards of shares of restricted stock or restricted stock units. For information concerning these awards, see Note 13. |
(2) | The Humana Inc. 2011 Stock Incentive Plan was approved by stockholders at the Annual Meeting held on April 21, 2011. On July 5, 2011, 18.5 million shares were registered with the Securities and Exchange Commission on Form S-8. |
(3) | Of the number listed above, 2,387,597 can be issued as restricted stock at December 31, 2017 (giving effect to the provision that one restricted share is equivalent to 2.29 stock options in the 2011 Plan). |
(a) | The financial statements, financial statement schedules and exhibits set forth below are filed as part of this report. | |||||||
(1) | Financial Statements – The response to this portion of Item 15 is submitted as Item 8 of Part II of this report. | |||||||
(2) | The following Consolidated Financial Statement Schedules are included herein: | |||||||
Schedule I | Parent Company Condensed Financial Information at December 31, 2017 and 2016 and for the years ended December 31, 2017, 2016 and 2015 | |||||||
Schedule II | Valuation and Qualifying Accounts for the years ended December 31, 2017, 2016 and 2015 |
(3) | Exhibits: |
Agreement and Plan of Merger, dated as of July 2, 2015 among Aetna Inc., Echo Merger Sub, Inc., Echo Merger Sub, LLC and Humana Inc. (incorporated herein by reference to Exhibit 2.1 to Humana Inc.’s Current Report on Form 8-K filed on July 7, 2015). | |
Letter Agreement, dated as of December 21, 2016, between Aetna Inc., Echo Merger Sub, Inc., Echo Merger Sub, LLC and Humana Inc. (incorporated herein by reference to Exhibit 10.1 to Humana Inc.’s Current Report on Form 8-K filed on December 22, 2016). | |
Termination letter dated as of February 14, 2017, by and among Humana Inc., Aetna Inc., Echo Merger Sub, Inc. and Echo Merger Sub LLC (incorporated herein by reference to Exhibit 10.1 to Humana Inc.'s Current Report on Form 8-K filed on February 15, 2017). | |
3(a) | Restated Certificate of Incorporation of Humana Inc. filed with the Secretary of State of Delaware on November 9, 1989, as restated to incorporate the amendment of January 9, 1992, and the correction of March 23, 1992 (incorporated herein by reference to Exhibit 4(i) to Humana Inc.’s Post-Effective Amendment No.1 to the Registration Statement on Form S-8 (Reg. No. 33-49305) filed February 2, 1994). |
Humana Inc. Amended and Restated By-Laws of Humana Inc., effective as of December 14, 2017 (incorporated herein by reference to Exhibit 3(b) to Humana Inc.’s Current Report on Form 8-K filed on December 14, 2017). | |
Indenture, dates as of August 5, 2003, by and between Humana Inc. and The Bank of New York, as trustee (incorporated herein by reference to Exhibit 4.1 to Humana Inc.'s Quarterly Report on Form 10-Q for the quarter ended September 30, 2003, File No. 001-05975). | |
First Supplemental Indenture, dated as of August 5, 2003, by and between Humana Inc. and The Bank of New York, as trustee (incorporated herein by reference to Exhibit 4.2 to Humana Inc.’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2003, File No. 001-05975). | |
Second Supplemental Indenture, dated as of May 31, 2006, by and between Humana Inc. and The Bank of New York Trust Company, N.A., as trustee (incorporated herein by reference to Exhibit 4.1 to Humana Inc.’s Current Report on Form 8-K filed on May 31, 2006, File No.001-05975). | |
Third Supplemental Indenture, dated as of June 5, 2008, by and between Humana Inc. and The Bank of New York Trust Company, N.A., as trustee (incorporated herein by reference to Exhibit 4.1 to Humana Inc.’s Current Report on Form 8-K filed on June 5, 2008). | |
Fourth Supplemental Indenture, dated as of June 5, 2008, by and between Humana Inc. and The Bank of New York Trust Company, N.A., as trustee (incorporated herein by reference to Exhibit 4.3 to Humana Inc.’s Current Report on Form 8-K filed on June 5, 2008). | |
Indenture, dated as of March 30, 2006, by and between Humana Inc. and The Bank of New York Trust Company, N.A., as trustee (incorporated herein by reference to Exhibit 4.2 to Humana Inc.’s Registration Statement on Form S-3 filed on March 31, 2006, Req. No. 333-132878). | |
(g) | There are no instruments defining the rights of holders with respect to long-term debt in excess of 10 percent of the total assets of Humana Inc. on a consolidated basis. Other long-term indebtedness of Humana Inc. is described herein in Note 12 to Consolidated Financial Statements. Humana Inc. agrees to furnish copies of all such instruments defining the rights of the holders of such indebtedness not otherwise filed as an Exhibit to this Annual Report on Form 10-K to the Commission upon request. |
Fifth Supplemental Indenture, dated as of December 10, 2012, by and between Humana Inc. and The Bank of New York Mellon Trust Company, N.A., as trustee (incorporated herein by reference to Exhibit 4.1 to Humana Inc.’s Current Report on Form 8-K filed on December 10, 2012). | |
Sixth Supplemental Indenture, dated as of December 10, 2012, by and between Humana Inc. and The Bank of New York Mellon Trust Company, N.A., as trustee (incorporated herein by reference to Exhibit 4.3 to Humana Inc.’s Current Report on Form 8-K filed on December 10, 2012). | |
Seventh Supplemental Indenture, dated as of September 19, 2014, by and between Humana Inc. and The Bank of New York, Mellon Trust Company, N.A., as trustee (incorporated herein by reference to Exhibit 4.2 to Humana Inc.’s Current Report on Form 8-K filed on September 19, 2014). | |
Eighth Supplemental Indenture, dated as of September 19, 2014, by and between Humana Inc. and The Bank of New York Mellon Trust Company, N.A., as trustee (incorporated herein by reference to Exhibit 4.4 to Humana Inc.’s Current Report on Form 8-K filed on September 19, 2014). | |
Ninth Supplemental Indenture, dated as of September 19, 2014, by and between Humana Inc. and The Bank of New York Mellon Trust Company, N.A., as trustee (incorporated herein by reference to Exhibit 4.6 to Humana Inc.’s Current Report on Form 8-K filed on September 19, 2014). | |
Tenth Supplemental Indenture, dated March 16, 2017, between Humana Inc. and The Bank of New York Mellon Trust Company, N.A., as trustee (incorporated herein by reference to Exhibit 4.2 to Humana Inc.’s Current Report on Form 8-K filed on March 16, 2017. | |
Eleventh Supplemental Indenture, dated March 16, 2017, between Humana Inc. and The Bank of New York Mellon Trust Company, N.A., as trustee (incorporated herein by reference to Exhibit 4.4 to Humana Inc.’s Current Report on Form 8-K filed on March 16, 2017. | |
Twelfth Supplemental Indenture, dated December 21, 2017, between Humana Inc. and The Bank of New York Mellon Trust Company, N.A., as trustee (incorporated herein by reference to Exhibit 4.2 to Humana Inc.’s Current Report on Form 8-K filed on December 21, 2017. | |
Thirteenth Supplemental Indenture, dated December 21, 2017, between Humana Inc. and The Bank of New York Mellon Trust Company, N.A., as trustee (incorporated herein by reference to Exhibit 4.4 to Humana Inc.’s Current Report on Form 8-K filed on December 21, 2017. | |
Form of Company’s Restricted Stock Unit Agreement and Agreement not to Compete or Solicit under the 2011 Stock Incentive Plan (with retirement provisions) (incorporated herein by reference to Exhibit 10(a) to Humana Inc.’s Annual Report on Form 10-K for the fiscal year ended December 31, 2015). | |
Form of Company’s Restricted Stock Unit Agreement and Agreement not to Compete or Solicit under the 2011 Stock Incentive Plan (without retirement provisions) (incorporated herein by reference to Exhibit 10(b) to Humana Inc.’s Annual Report on Form 10-K for the fiscal year ended December 31, 2015). | |
(c)* | Humana Inc. Executive Management Incentive Compensation Plan, as amended and restated February 21, 2008 (incorporated herein by reference to Appendix A to Humana Inc.’s Proxy Statement with respect to the Annual Meeting of Stockholders held on April 24, 2008). |
Form of Change of Control Agreement (incorporated herein by reference to Exhibit 10.2 to Humana Inc.’s current report on Form 8-K filed on February 24, 2014). | |
(e)* | Trust under Humana Inc. Deferred Compensation Plans (incorporated herein by reference to Exhibit 10(p) to Humana Inc.’s Annual Report on Form 10-K for the fiscal year ended December 31, 1999, File No. 001-05975). |
The Humana Inc. Deferred Compensation Plan for Non-Employee Directors (as amended on October 18, 2012) (incorporated herein by reference to Exhibit 10(m) to Humana Inc.’s Annual Report on Form 10-K for the fiscal year ended December 31, 2012). | |
Humana Inc. Executive Severance Policy (incorporated herein by reference to Exhibit 10.2 to Humana Inc.'s current report on Form 8-K filed on November 22, 2017). | |
Humana Inc. Deferred Compensation Plan (incorporated herein by reference to Exhibit 4.1 to the Company’s Registration Statement on Form S-8 (Reg. No. 333-171616), filed on January 7, 2011). | |
Humana Retirement Equalization Plan, as amended and restated as of January 1, 2011 (incorporated herein by reference to Exhibit 10(p) to Humana Inc.’s Annual Report on Form 10-K filed on February 18, 2011). | |
(j)* | Letter agreement with Humana Inc. officers concerning health insurance availability (incorporated herein by reference to Exhibit 10(mm) to Humana Inc.’s Annual Report on Form 10-K for the fiscal year ended December 31, 1994, File No. 001-05975). |
Executive Long-Term Disability Program (incorporated herein by reference to Exhibit 10(a) to Humana Inc.’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2004). | |
(l)* | Indemnity Agreement (incorporated herein by reference to Appendix B to Humana Inc.’s Proxy Statement with respect to the Annual Meeting of Stockholders held on January 8, 1987). |
Form of Company’s Restricted Stock Unit Agreement with Time/Performance Vesting and Agreement not to Compete or Solicit, under the 2011 Stock Incentive Plan (incorporated herein by reference to Exhibit 10(t) to Humana Inc.’s Annual Report on Form 10-K/A filed on January 30, 2014). | |
Form of Company’s Restricted Stock Unit Agreement and Agreement not to Solicit under the 2011 Stock Incentive Plan (with retirement provisions) (incorporated herein by reference to Exhibit 10(o) to Humana Inc.’s Annual Report on Form 10-K for the fiscal year ended December 31, 2015). | |
Summary of the Company’s Financial Planning Program for our executive officers (incorporated herein by reference to Exhibit 10(v) to Humana’s Inc.’s Annual Report on Form 10-K filed on February 22, 2013. | |
Form of Company’s Restricted Stock Unit Agreement and Agreement not to Solicit under the 2011 Stock Incentive Plan (without retirement provisions) (incorporated herein by reference to Exhibit 10(q) to Humana Inc.’s Annual Report on Form 10-K for the fiscal year ended December 31, 2015). | |
Five-Year $2 Billion Amended and Restated Credit Agreement , dated as of May 22, 2017, among Humana Inc., and JPMorgan Chase Bank, N.A. as Agent and as CAF Loan Agent, Bank of America, N.A. as Syndication Agent, Citibank, N.A., PNC Bank, National Association, U.S. Bank National Association, and Wells Fargo Bank, National Association, as Documentation Agents, and J.P. Morgan Chase Bank, N.A., Merrill Lynch, Pierce, Fenner & Smith Incorporated, Citigroup Global Markets, Inc., PNC Capital Markets LLC, U.S. Bank National Association, and Wells Fargo Securities, LLC, as Joint-Lead Arrangers and Joint Bookrunners (incorporated herein by reference to Exhibit 10 to Humana Inc.’s Current Report on Form 8-K filed on May 22, 2017). | |
Form of CMS Coordinated Care Plan Agreement (incorporated herein by reference to Exhibit 10.1 to Humana Inc.’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2005, File No. 001-05975). | |
Form of CMS Private Fee for Service Agreement (incorporated herein by reference to Exhibit 10.2 to Humana Inc.’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2005, File No. 001-05975). | |
Addendum to Agreement Providing for the Operation of a Medicare Voluntary Prescription Drug Plan (incorporated herein by reference to Exhibit 10.3 to Humana Inc.’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2005, File No. 001-05975). | |
Addendum to Agreement Providing for the Operation of an Employer/Union-only Group Medicare Advantage Prescription Drug Plan (incorporated herein by reference to Exhibit 10.4 to Humana Inc.’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2005, File No. 001-05975). | |
Addendum to Agreement Providing for the Operation of an Employer/Union-only Group Medicare Advantage-Only Plan (incorporated herein by reference to Exhibit 10.5 to Humana Inc.’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2005, File No. 001-05975). | |
Addendum to Agreement Providing for the Operation of a Medicare Advantage Regional Coordinated Care Plan (incorporated herein by reference to Exhibit 10.6 to Humana Inc.’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2005, File No. 001-05975). | |
Explanatory Note regarding Medicare Prescription Drug Plan Contracts between Humana and CMS (incorporated herein by reference to Exhibit 10(nn) to Humana Inc.’s Annual Report on Form 10-K for the fiscal year ended December 31, 2005, File No. 001-05975). | |
(y)* | Humana Inc. 2011 Stock Incentive Plan (incorporated herein by reference to Appendix A to Humana Inc.’s Proxy Statement with respect to the Annual Meeting of Stockholders held on April 21, 2011). |
Form of Company’s Stock Option Agreement under the 2011 Stock Incentive Plan (Non-Qualified Stock Options with Non-Compete/Non-Solicit) (incorporated herein by reference to Exhibit 10(oo) to Humana Inc.’s Annual Report on Form 10-K filed on February 24, 2012). | |
Form of Company’s Stock Option Agreement under the 2011 Stock Incentive Plan (Incentive Stock Options with Non-Compete/Non-Solicit) (incorporated herein by reference to Exhibit 10(pp) to Humana Inc.’s Annual Report on Form 10-K filed on February 24, 2012). | |
Form of Company’s Restricted Stock Unit Agreement and Agreement not to Compete or Solicit under the 2011 Stock Incentive Plan (incorporated herein by reference to Exhibit 10(rr) to Humana Inc.’s Annual Report on Form 10-K filed on February 24, 2012). | |
Amended and Restated Employment Agreement, dated as of February 27, 2014, by and between Humana Inc. and Bruce D. Broussard (incorporated herein by reference to Exhibit 10.1 to Humana Inc.’s current report on Form 8-K filed on February 28, 2014). | |
Amendment to the Amended and Restated Employment Agreement between Humana Inc. and Bruce D. Broussard, dated July 2, 2015 (incorporated herein by reference to Exhibit 10.1 to Humana Inc.’s current report on Form 8-K filed on July 9, 2015). | |
Agreement between the United States Department of Defense and Humana Military Healthcare Services, Inc., a wholly owned subsidiary of Humana Inc., dated as March 3, 2011 (incorporated herein by reference to Exhibit 10(mm) to Humana Inc.’s Annual Report on Form 10-K filed on February 24, 2012). | |
Form of Amendment to Change of Control Agreement between Humana Inc. and various executive officers (incorporated herein by reference to Exhibit 10.1 to Humana Inc.’s current report on Form 8-K filed on February 24, 2014). | |
Humana Inc. Change in Control Policy (incorporated herein by reference to Exhibit 10.1 to Humana Inc.’s current report on Form 8-K filed on November 22, 2017). | |
Form of Commercial Paper Dealer Agreement between Humana Inc., as Issuer, and the Dealer party thereto (incorporated herein by reference to Exhibit 10.1 to Humana Inc.’s current report on Form 8-K filed on October 7, 2014). | |
Master Confirmation by and between Humana Inc. and Goldman, Sachs & Co., dated February 22, 2017 (incorporated herein by reference to Humana Inc.’s current report on Form 8-K filed on February 27, 2017). | |
Master Confirmation by and between Humana Inc. and Bank of America, N.A., dated December 21, 2017 (incorporated herein by reference to Humana Inc.’s current report on Form 8-K filed on December 22, 2017). | |
Form of Company's Stock Option Agreement under the 2011 Stock Incentive Plan (Incentive Stock Options) (incorporated herein by reference to Exhibit 10(jj) to Humana Inc.’s Annual Report on Form 10-K for the fiscal year ended December 31, 2015). | |
Form of Company's Stock Option Agreement under the 2011 Stock Incentive Plan (Non-Qualified Stock Options with Non-Compete/Non-Solicit) (incorporated herein by reference to Exhibit 10(kk) to Humana Inc.’s Annual Report on Form 10-K for the fiscal year ended December 31, 2015). | |
Voluntary Release and Separation Agreement, dated as of April 1, 2017, by and between Humana Inc. and James E. Murray (incorporated herein by reference to Humana Inc.’s current report on Form 8-K filed on April 3, 2017). | |
Form of Company's Restricted Stock Unit Agreement with Performance Vesting and Agreement not to Compete or Solicit under the 2011 Stock Incentive Plan (incorporated herein by reference to Exhibit 10(nn) to Humana Inc.’s Annual Report on Form 10-K filed on February 16, 2018). | |
Computation of ratio of earnings to fixed charges. | |
Code of Conduct for Chief Executive Officer & Senior Financial Officers (incorporated herein by reference to Exhibit 14 to Humana Inc.’s Annual Report on Form 10-K for the fiscal year ended December 31, 2003). | |
List of subsidiaries. | |
Consent of PricewaterhouseCoopers LLP. | |
CEO certification pursuant to Rule 13a-14(a)/15d-14(a). | |
CFO certification pursuant to Rule 13a-14(a)/15d-14(a). | |
Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes – Oxley Act of 2002. |
101 | The following materials from Humana Inc.'s Annual Report on Form 10-K formatted in XBRL (Extensible Business Reporting Language): (i) the Consolidated Balance Sheets at December 31, 2017 and 2016; (ii) the Consolidated Statements of Income for the years ended December 31, 2017, 2016 and 2015; (iii) the Consolidated Statements of Comprehensive Income for the years ended December 31, 2017, 2016 and 2015; (iv) the Consolidated Statements of Stockholders’ Equity as of December 31, 2017, 2016, and 2015; (v) the Consolidated Statements of Cash Flows for the years ended December 31, 2017, 2016 and 2015; and (vi) Notes to Consolidated Financial Statements. |
December 31, | |||||||
2017 | 2016 | ||||||
(in millions, except share amounts) | |||||||
ASSETS | |||||||
Current assets: | |||||||
Cash and cash equivalents | $ | 383 | $ | 1,710 | |||
Investment securities | 305 | 300 | |||||
Receivable from operating subsidiaries | 1,042 | 1,136 | |||||
Other current assets | 245 | 122 | |||||
Total current assets | 1,975 | 3,268 | |||||
Property and equipment, net | 1,091 | 1,086 | |||||
Investments in subsidiaries | 16,810 | 15,276 | |||||
Other long-term assets | 426 | 374 | |||||
Total assets | $ | 20,302 | $ | 20,004 | |||
LIABILITIES AND STOCKHOLDERS’ EQUITY | |||||||
Current liabilities: | |||||||
Payable to operating subsidiaries | $ | 4,311 | $ | 4,107 | |||
Current portion of notes payable to operating subsidiaries | 28 | 28 | |||||
Book overdraft | 41 | 38 | |||||
Short-term borrowings | 150 | 300 | |||||
Other current liabilities | 896 | 708 | |||||
Total current liabilities | 5,426 | 5,181 | |||||
Long-term debt | 4,770 | 3,792 | |||||
Notes payable to operating subsidiaries | 9 | 9 | |||||
Other long-term liabilities | 255 | 337 | |||||
Total liabilities | 10,460 | 9,319 | |||||
Commitments and contingencies | |||||||
Stockholders’ equity: | |||||||
Preferred stock, $1 par; 10,000,000 shares authorized; none issued | — | — | |||||
Common stock, $0.16 2/3 par; 300,000,000 shares authorized; 198,572,458 shares issued at December 31, 2017 and 198,495,007 shares issued at December 31, 2016 | 33 | 33 | |||||
Capital in excess of par value | 2,445 | 2,562 | |||||
Retained earnings | 13,670 | 11,454 | |||||
Accumulated other comprehensive income (loss) | 19 | (66 | ) | ||||
Treasury stock, at cost, 60,893,762 shares at December 31, 2017 and 49,189,811 shares at December 31, 2016 | (6,325 | ) | (3,298 | ) | |||
Total stockholders’ equity | 9,842 | 10,685 | |||||
Total liabilities and stockholders’ equity | $ | 20,302 | $ | 20,004 |
For the year ended December 31, | |||||||||||
2017 | 2016 | 2015 | |||||||||
(in millions) | |||||||||||
Revenues: | |||||||||||
Management fees charged to operating subsidiaries | $ | 1,864 | $ | 1,683 | $ | 1,469 | |||||
Investment and other income, net | 57 | 42 | 5 | ||||||||
1,921 | 1,725 | 1,474 | |||||||||
Expenses: | |||||||||||
Operating costs | 1,801 | 1,519 | 1,347 | ||||||||
Merger termination fee and related costs, net | (936 | ) | 104 | 23 | |||||||
Depreciation | 332 | 302 | 252 | ||||||||
Interest | 243 | 189 | 186 | ||||||||
1,440 | 2,114 | 1,808 | |||||||||
Income (loss) before gain on sale of business, income taxes and equity in net earnings of subsidiaries | 481 | (389 | ) | (334 | ) | ||||||
Gain on sale of business | — | — | 270 | ||||||||
Income (loss) before income taxes and equity in net earnings of subsidiaries | 481 | (389 | ) | (64 | ) | ||||||
Provision (benefit) for income taxes | 61 | (107 | ) | (70 | ) | ||||||
Income (loss) before equity in net earnings of subsidiaries | 420 | (282 | ) | 6 | |||||||
Equity in net earnings of subsidiaries | 2,028 | 896 | 1,270 | ||||||||
Net income | $ | 2,448 | $ | 614 | $ | 1,276 |
For the year ended December 31, | |||||||||||
2017 | 2016 | 2015 | |||||||||
(in millions) | |||||||||||
Net income | $ | 2,448 | $ | 614 | $ | 1,276 | |||||
Other comprehensive income (loss): | |||||||||||
Change in gross unrealized investment gains/losses | 149 | (101 | ) | (114 | ) | ||||||
Effect of income taxes | (55 | ) | 38 | 42 | |||||||
Total change in unrealized investment gains/losses, net of tax | 94 | (63 | ) | (72 | ) | ||||||
Reclassification adjustment for net realized gains included in investment income | (14 | ) | (96 | ) | (146 | ) | |||||
Effect of income taxes | 5 | 35 | 53 | ||||||||
Total reclassification adjustment, net of tax | (9 | ) | (61 | ) | (93 | ) | |||||
Other comprehensive income (loss), net of tax | 85 | (124 | ) | (165 | ) | ||||||
Comprehensive income | $ | 2,533 | $ | 490 | $ | 1,111 |
For the year ended December 31, | |||||||||||
2017 | 2016 | 2015 | |||||||||
(in millions) | |||||||||||
Net cash provided by operating activities | $ | 2,423 | $ | 1,848 | $ | 953 | |||||
Cash flows from investing activities: | |||||||||||
Proceeds from sale of business | — | — | 1,055 | ||||||||
Capital contributions to operating subsidiaries | (695 | ) | (895 | ) | (833 | ) | |||||
Purchases of investment securities | (53 | ) | (151 | ) | (507 | ) | |||||
Proceeds from sale of investment securities | — | 25 | 18 | ||||||||
Maturities of investment securities | 51 | 143 | 108 | ||||||||
Purchases of property and equipment, net | (359 | ) | (382 | ) | (378 | ) | |||||
Net cash used in investing activities | (1,056 | ) | (1,260 | ) | (537 | ) | |||||
Cash flows from financing activities: | |||||||||||
Proceeds from issuance of senior notes, net | 1,779 | — | — | ||||||||
(Repayments) proceeds from issuance of commercial paper, net | (153 | ) | (2 | ) | 298 | ||||||
Repayment of long-term debt | (800 | ) | — | — | |||||||
Change in book overdraft | 3 | 5 | (16 | ) | |||||||
Common stock repurchases | (3,365 | ) | (104 | ) | (385 | ) | |||||
Dividends paid | (220 | ) | (177 | ) | (172 | ) | |||||
Tax benefit from stock-based compensation | — | — | 15 | ||||||||
Proceeds from stock option exercises and other | 62 | 11 | 22 | ||||||||
Net cash used in financing activities | (2,694 | ) | (267 | ) | (238 | ) | |||||
(Decrease) increase in cash and cash equivalents | (1,327 | ) | 321 | 178 | |||||||
Cash and cash equivalents at beginning of year | 1,710 | 1,389 | 1,211 | ||||||||
Cash and cash equivalents at end of year | $ | 383 | $ | 1,710 | $ | 1,389 |
Additions | ||||||||||||||||||||||||
Balance at Beginning of Period | Acquired/(Disposed) Balances | Charged (Credited) to Costs and Expenses | Charged to Other Accounts (1) | Deductions or Write-offs | Balance at End of Period | |||||||||||||||||||
Allowance for loss on receivables: | ||||||||||||||||||||||||
2017 | $ | 118 | $ | — | $ | 20 | $ | (10 | ) | $ | (32 | ) | $ | 96 | ||||||||||
2016 | 101 | — | 39 | 19 | (41 | ) | 118 | |||||||||||||||||
2015 | 137 | (39 | ) | 61 | (7 | ) | (51 | ) | 101 | |||||||||||||||
Deferred tax asset valuation allowance: | ||||||||||||||||||||||||
2017 | (49 | ) | — | — | — | — | (49 | ) | ||||||||||||||||
2016 | (42 | ) | — | (7 | ) | — | — | (49 | ) | |||||||||||||||
2015 | (48 | ) | — | 6 | — | — | (42 | ) |
(1) | Represents changes in retroactive membership adjustments to premiums revenue and contractual allowances adjustments to services revenue as more fully described in Note 2 to the consolidated financial statements included in this annual report on Form 10-K. |
HUMANA INC. | |||
By: | /s/ BRIAN A. KANE | ||
Brian A. Kane | |||
Chief Financial Officer (Principal Financial Officer) | |||
Date: | February 16, 2018 |
Signature | Title | Date | ||
/s/ BRIAN A. KANE | Chief Financial Officer (Principal Financial Officer) | February 16, 2018 | ||
Brian A. Kane | ||||
/s/ CYNTHIA H. ZIPPERLE | Senior Vice President and Chief Accounting Officer (Principal Accounting Officer) | February 16, 2018 | ||
Cynthia H. Zipperle | ||||
/s/ BRUCE D. BROUSSARD | President and Chief Executive Officer, Director (Principal Executive Officer) | February 16, 2018 | ||
Bruce D. Broussard | ||||
/s/ KURT J. HILZINGER | Chairman of the Board | February 16, 2018 | ||
Kurt J. Hilzinger | ||||
/s/ FRANK BISIGNANO | Director | February 16, 2018 | ||
Frank Bisignano | ||||
/s/ KAREN DESALVO MD, MPH, MSc | Director | February 16, 2018 | ||
Karen DeSalvo, MD, MPH, MSc | ||||
/s/ FRANK A. D’AMELIO | Director | February 16, 2018 | ||
Frank A. D’Amelio | ||||
/s/ W. ROY DUNBAR | Director | February 16, 2018 | ||
W. Roy Dunbar | ||||
/s/ DAVID A. JONES, JR. | Director | February 16, 2018 | ||
David A. Jones, Jr. | ||||
/s/ WILLIAM J. MCDONALD | Director | February 16, 2018 | ||
William J. McDonald | ||||
/s/ WILLIAM E. MITCHELL | Director | February 16, 2018 | ||
William E. Mitchell | ||||
/s/ DAVID B. NASH, M.D. | Director | February 16, 2018 | ||
David B. Nash, M.D. | ||||
/s/ JAMES J. O’BRIEN | Director | February 16, 2018 | ||
James J. O’Brien | ||||
/s/ MARISSA T. PETERSON | Director | February 16, 2018 | ||
Marissa T. Peterson |
"Company" | ||||||
ATTEST: | HUMANA INC. | |||||
BY: | BY: | |||||
Joseph C. Ventura | BRUCE D. BROUSSARD | |||||
Senior Vice President, Associate General Counsel & Corporate Secretary | President & Chief Executive Officer | |||||
“Grantee” | ||||||
<first_name> <middle_name> <last_name> | ||||||
For the twelve months ended December 31, | |||||||||||||||||||
2017 | 2016 | 2015 | 2014 | 2013 | |||||||||||||||
(Dollars in millions) | |||||||||||||||||||
Income before income taxes | $ | 4,020 | $ | 1,552 | $ | 2,431 | $ | 2,170 | $ | 1,921 | |||||||||
Fixed charges | 310 | 249 | 253 | 267 | 216 | ||||||||||||||
Total earnings | $ | 4,330 | $ | 1,801 | $ | 2,684 | $ | 2,437 | $ | 2,137 | |||||||||
Interest charged to expense | $ | 242 | $ | 189 | $ | 186 | $ | 192 | $ | 140 | |||||||||
One-third of rent expense | 68 | 60 | 67 | 75 | 76 | ||||||||||||||
Total fixed charges | $ | 310 | $ | 249 | $ | 253 | $ | 267 | $ | 216 | |||||||||
Ratio of earnings to fixed charges (1)(2) | 14.0x | 7.2x | 10.6x | 9.1x | 9.9x | ||||||||||||||
(1) | For the purposes of determining the ratio of earnings to fixed charges, earnings consist of income before income taxes and fixed charges. Fixed charges include gross interest expense, amortization of deferred financing expenses and an amount equivalent to interest included in rental charges. One-third of rental expense represents a reasonable approximation of the interest amount. |
(2) | There are no shares of preferred stock outstanding. |
1. | SeniorBridge Family Companies (AZ), Inc. |
1. | Humana Regional Health Plan, Inc. |
1. | Humana EAP and Work-Life Services of California, Inc. |
2. | Humana Health Plan of California, Inc. |
3. | SeniorBridge Family Companies (CA), Inc. |
1. | SeniorBridge Family Companies (CT), Inc. |
1. | American Tax Credit Corporate Georgia Fund III, L.L.C. |
2. | Availity, L.L.C. |
3. | CompBenefits Corporation |
4. | CompBenefits Direct, Inc. |
5. | DefenseWeb Technologies, Inc. |
6. | Emphesys, Inc. |
7. | Go365, LLC |
8. | Health Value Management, Inc. |
9. | HUM Provider Holdings, LLC |
10. | Humana at Home, Inc. |
11. | Humana Government Business, Inc. |
12. | Humana Inc. |
13. | Humana Innovation Enterprises, Inc. |
14. | Humana Pharmacy, Inc. |
15. | Humana Veterans Healthcare Services, Inc. |
16. | Humana WellWorks LLC |
17. | HumanaDental, Inc. |
18. | Primary Care Holdings, Inc. |
19. | Transcend Insights, Inc. |
20. | Transcend Population Health Management, LLC |
1. | 154th Street Medical Plaza, Inc. |
2. | 1st Choice Home Health Care, LLC |
3. | 54th Street Medical Plaza, Inc. |
4. | American Eldercare of North Florida, LLC |
5. | American Eldercare, Inc. |
6. | CAC Medical Center Holdings, Inc. |
7. | CAC-Florida Medical Centers, LLC |
8. | Care Partners Home Care, LLC |
9. | CarePlus Health Plans, Inc. |
10. | CompBenefits Company |
11. | Complex Clinical Management, Inc. |
12. | Continucare Corporation |
13. | Continucare MDHC, LLC |
14. | Continucare Medical Management, Inc. |
15. | Continucare MSO, Inc. |
16. | HUM-e-FL, Inc. |
17. | Humana At Home 1, Inc. |
18. | Humana Dental Company |
19. | Humana Health Insurance Company of Florida, Inc. |
20. | Humana Medical Plan, Inc. |
21. | METCARE of Florida, Inc. |
22. | Metropolitan Health Networks, Inc. |
23. | Naples Health Care Specialists, LLC |
24. | Nursing Solutions, LLC |
25. | Partners in Integrated Care, Inc. |
26. | SeniorBridge Family Companies (FL), Inc. |
27. | SeniorBridge-Florida, LLC |
1. | Humana Employers Health Plan of Georgia, Inc. |
1. | CompBenefits Dental, Inc. |
2. | Comprehensive Health Insights, Inc. |
3. | Dental Care Plus Management, Corp. |
4. | Humana Benefit Plan of Illinois, Inc. |
5. | Humana Dental Concern, Ltd. |
6. | SeniorBridge Family Companies (IL), Inc. |
1. | SeniorBridge Family Companies (IN), Inc. |
1. | 516-526 West Main Street Condominium Council of Co-Owners, Inc. |
2. | CHA HMO, Inc. |
3. | CHA Service Company |
4. | Humana Active Outlook, Inc. |
5. | Humana Health Plan, Inc. |
6. | Humana Insurance Company of Kentucky |
7. | Humana MarketPOINT, Inc. |
8. | Humana Pharmacy Solutions, Inc. |
9. | Humco, Inc. |
10. | Preservation on Main, Inc. |
11. | The Dental Concern, Inc. |
1. | Humana Health Benefit Plan of Louisiana, Inc. |
1. | SeniorBridge Family Companies (MD), Inc. |
1. | Humana at Home (MA), Inc. |
1. | Humana Medical Plan of Michigan, Inc. |
1. | SeniorBridge Family Companies (MO), Inc. |
1. | SeniorBridge Family Companies (NJ), Inc. |
1. | Harris, Rothenberg International Inc. |
2. | Humana Health Company of New York, Inc. |
3. | Humana Insurance Company of New York |
4. | SeniorBridge Care Management, Inc. |
5. | SeniorBridge Family Companies (NY), Inc. |
1. | SeniorBridge (NC), Inc. |
1. | Humana Health Plan of Ohio, Inc. |
2. | Hummingbird Coaching Systems LLC |
3. | SeniorBridge Family Companies (OH), Inc. |
1. | Humana Medical Plan of Pennsylvania, Inc. |
2. | SeniorBridge Family Companies (PA), Inc. |
1. | Humana Health Plans of Puerto Rico, Inc. |
2. | Humana Insurance of Puerto Rico, Inc. |
3. | Humana Management Services of Puerto Rico, Inc. |
4. | Humana MarketPOINT of Puerto Rico, Inc. |
1. | Kanawha Insurance Company |
1. | Cariten Health Plan Inc. |
2. | PHP Companies, Inc. |
3. | Preferred Health Partnership, Inc. |
1. | CompBenefits Insurance Company |
2. | DentiCare, Inc. |
3. | Emphesys Insurance Company |
4. | Humana At Home (Dallas), Inc. |
5. | Humana At Home (Houston), Inc. |
6. | Humana At Home (San Antonio), Inc. |
7. | Humana At Home (TLC), Inc. |
8. | Humana Behavioral Health, Inc. |
9. | Humana Health Plan of Texas, Inc. |
10. | ROHC, L.L.C. |
11. | Texas Dental Plans, Inc. |
1. | Humana Medical Plan of Utah, Inc. |
1. | Managed Care Indemnity, Inc. |
1. | KMG America Corporation |
2. | SeniorBridge Family Companies (VA), Inc. |
1. | Arcadian Health Plan, Inc. |
1. | CareNetwork, Inc. |
2. | Humana Insurance Company |
3. | Humana Wisconsin Health Organization Insurance Corporation |
4. | HumanaDental Insurance Company |
5. | Independent Care Health Plan |
1. | I have reviewed this annual report on Form 10-K of Humana Inc.; |
2. | Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
5. | The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
Date: | February 16, 2018 | ||
Signature: | /s/ BRUCE D. BROUSSARD | ||
Bruce D. Broussard Principal Executive Officer |
1. | I have reviewed this annual report on Form 10-K of Humana Inc.; |
2. | Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
5. | The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
Date: | February 16, 2018 | ||
Signature: | /s/ BRIAN A. KANE | ||
Brian A. Kane Principal Financial Officer |
/s/ BRUCE D. BROUSSARD | |
Bruce D. Broussard President and Chief Executive Officer, Director (Principal Executive Officer) |
/s/ BRIAN A. KANE | |
Brian A. Kane Chief Financial Officer (Principal Financial Officer) |
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Document and Entity Information - USD ($) |
12 Months Ended | ||
---|---|---|---|
Dec. 31, 2017 |
Jan. 31, 2018 |
Jun. 30, 2017 |
|
Document And Entity Information [Abstract] | |||
Entity Registrant Name | HUMANA INC | ||
Trading Symbol | HUM | ||
Entity Central Index Key | 0000049071 | ||
Current Fiscal Year End Date | --12-31 | ||
Entity Filer Category | Large Accelerated Filer | ||
Document Type | 10-K | ||
Document Period End Date | Dec. 31, 2017 | ||
Document Fiscal Year Focus | 2017 | ||
Document Fiscal Period Focus | FY | ||
Amendment Flag | false | ||
Entity Common Stock, Shares Outstanding | 137,684,326 | ||
Entity Well-known Seasoned Issuer | Yes | ||
Entity Voluntary Filers | No | ||
Entity Current Reporting Status | Yes | ||
Entity Public Float | $ 34,733,751,307 |
Consolidated Balance Sheets (Parenthetical) - USD ($) $ in Millions |
Dec. 31, 2017 |
Dec. 31, 2016 |
---|---|---|
Statement of Financial Position [Abstract] | ||
Receivables, allowance for doubtful accounts | $ 96 | $ 118 |
Preferred stock, par (in dollars per share) | $ 1 | $ 1 |
Preferred stock, shares authorized (in shares) | 10,000,000 | 10,000,000 |
Preferred stock, issued (in shares) | 0 | 0 |
Common stock, par (in dollars per share) | $ 0.1667 | $ 0.1667 |
Common stock, shares authorized (in shares) | 300,000,000 | 300,000,000 |
Common stock, shares issued (in shares) | 198,572,458 | 198,495,007 |
Treasury stock (in shares) | 60,893,762 | 49,189,811 |
Consolidated Statements Of Income - USD ($) $ in Millions |
3 Months Ended | 12 Months Ended | |||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
Dec. 31, 2017 |
Sep. 30, 2017 |
Jun. 30, 2017 |
Mar. 31, 2017 |
Dec. 31, 2016 |
Sep. 30, 2016 |
Jun. 30, 2016 |
Mar. 31, 2016 |
Dec. 31, 2017 |
Dec. 31, 2016 |
Dec. 31, 2015 |
|
Revenues: | |||||||||||
Premiums | $ 52,380 | $ 53,021 | $ 52,409 | ||||||||
Services | 982 | 969 | 1,406 | ||||||||
Investment income | 405 | 389 | 474 | ||||||||
Total revenues | $ 13,189 | $ 13,282 | $ 13,534 | $ 13,762 | $ 12,878 | $ 13,694 | $ 14,007 | $ 13,800 | 53,767 | 54,379 | 54,289 |
Operating expenses: | |||||||||||
Benefits | 43,496 | 45,007 | 44,269 | ||||||||
Operating costs | 6,567 | 7,173 | 7,295 | ||||||||
Merger termination fee and related costs, net | (936) | 104 | 23 | ||||||||
Depreciation and amortization | 378 | 354 | 355 | ||||||||
Total operating expenses | 49,505 | 52,638 | 51,942 | ||||||||
Income (loss) from operations | 4,262 | 1,741 | 2,347 | ||||||||
Gain on sale of business | 0 | 0 | 270 | ||||||||
Interest expense | 242 | 189 | 186 | ||||||||
Income (loss) before income taxes | 490 | 799 | 1,042 | 1,689 | (486) | 902 | 636 | 500 | 4,020 | 1,552 | 2,431 |
Provision for income taxes | 1,572 | 938 | 1,155 | ||||||||
Net income | $ 184 | $ 499 | $ 650 | $ 1,115 | $ (401) | $ 450 | $ 311 | $ 254 | $ 2,448 | $ 614 | $ 1,276 |
Basic earnings per common share (in dollars per share) | $ 1.30 | $ 3.46 | $ 4.49 | $ 7.54 | $ (2.68) | $ 3.01 | $ 2.08 | $ 1.70 | $ 16.94 | $ 4.11 | $ 8.54 |
Diluted earnings per common share (in dollars per share) | $ 1.29 | $ 3.44 | $ 4.46 | $ 7.49 | $ (2.68) | $ 2.98 | $ 2.06 | $ 1.68 | $ 16.81 | $ 4.07 | $ 8.44 |
Consolidated Statements Of Comprehensive Income - USD ($) $ in Millions |
3 Months Ended | 12 Months Ended | |||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
Dec. 31, 2017 |
Sep. 30, 2017 |
Jun. 30, 2017 |
Mar. 31, 2017 |
Dec. 31, 2016 |
Sep. 30, 2016 |
Jun. 30, 2016 |
Mar. 31, 2016 |
Dec. 31, 2017 |
Dec. 31, 2016 |
Dec. 31, 2015 |
|
Statement of Comprehensive Income [Abstract] | |||||||||||
Net income | $ 184 | $ 499 | $ 650 | $ 1,115 | $ (401) | $ 450 | $ 311 | $ 254 | $ 2,448 | $ 614 | $ 1,276 |
Other comprehensive income (loss): | |||||||||||
Change in gross unrealized investment gains/losses | 149 | (101) | (114) | ||||||||
Effect of income taxes | (55) | 38 | 42 | ||||||||
Total change in unrealized investment gains/losses, net of tax | 94 | (63) | (72) | ||||||||
Reclassification adjustment for net realized gains included in investment income | (14) | (96) | (146) | ||||||||
Effect of income taxes | 5 | 35 | 53 | ||||||||
Total reclassification adjustment, net of tax | (9) | (61) | (93) | ||||||||
Other comprehensive income (loss), net of tax | 85 | (124) | (165) | ||||||||
Comprehensive income | $ 2,533 | $ 490 | $ 1,111 |
REPORTING ENTITY |
12 Months Ended |
---|---|
Dec. 31, 2017 | |
Organization, Consolidation and Presentation of Financial Statements [Abstract] | |
REPORTING ENTITY | REPORTING ENTITY Nature of Operations Humana Inc., headquartered in Louisville, Kentucky, is a leading health and well-being company committed to helping our millions of medical and specialty members achieve their best health. Our successful history in care delivery and health plan administration is helping us create a new kind of integrated care with the power to improve health and well‐being and lower costs. Our efforts are leading to a better quality of life for people with Medicare, families, individuals, military service personnel, and communities at large. To accomplish that, we support physicians and other health care professionals as they work to deliver the right care in the right place for their patients, our members. Our range of clinical capabilities, resources and tools, such as in‐home care, behavioral health, pharmacy services, data analytics and wellness solutions, combine to produce a simplified experience that makes health care easier to navigate and more effective. References throughout these notes to consolidated financial statements to “we,” “us,” “our,” “Company,” and “Humana,” mean Humana Inc. and its subsidiaries. We derived approximately 79% of our total premiums and services revenue from contracts with the federal government in 2017, 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. |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
12 Months Ended |
---|---|
Dec. 31, 2017 | |
Accounting Policies [Abstract] | |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | 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 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. Acquisition of a 40% Minority Interest in Kindred’s Homecare Business On December 19, 2017, we announced that we have entered into a definitive agreement to acquire a 40% minority interest in the Kindred at Home Division (Kindred at Home) of Kindred Healthcare, Inc. (Kindred)(NYSE: KND), the nation’s largest home health provider and second largest hospice operator, for estimated cash consideration of approximately $800 million, including our share of transaction and related expenses, to facilitate a complete separation from the Long Term Acute Care and Rehabilitation businesses (the Specialty Hospital company). TPG Capital (TPG) and Welsh, Carson, Anderson & Stowe (WCAS), two private equity funds, collectively, the Sponsors, along with us are jointly creating a consortium to purchase all of the outstanding and issued securities of Kindred Healthcare, Inc. Immediately following the closing of that transaction, Kindred at Home and the Specialty Hospital company will be separated, with the result being that the Specialty Hospital Company will be owned by the Sponsors and Kindred at Home will be owned by a joint venture owned by the Sponsors and us. We will own 40% of Kindred at Home, with the remaining 60% owned by a new entity owned by TPG and WCAS. At the closing of the transaction, we will enter a shareholders agreement with the Sponsors that will provide for certain rights and obligations of each party concerning the newly formed joint venture that will own Kindred at Home. The shareholders agreement with the Sponsors includes a put option under which they have the right to require us to purchase their interest in the joint venture starting at the end of year three and ending at the end of year four following the closing. Consideration upon exercise of the put option per the agreement would be valued at an exit multiple of 10.5 times the preceding twelve months earnings before interest, income taxes, depreciation and amortization, or EBITDA, subject to certain adjustments. In addition, the multiple is subject to adjustment up to 11.5 times EBITDA based on the achievement of certain pre-defined value-based outcomes tied to clinical metrics. The 11.5 times EBITDA exit multiple is comparable to the valuation of our acquired interest in Kindred at Home. Finally, we have a call option under which we have the right to require the Sponsors to sell their interest in the joint venture to Humana beginning at the end of year four and ending at the end of year five following the closing for cash consideration using the same valuation methodology applicable to the previously discussed put option consideration. The above transactions, which are anticipated to close in the summer of 2018, are subject to customary state and federal regulatory approvals, including approval by the stockholders of Kindred and the expiration of the waiting period under the Hart-Scott-Rodino Antitrust Improvement Act of 1976, as amended, as well as other customary closing conditions. We expect to fund the transaction through the use of parent company cash and will account for the minority investment under the equity method. The pending transaction did not have a material impact to earnings in 2017. Sale of Closed Block of Commercial Long-Term Care Insurance Business On November 6, 2017, we entered into a definitive agreement to sell the stock of our wholly-owned subsidiary, KMG America Corporation, or KMG, to Continental General Insurance Company, or CGIC, a Texas-based insurance company wholly owned by HC2 Holdings, Inc., a diversified holding company. KMG’s subsidiary, Kanawha Insurance Company, or KIC, includes our closed block of non-strategic commercial long-term care insurance policies. Based on the terms of the definitive agreement we expect to record a net loss associated with the sale of KMG of approximately $365 million. The estimated loss includes a pretax loss of approximately $780 million, offset by the expected tax benefit of approximately $415 million. We will fund the transaction with approximately $203 million of parent company cash contributed into KMG, subject to customary adjustments, in addition to the transfer of approximately $150 million of statutory capital with the sale, which together should be more than offset by the estimated $415 million cash savings associated with the expected tax treatment of the sale. The KMG transaction is anticipated to close by the third quarter of 2018 subject to customary closing conditions, including South Carolina Department of Insurance approval. There can be no assurance we will obtain regulatory approvals needed to sell the business or do so under terms acceptable to us. Workforce Optimization During 2017, we initiated a voluntary early retirement program and an involuntary workforce reduction program. These programs impacted approximately 3,600 associates, or 7.8% of our workforce. As a result, we recorded charges of $148 million, or $0.64 per diluted common share. These charges are included with operating costs in the consolidated statements of income for the year ended December 31, 2017 and are included at the corporate level in the segment financial information in Note 17. Payments under these programs are made upon termination during the early retirement or severance pay period, beginning in the first quarter of 2018. We expect this liability to be primarily paid within the next 12 months and classified it as a current liability, included in our consolidated balance sheet in the trade accounts payable and accrued expenses line. Aetna Merger On July 2, 2015, we entered into an Agreement and Plan of Merger, which we refer to in this report as the Merger Agreement, with Aetna Inc. and certain wholly owned subsidiaries of Aetna Inc., which we refer to collectively as Aetna, which sets forth the terms and conditions under which we agreed to merge with, and become a wholly owned subsidiary of Aetna, a transaction we refer to in this report as the Merger. The Merger was subject to customary closing conditions, including, among other things, (i) the expiration or termination of the applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the receipt of necessary approvals under state insurance and healthcare laws and regulations and pursuant to certain licenses of certain of Humana’s subsidiaries, and (ii) the absence of legal restraints and prohibitions on the consummation of the Merger. On December 22, 2016, in order to extend the “End Date” (as defined in the Merger Agreement), Aetna and Humana each agreed to waive until 11:59 p.m. (Eastern time) on February 15, 2017 its right to terminate the Merger Agreement due to a failure of the Mergers to have been completed on or before December 31, 2016. On July 21, 2016, the U.S. Department of Justice, or DOJ, and the attorneys general of certain U.S. jurisdictions filed a civil antitrust complaint in the U.S. District Court for the District of Columbia against us and Aetna, alleging that the Merger would violate Section 7 of the Clayton Antitrust Act and seeking a permanent injunction to prevent the Merger from being completed. On January 23, 2017, the Court ruled in favor of the DOJ and granted a permanent injunction of the proposed transaction. On February 14, 2017, we and Aetna agreed to mutually terminate the Merger Agreement, as our Board determined that an appeal of the Court's ruling would not be in the best interest of our stockholders. On February 16, 2017, under the terms of the Merger Agreement, we received a breakup fee of $1 billion from Aetna, which is included in our consolidated statement of income in the line captioned Merger termination fee and related costs, net. Prior period Merger related transaction costs, previously included in operating costs, have been reclassified to conform to the 2017 presentation. Business Segment Reclassifications During the first quarter of 2017, we realigned certain of our businesses among our reportable segments to correspond with internal management reporting changes corresponding to those used by our chief operating decision maker to evaluate results of operations 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 supplemental 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. See Note 17 for recast 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. The Health Care Reform Law imposes an annual premium-based fee on health insurers for each calendar year beginning on or after January 1, 2014 which is not deductible for tax purposes. We are required to estimate a liability for the health insurer fee and record it in full once qualifying insurance coverage is provided in the applicable calendar year in which the fee is payable with a corresponding deferred cost that is amortized ratably to expense over the same calendar year. We record the liability for the health insurer fee in trade accounts payable and accrued expenses and record the deferred cost in other current assets in our consolidated financial statements. We pay the health insurer fee in September of each year. The Consolidated Appropriations Act, 2016, enacted on December 18, 2015, included a one-time one year suspension in 2017 of the health insurer fee. The Continuing Resolution bill, H.R. 195, enacted on January 22, 2018, included a one year suspension in 2019 of the health insurer fee, but the fee is scheduled to resume in calendar year 2020. See Note 7 for detail regarding amounts paid for the annual health insurer fee. The Health Care Reform Law also established risk spreading premium stabilization programs effective January 1, 2014, with an annual open enrollment period. The risk spreading programs are applicable to certain of our commercial medical insurance products. In the aggregate, our commercial medical insurance products represented approximately 13% of our total premiums and services revenue for the year ended December 31, 2017, a subset of which is subject to these programs. These programs, commonly referred to as the 3Rs, include a permanent risk adjustment program, a transitional reinsurance program, and a temporary risk corridors program designed to more evenly spread the financial risk borne by issuers and to mitigate the risk that issuers would have mispriced products. The transitional reinsurance and temporary risk corridors programs were only applicable for years 2014 through 2016. Policies issued prior to March 23, 2010 are considered grandfathered policies and are exempt from the 3Rs. Certain states have allowed non-grandfathered policies issued prior to January 1, 2014 to extend the date of required transition to policies compliant with the Health Care Reform Law to as late as 2017. Accordingly, such policies are exempt from the 3Rs until they transition to policies compliant with the Health Care Reform Law. The permanent risk adjustment program adjusts the premiums that commercial individual and small group health insurance issuers receive based on the demographic factors and health status of each member as derived from current year medical diagnosis as reported throughout the year. This program transfers funds from lower risk plans to higher risk plans within similar plans in the same state. The risk adjustment program is applicable to commercial individual and small group health plans (except certain exempt and grandfathered plans as discussed above) operating both inside and outside of the health insurance exchanges established under the Health Care Reform Law. Effective January 1, 2018, we have exited our Individual Commercial medical business. Under the risk adjustment program, a risk score is assigned to each covered member to determine an average risk score at the individual and small group level by legal entity in a particular market in a state. Additionally, an average risk score is determined for the entire subject population for each market in each state. Settlements are determined on a net basis by legal entity and state. Each health insurance issuer’s average risk score is compared to the state’s average risk score. Plans with an average risk score below the state average will pay into a pool and health insurance issuers with an average risk score that is greater than the state average risk score will receive money from that pool. We generally rely on providers, including certain network providers who are our employees, to appropriately document all medical data, including the diagnosis codes submitted with claims, as the basis for our risk scores under the program. Our estimate of amounts receivable and/or payable under the risk adjustment program is based on our estimate of both our own and the state average risk scores. Assumptions used in these estimates include but are not limited to published third party studies and other publicly available data including regulatory plan filings, geographic considerations including our historical experience in markets we have participated in over a long period of time, member demographics (including age and gender for our members and other health insurance issuers), our pricing model, sales data for each metal tier (different metal tiers yield different risk scores), and the mix of previously underwritten membership as compared to new members in plans compliant with the Health Care Reform Law. We refine our estimates as new information becomes available, including additional data released by the Department of Health and Human Services, or HHS, regarding estimates of state average risk scores. Risk adjustment is subject to audit by HHS beginning with the 2015 coverage year, however, there were no payments associated with these audits for 2015 or 2016, the pilot years for the audits. The temporary risk corridor program applied to individual and small group Qualified Health Plans (or substantially equivalent plans), or QHPs, as defined by HHS, operating both inside and outside of the exchanges. Accordingly, plans subject to risk adjustment that are not QHPs, including our small group health plans, were not subject to the risk corridor program. The risk corridor provisions were intended to limit issuer gains and losses by comparing allowable medical costs to a target amount, each defined/prescribed by HHS, and sharing the risk for allowable costs with the federal government. Allowable medical costs are adjusted for risk adjustment settlements, transitional reinsurance recoveries, and cost sharing reductions received from HHS. Variances from the target exceeding certain thresholds may result in HHS making additional payments to us or require us to refund HHS a portion of the premiums we received. We estimate and recognize adjustments to premiums revenue for the risk adjustment and risk corridor provisions by projecting our ultimate premium for the calendar year separately for individual and group plans by state and legal entity. Estimated calendar year settlement amounts are recognized ratably during the year and are revised each period to reflect current experience, including changes in risk scores derived from medical diagnoses submitted by providers. We record receivables or payables at the individual or group level within each state and legal entity and classify the amounts as current or long-term in our consolidated balance sheets based on the timing of expected settlement. On November 10, 2016, the U.S. Court of Federal Claims ruled in favor of the government in one of a series of cases filed by insurers, unrelated to us, against HHS to collect risk corridor payments, rejecting all of the insurer’s statutory, contract and Constitutional claims for payment. On November 18, 2016, HHS issued a memorandum indicating a significant funding shortfall for the 2015 coverage year, the second consecutive year of significant shortfalls. Given the successful challenge of the risk corridor provisions in court, Congressional inquiries into the funding of the risk corridor program, and significant funding shortfalls under the first two years of the program, during the fourth quarter of 2016 we wrote-off $583 million in risk corridor receivables outstanding as of September 30, 2016, and ceased recognizing revenues under the risk corridor program as discussed further in Note 7. The transitional reinsurance program required us to make reinsurance contributions for calendar years 2014 through 2016 to a state or HHS established reinsurance entity based on a national contribution rate per covered member as determined by HHS. While all commercial medical plans, including self-funded plans, are required to fund the reinsurance entity, only fully-insured non-grandfathered plans compliant with the Health Care Reform Law in the individual commercial market were eligible for recoveries if individual claims exceed a specified threshold. Accordingly, we accounted for transitional reinsurance contributions associated with all commercial medical health plans other than these non-grandfathered individual plans as an assessment in operating costs in our consolidated statements of income. We accounted for contributions made by individual commercial plans compliant with the Health Care Reform Law, which were subject to recoveries, as ceded premiums (a reduction of premiums) and similarly we accounted for any recoveries as ceded benefits (a reduction of benefits expense) in our consolidated statements of income. See Note 7 for detail regarding amounts recorded to the consolidated balance sheets related to the 3Rs. In addition to the provisions discussed above, beginning in 2014, HHS paid us a portion of the health care costs for low-income individual members for which we assume no risk in accordance with the Health Care Reform Law. These cost subsidy payments ceased effective October 2017. We accounted for these subsidies as a deposit in our consolidated balance sheets and as a financing activity in our consolidated statements of cash flows. We did not recognize premiums revenue or benefits expense for these subsidies. Receipt and payment activity was accumulated at the state and legal entity level and recorded in our consolidated balance sheet in other current assets or trade accounts payable and accrued expenses depending on the state and legal entity balance at the end of the reporting period. We will be notified of final settlement amounts by June 30 of the year following the coverage year. For 2017, payments to HHS associated with cost sharing subsidies for which we did not assume risk were approximately $76 million, exceeding receipts of $32 million by $44 million. For 2016, payments to HHS associated with cost sharing subsidies for which we did not assume risk were approximately $373 million, exceeding receipts of $345 million by $28 million. For 2015, receipts from HHS associated with cost sharing subsidies for which we did not assume risk were approximately $478 million, exceeding payments of $409 million by $69 million. Cash and Cash Equivalents Cash and cash equivalents include cash, time deposits, money market funds, commercial paper, other money market instruments, and certain U.S. Government securities with an original maturity of three months or less. Carrying value approximates fair value due to the short-term maturity of the investments. Investment Securities Investment securities, which consist entirely of debt securities, have been categorized as available for sale and, as a result, are stated at fair value. Investment securities available for current operations are classified as current assets. Investment securities available for our long-term insurance products and professional liability funding requirements, as well as restricted statutory deposits, are classified as long-term assets. For the purpose of determining gross realized gains and losses, which are included as a component of investment income in the consolidated statements of income, the cost of investment securities sold is based upon specific identification. Unrealized holding gains and losses, net of applicable deferred taxes, are included as a component of stockholders’ equity and comprehensive income until realized from a sale or other-than-temporary impairment. Under the other-than-temporary impairment model for debt securities held, we recognize an impairment loss in income in an amount equal to the full difference between the amortized cost basis and the fair value when we have the intent to sell the debt security or it is more likely than not we will be required to sell the debt security before recovery of our amortized cost basis. However, if we do not intend to sell the debt security, we evaluate the expected cash flows to be received as compared to amortized cost and determine if a credit loss has occurred. In the event of a credit loss, only the amount of the impairment associated with the credit loss is recognized currently in income with the remainder of the loss recognized in other comprehensive income. When we do not intend to sell a security in an unrealized loss position, potential other-than-temporary impairment is considered using a variety of factors, including the length of time and extent to which the fair value has been less than cost; adverse conditions specifically related to the industry, geographic area or financial condition of the issuer or underlying collateral of a security; payment structure of the security; changes in credit rating of the security by the rating agencies; the volatility of the fair value changes; and changes in fair value of the security after the balance sheet date. For debt securities, we take into account expectations of relevant market and economic data. For example, with respect to mortgage and asset-backed securities, such data includes underlying loan level data and structural features such as seniority and other forms of credit enhancements. A decline in fair value is considered other-than-temporary when we do not expect to recover the entire amortized cost basis of the security. We estimate the amount of the credit loss component of a debt security as the difference between the amortized cost and the present value of the expected cash flows of the security. The present value is determined using the best estimate of future cash flows discounted at the implicit interest rate at the date of purchase. Receivables and Revenue Recognition We generally establish one-year commercial membership contracts with employer groups, subject to cancellation by the employer group on 30-day written notice. Our Medicare contracts with CMS renew annually. Our military services contracts with the federal government and our contracts with various state Medicaid programs generally are multi-year contracts subject to annual renewal provisions. Individual polices are subject to the requirements of the Health Care Reform Law as discussed previously. Premiums Revenue We bill and collect premium from employer groups and members in our Medicare and other individual products monthly. We receive monthly premiums from the federal government and various states according to government specified payment rates and various contractual terms. Changes in revenues for our Medicare and individual commercial medical products resulting from the periodic changes in risk-adjustment scores derived from medical diagnoses for our membership and changes in risk corridor estimates are recognized when the amounts become determinable and the collectibility is reasonably assured. Premiums revenue is estimated by multiplying the membership covered under the various contracts by the contractual rates. Premiums revenue is recognized as income in the period members are entitled to receive services, and is net of estimated uncollectible amounts, retroactive membership adjustments, and adjustments to recognize rebates under the minimum benefit ratios required under the Health Care Reform Law. We estimate policyholder rebates by projecting calendar year minimum benefit ratios for the individual, small group, and large group markets, as defined by the Health Care Reform Law using a methodology prescribed by HHS, separately by state and legal entity. Medicare Advantage products are also subject to minimum benefit ratio requirements under the Health Care Reform Law. Estimated calendar year rebates recognized ratably during the year are revised each period to reflect current experience. Retroactive membership adjustments result from enrollment changes not yet processed, or not yet reported by an employer group or the government. We routinely monitor the collectibility of specific accounts, the aging of receivables, historical retroactivity trends, estimated rebates, as well as prevailing and anticipated economic conditions, and reflect any required adjustments in current operations. Premiums received prior to the service period are recorded as unearned revenues. Medicare Part D We cover prescription drug benefits in accordance with Medicare Part D under multiple contracts with CMS. The payments we receive monthly from CMS and members, which are determined from our annual bid, represent amounts for providing prescription drug insurance coverage. We recognize premiums revenue for providing this insurance coverage ratably over the term of our annual contract. Our CMS payment is subject to risk sharing through the Medicare Part D risk corridor provisions. In addition, receipts for reinsurance and low-income cost subsidies as well as receipts for certain discounts on brand name prescription drugs in the coverage gap represent payments for prescription drug costs for which we are not at risk. The risk corridor provisions compare costs targeted in our bids to actual prescription drug costs, limited to actual costs that would have been incurred under the standard coverage as defined by CMS. Variances exceeding certain thresholds may result in CMS making additional payments to us or require us to refund to CMS a portion of the premiums we received. As risk corridor provisions are considered in our overall annual bid process, we estimate and recognize an adjustment to premiums revenue related to these provisions based upon pharmacy claims experience. We record a receivable or payable at the contract level and classify the amount as current or long-term in our consolidated balance sheets based on the timing of expected settlement. Reinsurance and low-income cost subsidies represent funding from CMS in connection with the Medicare Part D program for which we assume no risk. Reinsurance subsidies represent funding from CMS for its portion of prescription drug costs which exceed the member’s out-of-pocket threshold, or the catastrophic coverage level. Low-income cost subsidies represent funding from CMS for all or a portion of the deductible, the coinsurance and co-payment amounts above the out-of-pocket threshold for low-income beneficiaries. Monthly prospective payments from CMS for reinsurance and low-income cost subsidies are based on assumptions submitted with our annual bid. A reconciliation and related settlement of CMS’s prospective subsidies against actual prescription drug costs we paid is made after the end of the year. The Health Care Reform Law mandates consumer discounts of 50% on brand name prescription drugs for Part D plan participants in the coverage gap. These discounts are funded by CMS and pharmaceutical manufacturers while we administer the application of these funds. We account for these subsidies and discounts as a deposit in our consolidated balance sheets and as a financing activity under receipts (withdrawals) from contract deposits in our consolidated statements of cash flows. For 2017, subsidy and discount reimbursements of $12.1 billion exceeded payments of $10.2 billion by $1.9 billion. For 2016, subsidy and discount reimbursements of $11.1 billion exceeded payments of $10.0 billion by $1.1 billion. For 2015, subsidy and discount payments of $8.9 billion exceeded reimbursements of $8.6 billion by $361 million. We do not recognize premiums revenue or benefit expenses for these subsidies or discounts. Receipt and payment activity is accumulated at the contract level and recorded in our consolidated balance sheets in other current assets or trade accounts payable and accrued expenses depending on the contract balance at the end of the reporting period. Settlement of the reinsurance and low-income cost subsidies as well as the risk corridor payment is based on a reconciliation made approximately 9 months after the close of each calendar year. Settlement with CMS for brand name prescription drug discounts is based on a reconciliation made approximately 14 to 18 months after the close of each calendar year. We continue to revise our estimates with respect to the risk corridor provisions based on subsequent period pharmacy claims data. See Note 6 for detail regarding amounts recorded to our consolidated balance sheets related to the risk corridor settlement and subsidies from CMS with respect to the Medicare Part D program. Services Revenue Patient services revenue Patient services include injury and illness care and related services as well as other healthcare services related to employer needs or as required by law. Patient services revenues are recognized in the period services are provided to the customer when the sales price is fixed or determinable, and are net of contractual allowances. Administrative services fees Administrative services fees cover the processing of claims, offering access to our provider networks and clinical programs, and responding to customer service inquiries from members of self-funded groups. Revenues from providing administration services, also known as administrative services only, or ASO, are recognized in the period services are performed and are net of estimated uncollectible amounts. ASO fees are estimated by multiplying the membership covered under the various contracts by the contractual rates. Under ASO contracts, self-funded employers retain the risk of financing substantially all of the cost of health benefits. However, many ASO customers purchase stop loss insurance coverage from us to cover catastrophic claims or to limit aggregate annual costs. Accordingly, we have recorded premiums revenue and benefits expense related to these stop loss insurance contracts. We routinely monitor the collectibility of specific accounts, the aging of receivables, as well as prevailing and anticipated economic conditions, and reflect any required adjustments in current operations. ASO fees received prior to the service period are recorded as unearned revenues. Under our TRICARE contracts with the Department of Defense we provide administrative services, including offering access to our provider networks and clinical programs, claim processing, customer service, enrollment, and other services, while the federal government retains all of the risk of the cost of health benefits. We account for revenues under our contracts net of estimated health care costs similar to an administrative services fee only agreement. Our contracts include fixed administrative services fees and incentive fees and penalties. Administrative services fees are recognized as services are performed. Our TRICARE members are served by both in-network and out-of-network providers in accordance with our contracts. We pay health care costs related to these services to the providers and are subsequently reimbursed by the DoD for such payments. We account for the payments of the federal government’s claims and the related reimbursements under deposit accounting in our consolidated balance sheets and as a financing activity under receipts (withdrawals) from contract deposits in our consolidated statements of cash flows. For 2017, health care cost reimbursements and payments were each approximately $3.4 billion, with reimbursements exceeding payments by $11 million for the year. For 2016, health care cost reimbursements and payments were each approximately $3.3 billion, with payments exceeding reimbursements by $25 million for the year. For 2015, health care cost reimbursements and payments were each approximately $3.3 billion with payments exceeding reimbursements by $4 million for the year. 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. Other Current Assets Other current assets includes amounts associated with Medicare Part D as discussed above and in Note 6, rebates due from pharmaceutical manufacturers and other amounts due within one year. We accrue pharmaceutical rebates as they are earned based on contractual terms and usage of the product. The balance of pharmaceutical rebates receivable was $1.2 billion at December 31, 2017 and $889 million at December 31, 2016. 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 canceled 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. In addition, as previously underwritten members transition to plans compliant with the Health Care Reform Law, it results in policy lapses and the recognition of previously deferred acquisition costs. 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 5 years for computer software, and 10 to 20 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. As discussed further below, we early adopted the Financial Accounting Standards Board, or FASB, issued guidance simplifying the accounting for goodwill impairment. We use the one-step process to review goodwill for impairment to determine both the existence and amount of goodwill 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 evaluation of future discounted cash flows to determine fair value of our reporting units. Impairment tests completed for 2017, 2016, and 2015 did not result in an impairment loss. Other intangible assets primarily relate to acquired customer contracts/relationships and are included with other long-term assets in the consolidated balance sheets. Other intangible assets are amortized over the useful life, based upon the pattern of future cash flows attributable to the asset. This sometimes results in an accelerated method of amortization for customer contracts because the asset tends to dissipate at a more rapid rate in earlier periods. Other than customer contracts, other intangible assets generally are amortized using the straight-line method. We review other finite-lived intangible assets for impairment under our long-lived asset policy. Benefits Payable and Benefits Expense Recognition Benefits expense includes claim payments, capitation payments, pharmacy costs net of rebates, allocations of certain centralized expenses and various other costs incurred to provide health insurance coverage to members, as well as estimates of future payments to hospitals and others for medical care and other supplemental benefits provided on or prior to the balance sheet date. Capitation payments represent monthly contractual fees disbursed to primary care and other providers who are responsible for providing medical care to members. Pharmacy costs represent payments for members’ prescription drug benefits, net of rebates from drug manufacturers. Receivables for such pharmacy rebates are included in other current assets in our consolidated balance sheets. Other supplemental benefits include dental, vision, and other supplemental health and financial protection products. We estimate the costs of our benefits expense payments using actuarial methods and assumptions based upon claim payment patterns, medical cost inflation, historical developments such as claim inventory levels and claim receipt patterns, and other relevant factors, and record benefit reserves for future payments. We continually review estimates of future payments relating to claims costs for services incurred in the current and prior periods and make necessary adjustments to our reserves. Benefits expense is recognized in the period in which services are provided and includes an estimate of the cost of services which have been incurred but not yet reported, or IBNR. Our reserving practice is to consistently recognize the actuarial best point estimate within a level of confidence required by actuarial standards. Actuarial standards of practice generally require a level of confidence such that the liabilities established for IBNR have a greater probability of being adequate versus being insufficient, or such that the liabilities established for IBNR are sufficient to cover obligations under an assumption of moderately adverse conditions. Adverse conditions are situations in which the actual claims are expected to be higher than the otherwise estimated value of such claims at the time of the estimate. Therefore, in many situations, the claim amounts ultimately settled will be less than the estimate that satisfies the actuarial standards of practice. We develop our estimate for IBNR using actuarial methodologies and assumptions, primarily based upon historical claim experience. Depending on the period for which incurred claims are estimated, we apply a different method in determining our estimate. For periods prior to the most recent two months, the key assumption used in estimating our IBNR is that the completion factor pattern remains consistent over a rolling 12-month period after adjusting for known changes in claim inventory levels and known changes in claim payment processes. Completion factors result from the calculation of the percentage of claims incurred during a given period that have historically been adjudicated as of the reporting period. For the most recent two months, the incurred claims are estimated primarily from a trend analysis based upon per member per month claims trends developed from our historical experience in the preceding months, adjusted for known changes in estimates of recent hospital and drug utilization data, provider contracting changes, changes in benefit levels, changes in member cost sharing, changes in medical management processes, product mix, and weekday seasonality. The completion factor method is used for the months of incurred claims prior to the most recent two months because the historical percentage of claims processed for those months is at a level sufficient to produce a consistently reliable result. Conversely, for the most recent two months of incurred claims, the volume of claims processed historically is not at a level sufficient to produce a reliable result, which therefore requires us to examine historical trend patterns as the primary method of evaluation. Changes in claim processes, including recoveries of overpayments, receipt cycle times, claim inventory levels, outsourcing, system conversions, and processing disruptions due to weather or other events affect views regarding the reasonable choice of completion factors. Claim payments to providers for services rendered are often net of overpayment recoveries for claims paid previously, as contractually allowed. Claim overpayment recoveries can result from many different factors, including retroactive enrollment activity, audits of provider billings, and/or payment errors. Changes in patterns of claim overpayment recoveries can be unpredictable and result in completion factor volatility, as they often impact older dates of service. The receipt cycle time measures the average length of time between when a medical claim was initially incurred and when the claim form was received. Increases in electronic claim submissions from providers decrease the receipt cycle time. If claims are submitted or processed on a faster (slower) pace than prior periods, the actual claim may be more (less) complete than originally estimated using our completion factors, which may result in reserves that are higher (lower) than required. Medical cost trends potentially are more volatile than other segments of the economy. The drivers of medical cost trends include increases in the utilization of hospital facilities, physician services, new higher priced technologies and medical procedures, and new prescription drugs and therapies, as well as the inflationary effect on the cost per unit of each of these expense components. Other external factors such as government-mandated benefits or other regulatory changes, the tort liability system, increases in medical services capacity, direct to consumer advertising for prescription drugs and medical services, an aging population, lifestyle changes including diet and smoking, catastrophes, and epidemics also may impact medical cost trends. Internal factors such as system conversions, claims processing cycle times, changes in medical management practices and changes in provider contracts also may impact our ability to accurately predict estimates of historical completion factors or medical cost trends. All of these factors are considered in estimating IBNR and in estimating the per member per month claims trend for purposes of determining the reserve for the most recent two months. Additionally, we continually prepare and review follow-up studies to assess the reasonableness of the estimates generated by our process and methods over time. The results of these studies are also considered in determining the reserve for the most recent two months. Each of these factors requires significant judgment by management. We reassess the profitability of our contracts for providing insurance coverage to our members when current operating results or forecasts indicate probable future losses. We establish a premium deficiency reserve in current operations to the extent that the sum of expected future costs, claim adjustment expenses, and maintenance costs exceeds related future premiums under contracts without consideration of investment income. For purposes of determining premium deficiencies, contracts are grouped in a manner consistent with our method of acquiring, servicing, and measuring the profitability of such contracts. Losses recognized as a premium deficiency result in a beneficial effect in subsequent periods as operating losses under these contracts are charged to the liability previously established. Because the majority of our member contracts renew annually, we would not record a material premium deficiency reserve, except when unanticipated adverse events or changes in circumstances indicate otherwise. In the fourth quarter of 2015, we recognized a premium deficiency reserve of $176 million for our individual commercial medical business compliant with the Health Care Reform Law associated with the 2016 coverage year and recorded a change in estimate of $208 million in the second quarter of 2016 associated with the 2016 coverage year as discussed in more detail in Note 7. As of December 31, 2016 and December 31, 2017, we had no remaining premium deficiency reserve. We believe our benefits payable are adequate to cover future claims payments required. However, such estimates are based on knowledge of current events and anticipated future events. Therefore, the actual liability could differ materially from the amounts provided. Future policy benefits payable Future policy benefits payable include liabilities for long-duration insurance policies including long-term care, life insurance, annuities, and certain health and other supplemental policies sold to individuals for which some of the premium received in the earlier years is intended to pay anticipated benefits to be incurred in future years. At policy issuance, these reserves are recognized on a net level premium method based on interest rates, mortality, morbidity, and maintenance expense assumptions. Interest rates are based on our expected net investment returns on the investment portfolio supporting the reserves for these blocks of business. Mortality, a measure of expected death, and morbidity, a measure of health status, assumptions are based on industry actuarial tables, modified based upon actual experience. Changes in estimates of these reserves are recognized as an adjustment to benefits expense in the period the changes occur. We perform loss recognition tests at least annually in the fourth quarter, and more frequently if adverse events or changes in circumstances indicate that the level of the liability, together with the present value of future gross premiums, may not be adequate to provide for future expected policy benefits and maintenance costs. During 2016, we recorded a loss for a premium deficiency as discussed further in Note 18. We adjust future policy benefits payable for the additional liability that would have been recorded if investment securities backing the liability had been sold at their stated aggregate fair value and the proceeds reinvested at current yields. We include the impact of this adjustment, if any, net of applicable deferred taxes, with the change in unrealized investment gain (loss) in accumulated other comprehensive income in stockholders’ equity. As discussed previously, beginning in 2014, health policies sold to individuals that conform to the Health Care Reform Law are accounted for under a short-duration model under which policy reserves are not established because premiums received in the current year are intended to pay anticipated benefits in that year. In addition, as previously underwritten members transition to plans compliant with the Health Care Reform Law, it results in policy lapses and the release of reserves for future policy benefits. Book Overdraft Under our cash management system, checks issued but not yet presented to banks that would result in negative bank balances when presented are classified as a current liability in the consolidated balance sheets. Changes in book overdrafts from period to period are reported in the consolidated statement of cash flows as a financing activity. Income Taxes We recognize an asset or liability for the deferred tax consequences of temporary differences between the tax bases of assets or liabilities and their reported amounts in the consolidated financial statements. These temporary differences will result in taxable or deductible amounts in future years when the reported amounts of the assets or liabilities are recovered or settled. We also recognize the future tax benefits such as net operating and capital loss carryforwards as deferred tax assets. A valuation allowance is provided against these deferred tax assets if it is more likely than not that some portion or all of the deferred tax assets will not be realized. Future years’ tax expense may be increased or decreased by adjustments to the valuation allowance or to the estimated accrual for income taxes. Deferred tax assets and deferred tax liabilities are further adjusted for changes in the enacted tax rates. We record tax benefits when it is more likely than not that the tax return position taken with respect to a particular transaction will be sustained. A liability, if recorded, is not considered resolved until the statute of limitations for the relevant taxing authority to examine and challenge the tax position has expired, or the tax position is ultimately settled through examination, negotiation, or litigation. We classify interest and penalties associated with uncertain tax positions in our provision for income taxes. Derivative Financial Instruments On October 29, 2012, we acquired a noncontrolling equity interest in MCCI Holdings, LLC, or MCCI, a privately held Medical Services Organization, or MSO, headquartered in Miami, Florida, that primarily coordinates medical care for Medicare Advantage beneficiaries in Florida and Texas. Our agreement with MCCI includes a put option that would allow the controlling interest holder to put their interest to us beginning in 2018 as well as a call option that would allow us to purchase the controlling interest beginning in 2021. Accordingly, we recorded the effects of the put and call option at fair value. Changes in the fair values during the years ended December 31, 2017, 2016, and 2015 were not material to our results of operations, financial condition, or cash flows. At times, we may use interest-rate swap agreements to manage our exposure to interest rate risk. The differential between fixed and variable rates to be paid or received is accrued and recognized over the life of the agreements as adjustments to interest expense in the consolidated statements of income. We were not party to any interest-rate swap agreements in 2017, 2016, or 2015. Related Party As noted above, MCCI is a related party to Humana. In December 2015, we purchased a note receivable directly from a third-party bank syndicate related to the financing of MCCI's business and extended the exercise date of the put option to 2018 and the call option to 2021. The note receivable balance was $349 million and $314 million at December 31, 2017 and 2016, respectively, and was included with other long-term assets in our consolidated balance sheets. The note receivable bears interest at 10% annually, payable in quarterly installments, and matures in December 2020. We have also entered into a revolving note agreement providing a line of credit up to $55 million under which $18 million was outstanding at December 31, 2017, and we had no balance outstanding at December 31, 2016. The 2015 note purchase is included with purchases of investment securities in our consolidated statements of cash flows. The related interest income of $35 million and $30 million for 2017 and 2016, respectively, is included in investment income in our consolidated statements of income. The interest was accrued to the loan balance during 2017 and 2016 pursuant to the terms of the note. MCCI provides services to Humana Medicare Advantage members under capitation contracts with our health plans. Under these capitation agreements with Humana, MCCI assumes the financial risk associated with these Medicare Advantage members. We also have an outstanding advance to MCCI of approximately $3 million and $6 million at December 31, 2017 and 2016, respectively, with repayment terms tied to the performance under the capitation agreements. We recognized benefits expense of approximately $1.1 billion in 2017, $1.1 billion in 2016 and $1.0 billion in 2015 under these capitation agreements with MCCI. Stock-Based Compensation We generally recognize stock-based compensation expense, as determined on the date of grant at fair value, on a straight-line basis over the period during which an employee is required to provide service in exchange for the award (the vesting period). In addition, for awards with both time and performance-based conditions, we generally recognize compensation expense on a straight line basis over the vesting period when it is probable that the performance condition will be achieved. However, prior to July 2, 2015, for awards granted to retirement eligible employees, compensation expense is recognized on a straight-line basis over the shorter of the requisite service period or the period from the date of grant to an employee’s eligible retirement date. For awards granted on or after July 2, 2015 to retirement eligible employees, we recognize expense on a straight-line basis over the service period (the vesting period). We estimate expected forfeitures and recognize compensation expense only for those awards which are expected to vest. We estimate the grant-date fair value of stock options using the Black-Scholes option-pricing model. Prior to 2016 we reported certain tax effects of stock-based compensation as a financing activity rather than an operating activity in the consolidated statement of cash flows. In 2016, we prospectively applied the provisions of new guidance issued by the FASB related to the presentation of windfall tax benefits as cash flows from operating activities which resulted in reclassifying $20 million of cash flows from financing activities to operating activities for the three months ended March 31, 2016. We estimate forfeitures expected to occur to determine the amount of compensation cost to be recognized in each period. Additional detail regarding our stock-based compensation plans is included in Note 13. Earnings Per Common Share We compute basic earnings per common share on the basis of the weighted-average number of unrestricted common shares outstanding. Diluted earnings per common share is computed on the basis of the weighted-average number of unrestricted common shares outstanding plus the dilutive effect of outstanding employee stock options and restricted shares, or units, using the treasury stock method. Fair Value Assets and liabilities measured at fair value are categorized into a fair value hierarchy based on whether the inputs to valuation techniques are observable or unobservable. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect our own assumptions about the assumptions market participants would use. The fair value hierarchy includes three levels of inputs that may be used to measure fair value as described below. Level 1 – Quoted prices in active markets for identical assets or liabilities. Level 1 assets and liabilities include debt securities that are traded in an active exchange market. Level 2 – Observable inputs other than Level 1 prices such as quoted prices in active markets for similar assets or liabilities, quoted prices for identical or similar assets or liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. Level 2 assets and liabilities include debt securities with quoted prices that are traded less frequently than exchange-traded instruments as well as debt securities whose value is determined using a pricing model with inputs that are observable in the market or can be derived principally from or corroborated by observable market data. Level 3 – Unobservable inputs that are supported by little or no market activity and are significant to the fair value of the assets or liabilities. Level 3 includes assets and liabilities whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques reflecting our own assumptions about the assumptions market participants would use as well as those requiring significant management judgment. Fair value of actively traded debt securities are based on quoted market prices. Fair value of other debt securities are based on quoted market prices of identical or similar securities or based on observable inputs like interest rates generally using a market valuation approach, or, less frequently, an income valuation approach and are generally classified as Level 2. We obtain at least one price for each security from a third party pricing service. These prices are generally derived from recently reported trades for identical or similar securities, including adjustments through the reporting date based upon observable market information. When quoted prices are not available, the third party pricing service may use quoted market prices of comparable securities or discounted cash flow analysis, incorporating inputs that are currently observable in the markets for similar securities. Inputs that are often used in the valuation methodologies include benchmark yields, reported trades, credit spreads, broker quotes, default rates, and prepayment speeds. We are responsible for the determination of fair value and as such we perform analysis on the prices received from the third party pricing service to determine whether the prices are reasonable estimates of fair value. Our analysis includes a review of monthly price fluctuations as well as a quarterly comparison of the prices received from the pricing service to prices reported by our third party investment advisor. In addition, on a quarterly basis we examine the underlying inputs and assumptions for a sample of individual securities across asset classes, credit rating levels, and various durations. Fair value of privately held debt securities, as well as auction rate securities, are estimated using a variety of valuation methodologies, including both market and income approaches, where an observable quoted market does not exist and are generally classified as Level 3. For privately-held debt securities, such methodologies include reviewing the value ascribed to the most recent financing, comparing the security with securities of publicly-traded companies in similar lines of business, and reviewing the underlying financial performance including estimating discounted cash flows. Auction rate securities are debt instruments with interest rates that reset through periodic short-term auctions. From time to time, liquidity issues in the credit markets have led to failed auctions. Given the liquidity issues, fair value could not be estimated based on observable market prices, and as such, unobservable inputs were used. For auction rate securities, valuation methodologies include consideration of the quality of the sector and issuer, underlying collateral, underlying final maturity dates, and liquidity. Recently Issued Accounting Pronouncements Recently Adopted Accounting Pronouncements In January 2017, the FASB issued guidance which simplifies the accounting for goodwill impairment. The new guidance eliminates the requirement to calculate the implied fair value of goodwill to measure a goodwill impairment charge. A goodwill impairment charge would be recognized if the carrying amount of a reporting unit exceeds the estimated fair value of the reporting unit. The new guidance is effective beginning with annual and interim periods in 2020, with early adoption permitted, and is to be applied prospectively. We early adopted this new guidance in the fourth quarter of 2017 and it did not have an impact on our results of operations, financial condition, or cash flows. Accounting Pronouncements Effective in Future Periods In March 2017, the FASB issued new guidance that amends the accounting for premium amortization on purchased callable debt securities by shortening the amortization period. This amended guidance requires the premium to be amortized to the earliest call date instead of maturity date. The new guidance is effective for us beginning with annual and interim periods in 2019. We do not expect adoption of this guidance will have a material impact on our results of operations, financial condition and cash flows. In June 2016, the FASB issued guidance introducing a new model for recognizing credit losses on financial instruments based on an estimate of current expected credit losses. The guidance is effective for us beginning January 1, 2020. The new current expected credit losses (CECL) model generally calls for the immediate recognition of all expected credit losses and applies to loans, accounts and trade receivables as well as other financial assets measured at amortized cost, loan commitments and off-balance sheet credit exposures, debt securities and other financial assets measured at fair value through other comprehensive income, and beneficial interests in securitized financial assets. The new guidance replaces the current incurred loss model for measuring expected credit losses, requires expected losses on available-for-sale debt securities to be recognized through an allowance for credit losses rather than as reductions in the amortized cost of the securities, and provides for additional disclosure requirements. Our investment portfolio consists of available-for-sale debt securities. We are currently evaluating the impact on our results of operations, financial condition, or cash flows. In February 2016, the FASB issued new guidance related to accounting for leases which requires lessees to record assets and liabilities reflecting the leased assets and lease obligations, respectively, while following the dual model for recognition in statements of income requiring leases to be classified as either operating or finance. Operating leases will result in straight-line expense (similar to current operating leases) while finance leases will result in a front-loaded expense pattern (similar to current capital leases). The new guidance is effective for us beginning with annual and interim periods in 2019, with earlier adoption permitted, and requires retrospective application to previously issued annual and interim financial statements. We have begun the process of identifying the population of lease agreements and other arrangements that may contain embedded leases for purposes of adopting the new standard. While we expect to record significant leased assets and corresponding lease obligations based on our existing population of individual leases, we continue to evaluate the impact on our results of operations, financial position and cash flows. In May 2014, the FASB issued new guidance that amends the accounting for revenue recognition. The amendments are intended to provide a more robust framework for addressing revenue issues, improve comparability of revenue recognition practices, and improve disclosure requirements. Insurance contracts are not included in the scope of this new guidance. Accordingly, our premiums revenue and investment income, collectively representing approximately 98% of our consolidated external revenues for 2017, are not included in the scope of the new guidance. We adopted the new standard effective January 1, 2018, as allowed, using the modified retrospective approach. As the majority of or revenues are not subject to the new guidance and the remaining revenues’ accounting treatment did not materially differ from existing accounting treatment, the adoption of the new standard did not have a material impact on our consolidated results of operations, financial condition, cash flows, and disclosures. There are no other recently issued accounting standards that apply to us or that are expected to have a material impact on our results of operations, financial condition, or cash flows. |
ACQUISITIONS AND DIVESTITURES |
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Business Combinations [Abstract] | |
ACQUISITIONS AND DIVESTITURES | ACQUISITIONS AND DIVESTITURES On June 1, 2015, we completed the sale of our wholly owned subsidiary, Concentra Inc., or Concentra, to MJ Acquisition Corporation, a joint venture between Select Medical Holdings Corporation and Welsh, Carson, Anderson & Stowe, a private equity fund, for approximately $1,055 million in cash, excluding approximately $22 million of transaction costs. In connection with the sale, we recognized a pre-tax gain, net of transaction costs, of $270 million which is reported as gain on sale of business in the accompanying consolidated statements of income for the year ended December 31, 2015. The accompanying consolidated statements of income include revenues related to Concentra of $411 million in 2015. During 2017, 2016 and 2015, we acquired health and wellness related businesses which, individually or in the aggregate, have not had a material impact on our results of operations, financial condition, or cash flows. The results of operations and financial condition of these businesses have been included in our consolidated statements of income and consolidated balance sheets from the respective acquisition dates. Acquisition-related costs recognized in each of 2017, 2016, and 2015 were not material to our results of operations. The pro forma financial information assuming the acquisitions had occurred as of the beginning of the calendar year prior to the year of acquisition, as well as the revenues and earnings generated during the year of acquisition, were not material for disclosure purposes. |
INVESTMENT SECURITIES |
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Investments, Debt and Equity Securities [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
INVESTMENT SECURITIES | INVESTMENT SECURITIES Investment securities classified as current and long-term were as follows at December 31, 2017 and 2016, respectively:
Gross unrealized losses and fair values aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position were as follows at December 31, 2017 and 2016, respectively:
Approximately 98% of our debt securities were investment-grade quality, with a weighted average credit rating of AA by S&P at December 31, 2017. Most of the debt securities that were below investment-grade were rated BB, the higher end of the below investment-grade rating scale. At December 31, 2017, 6% of our tax-exempt municipal securities were pre-refunded, generally with U.S. government and agency securities. Tax-exempt municipal securities that were not pre-refunded were diversified among general obligation bonds of U.S. states and local municipalities as well as special revenue bonds. General obligation bonds, which are backed by the taxing power and full faith of the issuer, accounted for 49% of the tax-exempt municipals that were not pre-refunded in the portfolio. Special revenue bonds, issued by a municipality to finance a specific public works project such as utilities, water and sewer, transportation, or education, and supported by the revenues of that project, accounted for the remaining 51% of these municipals. Our general obligation bonds are diversified across the United States with no individual state exceeding 9%. In addition, 2% of our tax-exempt securities were insured by bond insurers and had an equivalent weighted average S&P credit rating of AA exclusive of the bond insurers’ guarantee. Our investment policy limits investments in a single issuer and requires diversification among various asset types. Residential mortgage back securities comprised approximately 93% of our agency mortgage-backed securities at December 31, 2017 and 99% at December 31, 2016. The recoverability of our non-agency residential and commercial mortgage-backed securities is supported by factors such as seniority, underlying collateral characteristics and credit enhancements. These residential and commercial mortgage-backed securities at December 31, 2017 primarily were composed of senior tranches having high credit support, with over 99% of the collateral consisting of prime loans. The weighted average credit rating of all commercial mortgage-backed securities was AA+ at December 31, 2017. The percentage of corporate securities associated with the financial services industry was 30% at December 31, 2017 and 23% at December 31, 2016. Our unrealized loss from all securities was generated from approximately 900 positions out of a total of approximately 2,410 positions at December 31, 2017. All issuers of securities we own that were trading at an unrealized loss at December 31, 2017 remain current on all contractual payments. After taking into account these and other factors previously described, we believe these unrealized losses primarily were caused by an increase in market interest rates in the current markets than when the securities were purchased. At December 31, 2017, we did not intend to sell the securities with an unrealized loss position in accumulated other comprehensive income, and it is not likely that we will be required to sell these securities before recovery of their amortized cost basis. As a result, we believe that the securities with an unrealized loss were not other-than-temporarily impaired at December 31, 2017. The detail of realized gains (losses) related to investment securities and included within investment income was as follows for the years ended December 31, 2017, 2016, and 2015:
There were no material other-than-temporary impairments in 2017, 2016, or 2015. The contractual maturities of debt securities available for sale at December 31, 2017, regardless of their balance sheet classification, are shown below. Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.
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FAIR VALUE |
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Fair Value Disclosures [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
FAIR VALUE | FAIR VALUE Financial Assets The following table summarizes our fair value measurements at December 31, 2017 and 2016, respectively, for financial assets measured at fair value on a recurring basis:
There were no material transfers between Level 1 and Level 2 during 2017 or 2016. Our Level 3 assets had a fair value of $1 million at December 31, 2017, or less than 0.1% of our total invested assets. During the years ended December 31, 2017, 2016, and 2015, the changes in the fair value of the assets measured using significant unobservable inputs (Level 3) were comprised of the following:
Financial Liabilities Our long-term debt, recorded at carrying value in our consolidated balance sheets, was $4,770 million at December 31, 2017 and $3,792 million at December 31, 2016. The fair value of our long-term debt was $5,191 million at December 31, 2017 and $4,004 million at December 31, 2016. The fair value of our long-term debt is determined based on Level 2 inputs, including quoted market prices for the same or similar debt, or if no quoted market prices are available, on the current prices estimated to be available to us for debt with similar terms and remaining maturities. Due to the short-term nature, carrying value approximates fair value for our commercial paper borrowings. There were outstanding commercial paper borrowings of $150 million outstanding at December 31, 2017, compared to $300 million outstanding at December 31, 2016. Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis As disclosed in Note 3, we completed our acquisitions of certain health and wellness related businesses during 2017, 2016, and 2015. The values of net tangible assets acquired and the resulting goodwill and other intangible assets were recorded at fair value using Level 3 inputs. The majority of the related tangible assets acquired and liabilities assumed were recorded at their carrying values as of the respective dates of acquisition, as their carrying values approximated their fair values due to their short-term nature. The fair values of goodwill and other intangible assets acquired in these acquisitions were internally estimated primarily based on the income approach. The income approach estimates fair value based on the present value of the cash flows that the assets are expected to generate in the future. We developed internal estimates for the expected cash flows and discount rates in the present value calculations. Other than assets acquired and liabilities assumed in these acquisitions, there were no material assets or liabilities measured at fair value on a nonrecurring basis during 2017, 2016, or 2015. |
MEDICARE PART D |
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Insurance [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
MEDICARE PART D | MEDICARE PART D As discussed in Note 2, we cover prescription drug benefits in accordance with Medicare Part D under multiple contracts with CMS. The accompanying consolidated balance sheets include the following amounts associated with Medicare Part D as of December 31, 2017 and 2016. CMS subsidies/discounts in the table below include the reinsurance and low-income cost subsidies funded by CMS for which we assume no risk as well as brand name prescription drug discounts for Part D plan participants in the coverage gap funded by CMS and pharmaceutical manufacturers.
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HEALTH CARE REFORM |
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Insurance [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
HEALTH CARE REFORM | HEALTH CARE REFORM We have exited our individual commercial medical business effective January 1, 2018. Operating results for our individual commercial medical business compliant with the Health Care Reform Law were challenged primarily due to unanticipated modifications in the program subsequent to the passing of the Health Care Reform Law, resulting in higher covered population morbidity and the ensuing enrollment and claims issues causing volatility in claims experience. We took a number of actions in 2015 that we believed would improve the profitability of our individual commercial medical business in 2016. Despite these actions, the deterioration in the second half of 2015 claims experience together with 2016 open enrollment results that included the retention of many high-utilizing members for 2016 resulted in a probable future loss. As a result of our assessment in the fourth quarter of 2015 of the profitability of our individual commercial medical policies compliant with the Health Care Reform Law, we recorded in that quarter a provision for probable future losses (premium deficiency reserve) for the 2016 coverage year of $176 million in benefits payable in our consolidated balance sheet with a corresponding increase in benefits expense in our consolidated statement of income. In the second quarter of 2016, we increased the premium deficiency reserve for the 2016 coverage year and recorded a change in estimate of $208 million with a corresponding increase in benefits expense in our consolidated statement of income. During 2016, $384 million current period losses were applied to the premium deficiency reserve liability for the 2016 coverage year. At December 31, 2017 and 2016, we had no premium deficiency reserve. On November 10, 2016, the U.S. Court of Federal Claims ruled in favor of the government in one of a series of cases filed by insurers, unrelated to us, against HHS to collect risk corridor payments, rejecting all of the insurer’s statutory, contract and Constitutional claims for payment. On November 18, 2016, HHS issued a memorandum indicating a significant funding shortfall for the 2015 coverage year, the second consecutive year of significant shortfalls. Given the successful challenge of the risk corridor provisions in court, Congressional inquiries into the funding of the risk corridor program, and significant funding shortfalls under the first two years of the program, during the fourth quarter of 2016 we wrote-off $583 million in risk corridor receivables outstanding as of September 30, 2016, including $415 million associated with the 2014 and 2015 coverage years. From inception of the risk corridor program through December 31, 2017, we collected approximately $39 million from CMS for risk corridor receivables associated with the 2014 coverage year funded by HHS in accordance with previous guidance, utilizing funds HHS collected from us and other carriers under the 2014 and 2015 risk corridor program. On November 2, 2017, we filed suit against the United States of America in the United States Court of Federal Claims, on behalf of our health plans seeking recovery from the federal government of approximately $611 million in payments under the risk corridor premium stabilization program established under the Health Care Reform Law, for years 2014, 2015 and 2016. The accompanying consolidated balance sheets include the following amounts associated with the 3Rs at December 31, 2017 and December 31, 2016.
Net collections under the 3Rs associated with prior coverage years were $440 million during 2017 and were $383 million during 2016. We expect to collect the remaining $44 million of reinsurance recoverables related to prior coverage years in 2018. The annual health insurance industry fee was suspended for calendar year 2017, but has resumed for calendar year 2018. In 2016, we paid the federal government $916 million for the annual health insurance industry fee attributed to calendar year 2016, compared to $867 million in 2015, in accordance with the Health Care Reform Law. This fee is not deductible for tax purposes. The annual health insurance industry fee was also suspended for the calendar year 2019 and is scheduled to resume in calendar year 2020. |
PROPERTY AND EQUIPMENT, NET |
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Property, Plant and Equipment [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
PROPERTY AND EQUIPMENT, NET | PROPERTY AND EQUIPMENT, NET Property and equipment was comprised of the following at December 31, 2017 and 2016.
Depreciation expense was $410 million in 2017, $388 million in 2016, and $354 million in 2015, including amortization expense for capitalized internally developed and purchased software of $287 million in 2017, $255 million in 2016, and $220 million in 2015. |
GOODWILL AND OTHER INTANGIBLE ASSETS |
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Goodwill and Intangible Assets Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
GOODWILL AND OTHER INTANGIBLE ASSETS | GOODWILL AND OTHER INTANGIBLE ASSETS The carrying amount of goodwill for our reportable segments has been retrospectively adjusted to conform to the 2017 segment reclassification as discussed in Note 1. Changes in the carrying amount of goodwill for our reportable segments for the years ended December 31, 2017 and 2016 were as follows:
The following table presents details of our other intangible assets included in other long-term assets in the accompanying consolidated balance sheets at December 31, 2017 and 2016.
Amortization expense for other intangible assets was approximately $75 million in 2017, $77 million in 2016, and $93 million in 2015. The following table presents our estimate of amortization expense for each of the five next succeeding fiscal years:
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BENEFITS PAYABLE |
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Defined Benefit Plans and Other Postretirement Benefit Plans Disclosures [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
BENEFITS PAYABLE | BENEFITS PAYABLE On a consolidated basis, activity in benefits payable, excluding military services, was as follows for the years ended December 31, 2017, 2016 and 2015:
Amounts incurred related to prior years vary from previously estimated liabilities as the claims ultimately are settled. Negative amounts reported for incurred related to prior years result from claims being ultimately settled for amounts less than originally estimated (favorable development). As previously discussed, our reserving practice is to consistently recognize the actuarial best estimate of our ultimate liability for claims. Actuarial standards require the use of assumptions based on moderately adverse experience, which generally results in favorable reserve development, or reserves that are considered redundant. We experienced favorable medical claims reserve development related to prior fiscal years of $483 million in 2017, $582 million in 2016, and $236 million in 2015. The table below details our favorable medical claims reserve development related to prior fiscal years by segment for 2017, 2016, and 2015.
The favorable medical claims reserve development for 2017, 2016, and 2015 primarily reflects the consistent application of trend and completion factors estimated using an assumption of moderately adverse conditions. Favorable prior period development in 2017 and 2016 primarily resulted from our Medicare Advantage and individual commercial medical businesses. The favorable prior period development in 2015 was impacted primarily by lower financial claim recoveries due in part to our gradual implementation during 2014 of inpatient authorization review prior to admission as opposed to post adjudication, as well as higher than expected flu associated claims from the fourth quarter of 2014 and continued volatility in claims associated with individual commercial medical products. Benefits expense excluded from the previous table was as follows for the years ended December 31, 2017, 2016 and 2015:
In the fourth quarter of 2015, we recognized a premium deficiency reserve for our individual commercial medical business compliant with the Health Care Reform Law associated with the 2016 coverage year as discussed in more detail in Note 7. Military services benefits expense for each year in the table above reflect expenses associated with our contracts with the Veterans Administration. The higher benefits expense associated with future policy benefits payable during 2016 primarily relates to reserve strengthening for our closed block of long-term care insurance policies acquired in connection with the 2007 KMG acquisition as more fully described in Note 18. Benefits expense associated with future policy benefits payable in 2015 primarily reflects the release of reserves as individual commercial medical members transitioned to plans compliant with the Health Care Reform Law. Incurred and Paid Claims Development The following discussion provides information about incurred and paid claims development for our segments as of December 31, 2017, net of reinsurance, as well as cumulative claim frequency and the total of IBNR included within the net incurred claims amounts. The information about incurred and paid claims development for the years ended December 31, 2015 and 2016 is presented as supplementary information. Claims frequency is measured as medical fee-for-service claims for each service encounter with a unique provider identification number. Our claims frequency measure includes claims covered by deductibles as well as claims under capitated arrangements. Claim counts may vary based on product mix and the percentage of delegated capitation arrangements. Retail Segment Activity in benefits payable for our Retail segment was as follows for the years ended December 31, 2017, 2016 and 2015:
At December 31, 2017, benefits payable for our Retail segment included IBNR of approximately $2.5 billion, primarily associated with claims incurred in 2017. The cumulative number of reported claims as of December 31, 2017 was approximately 97.8 million for claims incurred in 2017, 96.0 million for claims incurred in 2016, and 93.9 million for claims incurred in 2015. The following tables provide information about incurred and paid claims development for the Retail segment as of December 31, 2017, net of reinsurance.
Group and Specialty Segment Activity in benefits payable for our Group and Specialty segment, excluding military services, was as follows for the years ended December 31, 2017, 2016 and 2015:
At December 31, 2017, benefits payable for our Group and Specialty segment included IBNR of approximately $500 million, primarily associated with claims incurred in 2017. The cumulative number of reported claims as of December 31, 2017 was approximately 10.6 million for claims incurred in 2017, 12.8 million for claims incurred in 2016, and 13.4 million for claims incurred in 2015. The following tables provide information about incurred and paid claims development for the Group and Specialty segment as of December 31, 2017, net of reinsurance.
Individual Commercial Segment Activity in benefits payable for our Individual Commercial segment, was as follows for the years ended December 31, 2017, 2016 and 2015:
At December 31, 2017, benefits payable for our Individual Commercial segment included IBNR of approximately $85 million, primarily associated with claims incurred in 2017. The cumulative number of reported claims as of December 31, 2017 was approximately 2.2 million for claims incurred in 2017, 9.5 million for claims incurred in 2016, and 11.0 million for claims incurred in 2015. The following tables provide information about incurred and paid claims development for the Individual Commercial segment as of December 31, 2017, net of reinsurance.
Reconciliation to Consolidated The reconciliation of the net incurred and paid claims development tables to benefits payable in the consolidated statement of financial position is as follows:
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INCOME TAXES |
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Income Tax Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
INCOME TAXES | INCOME TAXES The provision for income taxes consisted of the following for the years ended December 31, 2017, 2016 and 2015:
The provision for income taxes was different from the amount computed using the federal statutory rate for the years ended December 31, 2017, 2016 and 2015 due to the following:
The tax reform law enacted on December 22, 2017 (the "Tax Reform Law") reduced the statutory federal corporate income tax rate to 21 percent from 35 percent, beginning in 2018, and required a mandatory deemed repatriation of undistributed foreign earnings. The rate reduction required a remeasurement of our net deferred tax asset. These items resulted in an estimated increase in our 2017 tax provision of approximately $133 million, including approximately $10 million for the deemed repatriation tax imposed on the undistributed earnings of our Puerto Rico operations. The provision for income taxes for 2017, 2016, and 2015 reflects a $36 million, $30 million, and $18 million, respectively, estimated impact from limitations on the deductibility of annual compensation in excess of $500,000 per employee as mandated by the Health Care Reform Law. We do not have material uncertain tax positions reflected in our consolidated balance sheets. Deferred income tax balances reflect the impact of temporary differences between the tax bases of assets or liabilities and their reported amounts in our consolidated financial statements, and are stated at enacted tax rates expected to be in effect when the reported amounts are actually recovered or settled. Principal components of our net deferred tax balances at December 31, 2017 and 2016 were as follows:
In November 2015, the FASB issued new guidance related to accounting for income taxes which changes the balance sheet classification of deferred taxes, requiring deferred tax liabilities and assets be classified as noncurrent in a classified statement of financial position effective for us beginning with annual and interim periods in 2017. We elected to early adopt the guidance in 2015. All deferred tax liabilities and assets are classified as noncurrent in other long-term assets in our consolidated balance sheets at December 31, 2017 and 2016 to simplify their presentation. At December 31, 2017, we had approximately $168 million of net operating losses to carry forward related to prior acquisitions and our Puerto Rico subsidiaries. These net operating loss carryforwards, if not used to offset future taxable income, will expire from 2018 through 2033. Due to limitations and uncertainty regarding our ability to use some of the loss carryforwards and certain other deferred tax assets, a valuation allowance of $49 million was established. For the remainder of the net operating loss carryforwards and other cumulative temporary differences, based on our historical record of producing taxable income and profitability, we have concluded that future operating income will be sufficient to give rise to tax expense to recover all deferred tax assets. We file income tax returns in the United States and certain foreign jurisdictions. The U.S. Internal Revenue Service, or IRS, has completed its examinations of our consolidated income tax returns for 2015 and prior years. Our 2016 tax return is in the post-filing review period under the Compliance Assurance Process, or CAP. Our 2017 tax return is under advance review by the IRS under CAP. With a few exceptions, which are immaterial in the aggregate, we no longer are subject to state, local and foreign tax examinations for years before 2014. We are not aware of any material adjustments that may be proposed. |
DEBT |
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Debt Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
DEBT | DEBT The carrying value of long-term debt outstanding was as follows at December 31, 2017 and 2016:
Senior Notes In December 2017, we issued $400 million of 2.50% senior notes due December 15, 2020 and $400 million of 2.90% senior notes due December 15, 2022. Our net proceeds, reduced for the underwriters' discount and commission and offering expenses paid as of December 31, 2017, were $794 million. We used the net proceeds, together with available cash, to fund the redemption of our $300 million aggregate principal amount of 6.30% senior notes maturing in August 2018 and our $500 million aggregate principal amount of 7.20% senior notes maturing in June 2018 at 100% of the principal amount plus applicable premium for early redemption and accrued and unpaid interest to the redemption date, for cash totaling approximately $829 million. We recognized a loss on extinguishment of debt of approximately $17 million in December 2017 for the redemption of these senior notes, which is included in interest expense in the consolidated statements of income. In March 2017, we issued $600 million of 3.95% senior notes due March 15, 2027 and $400 million of 4.80% senior notes due March 15, 2047. Our net proceeds, reduced for the underwriters' discount and commission and offering expenses paid as of March 31, 2017, were $991 million. The net proceeds from these issuances are being used for general corporate purposes. Our senior notes, which are unsecured, may be redeemed at our option at any time at 100% of the principal amount plus accrued interest and a specified make-whole amount. The 8.15% senior notes are subject to an interest rate adjustment if the debt ratings assigned to the notes are downgraded (or subsequently upgraded). In addition, our senior notes contain a change of control provision that may require us to purchase the notes under certain circumstances. Credit Agreement In May 2017 we amended and restated our previous 5-year $1.0 billion unsecured revolving credit agreement expiring July 2018 with a 5-year $2.0 billion unsecured revolving credit agreement which expires May 2022. Under the credit agreement, at our option, we can borrow on either a competitive advance basis or a revolving credit basis. The revolving credit portion bears interest at either LIBOR plus a spread or the base rate plus a spread. The LIBOR spread, currently 110 basis points, varies depending on our credit ratings ranging from 91 to 150 basis points. We also pay an annual facility fee regardless of utilization. This facility fee, currently 15 basis points, may fluctuate between 9 and 25 basis points, depending upon our credit ratings. The competitive advance portion of any borrowings will bear interest at market rates prevailing at the time of borrowing on either a fixed rate or a floating rate based on LIBOR, at our option. The terms of the credit agreement include standard provisions related to conditions of borrowing, including a customary material adverse effect clause which could limit our ability to borrow additional funds. In addition, the credit agreement contains customary restrictive and financial covenants as well as customary events of default, including financial covenants regarding the maintenance of a minimum level of net worth of $9.2 billion at December 31, 2017 and a maximum leverage ratio of 3.0:1. We are in compliance with the financial covenants, with actual net worth of $9.8 billion and an actual leverage ratio of 1.0:1, as measured in accordance with the credit agreement as of December 31, 2017. Upon our agreement with one or more financial institutions, we may expand the aggregate commitments under the credit agreement to a maximum of $2.5 billion, through a $500 million incremental loan facility. At December 31, 2017, we had no borrowings outstanding under the credit agreement and no letters of credit outstanding under the credit agreement. Accordingly, as of December 31, 2017, we had $2 billion of remaining borrowing capacity (which excludes the uncommitted $500 million incremental loan facility under the credit agreement), none of which would be restricted by our financial covenant compliance requirement. We have other customary, arms-length relationships, including financial advisory and banking, with some parties to the credit agreement. Commercial Paper We previously entered into a commercial paper program pursuant to which we may issue short-term, unsecured commercial paper notes privately placed on a discount basis through certain broker dealers. On June 15, 2017, we increased the size of the commercial paper program to permit the issuance of the commercial notes with the aggregate face or principal amount outstanding under the program at any time not to exceed $2 billion. Amounts available under the program may be borrowed, repaid and re-borrowed from time to time. The net proceeds of issuances have been and are expected to be used for general corporate purposes. The maximum principal amount outstanding at any one time during the year ended December 31, 2017 was $500 million, with $150 million outstanding at December 31, 2017, compared to $300 million outstanding at December 31, 2016. |
EMPLOYEE BENEFIT PLANS |
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Retirement Benefits [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
EMPLOYEE BENEFIT PLANS | EMPLOYEE BENEFIT PLANS Employee Savings Plan We have defined contribution retirement savings plans covering eligible employees which include matching contributions based on the amount of our employees’ contributions to the plans. The cost of these plans amounted to approximately $217 million in 2017, $196 million in 2016, and $188 million in 2015. The Company’s cash match is invested pursuant to the participant’s contribution direction. Based on the closing price of our common stock of $248.07 on December 29, 2017, approximately 11% of the retirement and savings plan’s assets were invested in our common stock, or approximately 2.0 million shares, representing 2% of the shares outstanding as of December 31, 2017. At December 31, 2017, approximately 2.4 million shares of our common stock were reserved for issuance under our defined contribution retirement savings plans. Stock-Based Compensation We have plans under which options to purchase our common stock and restricted stock units have been granted to executive officers, directors and key employees. For awards granted prior to July 2, 2015, our equity award agreements generally contain provisions whereby the awards automatically accelerate and vest upon change in control, including those granted to retirement-eligible participants described below. Awards granted on or after July 2, 2015 would generally require both a change in control and termination of employment within 2 years of the date of the change in control to accelerate the vesting, including those granted to retirement-eligible participants. The terms and vesting schedules for stock-based awards vary by type of grant. Generally, the awards vest upon time-based conditions. We have also granted awards to certain employees that vest upon a combination of time and performance-based conditions. The stock awards of retirement-eligible participants granted prior to July 2, 2015 generally will continue to fully vest on the originally scheduled vest date upon retirement from the Company. For stock awards of retirement-eligible employees granted on or after July 2, 2015, awards are generally earned ratably over the service period for each tranche. Accordingly, upon retirement the earned portion of the current tranche will continue to vest on the originally scheduled vest date and any remaining unearned portion of the award will be forfeited. Our equity award program includes a retirement provision that generally treats employees with a combination of age and years of services with the Company totaling 65 or greater, with a minimum required age of 55 and a minimum requirement of 5 years of service, as retirement-eligible. Upon exercise, stock-based compensation awards are settled with authorized but unissued company stock or treasury stock. The compensation expense that has been charged against income for these plans was as follows for the years ended December 31, 2017, 2016, and 2015:
Stock-based compensation expense for certain restricted stock in 2017 included a $29 million modification expense for certain awards. The tax benefit recognized in our consolidated financial statements is based on the amount of compensation expense recorded for book purposes, subject to limitations on the deductibility of annual compensation in excess of $500,000 per employee as mandated by the Health Care Reform Law. The actual tax benefit realized in our tax return is based on the intrinsic value, or the excess of the market value over the exercise or purchase price, of stock options exercised and restricted stock vested during the period, subject to limitations on the deductibility of annual compensation in excess of $500,000 per employee as mandated by the Health Care Reform Law. The actual tax benefit realized for the deductions taken on our tax returns from option exercises and restricted stock vesting totaled $68 million in 2017, $53 million in 2016, and $34 million in 2015. There was no capitalized stock-based compensation expense during these years. At December 31, 2017, there were 14.6 million shares reserved for stock award plans. These reserved shares included giving effect to, under the 2011 Plan, 5.4 million shares of common stock available for future grants assuming all stock options were granted or 2.4 million shares available for future grants assuming all restricted stock were granted. Shares may be issued from authorized but unissued company stock or treasury stock. Restricted Stock Restricted stock is granted with a fair value equal to the market price of our common stock on the date of grant and generally vests three years from the date of grant. Restricted stock granted on or after July 2, 2015, generally vests in equal annual tranches over a three year period from the date of grant. Certain of our restricted stock grants also include performance-based conditions generally associated with return on invested capital and strategic membership growth. Restricted stock units have forfeitable dividend equivalent rights equal to the dividend paid on common stock. The weighted-average grant date fair value of our restricted stock was $222.35 in 2017, $168.12 in 2016, and $165.26 in 2015. Activity for our restricted stock was as follows for the year ended December 31, 2017:
Approximately 19% of the nonvested restricted stock at December 31, 2017 included performance-based conditions. The fair value of shares vested was $306 million during 2017, $253 million during 2016, and $153 million during 2015. Total compensation expense not yet recognized related to nonvested restricted stock was $133 million at December 31, 2017. We expect to recognize this compensation expense over a weighted-average period of approximately 1.8 years. There are no other contractual terms covering restricted stock once vested. Stock Options Stock options are granted with an exercise price equal to the fair market value of the underlying common stock on the date of grant. Our stock plans, as approved by the Board of Directors and stockholders, define fair market value as the average of the highest and lowest stock prices reported on the composite tape by the New York Stock Exchange on a given date. Exercise provisions vary, but most options vest in whole or in part 1 to 3 years after grant and expire 7 years after grant. The weighted-average fair value of each option granted during 2017, 2016, and 2015 is provided below. The fair value was estimated on the date of grant using the Black-Scholes pricing model with the weighted-average assumptions indicated below:
When valuing employee stock options, we stratify the employee population into three homogeneous groups that historically have exhibited similar exercise behaviors. These groups are executive officers, directors, and all other employees. We value the stock options based on the unique assumptions for each of these employee groups. We calculate the expected term for our employee stock options based on historical employee exercise behavior and base the risk-free interest rate on a traded zero-coupon U.S. Treasury bond with a term substantially equal to the option’s expected term. The volatility used to value employee stock options is based on historical volatility. We calculate historical volatility using a simple-average calculation methodology based on daily price intervals as measured over the expected term of the option. Activity for our option plans was as follows for the year ended December 31, 2017:
As of December 31, 2017, outstanding stock options, substantially all of which are expected to vest, had an aggregate intrinsic value of $57 million, and a weighted-average remaining contractual term of 5.0 years. As of December 31, 2017, exercisable stock options had an aggregate intrinsic value of $20 million, and a weighted-average remaining contractual term of 3.5 years. The total intrinsic value of stock options exercised during 2017 was $44 million, compared with $18 million during 2016 and $28 million during 2015. Cash received from stock option exercises totaled $63 million in 2017, $14 million in 2016, and $23 million in 2015. Total compensation expense not yet recognized related to nonvested options was $18 million at December 31, 2017. We expect to recognize this compensation expense over a weighted-average period of approximately 1.8 years. |
EARNINGS PER COMMON SHARE COMPUTATION |
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EARNINGS PER COMMON SHARE COMPUTATION | EARNINGS PER COMMON SHARE COMPUTATION Detail supporting the computation of basic and diluted earnings per common share was as follows for the years ended December 31, 2017, 2016 and 2015:
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STOCKHOLDERS' EQUITY |
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STOCKHOLDERS' EQUITY | STOCKHOLDERS’ EQUITY Dividends The following table provides details of dividend payments, excluding dividend equivalent rights, in 2015, 2016, and 2017 under our Board approved quarterly cash dividend policy:
On November 2, 2017, the Board declared a cash dividend of $0.40 per share that was paid on January 26, 2018 to stockholders of record on December 29, 2017, for an aggregate amount of $55 million. Declaration and payment of future quarterly dividends is at the discretion of our Board and may be adjusted as business needs or market conditions change. Stock Repurchases In September 2014, our Board of Directors replaced a previous share repurchase authorization of up to $1 billion (of which $816 million remained unused) with an authorization for repurchases of up to $2 billion of our common shares exclusive of shares repurchased in connection with employee stock plans, which expired on December 31, 2016. Under the share repurchase authorization, shares may have been purchased from time to time at prevailing prices in the open market, by block purchases, through plans designed to comply with Rule 10b5-1 under the Securities Exchange Act of 1934, as amended, or in privately-negotiated transactions (including pursuant to accelerated share repurchase agreements with investment banks), subject to certain regulatory restrictions on volume, pricing, and timing. Pursuant to the Merger Agreement, after July 2, 2015, we were prohibited from repurchasing any of our outstanding securities without the prior written consent of Aetna, other than repurchases of shares of our common stock in connection with the exercise of outstanding stock options or the vesting or settlement of outstanding restricted stock awards. Accordingly, as announced on July 3, 2015, we suspended our share repurchase program. On February 14, 2017, we and Aetna agreed to mutually terminate the Merger Agreement. We also announced that the Board had approved a new authorization for share repurchases of up to $2.25 billion of our common stock exclusive of shares repurchased in connection with employee stock plans, expiring on December 31, 2017. On February 16, 2017, we entered into an accelerated share repurchase agreement, the February 2017 ASR, with Goldman, Sachs & Co. LLC, or Goldman Sachs, to repurchase $1.5 billion of our common stock as part of the $2.25 billion share repurchase program referred to above. On February 22, 2017, we made a payment of $1.5 billion to Goldman Sachs from available cash on hand and received an initial delivery of 5.83 million shares of our common stock from Goldman Sachs based on the then current market price of Humana common stock. The payment to Goldman Sachs was recorded as a reduction to stockholders’ equity, consisting of a $1.2 billion increase in treasury stock, which reflected the value of the initial 5.83 million shares received upon initial settlement, and a $300 million decrease in capital in excess of par value, which reflected the value of stock held back by Goldman Sachs pending final settlement of the February 2017 ASR. Upon settlement of the February 2017 ASR on August 28, 2017, we received an additional 0.84 million shares as determined by the average daily volume weighted-average share price of our common stock during the term of the agreement of $224.81, bringing the total shares received under this program to 6.67 million. In addition, upon settlement we reclassified the $300 million value of stock initially held back by Goldman Sachs from capital in excess of par value to treasury stock. Subsequent to settlement of the February 2017 ASR, we repurchased an additional 3.04 million shares in the open market, utilizing the remaining $750 million of the $2.25 billion authorization prior to expiration. On December 14, 2017, our Board of Directors authorized the repurchase of up to $3.0 billion of our common shares expiring on December 31, 2020, exclusive of shares repurchased in connection with employee stock plans. Under the share repurchase authorization, shares may be purchased from time to time at prevailing prices in the open market, by block purchases, through plans designed to comply with Rule 10b5-1 under the Securities Exchange Act of 1934, as amended, or in privately-negotiated transactions, including pursuant to accelerated share repurchase agreements with investment banks, subject to certain regulatory restrictions on volume, pricing, and timing. On December 21, 2017, we entered into an accelerated stock repurchase agreement, the December 2017 ASR, with Bank of America, N.A., or BofA, to repurchase $1.0 billion of our common stock as part of the $3.0 billion share repurchase program authorized on December 14, 2017. On December 22, 2017, we made a payment of $1.0 billion to BofA from available cash on hand and received an initial delivery of 3.28 million shares of our common stock from BofA based on the then current market price of Humana common stock. The payment to BofA was recorded as a reduction to stockholders’ equity, consisting of an $800 million increase in treasury stock, which reflects the value of the initial 3.28 million shares received upon initial settlement, and a $200 million decrease in capital in excess of par value, which reflected the value of stock held back by BofA pending final settlement of the December 2017 ASR. The final number of shares that we may receive, or be required to remit, under the agreement will be determined based on the daily volume-weighted average share price of our common stock over the term of the agreement, less a discount and subject to adjustments pursuant to the terms and conditions of the agreement. Final settlement under the December 2017 ASR is expected to occur by the end of the first quarter of 2018. The agreement contains provisions customary for agreements of this type, including provisions for adjustments to the transaction terms upon certain specified events, the circumstances generally under which final settlement may be accelerated or extended or the agreement may be terminated early by BofA or Humana, and various acknowledgements and representations made by the parties to each other. At final settlement, under certain circumstances, we may be entitled to receive additional shares of our common stock from BofA or we may be required to make a payment. If we are obligated to make payment, we may elect to satisfy such obligation in cash or shares of our common stock. Our remaining repurchase authorization was approximately $2.0 billion as of February 16, 2018, excluding the $200 million pending final settlement of our December 22, 2017 ASR. Excluding shares acquired in connection with employee stock plans as well as 0.36 million shares received in March 2015 upon final settlement of our 2014 accelerated share repurchase agreement, for which no cash was paid during the period, share repurchases were as follows during the years ended December 31, 2017, 2016 and 2015. Excluding shares acquired in connection with employee stock plans, there were no share repurchases in 2016.
In connection with employee stock plans, we acquired 0.5 million common shares for $115 million in 2017, 0.6 million common shares for $104 million in 2016, and 0.3 million common shares for $56 million in 2015. Regulatory Requirements Certain of our subsidiaries operate in states that regulate the payment of dividends, loans, or other cash transfers to Humana Inc., our parent company, and require minimum levels of equity as well as limit investments to approved securities. The amount of dividends that may be paid to Humana Inc. by these subsidiaries, without prior approval by state regulatory authorities, or ordinary dividends, is limited based on the entity’s level of statutory income and statutory capital and surplus. In most states, prior notification is provided before paying a dividend even if approval is not required. Although minimum required levels of equity are largely based on premium volume, product mix, and the quality of assets held, minimum requirements vary significantly at the state level. Our state regulated insurances subsidiaries had aggregate statutory capital and surplus of approximately $8.0 billion and $7.7 billion as of December 31, 2017 and 2016, respectively, which exceeded aggregate minimum regulatory requirements of $4.8 billion in both years. Subsidiary dividends are subject to state regulatory approval, the amount and timing of which could be reduced or delayed. Excluding Puerto Rico subsidiaries, the amount of ordinary dividends that may be paid to our parent company in 2018 is approximately $1.1 billion in the aggregate. This compares to dividends that were paid to our parent company in 2017 of approximately $1.4 billion. Actual dividends paid may vary due to consideration of excess statutory capital and surplus and expected future surplus requirements related to, for example, premium volume and product mix. |
COMMITMENTS, GUARANTEES AND CONTINGENCIES |
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COMMITMENTS, GUARANTEES AND CONTINGENCIES | COMMITMENTS, GUARANTEES AND CONTINGENCIES Leases We lease facilities, computer hardware, and other furniture and equipment under long-term operating leases that are noncancelable and expire on various dates through 2046. We sublease facilities or partial facilities to third party tenants for space not used in our operations. Rent with scheduled escalation terms are accounted for on a straight-line basis over the lease term. Rent expense and sublease rental income, which are recorded net as an operating cost, for all operating leases were as follows for the years ended December 31, 2017, 2016 and 2015:
Future annual minimum payments due subsequent to December 31, 2017 under all of our noncancelable operating leases with initial terms in excess of one year are as follows:
Purchase Obligations We have agreements to purchase services, primarily information technology related services, or to make improvements to real estate, in each case that are enforceable and legally binding on us and that specify all significant terms, including: fixed or minimum levels of service to be purchased; fixed, minimum or variable price provisions; and the appropriate timing of the transaction. We have purchase obligation commitments of $226 million in 2018, $150 million in 2019, $38 million in 2020, $8 million in 2021, and $7 million thereafter. Purchase obligations exclude agreements that are cancelable without penalty. Off-Balance Sheet Arrangements As part of our ongoing business, we do not participate or knowingly seek to participate in transactions that generate relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, or SPEs, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. As of December 31, 2017, we were not involved in any SPE transactions. Guarantees and Indemnifications Through indemnity agreements approved by the state regulatory authorities, certain of our regulated subsidiaries generally are guaranteed by Humana Inc., our parent company, in the event of insolvency for (1) member coverage for which premium payment has been made prior to insolvency; (2) benefits for members then hospitalized until discharged; and (3) payment to providers for services rendered prior to insolvency. Our parent also has guaranteed the obligations of our military services subsidiaries. In the ordinary course of business, we enter into contractual arrangements under which we may agree to indemnify a third party to such arrangement from any losses incurred relating to the services they perform on behalf of us, or for losses arising from certain events as defined within the particular contract, which may include, for example, litigation or claims relating to past performance. Such indemnification obligations may not be subject to maximum loss clauses. Historically, payments made related to these indemnifications have been immaterial. Government Contracts Our Medicare products, which accounted for approximately 78% of our total premiums and services revenue for the year ended December 31, 2017, primarily consisted of products covered under the Medicare Advantage and Medicare Part D Prescription Drug Plan contracts with the federal government. These contracts are renewed generally for a calendar year term unless CMS notifies us of its decision not to renew by May 1 of the calendar year in which the contract would end, or we notify CMS of our decision not to renew by the first Monday in June of the calendar year in which the contract would end. All material contracts between Humana and CMS relating to our Medicare products have been renewed for 2018, and all of our product offerings filed with CMS for 2018 have been approved. CMS uses a risk-adjustment model which adjusts premiums paid to Medicare Advantage, or MA, plans according to health status of covered members. The risk-adjustment model, which CMS implemented pursuant to the Balanced Budget Act of 1997 (BBA) and the Benefits Improvement and Protection Act of 2000 (BIPA), generally pays more where a plan's membership has higher expected costs. Under this model, rates paid to MA plans are based on actuarially determined bids, which include a process whereby our prospective payments are based on our estimated cost of providing standard Medicare-covered benefits to an enrollee with a "national average risk profile." That baseline payment amount is adjusted to reflect the health status of our enrolled membership. Under the risk-adjustment methodology, all MA plans must collect and submit the necessary diagnosis code information from hospital inpatient, hospital outpatient, and physician providers to CMS within prescribed deadlines. The CMS risk-adjustment model uses the diagnosis data to calculate the risk-adjusted premium payment to MA plans, which CMS adjusts for coding pattern differences between the health plans and the government fee-for-service program. We generally rely on providers, including certain providers in our network who are our employees, to code their claim submissions with appropriate diagnoses, which we send to CMS as the basis for our payment received from CMS under the actuarial risk-adjustment model. We also rely on these providers to document appropriately all medical data, including the diagnosis data submitted with claims. In addition, we conduct medical record reviews as part of our data and payment accuracy compliance efforts, to more accurately reflect diagnosis conditions under the risk adjustment model. These compliance efforts include the internal contract level audits described in more detail below, as well as ordinary course reviews of our internal business processes. CMS is phasing-in the process of calculating risk scores using diagnoses data from the Risk Adjustment Processing System, or RAPS, to diagnoses data from the Encounter Data System, or EDS. The RAPS process requires MA plans to apply a filter logic based on CMS guidelines and only submit claims that satisfy those guidelines. For submissions through EDS, CMS requires MA plans to submit all the encounter data and CMS will apply the risk adjustment filtering logic to determine the risk scores. For 2016, 10% of the risk score was calculated from claims data submitted through EDS, increasing to 25% of the risk score calculated from claims data through EDS for 2017. In April 2017, CMS revised the pace of the phase-in. For 2018, 15% of the risk score will be calculated from claims data submitted through EDS. The phase-in from RAPS to EDS could result in different risk scores from each dataset as a result of plan processing issues, CMS processing issues, or filtering logic differences between RAPS and EDS, and could have a material adverse effect on our results of operations, financial position, or cash flows. CMS is continuing to perform audits of various companies’ selected MA contracts related to this risk adjustment diagnosis data. We refer to these audits as Risk-Adjustment Data Validation Audits, or RADV audits. RADV audits review medical records in an attempt to validate provider medical record documentation and coding practices which influence the calculation of premium payments to MA plans. In 2012, CMS released a “Notice of Final Payment Error Calculation Methodology for Part C Medicare Advantage Risk Adjustment Data Validation (RADV) Contract-Level Audits.” The payment error calculation methodology provides that, in calculating the economic impact of audit results for an MA contract, if any, the results of the RADV audit sample will be extrapolated to the entire MA contract after a comparison of the audit results to a similar audit of Medicare FFS (we refer to the process of accounting for errors in FFS claims as the "FFS Adjuster"). This comparison of RADV audit results to the FFS error rate is necessary to determine the economic impact, if any, of RADV audit results because the government used the Medicare FFS program data set, including any attendant errors that are present in that data set, to estimate the costs of various health status conditions and to set the resulting adjustments to MA plans’ payment rates. CMS already makes other adjustments to payment rates based on a comparison of coding pattern differences between MA plans and Medicare FFS data (such as for frequency of coding for certain diagnoses in MA plan data versus the Medicare FFS program dataset). The final RADV extrapolation methodology, including the first application of extrapolated audit results to determine audit settlements, is expected to be applied to RADV contract level audits conducted for contract year 2011 and subsequent years. CMS is currently conducting RADV contract level audits for contract years 2011, 2012, and 2013 in which two, five and five of our Medicare Advantage plans are being audited, respectively. Per CMS guidance, selected MA contracts will be notified of an audit at some point after the close of the final reconciliation for the payment year being audited. Estimated audit settlements are recorded as a reduction of premiums revenue in our consolidated statements of income, based upon available information. We perform internal contract level audits based on the RADV audit methodology prescribed by CMS. Included in these internal contract level audits is an audit of our Private Fee-For Service business which we used to represent a proxy of the FFS Adjuster which has not yet been released. We based our accrual of estimated audit settlements for each contract year on the results of these internal contract level audits and update our estimates as each audit is completed. Estimates derived from these results were not material to our results of operations, financial position, or cash flows. We report the results of these internal contract level audits to CMS, including identified overpayments, if any. However, as indicated, we are awaiting additional guidance from CMS regarding the FFS Adjuster. Accordingly, we cannot determine whether such RADV audits will have a material adverse effect on our results of operations, financial position, or cash flows. In addition, as part of our internal compliance efforts, we routinely perform ordinary course reviews of our internal business processes related to, among other things, our risk coding and data submissions in connection with the risk-adjustment model. These reviews may also result in the identification of errors and the submission of corrections to CMS, that may, either individually or in the aggregate, be material. As such, these ordinary course reviews may have a material adverse effect on our results of operations, financial position, or cash flows. In addition, CMS' comments in formalized guidance regarding “overpayments” to MA plans appear to be inconsistent with CMS' prior RADV audit guidance. These statements, contained in the preamble to CMS’ final rule release regarding Medicare Advantage and Part D prescription drug benefit program regulations for Contract Year 2015, appear to equate each Medicare Advantage risk adjustment data error with an “overpayment” without reconciliation to the principles underlying the FFS Adjuster referenced above. We will continue to work with CMS to ensure that MA plans are paid accurately and that payment model principles are in accordance with the requirements of the Social Security Act, which, if not implemented correctly could have a material adverse effect on our results of operations, financial position, or cash flows. Our military services business, which accounted for approximately 1% of our total premiums and services revenue for the year ended December 31, 2017, primarily consisted of the T3 TRICARE South Region contract. The 5-year T3 South Region contract expired on December 31, 2017. On July 21, 2016, we were notified by the Defense Health Agency, or DHA, that we were awarded the contract for the new TRICARE T2017 East Region. The T2017 East Region contract is a consolidation of the former T3 North and South Regions, comprising thirty-two states and approximately six million TRICARE beneficiaries, with delivery of health care services commencing on January 1, 2018. The T2017 East contract is a 5-year contract set to expire on December 31, 2022 and is subject to renewals on January 1 of each year during its term at the government's option. Our state-based Medicaid business accounted for approximately 5% of our total premiums and services revenue for the year ended December 31, 2017. In addition to our state-based Temporary Assistance for Needy Families, or TANF, Medicaid contracts in Florida and Kentucky, we have contracts in Florida for Long Term Support Services (LTSS), and in Illinois for stand-alone dual eligible demonstration programs serving individuals dually eligible for both the federal Medicare program and the applicable state-based Medicaid program. We previously had an Integrated Care Program Medicaid contract in Illinois, and a stand-alone dual eligible demonstration program in Virginia, both of which terminated at December 31, 2017. The loss of any of the contracts above or significant changes in these programs as a result of legislative or regulatory action, including reductions in premium payments to us, regulatory restrictions on profitability, including by comparison of our Medicare Advantage profitability to our non-Medicare Advantage business profitability and a requirement that they remain within certain ranges of each other, or increases in member benefits without corresponding increases in premium payments to us, may have a material adverse effect on our results of operations, financial position, and cash flows. Legal Proceedings and Certain Regulatory Matters Florida Matters On January 6, 2012, the Civil Division of the United States Attorney’s Office for the Southern District of Florida advised us that it is seeking documents and information from us and several of our affiliates relating to several matters including the coding of medical claims by one or more South Florida medical providers, and loans to physician practices. On May 1, 2014, the U.S. Attorney's Office filed a Notice of Non-Intervention in connection with a civil qui tam suit related to one of these matters captioned United States of America ex rel. Olivia Graves v. Plaza Medical Centers, et al., and the Court ordered the complaint unsealed. All parties to the lawsuit and the United States have executed a settlement agreement to settle the plaintiff’s claims for damages and penalties, with Humana paying an amount that is not material to our results of operations, and the court has closed the case. As previously disclosed, the Civil Division of the United States Department of Justice provided us with an information request in December 2014, separate from but related to the Plaza Medical matter, concerning our Medicare Part C risk adjustment practices. The request relates to our oversight and submission of risk adjustment data generated by providers in our Medicare Advantage network, including the providers identified in the now settled Plaza Medical matter, as well as to our business and compliance practices related to risk adjustment data generated by our providers and by us, including medical record reviews conducted as part of our data and payment accuracy compliance efforts, the use of health and well-being assessments, and our fraud detection efforts. We believe that this request for information is in connection with a wider review of Medicare Risk Adjustment generally that includes a number of Medicare Advantage plans, providers and vendors. We continue to cooperate with and voluntarily respond to the information requests from the Department of Justice and the U.S. Attorney’s Office. These matters are expected to result in additional qui tam litigation. On January 19, 2016, an individual filed a qui tam suit captioned United States of America ex rel. Steven Scott v. Humana, Inc., in United States District Court, Central District of California, Western Division. The complaint alleges certain civil violations by us in connection with the actuarial equivalence of the plan benefits under Humana’s Basic PDP plan, a prescription drug plan offered by us under Medicare Part D, as compared to required benefit levels under applicable bid rules. The action seeks damages and penalties on behalf of the United States under the False Claims Act. The court ordered the qui tam action unsealed on September 13, 2017, so that the relator can proceed, following notice from the U.S. Government that it is not intervening at this time. We take seriously our obligations to comply with applicable CMS requirements and actuarial best principles, and we intend to vigorously defend against these allegations. On November 2, 2017, we filed suit against the United States of America in the United States Court of Federal Claims, on behalf of our health plans seeking recovery from the federal government of approximately $611 million in payments under the risk corridor premium stabilization program established under the Health Care Reform Law, for years 2014, 2015 and 2016. We have not recognized revenue, nor have we recorded a receivable, for any amount due from the federal government for unpaid risk corridor payments as of December 31, 2017. We have fully recognized all liabilities due to the federal government that we have incurred under the risk corridor program, and have paid all amounts due to the federal government as required. There is no assurance that we will prevail in the lawsuit. Other Lawsuits and Regulatory Matters Our current and past business practices are subject to review or other investigations by various state insurance and health care regulatory authorities and other state and federal regulatory authorities. These authorities regularly scrutinize the business practices of health insurance, health care delivery and benefits companies. These reviews focus on numerous facets of our business, including claims payment practices, statutory capital requirements, provider contracting, risk adjustment, competitive practices, commission payments, privacy issues, utilization management practices, pharmacy benefits, access to care, and sales practices, among others. Some of these reviews have historically resulted in fines imposed on us and some have required changes to some of our practices. We continue to be subject to these reviews, which could result in additional fines or other sanctions being imposed on us or additional changes in some of our practices. We also are involved in various other lawsuits that arise, for the most part, in the ordinary course of our business operations, certain of which may be styled as class-action lawsuits. Among other matters, this litigation may include employment matters, claims of medical malpractice, bad faith, nonacceptance or termination of providers, anticompetitive practices, improper rate setting, provider contract rate and payment disputes, including disputes over reimbursement rates required by statute, general contractual matters, intellectual property matters, and challenges to subrogation practices. For example, a number of hospitals and other providers have asserted that, under their network provider contracts, we are not entitled to reduce Medicare Advantage payments to these providers in connection with changes in Medicare payment systems and in accordance with the Balanced Budget and Emergency Deficit Control Act of 1985, as amended (commonly referred to as “sequestration”). Those challenges have led and could lead to arbitration demands or other litigation. Also, under state guaranty assessment laws, including those related to state cooperative failures in the industry, we may be assessed (up to prescribed limits) for certain obligations to the policyholders and claimants of insolvent insurance companies that write the same line or lines of business as we do. As a government contractor, we may also be subject to qui tam litigation brought by individuals who seek to sue on behalf of the government, alleging that the government contractor submitted false claims to the government including, among other allegations, those resulting from coding and review practices under the Medicare risk adjustment model. Qui tam litigation is filed under seal to allow the government an opportunity to investigate and to decide if it wishes to intervene and assume control of the litigation. If the government does not intervene, the lawsuit is unsealed, and the individual may continue to prosecute the action on his or her own, on behalf of the government. We also are subject to other allegations of non-performance of contractual obligations to providers, members, and others, including failure to properly pay claims, improper policy terminations, challenges to our implementation of the Medicare Part D prescription drug program and other litigation. A limited number of the claims asserted against us are subject to insurance coverage. Personal injury claims, claims for extra contractual damages, care delivery malpractice, and claims arising from medical benefit denials are covered by insurance from our wholly owned captive insurance subsidiary and excess carriers, except to the extent that claimants seek punitive damages, which may not be covered by insurance in certain states in which insurance coverage for punitive damages is not permitted. In addition, insurance coverage for all or certain forms of liability has become increasingly costly and may become unavailable or prohibitively expensive in the future. We record accruals for the contingencies discussed in the sections above to the extent that we conclude it is probable that a liability has been incurred and the amount of the loss can be reasonably estimated. No estimate of the possible loss or range of loss in excess of amounts accrued, if any, can be made at this time regarding the matters specifically described above because of the inherently unpredictable nature of legal proceedings, which also may be exacerbated by various factors, including: (i) the damages sought in the proceedings are unsubstantiated or indeterminate; (ii) discovery is not complete; (iii) the proceeding is in its early stages; (iv) the matters present legal uncertainties; (v) there are significant facts in dispute; (vi) there are a large number of parties (including where it is uncertain how liability, if any, will be shared among multiple defendants); or (vii) there is a wide range of potential outcomes. The outcome of any current or future litigation or governmental or internal investigations, including the matters described above and other ordinary course reviews of our internal business processes, cannot be accurately predicted, nor can we predict any resulting judgments, penalties, fines or other sanctions that may be imposed at the discretion of federal or state regulatory authorities or as a result of actions by third parties. Nevertheless, it is reasonably possible that any such outcome of litigation, investigations, internal reviews, judgments, penalties, fines or other sanctions could be substantial, and the outcome of these matters may have a material adverse effect on our results of operations, financial position, and cash flows, and may also affect our reputation. |
SEGMENT INFORMATION |
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SEGMENT INFORMATION | SEGMENT INFORMATION During the first quarter of 2017, we realigned certain of our businesses among our reportable segments to correspond with internal management reporting changes corresponding to those used by our chief operating decision maker to evaluate results of operations 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 supplemental 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, which we refer to collectively as 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 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, such as home health and other 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 that 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 $13.5 billion in 2017, $13.4 billion in 2016, and $12.3 billion in 2015. 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 $107 million in 2017, $111 million in 2016, and $92 million in 2015. Other than those described previously, the accounting policies of each segment are the same and are described in Note 2. 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 years ended December 31, 2017, 2016, and 2015:
Premium and services revenues derived from our contracts with the federal government, as a percentage of our total premium and services revenues, was approximately 79% for 2017, compared to 75% for 2016, and 73% for 2015.
Premiums revenue for our Individual Commercial segment for 2016 includes a reduction of $583 million associated with the write-off of commercial risk corridor receivables as discussed more fully in Note 7. Benefits expense for Other Businesses for 2016 includes $505 million for reserve strengthening associated with our closed block of long-term care insurance policies as discussed more fully in Note 18.
Benefits expense for the Individual Commercial segment for 2015 includes $176 million for a provision for probable future losses (premium deficiency) for individual commercial medical business compliant with the Health Care Reform Law for the 2016 coverage year as discussed more fully in Note 7. |
EXPENSES ASSOCIATED WITH LONG-DURATION INSURANCE PRODUCTS |
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EXPENSES ASSOCIATED WITH LONG-DURATION INSURANCE PRODUCTS | EXPENSES ASSOCIATED WITH LONG-DURATION INSURANCE PRODUCTS Premiums associated with our long-duration insurance products accounted for less than 1% of our consolidated premiums and services revenue for the year ended December 31, 2017. We use long-duration accounting for products such as long-term care, life insurance, annuities, and certain health and other supplemental policies sold to individuals because they are expected to remain in force for an extended period beyond one year and because 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. In addition, we establish reserves for future policy benefits in recognition of the fact that some of the premium received in the earlier years is intended to pay anticipated benefits to be incurred in future years. At policy issuance, these reserves are recognized on a net level premium method based on premium rate increase, interest rate, mortality, morbidity, persistency (the percentage of policies remaining in-force), and maintenance expense assumptions. The assumptions used to determine the liability for future policy benefits are established and locked in at the time each contract is issued and only change if our expected future experience deteriorates to the point that the level of the liability, together with the present value of future gross premiums, are not adequate to provide for future expected policy benefits and maintenance costs (i.e. the loss recognition date). As discussed in Note 2, beginning in 2014, health policies sold to individuals that conform to the Health Care Reform Law are accounted for under a short-duration model because premiums received in the current year are intended to pay anticipated benefits in that year. The table below presents deferred acquisition costs and future policy benefits payable associated with our long-duration insurance products for the years ended December 31, 2017 and 2016.
In addition, future policy benefits payable include amounts of $199 million at December 31, 2017 and $201 million at December 31, 2016 which are subject to 100% coinsurance agreements as more fully described in Note 19. Benefit expense reflects a net reduction of $22 million in 2017, a net increase of $439 million in 2016 and a net reduction of $80 million in 2015. All three years include the effect of the release of reserves as Individual Commercial medical members transitioned to plans compliant with the Health Care Reform Law. In addition, 2016 reflects the net change of $505 million associated with our closed block of long-term care insurance policies discussed further below. Amortization of deferred acquisition costs included in operating costs was $71 million in 2017, $67 million in 2016, and $63 million in 2015, which includes the effect of accelerating deferred acquisition amortization costs of existing previously underwritten members transitioning to policies compliant with the Health Care Reform Law with us and other carriers. Future policy benefits payable include $2.3 billion at December 31, 2017 and $2.2 billion at December 31, 2016 associated with a non-strategic closed block of long-term care insurance policies acquired in connection with the 2007 acquisition of KMG. Future policy benefits payable includes amounts charged to accumulated other comprehensive income for an additional liability that would exist on our closed-block of long-term care insurance policies if unrealized gains on the sale of the investments backing such products had been realized and the proceeds reinvested at then current yields. There was a $168 million additional liability at December 31, 2017 and $77 million additional liability at December 31, 2016. Amounts charged to accumulated other comprehensive income are net of applicable deferred taxes. Long-term care insurance policies provide nursing home and home health coverage for which premiums are collected many years in advance of benefits paid, if any. Therefore, our actual claims experience will emerge many years after assumptions have been established. The risk of a deviation of the actual premium rate increase, interest, morbidity, mortality, persistency, and maintenance expense assumptions from those assumed in our reserves are particularly significant to our closed block of long-term care insurance policies. We monitor the loss experience of these long-term care insurance policies and, when necessary, apply for premium rate increases through a regulatory filing and approval process in the jurisdictions in which such products were sold. To the extent premium rate increases, interest rates, and/or loss experience vary from our loss recognition date assumptions, material future adjustments to reserves could be required. During 2016, we recorded a loss for a premium deficiency. The premium deficiency was based on current and anticipated experience that had deteriorated from our locked-in assumptions from the previous December 31, 2013 loss recognition date, particularly as they related to emerging experience indicating longer claims duration, a prolonged lower interest rate environment, and an increase in policyholder life expectancies. Based on this deterioration, we determined that our existing future policy benefits payable, together with the present value of future gross premiums, associated with our closed block of long-term care insurance policies were not adequate to provide for future policy benefits and maintenance costs under these policies; therefore we unlocked and modified our assumptions based on current expectations. Accordingly, during 2016 we recorded $505 million of additional benefits expense, with a corresponding increase in future policy benefits payable of $659 million partially offset by a related reinsurance recoverable of $154 million included in other long-term assets. During 2017, we performed loss recognition testing comparing our existing future policy benefits payable with the present value of future gross premiums associated with our closed block of long-term care insurance policies and determined that no premium deficiency existed at December 31, 2017. Deferred acquisition costs included $3 million and $16 million associated with our individual commercial medical policies at December 31, 2017 and December 31, 2016, respectively. Future policy benefits payable associated with our individual commercial medical policies were $19 million at December 31, 2017 and $86 million at December 31, 2016. The decline in deferred acquisition costs and future policy benefits payable primarily reflects the effect of existing previously underwritten members transitioning to policies compliant with the Health Care Reform Law with us and other carriers. On November 6, 2017, we entered into a definitive agreement to sell the stock of our wholly-owned subsidiary, KMG to CGIC, a Texas-based insurance company wholly owned by HC2 Holdings, Inc., a diversified holding company. KMG’s subsidiary, KIC, includes our closed block of non-strategic commercial long-term care insurance policies. For a detailed discussion refer to Note 2. |
REINSURANCE |
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REINSURANCE | REINSURANCE Certain blocks of insurance assumed in acquisitions, primarily life, long-term care, and annuities in run-off status, are subject to reinsurance where some or all of the underwriting risk related to these policies has been ceded to a third party. In addition, a large portion of our reinsurance takes the form of 100% coinsurance agreements where, in addition to all of the underwriting risk, all administrative responsibilities, including premium collections and claim payment, have also been ceded to a third party. We acquired these policies and related reinsurance agreements with the purchase of stock of companies in which the policies were originally written. We acquired these companies for business reasons unrelated to these particular policies, including the companies’ other products and licenses necessary to fulfill strategic plans. A reinsurance agreement between two entities transfers the underwriting risk of policyholder liabilities to a reinsurer while the primary insurer retains the contractual relationship with the ultimate insured. As such, these reinsurance agreements do not completely relieve us of our potential liability to the ultimate insured. However, given the transfer of underwriting risk, our potential liability is limited to the credit exposure which exists should the reinsurer be unable to meet its obligations assumed under these reinsurance agreements. Reinsurance recoverables represent the portion of future policy benefits payable and benefits payable that are covered by reinsurance. Amounts recoverable from reinsurers are estimated in a manner consistent with the methods used to determine future policy benefits payable as detailed in Note 2. Excluding reinsurance associated with the Health Care Reform Law discussed in Note 2, reinsurance recoverables, included in other current and long-term assets, were $824 million at December 31, 2017 and $822 million at December 31, 2016. The percentage of these reinsurance recoverables resulting from 100% coinsurance agreements was approximately 33% at December 31, 2017 and approximately 34% at December 31, 2016. Premiums ceded were $969 million in 2017, $842 million in 2016 and $821 million in 2015. Benefits ceded were $844 million in 2017, $767 million in 2016, and $666 million in 2015. Ceded premium and benefits reflect a July 1, 2014 amendment ceding all risk under a Medicaid contract to a third party reinsurer. We evaluate the financial condition of these reinsurers on a regular basis. These reinsurers are well-known and well-established, as evidenced by the strong financial ratings at December 31, 2017 presented below:
The all other category represents 18 reinsurers with individual balances less than $71 million. Three of these reinsurers with recoverables of $87 million are subject to trust or funds withheld accounts, requiring amounts at least equal to the total recoverable from each of these reinsurers. |
QUARTERLY FINANCIAL INFORMATION (Unaudited) |
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QUARTERLY FINANCIAL INFORMATION (Unaudited) | QUARTERLY FINANCIAL INFORMATION (Unaudited) A summary of our quarterly unaudited results of operations for the years ended December 31, 2017 and 2016 follows:
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SCHEDULE I-PARENT COMPANY FINANCIAL INFORMATION |
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Condensed Financial Information of Parent Company Only Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
SCHEDULE I-PARENT COMPANY FINANCIAL INFORMATION | SCHEDULE I—PARENT COMPANY FINANCIAL INFORMATION CONDENSED BALANCE SHEETS
See accompanying notes to the parent company financial statements. SCHEDULE I—PARENT COMPANY FINANCIAL INFORMATION CONDENSED STATEMENTS OF INCOME
See accompanying notes to the parent company financial statements. SCHEDULE I—PARENT COMPANY FINANCIAL INFORMATION CONDENSED STATEMENTS OF COMPREHENSIVE INCOME
See accompanying notes to the parent company financial statements. SCHEDULE I—PARENT COMPANY FINANCIAL INFORMATION CONDENSED STATEMENTS OF CASH FLOWS
See accompanying notes to the parent company financial statements. BASIS OF PRESENTATION Parent company financial information has been derived from our consolidated financial statements and excludes the accounts of all operating subsidiaries. This information should be read in conjunction with our consolidated financial statements. Related Party Refer to Note 2 of the notes to consolidated financial statements in this Annual Report on Form 10-K for a description of our related party transactions. A related party note receivable is included with other long-term assets in our condensed balance sheet at December 31, 2017 and December 31, 2016 in the amount of $349 million and $314 million, respectively. We have also entered into a revolving note agreement providing a line of credit up to $55 million under which $18 million was outstanding at December 31, 2017, and we had no balance outstanding at December 31, 2016. The related interest income of $35 million and $30 million for 2017 and 2016, respectively, is included in investment and other income in our condensed statements of income. TRANSACTIONS WITH SUBSIDIARIES Management Fee Through intercompany service agreements approved, if required, by state regulatory authorities, Humana Inc., our parent company, charges a management fee for reimbursement of certain centralized services provided to its subsidiaries including information systems, disbursement, investment and cash administration, marketing, legal, finance, and medical and executive management oversight. Dividends Cash dividends received from subsidiaries and included as a component of net cash provided by operating activities were $1.4 billion in 2017, $763 million in 2016, and $493 million in 2015. Guarantee Through indemnity agreements approved by state regulatory authorities, certain of our regulated subsidiaries generally are guaranteed by our parent company in the event of insolvency for: (1) member coverage for which premium payment has been made prior to insolvency; (2) benefits for members then hospitalized until discharged; and (3) payment to providers for services rendered prior to insolvency. Our parent has also guaranteed the obligations of our military services subsidiaries. Notes Receivables from Operating Subsidiaries We funded certain subsidiaries with surplus note agreements. These notes are generally non-interest bearing and may not be entered into or repaid without the prior approval of the applicable Departments of Insurance or other state regulatory authorities. Notes Payable to Operating Subsidiaries We borrowed funds from certain subsidiaries with notes generally collateralized by real estate. These notes, which have various payment and maturity terms, bear interest ranging from 2.14% to 6.65% and are payable in 2018 and 2019. We recorded interest expense of $1 million related to these notes for each of the years ended December 31, 2017, 2016 and 2015. REGULATORY REQUIREMENTS Certain of our subsidiaries operate in states that regulate the payment of dividends, loans, or other cash transfers to Humana Inc., our parent company, and require minimum levels of equity as well as limit investments to approved securities. The amount of dividends that may be paid to Humana Inc. by these subsidiaries, without prior approval by state regulatory authorities, or ordinary dividends, is limited based on the entity’s level of statutory income and statutory capital and surplus. In most states, prior notification is provided before paying a dividend even if approval is not required. Although minimum required levels of equity are largely based on premium volume, product mix, and the quality of assets held, minimum requirements vary significantly at the state level. Our state regulated insurances subsidiaries had aggregate statutory capital and surplus of approximately $8.0 billion and $7.7 billion as of December 31, 2017 and 2016, respectively, which exceeded aggregate minimum regulatory requirements of $4.8 billion in both years. Subsidiary dividends are subject to state regulatory approval, the amount and timing of which could be reduced or delayed. Excluding Puerto Rico subsidiaries, the amount of ordinary dividends that may be paid to our parent company in 2018 is approximately $1.1 billion in the aggregate. This compares to dividends that were paid to our parent company in 2017 of approximately $1.4 billion. Actual dividends paid may vary due to consideration of excess statutory capital and surplus and expected future surplus requirements related to, for example, premium volume and product mix. Our parent company funded a subsidiary capital contribution of approximately $535 million in the first quarter of 2017 for reserve strengthening associated with our closed block of long-term care insurance policies discussed further in Note 18 of the notes to consolidated financial statements in this Annual Report on Form 10-K. Our use of operating cash flows derived from our non-insurance subsidiaries, such as in our Healthcare Services segment, is generally not restricted by state departments of insurance (or comparable state regulators). ACQUISITIONS AND DIVESTITURES Refer to Note 3 of the notes to consolidated financial statements in this Annual Report on Form 10-K for a description of certain acquisitions and divestitures. On June 1, 2015, we completed the sale of our wholly owned subsidiary, Concentra Inc. During 2017, 2016 and 2015, we funded certain non-regulated subsidiary acquisitions with contributions from Humana Inc., our parent company, included in capital contributions in the condensed statement of cash flows. INCOME TAXES Refer to Note 11 of the notes to consolidated financial statements included in this Annual Report on Form 10-K for a description of income taxes. DEBT Refer to Note 12 of the notes to consolidated financial statements included in this Annual Report on Form 10-K for a description of debt. STOCKHOLDER’S EQUITY Refer to Note 15 of the notes to consolidated financial statements included in this Annual Report on Form 10-K for a description of stockholders’ equity, including stock repurchases and stockholder dividends. |
SCHEDULE II-VALUATION AND QUALIFYING ACCOUNTS |
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SCHEDULE II-VALUATION AND QUALIFYING ACCOUNTS | SCHEDULE II—VALUATION AND QUALIFYING ACCOUNTS For the Years Ended December 31, 2017, 2016, and 2015 (in millions)
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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies) |
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Accounting Policies [Abstract] | |
Basis of Presentation | 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 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 | Business Segment Reclassifications During the first quarter of 2017, we realigned certain of our businesses among our reportable segments to correspond with internal management reporting changes corresponding to those used by our chief operating decision maker to evaluate results of operations 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 supplemental 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. See Note 17 for recast segment financial information. |
Health Care Reform | 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. The Health Care Reform Law imposes an annual premium-based fee on health insurers for each calendar year beginning on or after January 1, 2014 which is not deductible for tax purposes. We are required to estimate a liability for the health insurer fee and record it in full once qualifying insurance coverage is provided in the applicable calendar year in which the fee is payable with a corresponding deferred cost that is amortized ratably to expense over the same calendar year. We record the liability for the health insurer fee in trade accounts payable and accrued expenses and record the deferred cost in other current assets in our consolidated financial statements. We pay the health insurer fee in September of each year. The Consolidated Appropriations Act, 2016, enacted on December 18, 2015, included a one-time one year suspension in 2017 of the health insurer fee. The Continuing Resolution bill, H.R. 195, enacted on January 22, 2018, included a one year suspension in 2019 of the health insurer fee, but the fee is scheduled to resume in calendar year 2020. See Note 7 for detail regarding amounts paid for the annual health insurer fee. The Health Care Reform Law also established risk spreading premium stabilization programs effective January 1, 2014, with an annual open enrollment period. The risk spreading programs are applicable to certain of our commercial medical insurance products. In the aggregate, our commercial medical insurance products represented approximately 13% of our total premiums and services revenue for the year ended December 31, 2017, a subset of which is subject to these programs. These programs, commonly referred to as the 3Rs, include a permanent risk adjustment program, a transitional reinsurance program, and a temporary risk corridors program designed to more evenly spread the financial risk borne by issuers and to mitigate the risk that issuers would have mispriced products. The transitional reinsurance and temporary risk corridors programs were only applicable for years 2014 through 2016. Policies issued prior to March 23, 2010 are considered grandfathered policies and are exempt from the 3Rs. Certain states have allowed non-grandfathered policies issued prior to January 1, 2014 to extend the date of required transition to policies compliant with the Health Care Reform Law to as late as 2017. Accordingly, such policies are exempt from the 3Rs until they transition to policies compliant with the Health Care Reform Law. The permanent risk adjustment program adjusts the premiums that commercial individual and small group health insurance issuers receive based on the demographic factors and health status of each member as derived from current year medical diagnosis as reported throughout the year. This program transfers funds from lower risk plans to higher risk plans within similar plans in the same state. The risk adjustment program is applicable to commercial individual and small group health plans (except certain exempt and grandfathered plans as discussed above) operating both inside and outside of the health insurance exchanges established under the Health Care Reform Law. Effective January 1, 2018, we have exited our Individual Commercial medical business. Under the risk adjustment program, a risk score is assigned to each covered member to determine an average risk score at the individual and small group level by legal entity in a particular market in a state. Additionally, an average risk score is determined for the entire subject population for each market in each state. Settlements are determined on a net basis by legal entity and state. Each health insurance issuer’s average risk score is compared to the state’s average risk score. Plans with an average risk score below the state average will pay into a pool and health insurance issuers with an average risk score that is greater than the state average risk score will receive money from that pool. We generally rely on providers, including certain network providers who are our employees, to appropriately document all medical data, including the diagnosis codes submitted with claims, as the basis for our risk scores under the program. Our estimate of amounts receivable and/or payable under the risk adjustment program is based on our estimate of both our own and the state average risk scores. Assumptions used in these estimates include but are not limited to published third party studies and other publicly available data including regulatory plan filings, geographic considerations including our historical experience in markets we have participated in over a long period of time, member demographics (including age and gender for our members and other health insurance issuers), our pricing model, sales data for each metal tier (different metal tiers yield different risk scores), and the mix of previously underwritten membership as compared to new members in plans compliant with the Health Care Reform Law. We refine our estimates as new information becomes available, including additional data released by the Department of Health and Human Services, or HHS, regarding estimates of state average risk scores. Risk adjustment is subject to audit by HHS beginning with the 2015 coverage year, however, there were no payments associated with these audits for 2015 or 2016, the pilot years for the audits. The temporary risk corridor program applied to individual and small group Qualified Health Plans (or substantially equivalent plans), or QHPs, as defined by HHS, operating both inside and outside of the exchanges. Accordingly, plans subject to risk adjustment that are not QHPs, including our small group health plans, were not subject to the risk corridor program. The risk corridor provisions were intended to limit issuer gains and losses by comparing allowable medical costs to a target amount, each defined/prescribed by HHS, and sharing the risk for allowable costs with the federal government. Allowable medical costs are adjusted for risk adjustment settlements, transitional reinsurance recoveries, and cost sharing reductions received from HHS. Variances from the target exceeding certain thresholds may result in HHS making additional payments to us or require us to refund HHS a portion of the premiums we received. We estimate and recognize adjustments to premiums revenue for the risk adjustment and risk corridor provisions by projecting our ultimate premium for the calendar year separately for individual and group plans by state and legal entity. Estimated calendar year settlement amounts are recognized ratably during the year and are revised each period to reflect current experience, including changes in risk scores derived from medical diagnoses submitted by providers. We record receivables or payables at the individual or group level within each state and legal entity and classify the amounts as current or long-term in our consolidated balance sheets based on the timing of expected settlement. On November 10, 2016, the U.S. Court of Federal Claims ruled in favor of the government in one of a series of cases filed by insurers, unrelated to us, against HHS to collect risk corridor payments, rejecting all of the insurer’s statutory, contract and Constitutional claims for payment. On November 18, 2016, HHS issued a memorandum indicating a significant funding shortfall for the 2015 coverage year, the second consecutive year of significant shortfalls. Given the successful challenge of the risk corridor provisions in court, Congressional inquiries into the funding of the risk corridor program, and significant funding shortfalls under the first two years of the program, during the fourth quarter of 2016 we wrote-off $583 million in risk corridor receivables outstanding as of September 30, 2016, and ceased recognizing revenues under the risk corridor program as discussed further in Note 7. The transitional reinsurance program required us to make reinsurance contributions for calendar years 2014 through 2016 to a state or HHS established reinsurance entity based on a national contribution rate per covered member as determined by HHS. While all commercial medical plans, including self-funded plans, are required to fund the reinsurance entity, only fully-insured non-grandfathered plans compliant with the Health Care Reform Law in the individual commercial market were eligible for recoveries if individual claims exceed a specified threshold. Accordingly, we accounted for transitional reinsurance contributions associated with all commercial medical health plans other than these non-grandfathered individual plans as an assessment in operating costs in our consolidated statements of income. We accounted for contributions made by individual commercial plans compliant with the Health Care Reform Law, which were subject to recoveries, as ceded premiums (a reduction of premiums) and similarly we accounted for any recoveries as ceded benefits (a reduction of benefits expense) in our consolidated statements of income. See Note 7 for detail regarding amounts recorded to the consolidated balance sheets related to the 3Rs. In addition to the provisions discussed above, beginning in 2014, HHS paid us a portion of the health care costs for low-income individual members for which we assume no risk in accordance with the Health Care Reform Law. These cost subsidy payments ceased effective October 2017. We accounted for these subsidies as a deposit in our consolidated balance sheets and as a financing activity in our consolidated statements of cash flows. We did not recognize premiums revenue or benefits expense for these subsidies. Receipt and payment activity was accumulated at the state and legal entity level and recorded in our consolidated balance sheet in other current assets or trade accounts payable and accrued expenses depending on the state and legal entity balance at the end of the reporting period. We will be notified of final settlement amounts by June 30 of the year following the coverage year. |
Cash and Cash Equivalents | Cash and Cash Equivalents Cash and cash equivalents include cash, time deposits, money market funds, commercial paper, other money market instruments, and certain U.S. Government securities with an original maturity of three months or less. Carrying value approximates fair value due to the short-term maturity of the investments. |
Investment Securities | Investment Securities Investment securities, which consist entirely of debt securities, have been categorized as available for sale and, as a result, are stated at fair value. Investment securities available for current operations are classified as current assets. Investment securities available for our long-term insurance products and professional liability funding requirements, as well as restricted statutory deposits, are classified as long-term assets. For the purpose of determining gross realized gains and losses, which are included as a component of investment income in the consolidated statements of income, the cost of investment securities sold is based upon specific identification. Unrealized holding gains and losses, net of applicable deferred taxes, are included as a component of stockholders’ equity and comprehensive income until realized from a sale or other-than-temporary impairment. Under the other-than-temporary impairment model for debt securities held, we recognize an impairment loss in income in an amount equal to the full difference between the amortized cost basis and the fair value when we have the intent to sell the debt security or it is more likely than not we will be required to sell the debt security before recovery of our amortized cost basis. However, if we do not intend to sell the debt security, we evaluate the expected cash flows to be received as compared to amortized cost and determine if a credit loss has occurred. In the event of a credit loss, only the amount of the impairment associated with the credit loss is recognized currently in income with the remainder of the loss recognized in other comprehensive income. When we do not intend to sell a security in an unrealized loss position, potential other-than-temporary impairment is considered using a variety of factors, including the length of time and extent to which the fair value has been less than cost; adverse conditions specifically related to the industry, geographic area or financial condition of the issuer or underlying collateral of a security; payment structure of the security; changes in credit rating of the security by the rating agencies; the volatility of the fair value changes; and changes in fair value of the security after the balance sheet date. For debt securities, we take into account expectations of relevant market and economic data. For example, with respect to mortgage and asset-backed securities, such data includes underlying loan level data and structural features such as seniority and other forms of credit enhancements. A decline in fair value is considered other-than-temporary when we do not expect to recover the entire amortized cost basis of the security. We estimate the amount of the credit loss component of a debt security as the difference between the amortized cost and the present value of the expected cash flows of the security. The present value is determined using the best estimate of future cash flows discounted at the implicit interest rate at the date of purchase. |
Receivables and Revenue Recognition | Receivables and Revenue Recognition We generally establish one-year commercial membership contracts with employer groups, subject to cancellation by the employer group on 30-day written notice. Our Medicare contracts with CMS renew annually. Our military services contracts with the federal government and our contracts with various state Medicaid programs generally are multi-year contracts subject to annual renewal provisions. Individual polices are subject to the requirements of the Health Care Reform Law as discussed previously. Premiums Revenue We bill and collect premium from employer groups and members in our Medicare and other individual products monthly. We receive monthly premiums from the federal government and various states according to government specified payment rates and various contractual terms. Changes in revenues for our Medicare and individual commercial medical products resulting from the periodic changes in risk-adjustment scores derived from medical diagnoses for our membership and changes in risk corridor estimates are recognized when the amounts become determinable and the collectibility is reasonably assured. Premiums revenue is estimated by multiplying the membership covered under the various contracts by the contractual rates. Premiums revenue is recognized as income in the period members are entitled to receive services, and is net of estimated uncollectible amounts, retroactive membership adjustments, and adjustments to recognize rebates under the minimum benefit ratios required under the Health Care Reform Law. We estimate policyholder rebates by projecting calendar year minimum benefit ratios for the individual, small group, and large group markets, as defined by the Health Care Reform Law using a methodology prescribed by HHS, separately by state and legal entity. Medicare Advantage products are also subject to minimum benefit ratio requirements under the Health Care Reform Law. Estimated calendar year rebates recognized ratably during the year are revised each period to reflect current experience. Retroactive membership adjustments result from enrollment changes not yet processed, or not yet reported by an employer group or the government. We routinely monitor the collectibility of specific accounts, the aging of receivables, historical retroactivity trends, estimated rebates, as well as prevailing and anticipated economic conditions, and reflect any required adjustments in current operations. Premiums received prior to the service period are recorded as unearned revenues. Medicare Part D We cover prescription drug benefits in accordance with Medicare Part D under multiple contracts with CMS. The payments we receive monthly from CMS and members, which are determined from our annual bid, represent amounts for providing prescription drug insurance coverage. We recognize premiums revenue for providing this insurance coverage ratably over the term of our annual contract. Our CMS payment is subject to risk sharing through the Medicare Part D risk corridor provisions. In addition, receipts for reinsurance and low-income cost subsidies as well as receipts for certain discounts on brand name prescription drugs in the coverage gap represent payments for prescription drug costs for which we are not at risk. The risk corridor provisions compare costs targeted in our bids to actual prescription drug costs, limited to actual costs that would have been incurred under the standard coverage as defined by CMS. Variances exceeding certain thresholds may result in CMS making additional payments to us or require us to refund to CMS a portion of the premiums we received. As risk corridor provisions are considered in our overall annual bid process, we estimate and recognize an adjustment to premiums revenue related to these provisions based upon pharmacy claims experience. We record a receivable or payable at the contract level and classify the amount as current or long-term in our consolidated balance sheets based on the timing of expected settlement. Reinsurance and low-income cost subsidies represent funding from CMS in connection with the Medicare Part D program for which we assume no risk. Reinsurance subsidies represent funding from CMS for its portion of prescription drug costs which exceed the member’s out-of-pocket threshold, or the catastrophic coverage level. Low-income cost subsidies represent funding from CMS for all or a portion of the deductible, the coinsurance and co-payment amounts above the out-of-pocket threshold for low-income beneficiaries. Monthly prospective payments from CMS for reinsurance and low-income cost subsidies are based on assumptions submitted with our annual bid. A reconciliation and related settlement of CMS’s prospective subsidies against actual prescription drug costs we paid is made after the end of the year. The Health Care Reform Law mandates consumer discounts of 50% on brand name prescription drugs for Part D plan participants in the coverage gap. These discounts are funded by CMS and pharmaceutical manufacturers while we administer the application of these funds. We account for these subsidies and discounts as a deposit in our consolidated balance sheets and as a financing activity under receipts (withdrawals) from contract deposits in our consolidated statements of cash flows. For 2017, subsidy and discount reimbursements of $12.1 billion exceeded payments of $10.2 billion by $1.9 billion. For 2016, subsidy and discount reimbursements of $11.1 billion exceeded payments of $10.0 billion by $1.1 billion. For 2015, subsidy and discount payments of $8.9 billion exceeded reimbursements of $8.6 billion by $361 million. We do not recognize premiums revenue or benefit expenses for these subsidies or discounts. Receipt and payment activity is accumulated at the contract level and recorded in our consolidated balance sheets in other current assets or trade accounts payable and accrued expenses depending on the contract balance at the end of the reporting period. Settlement of the reinsurance and low-income cost subsidies as well as the risk corridor payment is based on a reconciliation made approximately 9 months after the close of each calendar year. Settlement with CMS for brand name prescription drug discounts is based on a reconciliation made approximately 14 to 18 months after the close of each calendar year. We continue to revise our estimates with respect to the risk corridor provisions based on subsequent period pharmacy claims data. See Note 6 for detail regarding amounts recorded to our consolidated balance sheets related to the risk corridor settlement and subsidies from CMS with respect to the Medicare Part D program. Services Revenue Patient services revenue Patient services include injury and illness care and related services as well as other healthcare services related to employer needs or as required by law. Patient services revenues are recognized in the period services are provided to the customer when the sales price is fixed or determinable, and are net of contractual allowances. Administrative services fees Administrative services fees cover the processing of claims, offering access to our provider networks and clinical programs, and responding to customer service inquiries from members of self-funded groups. Revenues from providing administration services, also known as administrative services only, or ASO, are recognized in the period services are performed and are net of estimated uncollectible amounts. ASO fees are estimated by multiplying the membership covered under the various contracts by the contractual rates. Under ASO contracts, self-funded employers retain the risk of financing substantially all of the cost of health benefits. However, many ASO customers purchase stop loss insurance coverage from us to cover catastrophic claims or to limit aggregate annual costs. Accordingly, we have recorded premiums revenue and benefits expense related to these stop loss insurance contracts. We routinely monitor the collectibility of specific accounts, the aging of receivables, as well as prevailing and anticipated economic conditions, and reflect any required adjustments in current operations. ASO fees received prior to the service period are recorded as unearned revenues. Under our TRICARE contracts with the Department of Defense we provide administrative services, including offering access to our provider networks and clinical programs, claim processing, customer service, enrollment, and other services, while the federal government retains all of the risk of the cost of health benefits. We account for revenues under our contracts net of estimated health care costs similar to an administrative services fee only agreement. Our contracts include fixed administrative services fees and incentive fees and penalties. Administrative services fees are recognized as services are performed. Our TRICARE members are served by both in-network and out-of-network providers in accordance with our contracts. We pay health care costs related to these services to the providers and are subsequently reimbursed by the DoD for such payments. We account for the payments of the federal government’s claims and the related reimbursements under deposit accounting in our consolidated balance sheets and as a financing activity under receipts (withdrawals) from contract deposits in our consolidated statements of cash flows. For 2017, health care cost reimbursements and payments were each approximately $3.4 billion, with reimbursements exceeding payments by $11 million for the year. For 2016, health care cost reimbursements and payments were each approximately $3.3 billion, with payments exceeding reimbursements by $25 million for the year. For 2015, health care cost reimbursements and payments were each approximately $3.3 billion with payments exceeding reimbursements by $4 million for the year. 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. |
Other Current Assets | Other Current Assets Other current assets includes amounts associated with Medicare Part D as discussed above and in Note 6, rebates due from pharmaceutical manufacturers and other amounts due within one year. We accrue pharmaceutical rebates as they are earned based on contractual terms and usage of the product. |
Policy Acquisition Costs | 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 canceled 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. In addition, as previously underwritten members transition to plans compliant with the Health Care Reform Law, it results in policy lapses and the recognition of previously deferred acquisition costs. |
Long-Lived Assets | 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 5 years for computer software, and 10 to 20 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 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. As discussed further below, we early adopted the Financial Accounting Standards Board, or FASB, issued guidance simplifying the accounting for goodwill impairment. We use the one-step process to review goodwill for impairment to determine both the existence and amount of goodwill 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 evaluation of future discounted cash flows to determine fair value of our reporting units. Impairment tests completed for 2017, 2016, and 2015 did not result in an impairment loss. Other intangible assets primarily relate to acquired customer contracts/relationships and are included with other long-term assets in the consolidated balance sheets. Other intangible assets are amortized over the useful life, based upon the pattern of future cash flows attributable to the asset. This sometimes results in an accelerated method of amortization for customer contracts because the asset tends to dissipate at a more rapid rate in earlier periods. Other than customer contracts, other intangible assets generally are amortized using the straight-line method. We review other finite-lived intangible assets for impairment under our long-lived asset policy. |
Benefits Payable and Benefits Expense Recognition | Benefits Payable and Benefits Expense Recognition Benefits expense includes claim payments, capitation payments, pharmacy costs net of rebates, allocations of certain centralized expenses and various other costs incurred to provide health insurance coverage to members, as well as estimates of future payments to hospitals and others for medical care and other supplemental benefits provided on or prior to the balance sheet date. Capitation payments represent monthly contractual fees disbursed to primary care and other providers who are responsible for providing medical care to members. Pharmacy costs represent payments for members’ prescription drug benefits, net of rebates from drug manufacturers. Receivables for such pharmacy rebates are included in other current assets in our consolidated balance sheets. Other supplemental benefits include dental, vision, and other supplemental health and financial protection products. We estimate the costs of our benefits expense payments using actuarial methods and assumptions based upon claim payment patterns, medical cost inflation, historical developments such as claim inventory levels and claim receipt patterns, and other relevant factors, and record benefit reserves for future payments. We continually review estimates of future payments relating to claims costs for services incurred in the current and prior periods and make necessary adjustments to our reserves. Benefits expense is recognized in the period in which services are provided and includes an estimate of the cost of services which have been incurred but not yet reported, or IBNR. Our reserving practice is to consistently recognize the actuarial best point estimate within a level of confidence required by actuarial standards. Actuarial standards of practice generally require a level of confidence such that the liabilities established for IBNR have a greater probability of being adequate versus being insufficient, or such that the liabilities established for IBNR are sufficient to cover obligations under an assumption of moderately adverse conditions. Adverse conditions are situations in which the actual claims are expected to be higher than the otherwise estimated value of such claims at the time of the estimate. Therefore, in many situations, the claim amounts ultimately settled will be less than the estimate that satisfies the actuarial standards of practice. We develop our estimate for IBNR using actuarial methodologies and assumptions, primarily based upon historical claim experience. Depending on the period for which incurred claims are estimated, we apply a different method in determining our estimate. For periods prior to the most recent two months, the key assumption used in estimating our IBNR is that the completion factor pattern remains consistent over a rolling 12-month period after adjusting for known changes in claim inventory levels and known changes in claim payment processes. Completion factors result from the calculation of the percentage of claims incurred during a given period that have historically been adjudicated as of the reporting period. For the most recent two months, the incurred claims are estimated primarily from a trend analysis based upon per member per month claims trends developed from our historical experience in the preceding months, adjusted for known changes in estimates of recent hospital and drug utilization data, provider contracting changes, changes in benefit levels, changes in member cost sharing, changes in medical management processes, product mix, and weekday seasonality. The completion factor method is used for the months of incurred claims prior to the most recent two months because the historical percentage of claims processed for those months is at a level sufficient to produce a consistently reliable result. Conversely, for the most recent two months of incurred claims, the volume of claims processed historically is not at a level sufficient to produce a reliable result, which therefore requires us to examine historical trend patterns as the primary method of evaluation. Changes in claim processes, including recoveries of overpayments, receipt cycle times, claim inventory levels, outsourcing, system conversions, and processing disruptions due to weather or other events affect views regarding the reasonable choice of completion factors. Claim payments to providers for services rendered are often net of overpayment recoveries for claims paid previously, as contractually allowed. Claim overpayment recoveries can result from many different factors, including retroactive enrollment activity, audits of provider billings, and/or payment errors. Changes in patterns of claim overpayment recoveries can be unpredictable and result in completion factor volatility, as they often impact older dates of service. The receipt cycle time measures the average length of time between when a medical claim was initially incurred and when the claim form was received. Increases in electronic claim submissions from providers decrease the receipt cycle time. If claims are submitted or processed on a faster (slower) pace than prior periods, the actual claim may be more (less) complete than originally estimated using our completion factors, which may result in reserves that are higher (lower) than required. Medical cost trends potentially are more volatile than other segments of the economy. The drivers of medical cost trends include increases in the utilization of hospital facilities, physician services, new higher priced technologies and medical procedures, and new prescription drugs and therapies, as well as the inflationary effect on the cost per unit of each of these expense components. Other external factors such as government-mandated benefits or other regulatory changes, the tort liability system, increases in medical services capacity, direct to consumer advertising for prescription drugs and medical services, an aging population, lifestyle changes including diet and smoking, catastrophes, and epidemics also may impact medical cost trends. Internal factors such as system conversions, claims processing cycle times, changes in medical management practices and changes in provider contracts also may impact our ability to accurately predict estimates of historical completion factors or medical cost trends. All of these factors are considered in estimating IBNR and in estimating the per member per month claims trend for purposes of determining the reserve for the most recent two months. Additionally, we continually prepare and review follow-up studies to assess the reasonableness of the estimates generated by our process and methods over time. The results of these studies are also considered in determining the reserve for the most recent two months. Each of these factors requires significant judgment by management. We reassess the profitability of our contracts for providing insurance coverage to our members when current operating results or forecasts indicate probable future losses. We establish a premium deficiency reserve in current operations to the extent that the sum of expected future costs, claim adjustment expenses, and maintenance costs exceeds related future premiums under contracts without consideration of investment income. For purposes of determining premium deficiencies, contracts are grouped in a manner consistent with our method of acquiring, servicing, and measuring the profitability of such contracts. Losses recognized as a premium deficiency result in a beneficial effect in subsequent periods as operating losses under these contracts are charged to the liability previously established. Because the majority of our member contracts renew annually, we would not record a material premium deficiency reserve, except when unanticipated adverse events or changes in circumstances indicate otherwise. In the fourth quarter of 2015, we recognized a premium deficiency reserve of $176 million for our individual commercial medical business compliant with the Health Care Reform Law associated with the 2016 coverage year and recorded a change in estimate of $208 million in the second quarter of 2016 associated with the 2016 coverage year as discussed in more detail in Note 7. As of December 31, 2016 and December 31, 2017, we had no remaining premium deficiency reserve. We believe our benefits payable are adequate to cover future claims payments required. However, such estimates are based on knowledge of current events and anticipated future events. Therefore, the actual liability could differ materially from the amounts provided. |
Future Policy Benefits Payable | Future policy benefits payable Future policy benefits payable include liabilities for long-duration insurance policies including long-term care, life insurance, annuities, and certain health and other supplemental policies sold to individuals for which some of the premium received in the earlier years is intended to pay anticipated benefits to be incurred in future years. At policy issuance, these reserves are recognized on a net level premium method based on interest rates, mortality, morbidity, and maintenance expense assumptions. Interest rates are based on our expected net investment returns on the investment portfolio supporting the reserves for these blocks of business. Mortality, a measure of expected death, and morbidity, a measure of health status, assumptions are based on industry actuarial tables, modified based upon actual experience. Changes in estimates of these reserves are recognized as an adjustment to benefits expense in the period the changes occur. We perform loss recognition tests at least annually in the fourth quarter, and more frequently if adverse events or changes in circumstances indicate that the level of the liability, together with the present value of future gross premiums, may not be adequate to provide for future expected policy benefits and maintenance costs. During 2016, we recorded a loss for a premium deficiency as discussed further in Note 18. We adjust future policy benefits payable for the additional liability that would have been recorded if investment securities backing the liability had been sold at their stated aggregate fair value and the proceeds reinvested at current yields. We include the impact of this adjustment, if any, net of applicable deferred taxes, with the change in unrealized investment gain (loss) in accumulated other comprehensive income in stockholders’ equity. As discussed previously, beginning in 2014, health policies sold to individuals that conform to the Health Care Reform Law are accounted for under a short-duration model under which policy reserves are not established because premiums received in the current year are intended to pay anticipated benefits in that year. In addition, as previously underwritten members transition to plans compliant with the Health Care Reform Law, it results in policy lapses and the release of reserves for future policy benefits. |
Book Overdraft | Book Overdraft Under our cash management system, checks issued but not yet presented to banks that would result in negative bank balances when presented are classified as a current liability in the consolidated balance sheets. Changes in book overdrafts from period to period are reported in the consolidated statement of cash flows as a financing activity. |
Income Taxes | Income Taxes We recognize an asset or liability for the deferred tax consequences of temporary differences between the tax bases of assets or liabilities and their reported amounts in the consolidated financial statements. These temporary differences will result in taxable or deductible amounts in future years when the reported amounts of the assets or liabilities are recovered or settled. We also recognize the future tax benefits such as net operating and capital loss carryforwards as deferred tax assets. A valuation allowance is provided against these deferred tax assets if it is more likely than not that some portion or all of the deferred tax assets will not be realized. Future years’ tax expense may be increased or decreased by adjustments to the valuation allowance or to the estimated accrual for income taxes. Deferred tax assets and deferred tax liabilities are further adjusted for changes in the enacted tax rates. We record tax benefits when it is more likely than not that the tax return position taken with respect to a particular transaction will be sustained. A liability, if recorded, is not considered resolved until the statute of limitations for the relevant taxing authority to examine and challenge the tax position has expired, or the tax position is ultimately settled through examination, negotiation, or litigation. We classify interest and penalties associated with uncertain tax positions in our provision for income taxes. |
Derivative Financial Instruments | Derivative Financial Instruments On October 29, 2012, we acquired a noncontrolling equity interest in MCCI Holdings, LLC, or MCCI, a privately held Medical Services Organization, or MSO, headquartered in Miami, Florida, that primarily coordinates medical care for Medicare Advantage beneficiaries in Florida and Texas. Our agreement with MCCI includes a put option that would allow the controlling interest holder to put their interest to us beginning in 2018 as well as a call option that would allow us to purchase the controlling interest beginning in 2021. Accordingly, we recorded the effects of the put and call option at fair value. Changes in the fair values during the years ended December 31, 2017, 2016, and 2015 were not material to our results of operations, financial condition, or cash flows. At times, we may use interest-rate swap agreements to manage our exposure to interest rate risk. The differential between fixed and variable rates to be paid or received is accrued and recognized over the life of the agreements as adjustments to interest expense in the consolidated statements of income. |
Stock-Based Compensation | Stock-Based Compensation We generally recognize stock-based compensation expense, as determined on the date of grant at fair value, on a straight-line basis over the period during which an employee is required to provide service in exchange for the award (the vesting period). In addition, for awards with both time and performance-based conditions, we generally recognize compensation expense on a straight line basis over the vesting period when it is probable that the performance condition will be achieved. However, prior to July 2, 2015, for awards granted to retirement eligible employees, compensation expense is recognized on a straight-line basis over the shorter of the requisite service period or the period from the date of grant to an employee’s eligible retirement date. For awards granted on or after July 2, 2015 to retirement eligible employees, we recognize expense on a straight-line basis over the service period (the vesting period). We estimate expected forfeitures and recognize compensation expense only for those awards which are expected to vest. We estimate the grant-date fair value of stock options using the Black-Scholes option-pricing model. Prior to 2016 we reported certain tax effects of stock-based compensation as a financing activity rather than an operating activity in the consolidated statement of cash flows. In 2016, we prospectively applied the provisions of new guidance issued by the FASB related to the presentation of windfall tax benefits as cash flows from operating activities which resulted in reclassifying $20 million of cash flows from financing activities to operating activities for the three months ended March 31, 2016. We estimate forfeitures expected to occur to determine the amount of compensation cost to be recognized in each period. |
Earnings Per Common Share | Earnings Per Common Share We compute basic earnings per common share on the basis of the weighted-average number of unrestricted common shares outstanding. Diluted earnings per common share is computed on the basis of the weighted-average number of unrestricted common shares outstanding plus the dilutive effect of outstanding employee stock options and restricted shares, or units, using the treasury stock method. |
Fair Value | Fair Value Assets and liabilities measured at fair value are categorized into a fair value hierarchy based on whether the inputs to valuation techniques are observable or unobservable. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect our own assumptions about the assumptions market participants would use. The fair value hierarchy includes three levels of inputs that may be used to measure fair value as described below. Level 1 – Quoted prices in active markets for identical assets or liabilities. Level 1 assets and liabilities include debt securities that are traded in an active exchange market. Level 2 – Observable inputs other than Level 1 prices such as quoted prices in active markets for similar assets or liabilities, quoted prices for identical or similar assets or liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. Level 2 assets and liabilities include debt securities with quoted prices that are traded less frequently than exchange-traded instruments as well as debt securities whose value is determined using a pricing model with inputs that are observable in the market or can be derived principally from or corroborated by observable market data. Level 3 – Unobservable inputs that are supported by little or no market activity and are significant to the fair value of the assets or liabilities. Level 3 includes assets and liabilities whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques reflecting our own assumptions about the assumptions market participants would use as well as those requiring significant management judgment. Fair value of actively traded debt securities are based on quoted market prices. Fair value of other debt securities are based on quoted market prices of identical or similar securities or based on observable inputs like interest rates generally using a market valuation approach, or, less frequently, an income valuation approach and are generally classified as Level 2. We obtain at least one price for each security from a third party pricing service. These prices are generally derived from recently reported trades for identical or similar securities, including adjustments through the reporting date based upon observable market information. When quoted prices are not available, the third party pricing service may use quoted market prices of comparable securities or discounted cash flow analysis, incorporating inputs that are currently observable in the markets for similar securities. Inputs that are often used in the valuation methodologies include benchmark yields, reported trades, credit spreads, broker quotes, default rates, and prepayment speeds. We are responsible for the determination of fair value and as such we perform analysis on the prices received from the third party pricing service to determine whether the prices are reasonable estimates of fair value. Our analysis includes a review of monthly price fluctuations as well as a quarterly comparison of the prices received from the pricing service to prices reported by our third party investment advisor. In addition, on a quarterly basis we examine the underlying inputs and assumptions for a sample of individual securities across asset classes, credit rating levels, and various durations. Fair value of privately held debt securities, as well as auction rate securities, are estimated using a variety of valuation methodologies, including both market and income approaches, where an observable quoted market does not exist and are generally classified as Level 3. For privately-held debt securities, such methodologies include reviewing the value ascribed to the most recent financing, comparing the security with securities of publicly-traded companies in similar lines of business, and reviewing the underlying financial performance including estimating discounted cash flows. Auction rate securities are debt instruments with interest rates that reset through periodic short-term auctions. From time to time, liquidity issues in the credit markets have led to failed auctions. Given the liquidity issues, fair value could not be estimated based on observable market prices, and as such, unobservable inputs were used. For auction rate securities, valuation methodologies include consideration of the quality of the sector and issuer, underlying collateral, underlying final maturity dates, and liquidity. |
Recently Issued Accounting Pronouncements | Recently Issued Accounting Pronouncements Recently Adopted Accounting Pronouncements In January 2017, the FASB issued guidance which simplifies the accounting for goodwill impairment. The new guidance eliminates the requirement to calculate the implied fair value of goodwill to measure a goodwill impairment charge. A goodwill impairment charge would be recognized if the carrying amount of a reporting unit exceeds the estimated fair value of the reporting unit. The new guidance is effective beginning with annual and interim periods in 2020, with early adoption permitted, and is to be applied prospectively. We early adopted this new guidance in the fourth quarter of 2017 and it did not have an impact on our results of operations, financial condition, or cash flows. Accounting Pronouncements Effective in Future Periods In March 2017, the FASB issued new guidance that amends the accounting for premium amortization on purchased callable debt securities by shortening the amortization period. This amended guidance requires the premium to be amortized to the earliest call date instead of maturity date. The new guidance is effective for us beginning with annual and interim periods in 2019. We do not expect adoption of this guidance will have a material impact on our results of operations, financial condition and cash flows. In June 2016, the FASB issued guidance introducing a new model for recognizing credit losses on financial instruments based on an estimate of current expected credit losses. The guidance is effective for us beginning January 1, 2020. The new current expected credit losses (CECL) model generally calls for the immediate recognition of all expected credit losses and applies to loans, accounts and trade receivables as well as other financial assets measured at amortized cost, loan commitments and off-balance sheet credit exposures, debt securities and other financial assets measured at fair value through other comprehensive income, and beneficial interests in securitized financial assets. The new guidance replaces the current incurred loss model for measuring expected credit losses, requires expected losses on available-for-sale debt securities to be recognized through an allowance for credit losses rather than as reductions in the amortized cost of the securities, and provides for additional disclosure requirements. Our investment portfolio consists of available-for-sale debt securities. We are currently evaluating the impact on our results of operations, financial condition, or cash flows. In February 2016, the FASB issued new guidance related to accounting for leases which requires lessees to record assets and liabilities reflecting the leased assets and lease obligations, respectively, while following the dual model for recognition in statements of income requiring leases to be classified as either operating or finance. Operating leases will result in straight-line expense (similar to current operating leases) while finance leases will result in a front-loaded expense pattern (similar to current capital leases). The new guidance is effective for us beginning with annual and interim periods in 2019, with earlier adoption permitted, and requires retrospective application to previously issued annual and interim financial statements. We have begun the process of identifying the population of lease agreements and other arrangements that may contain embedded leases for purposes of adopting the new standard. While we expect to record significant leased assets and corresponding lease obligations based on our existing population of individual leases, we continue to evaluate the impact on our results of operations, financial position and cash flows. In May 2014, the FASB issued new guidance that amends the accounting for revenue recognition. The amendments are intended to provide a more robust framework for addressing revenue issues, improve comparability of revenue recognition practices, and improve disclosure requirements. Insurance contracts are not included in the scope of this new guidance. Accordingly, our premiums revenue and investment income, collectively representing approximately 98% of our consolidated external revenues for 2017, are not included in the scope of the new guidance. We adopted the new standard effective January 1, 2018, as allowed, using the modified retrospective approach. As the majority of or revenues are not subject to the new guidance and the remaining revenues’ accounting treatment did not materially differ from existing accounting treatment, the adoption of the new standard did not have a material impact on our consolidated results of operations, financial condition, cash flows, and disclosures. There are no other recently issued accounting standards that apply to us or that are expected to have a material impact on our results of operations, financial condition, or cash flows. |
INVESTMENT SECURITIES (Tables) |
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Investments, Debt and Equity Securities [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Investment Securities Classified as Current and Long-Term | Investment securities classified as current and long-term were as follows at December 31, 2017 and 2016, respectively:
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Schedule of Gross Unrealized Losses and Fair Value of Securities | Gross unrealized losses and fair values aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position were as follows at December 31, 2017 and 2016, respectively:
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Schedule of Realized Gains (Losses) Related to Investment Securities Included Within Investment Income | The detail of realized gains (losses) related to investment securities and included within investment income was as follows for the years ended December 31, 2017, 2016, and 2015:
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Schedule of Contractual Maturity of Debt Securities Available for Sale | The contractual maturities of debt securities available for sale at December 31, 2017, regardless of their balance sheet classification, are shown below. Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.
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FAIR VALUE (Tables) |
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Fair Value Disclosures [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Financial Assets Measured at Fair Value on Recurring Basis | The following table summarizes our fair value measurements at December 31, 2017 and 2016, respectively, for financial assets measured at fair value on a recurring basis:
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Changes in Fair Value of Assets Measured Using Significant Unobservable Inputs | During the years ended December 31, 2017, 2016, and 2015, the changes in the fair value of the assets measured using significant unobservable inputs (Level 3) were comprised of the following:
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MEDICARE PART D (Tables) |
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Balance Sheet Amounts Associated With Medicare Part D | The accompanying consolidated balance sheets include the following amounts associated with Medicare Part D as of December 31, 2017 and 2016. CMS subsidies/discounts in the table below include the reinsurance and low-income cost subsidies funded by CMS for which we assume no risk as well as brand name prescription drug discounts for Part D plan participants in the coverage gap funded by CMS and pharmaceutical manufacturers.
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HEALTH CARE REFORM (Tables) |
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Dec. 31, 2017 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Insurance [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule Of Risk Adjustment, Reinsurance Recoverable And Risk Corridor Settlement | The accompanying consolidated balance sheets include the following amounts associated with the 3Rs at December 31, 2017 and December 31, 2016.
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PROPERTY AND EQUIPMENT, NET (Tables) |
12 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Dec. 31, 2017 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Property, Plant and Equipment [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
PROPERTY AND EQUIPMENT, NET | Property and equipment was comprised of the following at December 31, 2017 and 2016.
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GOODWILL AND OTHER INTANGIBLE ASSETS (Tables) |
12 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Dec. 31, 2017 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Goodwill and Intangible Assets Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Changes in Carrying Amount of Goodwill By Reportable Segments | Changes in the carrying amount of goodwill for our reportable segments for the years ended December 31, 2017 and 2016 were as follows:
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Details of Intangible Assets Included in Other Long-Term Assets | The following table presents details of our other intangible assets included in other long-term assets in the accompanying consolidated balance sheets at December 31, 2017 and 2016.
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Schedule of Estimated Amortization Expense | The following table presents our estimate of amortization expense for each of the five next succeeding fiscal years:
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BENEFITS PAYABLE (Tables) |
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Dec. 31, 2017 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Defined Benefit Plans and Other Postretirement Benefit Plans Disclosures [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Activity in Benefits Payable | On a consolidated basis, activity in benefits payable, excluding military services, was as follows for the years ended December 31, 2017, 2016 and 2015:
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Schedule Of Favorable Medical Claims Reserve Development Related To Prior Fiscal Years By Segment | The table below details our favorable medical claims reserve development related to prior fiscal years by segment for 2017, 2016, and 2015.
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Benefit Expenses Excluded From Activity in Benefits Payable | Benefits expense excluded from the previous table was as follows for the years ended December 31, 2017, 2016 and 2015:
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Schedule Of Benefits Expense | The following tables provide information about incurred and paid claims development for the Retail segment as of December 31, 2017, net of reinsurance.
The following tables provide information about incurred and paid claims development for the Individual Commercial segment as of December 31, 2017, net of reinsurance.
Group and Specialty Segment Activity in benefits payable for our Group and Specialty segment, excluding military services, was as follows for the years ended December 31, 2017, 2016 and 2015:
The reconciliation of the net incurred and paid claims development tables to benefits payable in the consolidated statement of financial position is as follows:
The following tables provide information about incurred and paid claims development for the Group and Specialty segment as of December 31, 2017, net of reinsurance.
Activity in benefits payable for our Retail segment was as follows for the years ended December 31, 2017, 2016 and 2015:
Activity in benefits payable for our Individual Commercial segment, was as follows for the years ended December 31, 2017, 2016 and 2015:
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INCOME TAXES (Tables) |
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Dec. 31, 2017 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Income Tax Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Provision for Income Taxes | The provision for income taxes consisted of the following for the years ended December 31, 2017, 2016 and 2015:
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Provision for Income Taxes Using Federal Statutory Rate | The provision for income taxes was different from the amount computed using the federal statutory rate for the years ended December 31, 2017, 2016 and 2015 due to the following:
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Principal Components of Net Deferred Tax Balances | Principal components of our net deferred tax balances at December 31, 2017 and 2016 were as follows:
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DEBT (Tables) |
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Dec. 31, 2017 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Debt Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Carrying Value of Long-Term Debt Outstanding | The carrying value of long-term debt outstanding was as follows at December 31, 2017 and 2016:
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EMPLOYEE BENEFIT PLANS (Tables) |
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Dec. 31, 2017 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Retirement Benefits [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Stock-Based Compensation Expense | The compensation expense that has been charged against income for these plans was as follows for the years ended December 31, 2017, 2016, and 2015:
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Activity for Restricted Stock Awards | Activity for our restricted stock was as follows for the year ended December 31, 2017:
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Weighted-Average Fair Value of Stock Options | The fair value was estimated on the date of grant using the Black-Scholes pricing model with the weighted-average assumptions indicated below:
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Activity for Option Plans | Activity for our option plans was as follows for the year ended December 31, 2017:
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EARNINGS PER COMMON SHARE COMPUTATION (Tables) |
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Dec. 31, 2017 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Earnings Per Share [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Details Supporting Computation of Earnings Per Share | Detail supporting the computation of basic and diluted earnings per common share was as follows for the years ended December 31, 2017, 2016 and 2015:
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STOCKHOLDERS' EQUITY (Tables) |
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Equity [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Details of Dividend Payments | The following table provides details of dividend payments, excluding dividend equivalent rights, in 2015, 2016, and 2017 under our Board approved quarterly cash dividend policy:
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Class of Treasury Stock | Excluding shares acquired in connection with employee stock plans as well as 0.36 million shares received in March 2015 upon final settlement of our 2014 accelerated share repurchase agreement, for which no cash was paid during the period, share repurchases were as follows during the years ended December 31, 2017, 2016 and 2015. Excluding shares acquired in connection with employee stock plans, there were no share repurchases in 2016.
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COMMITMENTS, GUARANTEES AND CONTINGENCIES (Tables) |
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Dec. 31, 2017 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Commitments and Contingencies Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Rent Expense and Sublease Rental Income Associated With Operating Leases | Rent expense and sublease rental income, which are recorded net as an operating cost, for all operating leases were as follows for the years ended December 31, 2017, 2016 and 2015:
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Future Annual Minimum Payments Due | Future annual minimum payments due subsequent to December 31, 2017 under all of our noncancelable operating leases with initial terms in excess of one year are as follows:
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SEGMENT INFORMATION (Tables) |
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Segment Reporting [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Segment Reporting Information, By Segment | Our segment results were as follows for the years ended December 31, 2017, 2016, and 2015:
Premium and services revenues derived from our contracts with the federal government, as a percentage of our total premium and services revenues, was approximately 79% for 2017, compared to 75% for 2016, and 73% for 2015.
Premiums revenue for our Individual Commercial segment for 2016 includes a reduction of $583 million associated with the write-off of commercial risk corridor receivables as discussed more fully in Note 7. Benefits expense for Other Businesses for 2016 includes $505 million for reserve strengthening associated with our closed block of long-term care insurance policies as discussed more fully in Note 18.
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EXPENSES ASSOCIATED WITH LONG-DURATION INSURANCE PRODUCTS (Tables) |
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Dec. 31, 2017 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Insurance [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Deferred Acquisition Cost and Future Policy Benefits Payable With Our Long-Duration Insurance Products | The table below presents deferred acquisition costs and future policy benefits payable associated with our long-duration insurance products for the years ended December 31, 2017 and 2016.
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REINSURANCE (Tables) |
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Dec. 31, 2017 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Insurance [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balance and Financial Rating Related to Reinsurers | We evaluate the financial condition of these reinsurers on a regular basis. These reinsurers are well-known and well-established, as evidenced by the strong financial ratings at December 31, 2017 presented below:
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QUARTERLY FINANCIAL INFORMATION (Unaudited) (Tables) |
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Dec. 31, 2017 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Quarterly Financial Information Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Quarterly Financial Information | A summary of our quarterly unaudited results of operations for the years ended December 31, 2017 and 2016 follows:
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REPORTING ENTITY (Detail) |
12 Months Ended |
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Dec. 31, 2017 | |
FLORIDA | |
Entity Information [Line Items] | |
Percentage of premiums and services revenue related to contracts with CMS for Medicare Advantage members in Florida | 15.00% |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Acquisition of a Minority Interest (Details) - Scenario, Forecast $ in Millions |
12 Months Ended |
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Dec. 31, 2018
USD ($)
| |
Noncontrolling Interest [Line Items] | |
Equity method investment, ownership percentage | 40.00% |
Payments to acquire equity method investments | $ 800 |
Consideration upon exercise of put option, EBITDA multiple | 10.5 |
Consideration adjustment upon exercise of put option, EBITDA multiple (up to) | 11.5 |
TPG and WCAS | |
Noncontrolling Interest [Line Items] | |
Noncontrolling interest ownership percentage | 60.00% |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Sale of Closed Block of Commercial Long-Term Care Insurance Business (Details) - USD ($) $ in Millions |
3 Months Ended | 12 Months Ended | ||
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Sep. 30, 2018 |
Dec. 31, 2017 |
Dec. 31, 2016 |
Dec. 31, 2015 |
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Income Statement, Balance Sheet and Additional Disclosures by Disposal Groups, Including Discontinued Operations [Line Items] | ||||
Estimated pretax loss on sale of subsidiary | $ 0 | $ 0 | $ 270 | |
Scenario, Forecast | KMG America Corporation | Disposed of by Sale | ||||
Income Statement, Balance Sheet and Additional Disclosures by Disposal Groups, Including Discontinued Operations [Line Items] | ||||
Estimated net loss on sale of subsidiary | $ 365 | |||
Estimated pretax loss on sale of subsidiary | 780 | |||
Estimated tax benefit on sale of subsidiary | 415 | |||
Parent company cash contributed to sale of subsidiary | 203 | |||
Transfer of statutory capital with sale of subsidiary | $ 150 |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Workforce Optimization (Details) $ / shares in Units, $ in Millions |
12 Months Ended |
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Dec. 31, 2017
USD ($)
employee
$ / shares
| |
Accounting Policies [Abstract] | |
Expected number of associates impacted | employee | 3,600 |
Expected percentage of workforce associates impacted | 7.80% |
Estimated charges | $ | $ 148 |
Estimated charged per diluted share (in dollars per share) | $ / shares | $ 0.64 |
ACQUISITIONS AND DIVESTITURES (Detail) - USD ($) $ in Millions |
12 Months Ended | |||
---|---|---|---|---|
Jun. 01, 2015 |
Dec. 31, 2017 |
Dec. 31, 2016 |
Dec. 31, 2015 |
|
Income Statement, Balance Sheet and Additional Disclosures by Disposal Groups, Including Discontinued Operations [Line Items] | ||||
Gain on sale of business | $ 0 | $ 0 | $ 270 | |
Concentra Inc. | ||||
Income Statement, Balance Sheet and Additional Disclosures by Disposal Groups, Including Discontinued Operations [Line Items] | ||||
Selling price in cash | $ 1,055 | |||
Disposal transaction costs | $ 22 | |||
Pre-tax earnings | $ 411 |
INVESTMENT SECURITIES - Schedule of Realized Gains (Losses) Related to Investment Securities Included Within Investment Income (Detail) - USD ($) $ in Millions |
12 Months Ended | ||
---|---|---|---|
Dec. 31, 2017 |
Dec. 31, 2016 |
Dec. 31, 2015 |
|
Investments, Debt and Equity Securities [Abstract] | |||
Gross realized gains | $ 35 | $ 120 | $ 179 |
Gross realized losses | (21) | (24) | (33) |
Net realized capital gains | $ 14 | $ 96 | $ 146 |
INVESTMENT SECURITIES - Schedule of Contractual Maturities of Debt Securities Available for Sale (Detail) - USD ($) $ in Millions |
Dec. 31, 2017 |
Dec. 31, 2016 |
---|---|---|
Amortized Cost | ||
Due within one year | $ 712 | |
Due after one year through five years | 2,872 | |
Due after five years through ten years | 2,661 | |
Due after ten years | 3,346 | |
Mortgage and asset-backed securities | 2,513 | |
Amortized Cost | 12,104 | $ 9,826 |
Fair Value | ||
Due within one year | 711 | |
Due after one year through five years | 2,867 | |
Due after five years through ten years | 2,657 | |
Due after ten years | 3,567 | |
Mortgage and asset-backed securities | 2,500 | |
Total debt securities | $ 12,302 | $ 9,798 |
FAIR VALUE - Narrative (Detail) - USD ($) $ in Millions |
Dec. 31, 2017 |
Dec. 31, 2016 |
---|---|---|
Fair Value, Assets and Liabilities Measured on Recurring Basis [Line Items] | ||
Upper limit percentage of Level 3 assets to total invested assets | 0.10% | |
Long-term debt, carrying value | $ 4,770 | $ 3,792 |
Long-term debt, fair value | 5,191 | 4,004 |
Short-term borrowings | 150 | 300 |
Commercial Paper | ||
Fair Value, Assets and Liabilities Measured on Recurring Basis [Line Items] | ||
Short-term borrowings | $ 150 | $ 300 |
MEDICARE PART D (Detail) - USD ($) $ in Millions |
Dec. 31, 2017 |
Dec. 31, 2016 |
---|---|---|
Segment Reporting Information [Line Items] | ||
Other current assets | $ 2,949 | $ 3,438 |
Trade accounts payable and accrued expenses | (4,069) | (2,467) |
Other long-term liabilities | (237) | (263) |
Risk Corridor Settlement | ||
Segment Reporting Information [Line Items] | ||
Other current assets | 4 | 8 |
Trade accounts payable and accrued expenses | (255) | (158) |
Net current (liability) asset | (251) | (150) |
Other long-term liabilities | (28) | 0 |
Total net (liability) asset | (279) | (150) |
CMS Subsidies/ Discounts | ||
Segment Reporting Information [Line Items] | ||
Other current assets | 101 | 1,001 |
Trade accounts payable and accrued expenses | (1,085) | (128) |
Net current (liability) asset | (984) | 873 |
Other long-term liabilities | 0 | 0 |
Total net (liability) asset | $ (984) | $ 873 |
PROPERTY AND EQUIPMENT, NET (Detail) - USD ($) $ in Millions |
Dec. 31, 2017 |
Dec. 31, 2016 |
---|---|---|
Property, Plant and Equipment [Abstract] | ||
Land | $ 20 | $ 20 |
Buildings and leasehold improvements | 713 | 681 |
Equipment | 824 | 750 |
Computer software | 2,003 | 1,744 |
Property and equipment, gross | 3,560 | 3,195 |
Accumulated depreciation | (1,976) | (1,690) |
Property and equipment, net | $ 1,584 | $ 1,505 |
PROPERTY AND EQUIPMENT, NET - Additional Information (Detail) - USD ($) $ in Millions |
12 Months Ended | ||
---|---|---|---|
Dec. 31, 2017 |
Dec. 31, 2016 |
Dec. 31, 2015 |
|
Property, Plant and Equipment [Abstract] | |||
Depreciation expense | $ 410 | $ 388 | $ 354 |
Capitalized internally developed and purchased software amortization | $ 287 | $ 255 | $ 220 |
GOODWILL AND OTHER INTANGIBLE ASSETS - Changes in Carrying Amount of Goodwill by Reportable Segments (Detail) - USD ($) $ in Millions |
12 Months Ended | |
---|---|---|
Dec. 31, 2017 |
Dec. 31, 2016 |
|
Goodwill [Roll Forward] | ||
Beginning balance | $ 3,272 | $ 3,265 |
Acquisitions | 9 | 7 |
Ending balance | 3,281 | 3,272 |
Retail | ||
Goodwill [Roll Forward] | ||
Beginning balance | 1,059 | 1,059 |
Acquisitions | 0 | 0 |
Ending balance | 1,059 | 1,059 |
Group and Specialty | ||
Goodwill [Roll Forward] | ||
Beginning balance | 261 | 261 |
Acquisitions | 0 | 0 |
Ending balance | 261 | 261 |
Healthcare Services | ||
Goodwill [Roll Forward] | ||
Beginning balance | 1,952 | 1,945 |
Acquisitions | 9 | 7 |
Ending balance | $ 1,961 | $ 1,952 |
GOODWILL AND OTHER INTANGIBLE ASSETS - Additional Information (Detail) - USD ($) $ in Millions |
12 Months Ended | ||
---|---|---|---|
Dec. 31, 2017 |
Dec. 31, 2016 |
Dec. 31, 2015 |
|
Goodwill and Intangible Assets Disclosure [Abstract] | |||
Amortization expense for other intangible assets | $ 75 | $ 77 | $ 93 |
GOODWILL AND OTHER INTANGIBLE ASSETS - Schedule of Estimated Amortization Expense (Detail) $ in Millions |
Dec. 31, 2017
USD ($)
|
---|---|
Goodwill and Intangible Assets Disclosure [Abstract] | |
2018 | $ 64 |
2019 | 54 |
2020 | 52 |
2021 | 19 |
2022 | $ 16 |
BENEFITS PAYABLE - Activity in Benefits Payable (Detail) - USD ($) |
12 Months Ended | |||
---|---|---|---|---|
Dec. 31, 2017 |
Dec. 31, 2016 |
Dec. 31, 2015 |
Dec. 31, 2014 |
|
Defined Benefit Plan, Change in Benefit Obligation [Roll Forward] | ||||
Balances at January 1 | $ 4,563,000,000 | $ 4,976,000,000 | $ 4,475,000,000 | |
Less: Premium deficiency reserve | 0 | (176,000,000) | 0 | |
Less: Reinsurance recoverables | (76,000,000) | (85,000,000) | (78,000,000) | |
Balances at January 1, net | 4,487,000,000 | 4,715,000,000 | $ 4,397,000,000 | |
Current year, Incurred | 44,001,000,000 | 45,318,000,000 | 44,397,000,000 | |
Prior years, Incurred | (483,000,000) | (582,000,000) | (236,000,000) | |
Total incurred | 43,518,000,000 | 44,736,000,000 | 44,161,000,000 | |
Current year, Paid | (39,496,000,000) | (40,852,000,000) | (39,802,000,000) | |
Prior years, Paid | (3,911,000,000) | (4,112,000,000) | (4,041,000,000) | |
Total paid | (43,407,000,000) | (44,964,000,000) | (43,843,000,000) | |
Premium deficiency reserve | 0 | 0 | 176,000,000 | |
Reinsurance recoverable | 70,000,000 | 76,000,000 | 85,000,000 | |
Balances at December 31 | 4,668,000,000 | 4,563,000,000 | 4,976,000,000 | |
Retail | ||||
Defined Benefit Plan, Change in Benefit Obligation [Roll Forward] | ||||
Balances at January 1 | 3,506,000,000 | 3,600,000,000 | 3,428,000,000 | |
Less: Reinsurance recoverables | (76,000,000) | (85,000,000) | (78,000,000) | |
Balances at January 1, net | 3,430,000,000 | 3,515,000,000 | 3,350,000,000 | |
Current year, Incurred | 38,604,000,000 | 37,212,000,000 | 36,299,000,000 | |
Prior years, Incurred | (386,000,000) | (429,000,000) | (248,000,000) | |
Total incurred | 38,218,000,000 | 36,783,000,000 | 36,051,000,000 | |
Current year, Paid | (34,781,000,000) | (33,784,000,000) | (32,874,000,000) | |
Prior years, Paid | (2,974,000,000) | (3,084,000,000) | (3,012,000,000) | |
Total paid | (37,755,000,000) | (36,868,000,000) | (35,886,000,000) | |
Reinsurance recoverable | 70,000,000 | 76,000,000 | 85,000,000 | |
Balances at December 31 | 3,963,000,000 | 3,506,000,000 | 3,600,000,000 | |
Group and Specialty | ||||
Defined Benefit Plan, Change in Benefit Obligation [Roll Forward] | ||||
Balances at January 1 | 579,000,000 | 616,000,000 | 603,000,000 | |
Less: Reinsurance recoverables | 0 | 0 | 0 | |
Balances at January 1, net | 579,000,000 | 616,000,000 | 603,000,000 | |
Current year, Incurred | 5,403,000,000 | 5,271,000,000 | 5,377,000,000 | |
Prior years, Incurred | (40,000,000) | (46,000,000) | (7,000,000) | |
Total incurred | 5,363,000,000 | 5,225,000,000 | 5,370,000,000 | |
Current year, Paid | (4,843,000,000) | (4,700,000,000) | (4,774,000,000) | |
Prior years, Paid | (531,000,000) | (562,000,000) | (583,000,000) | |
Total paid | (5,374,000,000) | (5,262,000,000) | (5,357,000,000) | |
Reinsurance recoverable | 0 | 0 | ||
Balances at December 31 | 568,000,000 | 579,000,000 | 616,000,000 | |
Individual Commercial | ||||
Defined Benefit Plan, Change in Benefit Obligation [Roll Forward] | ||||
Balances at January 1 | 454,000,000 | 741,000,000 | 424,000,000 | |
Less: Premium deficiency reserve | 0 | (176,000,000) | 0 | |
Balances at January 1, net | 454,000,000 | 565,000,000 | $ 424,000,000 | |
Current year, Incurred | 669,000,000 | 3,677,000,000 | 3,512,000,000 | |
Prior years, Incurred | (56,000,000) | (106,000,000) | 20,000,000 | |
Total incurred | 613,000,000 | 3,571,000,000 | 3,532,000,000 | |
Current year, Paid | (583,000,000) | (3,233,000,000) | (2,966,000,000) | |
Prior years, Paid | (383,000,000) | (449,000,000) | (425,000,000) | |
Total paid | (966,000,000) | (3,682,000,000) | (3,391,000,000) | |
Premium deficiency reserve | 0 | 0 | 176,000,000 | |
Balances at December 31 | $ 101,000,000 | $ 454,000,000 | $ 741,000,000 |
BENEFITS PAYABLE - Benefit Expenses Excluded From Activity in Benefits Payable (Detail) - USD ($) $ in Millions |
12 Months Ended | ||
---|---|---|---|
Dec. 31, 2017 |
Dec. 31, 2016 |
Dec. 31, 2015 |
|
Defined Benefit Plans and Other Postretirement Benefit Plans Disclosures [Abstract] | |||
Premium deficiency reserve for short-duration policies | $ 0 | $ (176) | $ 176 |
Military services | 0 | 8 | 12 |
Future policy benefits | (22) | 439 | (80) |
Total | $ (22) | $ 271 | $ 108 |
INCOME TAXES - Provision for Income Taxes (Detail) - USD ($) $ in Millions |
12 Months Ended | ||
---|---|---|---|
Dec. 31, 2017 |
Dec. 31, 2016 |
Dec. 31, 2015 |
|
Income Tax Disclosure [Abstract] | |||
Federal | $ 1,324 | $ 921 | $ 1,067 |
States and Puerto Rico | 116 | 88 | 90 |
Total current provision | 1,440 | 1,009 | 1,157 |
Deferred expense (benefit) | 132 | (71) | (2) |
Provision for income taxes | $ 1,572 | $ 938 | $ 1,155 |
INCOME TAXES - Provision for Income Taxes Using Federal Statutory Rate (Detail) - USD ($) $ in Millions |
12 Months Ended | ||
---|---|---|---|
Dec. 31, 2017 |
Dec. 31, 2016 |
Dec. 31, 2015 |
|
Income Tax Disclosure [Abstract] | |||
Income tax provision at federal statutory rate | $ 1,407 | $ 543 | $ 851 |
States, net of federal benefit, and Puerto Rico | 80 | 41 | 44 |
Tax exempt investment income | (22) | (20) | (24) |
Health insurer fee | 0 | 336 | 314 |
Nondeductible executive compensation | 36 | 30 | 18 |
Tax reform | 133 | 0 | 0 |
Concentra sale | 0 | 0 | (67) |
Other, net | (62) | 8 | 19 |
Provision for income taxes | $ 1,572 | $ 938 | $ 1,155 |
INCOME TAXES - Additional Information (Detail) - USD ($) |
12 Months Ended | ||
---|---|---|---|
Dec. 31, 2017 |
Dec. 31, 2016 |
Dec. 31, 2015 |
|
Operating Loss Carryforwards [Line Items] | |||
Tax reform rate re-measurement | $ 133,000,000 | ||
Nondeductible executive compensation | 36,000,000 | $ 30,000,000 | $ 18,000,000 |
Limitations on deductibility of excess annual employee compensation as mandated by health insurance reforms | 500,000 | 500,000 | $ 500,000 |
Net operating losses to carryforward related to prior acquisitions | 168,000,000 | ||
Valuation allowances on net operating loss carryforwards related to prior acquisitions | 49,000,000 | $ 49,000,000 | |
PUERTO RICO | |||
Operating Loss Carryforwards [Line Items] | |||
Repatriation tax for undistributed foreign earnings | 10,000,000 | ||
Valuation allowances on net operating loss carryforwards related to prior acquisitions | $ 49,000,000 |
INCOME TAXES - Principal Components of Net Deferred Tax Balances (Detail) - USD ($) $ in Millions |
Dec. 31, 2017 |
Dec. 31, 2016 |
---|---|---|
Income Tax Disclosure [Abstract] | ||
Future policy benefits payable | $ 231 | $ 355 |
Benefits payable | 113 | 196 |
Compensation and other accrued expenses | 138 | 153 |
Net operating loss carryforward | 53 | 52 |
Deferred acquisition costs | 48 | 72 |
Unearned revenues | 12 | 18 |
Investment securities | 0 | 12 |
Other | 1 | 6 |
Total deferred income tax assets | 596 | 864 |
Valuation allowance | (49) | (49) |
Total deferred income tax assets, net of valuation allowance | 547 | 815 |
Depreciable property and intangible assets | (237) | (363) |
Prepaid expenses | (44) | (53) |
Investment securities | (49) | 0 |
Total deferred income tax liabilities | (330) | (416) |
Total net deferred income tax assets | $ 217 | $ 399 |
DEBT - Commercial Paper (Details) - USD ($) |
12 Months Ended | ||
---|---|---|---|
Dec. 31, 2017 |
Dec. 31, 2016 |
Oct. 31, 2014 |
|
Short-term Debt [Line Items] | |||
Short-term borrowings | $ 150,000,000 | $ 300,000,000 | |
Commercial Paper | |||
Short-term Debt [Line Items] | |||
Maximum borrowing capacity | $ 2,000,000,000 | ||
Maximum amount outstanding during period | 500,000,000 | ||
Short-term borrowings | $ 150,000,000 | $ 300,000,000 |
EMPLOYEE BENEFIT PLANS - Stock-Based Compensation Expense (Detail) - USD ($) $ in Millions |
12 Months Ended | ||
---|---|---|---|
Dec. 31, 2017 |
Dec. 31, 2016 |
Dec. 31, 2015 |
|
Stock-based compensation expense by type: | |||
Restricted stock | $ 145 | $ 106 | $ 99 |
Stock options | 12 | 9 | 10 |
Total stock-based compensation expense | 157 | 115 | 109 |
Tax benefit recognized | (32) | (20) | (26) |
Stock-based compensation expense, net of tax | $ 125 | $ 95 | $ 83 |
EMPLOYEE BENEFIT PLANS - Weighted-Average Grant Date Fair Value of Restricted Stock Awards (Detail) - Restricted Stock - $ / shares shares in Thousands |
12 Months Ended | ||
---|---|---|---|
Dec. 31, 2017 |
Dec. 31, 2016 |
Dec. 31, 2015 |
|
Shares | |||
Nonvested restricted stock, beginning balance (in shares) | 2,492 | ||
Granted (in shares) | 731 | ||
Vested (in shares) | (1,386) | ||
Forfeited (in shares) | (184) | ||
Nonvested restricted stock, ending balance (in shares) | 1,653 | 2,492 | |
Weighted- Average Grant-Date Fair Value | |||
Nonvested restricted stock, beginning balance (in dollars per share) | $ 121.94 | ||
Granted (in dollars per share) | 222.35 | $ 168.12 | $ 165.26 |
Vested (in dollars per share) | 128.08 | ||
Forfeited (in dollars per share) | 138.99 | ||
Nonvested restricted stock, ending balance (in dollars per share) | $ 171.68 | $ 121.94 |
EMPLOYEE BENEFIT PLANS - Weighted-Average Fair Value of Stock Options (Detail) - Employee Stock Options - $ / shares |
12 Months Ended | ||
---|---|---|---|
Dec. 31, 2017 |
Dec. 31, 2016 |
Dec. 31, 2015 |
|
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | |||
Weighted-average fair value at grant date (in dollars per share) | $ 49.81 | $ 37.12 | $ 36.91 |
Expected option life (years) | 4 years 1 month | 4 years 2 months 1 day | 4 years 2 months 1 day |
Expected volatility | 27.10% | 27.60% | 27.40% |
Risk-free interest rate at grant date | 2.00% | 1.10% | 1.40% |
Dividend yield | 0.70% | 0.70% | 0.70% |
EMPLOYEE BENEFIT PLANS - Activity for Option Plans (Detail) shares in Thousands |
12 Months Ended |
---|---|
Dec. 31, 2017
$ / shares
shares
| |
Shares Under Option | |
Options outstanding, beginning balance (in shares) | shares | 1,022 |
Granted (in shares) | shares | 358 |
Exercised (in shares) | shares | (492) |
Forfeited (in shares) | shares | (25) |
Options outstanding, ending balance (in shares) | shares | 863 |
Options exercisable, ending balance (in shares) | shares | 182 |
Weighted-Average Exercise Price | |
Options outstanding, beginning balance (in dollars per share) | $ / shares | $ 143.04 |
Granted (in dollars per share) | $ / shares | 218.06 |
Exercised (in dollars per share) | $ / shares | 128.34 |
Forfeited (in dollars per share) | $ / shares | 182.46 |
Options outstanding, ending balance (in dollars per share) | $ / shares | 181.44 |
Options exercisable, ending balance (in dollars per share) | $ / shares | $ 137.54 |
STOCKHOLDERS' EQUITY - Schedule of Details of Dividend Payments (Detail) - USD ($) $ / shares in Units, $ in Millions |
12 Months Ended | ||
---|---|---|---|
Dec. 31, 2017 |
Dec. 31, 2016 |
Dec. 31, 2015 |
|
Equity [Abstract] | |||
Amount per Share (in dollars per share) | $ 1.49000000 | $ 1.16000000 | $ 1.14 |
Total Amount | $ 216 | $ 172 | $ 170 |
COMMITMENTS, GUARANTEES AND CONTINGENCIES - Rent Expense and Sublease Rental Income Associated With Operating Leases (Detail) - USD ($) $ in Millions |
12 Months Ended | ||
---|---|---|---|
Dec. 31, 2017 |
Dec. 31, 2016 |
Dec. 31, 2015 |
|
Commitments and Contingencies Disclosure [Abstract] | |||
Rent expense | $ 204 | $ 179 | $ 201 |
Sublease rental income | (33) | (26) | (25) |
Net rent expense | $ 171 | $ 153 | $ 176 |
COMMITMENTS, GUARANTEES AND CONTINGENCIES - Future Annual Minimum Payments Due (Detail) $ in Millions |
Dec. 31, 2017
USD ($)
|
---|---|
Minimum Lease Payments | |
2018 | $ 152 |
2019 | 129 |
2020 | 89 |
2021 | 58 |
2022 | 39 |
Thereafter | 52 |
Total | 519 |
Sublease Rental Receipts | |
2018 | (14) |
2019 | (13) |
2020 | (10) |
2021 | (8) |
2022 | (7) |
Thereafter | (51) |
Total | (103) |
Net Lease Commitments | |
2018 | 138 |
2019 | 116 |
2020 | 79 |
2021 | 50 |
2022 | 32 |
Thereafter | 1 |
Total | $ 416 |
SEGMENT INFORMATION - Additional Information (Detail) $ in Millions |
3 Months Ended | 12 Months Ended | ||
---|---|---|---|---|
Dec. 31, 2016
USD ($)
|
Dec. 31, 2017
USD ($)
Segment
|
Dec. 31, 2016
USD ($)
|
Dec. 31, 2015
USD ($)
|
|
Revenue from External Customer [Line Items] | ||||
Number of reportable segments | Segment | 4 | |||
Member co-share amounts and government subsidies | $ 13,500 | $ 13,400 | $ 12,300 | |
Depreciation and amortization classified as benefit expense | $ 107 | $ 111 | $ 92 | |
Percentage of total premium and services revenues derived from contracts with the federal government | 79.00% | 75.00% | 73.00% | |
Premiums reduction, write off of risk corridor receivables | $ 583 | |||
Long-term insurance reserve strengthening expense | $ 505 | |||
Premium deficiency reserve | $ 176 | |||
Individual Commercial | ||||
Revenue from External Customer [Line Items] | ||||
Premium deficiency reserve | $ 176 |
EXPENSES ASSOCIATED WITH LONG-DURATION INSURANCE PRODUCTS - Schedule of Deferred Acquisition Cost and Future Policy Benefits Payable With Our Long-Duration Insurance Products (Detail) - USD ($) $ in Millions |
Dec. 31, 2017 |
Dec. 31, 2016 |
---|---|---|
Insurance [Abstract] | ||
Other long-term assets, Deferred acquisition costs | $ 103 | $ 119 |
Trade accounts payable and accrued expenses, Deferred acquisition cost | 0 | 0 |
Long-term liabilities, Deferred acquisition cost | 0 | 0 |
Total asset (liability), Deferred acquisition cost | 103 | 119 |
Other long-term assets, Future policy benefits payable | 0 | 0 |
Trade accounts payable and accrued expenses, Future policy benefits payable | (56) | (62) |
Long-term liabilities, Future policy benefits payable | (2,923) | (2,834) |
Total asset (liability), Future policy benefits payable | $ (2,979) | $ (2,896) |
REINSURANCE - Additional Information (Detail) $ in Millions |
12 Months Ended | ||
---|---|---|---|
Dec. 31, 2017
USD ($)
Reinsurer
|
Dec. 31, 2016
USD ($)
|
Dec. 31, 2015
USD ($)
|
|
Effects of Reinsurance [Line Items] | |||
Reinsurance recoverables included in other long-term assets | $ 824 | $ 822 | |
Premiums ceded | 969 | 842 | $ 821 |
Benefits ceded | $ 844 | $ 767 | $ 666 |
Number of reinsurers comprising other reinsurance recoverables balance | Reinsurer | 18 | ||
Maximum carrying value of reinsurance recoverables for a number of reinsurers | $ 71 | ||
Number of reinsurers who have placed cash and securities in trusts | Reinsurer | 3 | ||
Cash and securities in trusts held by certain reinsurers | $ 87 | ||
100% Coinsurance Agreements | |||
Effects of Reinsurance [Line Items] | |||
Percentage of coinsurance agreement | 100.00% | ||
Reinsurance Recoverables | Reinsurer Concentration Risk | |||
Effects of Reinsurance [Line Items] | |||
Percentage of reinsurance recoverables resulting from 100% coinsurance agreements | 33.00% | 34.00% |
QUARTERLY FINANCIAL INFORMATION (Unaudited) (Details) - USD ($) $ / shares in Units, $ in Millions |
3 Months Ended | 12 Months Ended | |||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
Dec. 31, 2017 |
Sep. 30, 2017 |
Jun. 30, 2017 |
Mar. 31, 2017 |
Dec. 31, 2016 |
Sep. 30, 2016 |
Jun. 30, 2016 |
Mar. 31, 2016 |
Dec. 31, 2017 |
Dec. 31, 2016 |
Dec. 31, 2015 |
|
Quarterly Financial Information Disclosure [Abstract] | |||||||||||
Total revenues | $ 13,189 | $ 13,282 | $ 13,534 | $ 13,762 | $ 12,878 | $ 13,694 | $ 14,007 | $ 13,800 | $ 53,767 | $ 54,379 | $ 54,289 |
Income (loss) before income taxes | 490 | 799 | 1,042 | 1,689 | (486) | 902 | 636 | 500 | 4,020 | 1,552 | 2,431 |
Net income | $ 184 | $ 499 | $ 650 | $ 1,115 | $ (401) | $ 450 | $ 311 | $ 254 | $ 2,448 | $ 614 | $ 1,276 |
Basic earnings (loss) per common share (in dollars per share) | $ 1.30 | $ 3.46 | $ 4.49 | $ 7.54 | $ (2.68) | $ 3.01 | $ 2.08 | $ 1.70 | $ 16.94 | $ 4.11 | $ 8.54 |
Diluted earnings (loss) per common share (in dollars per share) | $ 1.29 | $ 3.44 | $ 4.46 | $ 7.49 | $ (2.68) | $ 2.98 | $ 2.06 | $ 1.68 | $ 16.81 | $ 4.07 | $ 8.44 |
Long-term insurance reserve strengthening expense | $ 505 | ||||||||||
Long-term insurance reserve strengthening expense, net of tax | $ 318 | ||||||||||
Long-term insurance reserve strengthening expense, per diluted share (in dollars per share) | $ 2.11 | ||||||||||
Premiums reduction, write off of risk corridor receivables | $ 583 | ||||||||||
Premiums reduction, write off of risk corridor receivables, net of tax | $ 367 | ||||||||||
Premiums reduction, write off of risk corridor receivables, per diluted share (in dollars per share) | $ 2.43 |
Schedule I - Parent Company Financial Information (Condensed Statements of Income) (Detail) - USD ($) $ in Millions |
3 Months Ended | 12 Months Ended | |||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
Dec. 31, 2017 |
Sep. 30, 2017 |
Jun. 30, 2017 |
Mar. 31, 2017 |
Dec. 31, 2016 |
Sep. 30, 2016 |
Jun. 30, 2016 |
Mar. 31, 2016 |
Dec. 31, 2017 |
Dec. 31, 2016 |
Dec. 31, 2015 |
|
Revenues: | |||||||||||
Total revenues | $ 13,189 | $ 13,282 | $ 13,534 | $ 13,762 | $ 12,878 | $ 13,694 | $ 14,007 | $ 13,800 | $ 53,767 | $ 54,379 | $ 54,289 |
Expenses: | |||||||||||
Operating costs | 6,567 | 7,173 | 7,295 | ||||||||
Merger termination fee and related costs, net | (936) | 104 | 23 | ||||||||
Depreciation | 410 | 388 | 354 | ||||||||
Interest | 242 | 189 | 186 | ||||||||
Total operating expenses | 49,505 | 52,638 | 51,942 | ||||||||
Gain on sale of business | 0 | 0 | 270 | ||||||||
Provision (benefit) for income taxes | 1,572 | 938 | 1,155 | ||||||||
Net income | $ 184 | $ 499 | $ 650 | $ 1,115 | $ (401) | $ 450 | $ 311 | $ 254 | 2,448 | 614 | 1,276 |
Parent Company | |||||||||||
Revenues: | |||||||||||
Management fees charged to operating subsidiaries | 1,864 | 1,683 | 1,469 | ||||||||
Investment and other income, net | 57 | 42 | 5 | ||||||||
Total revenues | 1,921 | 1,725 | 1,474 | ||||||||
Expenses: | |||||||||||
Operating costs | 1,801 | 1,519 | 1,347 | ||||||||
Merger termination fee and related costs, net | (936) | 104 | 23 | ||||||||
Depreciation | 332 | 302 | 252 | ||||||||
Interest | 243 | 189 | 186 | ||||||||
Total operating expenses | 1,440 | 2,114 | 1,808 | ||||||||
Income (loss) before gain on sale of business, income taxes and equity in net earnings of subsidiaries | 481 | (389) | (334) | ||||||||
Gain on sale of business | 0 | 0 | 270 | ||||||||
Income (loss) before income taxes and equity in net earnings of subsidiaries | 481 | (389) | (64) | ||||||||
Provision (benefit) for income taxes | 61 | (107) | (70) | ||||||||
Income (loss) before equity in net earnings of subsidiaries | 420 | (282) | 6 | ||||||||
Equity in net earnings of subsidiaries | 2,028 | 896 | 1,270 | ||||||||
Net income | $ 2,448 | $ 614 | $ 1,276 |
SCHEDULE II-VALUATION AND QUALIFYING ACCOUNTS (Detail) - USD ($) $ in Millions |
12 Months Ended | ||
---|---|---|---|
Dec. 31, 2017 |
Dec. 31, 2016 |
Dec. 31, 2015 |
|
Allowance for loss on receivables: | |||
Movement in Valuation Allowances and Reserves [Roll Forward] | |||
Balance at Beginning of Period | $ 118 | $ 101 | $ 137 |
Acquired/(Disposed) Balances | 0 | 0 | (39) |
Charged (Credited) to Costs and Expenses | 20 | 39 | 61 |
Charged to Other Accounts | (10) | 19 | (7) |
Deductions or Write-offs | (32) | (41) | (51) |
Balance at End of Period | 96 | 118 | 101 |
Deferred tax asset valuation allowance: | |||
Movement in Valuation Allowances and Reserves [Roll Forward] | |||
Balance at Beginning of Period | 49 | 42 | 48 |
Acquired/(Disposed) Balances | 0 | 0 | 0 |
Charged (Credited) to Costs and Expenses | 0 | (7) | 6 |
Charged to Other Accounts | 0 | 0 | 0 |
Deductions or Write-offs | 0 | 0 | 0 |
Balance at End of Period | $ 49 | $ 49 | $ 42 |
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