SEGMENT INFORMATION

9 Months Ended

Sep. 30, 2020

Segment Reporting [Abstract]

SEGMENT INFORMATION

SEGMENT INFORMATION

We manage our business with three reportable segments: Retail, Group and Specialty, and Healthcare Services. The reportable 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, the Chief Operating Decision Maker, to assess performance and allocate resources.

The Retail segment consists of Medicare benefits, marketed to individuals or directly via group Medicare 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 benefits, as well as administrative services only, or ASO products. In addition, our Group and Specialty segment includes our military services business, primarily our TRICARE T2017 East Region contract. The Healthcare Services segment includes our 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, including our minority investment in Kindred at Home and the strategic partnership with WCAS to develop and operate senior-focused, payor-agnostic, primary care centers.

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 condensed 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 $4.4 billion and $4.0 billion for the three months ended September 30, 2020 and 2019, respectively. For the nine months ended September 30, 2020 and 2019 these amounts were $11.9 billion and $10.7 billion, respectively. 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 $33 million and $32 million for the three months ended September 30, 2020 and 2019, respectively. For the nine months ended September 30, 2020 and 2019, the amount of this expense was $94 million and $92 million, respectively.

Other than those described previously, the accounting policies of each segment are the same and are described in Note 2 to the consolidated financial statements included in our 2019 Form 10-K. Transactions between reportable segments primarily consist of sales of services rendered by our Healthcare Services segment, primarily pharmacy, provider, and clinical care services, to our Retail and Group and Specialty segment customers. Intersegment sales and expenses are recorded at fair value and eliminated in consolidation. Members served by our segments often use the same provider networks, enabling us in some instances to obtain more favorable contract terms with providers. Our segments also share indirect costs and assets. As a result, the profitability of each segment is interdependent. We allocate most operating expenses to our segments. Assets and certain corporate income and expenses are not allocated to the segments, including the portion of investment income not supporting segment operations, interest expense on corporate debt, and certain other corporate expenses. These items are managed at a corporate level. These corporate amounts are reported separately from our reportable segments and are included with intersegment eliminations in the tables presenting segment results below.

Our segment results were as follows for the three and nine months ended September 30, 2020 and 2019:

	Retail		Group and Specialty		Healthcare Services		Eliminations/ Corporate		Consolidated
Three months ended September 30, 2020	(in millions)
External revenues
Premiums:
Individual Medicare Advantage	$	12,949	$	—	$	—	$	—	$	12,949
Group Medicare Advantage	1,880		—		—		—		1,880
Medicare stand-alone PDP	622		—		—		—		622
Total Medicare	15,451		—		—		—		15,451
Fully-insured	177		1,169		—		602		1,948
Specialty	—		424		—		—		424
Medicaid and other	1,081		—		—		—		1,081
Total premiums	16,709		1,593		—		602		18,904
Services revenue:
Provider	—		—		107		—		107
ASO and other	4		189		—		—		193
Pharmacy	—		—		157		—		157
Total services revenue	4		189		264		—		457
Total external revenues	16,713		1,782		264		602		19,361
Intersegment revenues
Services	—		9		4,852		(4,861)		—
Products	—		—		2,013		(2,013)		—
Total intersegment revenues	—		9		6,865		(6,874)		—
Investment income	28		3		2		681		714
Total revenues	16,741		1,794		7,131		(5,591)		20,075
Operating expenses:
Benefits	14,224		1,481		—		(94)		15,611
Operating costs	1,877		452		6,871		(6,687)		2,513
Depreciation and amortization	87		21		46		(26)		128
Total operating expenses	16,188		1,954		6,917		(6,807)		18,252
Income (loss) from operations	553		(160)		214		1,216		1,823
Interest expense	—		—		—		75		75
Other income, net	—		—		—		(7)		(7)
Income (loss) before income taxes and equity in net earnings	553		(160)		214		1,148		1,755
Equity in net earnings	—		—		35		—		35
Segment earnings (loss)	$	553	$	(160)	$	249	$	1,148	$	1,790

	Retail		Group and Specialty		Healthcare Services		Eliminations/ Corporate		Consolidated
Three months ended September 30, 2019	(in millions)
External revenues
Premiums:
Individual Medicare Advantage	$	10,752	$	—	$	—	$	—	$	10,752
Group Medicare Advantage	1,609		—		—		—		1,609
Medicare stand-alone PDP	781		—		—		—		781
Total Medicare	13,142		—		—		—		13,142
Fully-insured	150		1,278		—		—		1,428
Specialty	—		400		—		—		400
Medicaid and other	742		—		—		—		742
Total premiums	14,034		1,678		—		—		15,712
Services revenue:
Provider	—		—		136		—		136
ASO and other	4		200		—		—		204
Pharmacy	—		—		53		—		53
Total services revenue	4		200		189		—		393
Total external revenues	14,038		1,878		189		—		16,105
Intersegment revenues
Services	—		4		4,654		(4,658)		—
Products	—		—		1,759		(1,759)		—
Total intersegment revenues	—		4		6,413		(6,417)		—
Investment income	50		7		—		79		136
Total revenues	14,088		1,889		6,602		(6,338)		16,241
Operating expenses:
Benefits	12,050		1,448		—		(141)		13,357
Operating costs	1,310		413		6,348		(6,182)		1,889
Depreciation and amortization	89		24		43		(29)		127
Total operating expenses	13,449		1,885		6,391		(6,352)		15,373
Income from operations	639		4		211		14		868
Interest expense	—		—		—		62		62
Other income, net	—		—		—		(82)		(82)
Income before income taxes and equity in net earnings	639		4		211		34		888
Equity in net earnings	—		—		1		—		1
Segment earnings	$	639	$	4	$	212	$	34	$	889

	Retail		Group and Specialty		Healthcare Services		Eliminations/ Corporate		Consolidated
Nine months ended September 30, 2020	(in millions)
External revenues
Premiums:
Individual Medicare Advantage	$	38,748	$	—	$	—	$	—	$	38,748
Group Medicare Advantage	5,867		—		—		—		5,867
Medicare stand-alone PDP	2,108		—		—		—		2,108
Total Medicare	46,723		—		—		—		46,723
Fully-insured	509		3,606		—		602		4,717
Specialty	—		1,278		—		—		1,278
Medicaid and other	3,104		—		—		—		3,104
Total premiums	50,336		4,884		—		602		55,822
Services revenue:
Provider	—		—		316		—		316
ASO and other	14		576		—		—		590
Pharmacy	—		—		425		—		425
Total services revenue	14		576		741		—		1,331
Total external revenues	50,350		5,460		741		602		57,153
Intersegment revenues
Services	—		22		14,514		(14,536)		—
Products	—		—		5,900		(5,900)		—
Total intersegment revenues	—		22		20,414		(20,436)		—
Investment income	114		12		2		812		940
Total revenues	50,464		5,494		21,157		(19,022)		58,093
Operating expenses:
Benefits	41,939		3,886		—		(410)		45,415
Operating costs	5,047		1,316		20,274		(19,653)		6,984
Depreciation and amortization	251		60		135		(84)		362
Total operating expenses	47,237		5,262		20,409		(20,147)		52,761
Income from operations	3,227		232		748		1,125		5,332
Interest expense	—		—		—		211		211
Other expense, net	—		—		—		63		63
Income before income taxes and equity in net earnings	3,227		232		748		851		5,058
Equity in net earnings	—		—		68		—		68
Segment earnings	$	3,227	$	232	$	816	$	851	$	5,126

	Retail		Group and Specialty		Healthcare Services		Eliminations/ Corporate		Consolidated
Nine months ended September 30, 2019	(in millions)
External Revenues
Premiums:
Individual Medicare Advantage	$	32,254	$	—	$	—	$	—	$	32,254
Group Medicare Advantage	4,867		—		—		—		4,867
Medicare stand-alone PDP	2,408		—		—		—		2,408
Total Medicare	39,529		—		—		—		39,529
Fully-insured	434		3,873		—		—		4,307
Specialty	—		1,160		—		—		1,160
Medicaid and other	2,143		—		—		—		2,143
Total premiums	42,106		5,033		—		—		47,139
Services revenue:
Provider	—		—		367		—		367
ASO and other	14		587		—		—		601
Pharmacy	—		—		135		—		135
Total services revenue	14		587		502		—		1,103
Total external revenues	42,120		5,620		502		—		48,242
Intersegment revenues
Services	—		13		13,456		(13,469)		—
Products	—		—		5,128		(5,128)		—
Total intersegment revenues	—		13		18,584		(18,597)		—
Investment income	139		17		1		194		351
Total revenues	42,259		5,650		19,087		(18,403)		48,593
Operating expenses:
Benefits	36,396		4,177		—		(405)		40,168
Operating costs	3,664		1,232		18,371		(18,015)		5,252
Depreciation and amortization	239		67		121		(84)		343
Total operating expenses	40,299		5,476		18,492		(18,504)		45,763
Income from operations	1,960		174		595		101		2,830
Interest expense	—		—		—		184		184
Other income, net	—		—		—		(217)		(217)
Income before income taxes and equity in net earnings	1,960		174		595		134		2,863
Equity in net earnings	—		—		16		—		16
Segment earnings	$	1,960	$	174	$	611	$	134	$	2,879