12. SEGMENT INFORMATION

We manage our business with three reportable segments: Retail, Employer Group, and Health and Well-Being Services. In addition, the Other Businesses category includes businesses that are not individually reportable because they do not meet the quantitative thresholds required by generally accepted accounting principles. These segments are based on a combination of the type of health plan customer and adjacent businesses centered on well-being solutions for our health plans and other customers, as described below. These segment groupings are consistent with information used by our Chief Executive Officer to assess performance and allocate resources.

The Retail segment consists of Medicare and commercial fully-insured medical and specialty health insurance benefits, including dental, vision, and other supplemental health and financial protection products, marketed directly to individuals. The Employer Group segment consists of Medicare and commercial fully-insured medical and specialty health insurance benefits, including dental, vision, and other supplemental health and financial protection products, as well as administrative services only products marketed to employer groups. The Health and Well-Being Services segment includes services offered to our health plan members as well as to third parties that promote health and wellness, including primary care, pharmacy, integrated wellness, and home care services. The Other Businesses category consists of our Military services, primarily our TRICARE South Region contract, Medicaid, and closed-block long-term care businesses as well as our contract with CMS to administer the Limited Income Newly Eligible Transition program, or the LI-NET program.

Our Health and Well-Being Services intersegment revenues primarily relate to managing prescription drug coverage for members of our other segments through Humana Pharmacy Solutions^®, or HPS, and includes the operations of RightSourceRx^®, our mail order pharmacy business. These revenues consist of the prescription price (ingredient cost plus dispensing fee), including the portion to be settled with the member (co-share) or with the government (subsidies), plus any associated administrative fees. Services revenues related to the distribution of prescriptions by third party retail pharmacies in our networks are recognized when the claim is processed and product revenues from dispensing prescriptions from our mail order pharmacies are recorded when the prescription or product is shipped. Our pharmacy operations, which are responsible for designing pharmacy benefits, including defining member co-share responsibilities, determining formulary listings, selecting and establishing prices charged by 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 Health and Well-Being 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.

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 $1.2 billion and $1.0 billion for the three months ended March 31, 2012 and 2011, respectively. In addition, depreciation and amortization expense associated with certain businesses in our Health and Well-Being Services segment delivering benefits to our members, primarily associated with our pharmacy operations, are included with benefits expense. The amount of this expense was $8 million and $10 million for the three months ended March 31, 2012 and 2011, 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 2011 Form 10-K. Transactions between reportable segments consist of sales of services rendered by our Health and Well-Being Services segment, primarily pharmacy and behavioral health services, to our Retail and Employer Group customers. Intersegment sales and expenses are recorded at fair value and eliminated in consolidation. Members served by our segments often utilize the same provider networks, enabling us in some instances to obtain more favorable contract terms with providers. Our segments also share indirect costs and assets. As a result, the profitability of each segment is interdependent. We allocate most operating expenses to our segments. Assets and certain corporate income and expenses are not allocated to the segments, including the portion of investment income not supporting segment operations, interest expense on corporate debt, and certain other corporate expenses. These items are managed at a corporate level. These corporate amounts are reported separately from our reportable segments and included with intersegment eliminations in the tables presenting segment results below.

Our segment results were as follows for the three months ended March 31, 2012 and 2011, respectively:


	Retail		Employer Group		Health and Well-Being Services		Other Businesses		Eliminations/ Corporate			Consolidated
	(in millions)
Three months ended March 31, 2012
Revenues—external customers
Premiums:
Medicare Advantage	$	5,093	$	1,025	$	0	$	0	$	0		$	6,118
Medicare stand-alone PDP		660		2		0		66		0			728

Total Medicare		5,753		1,027		0		66		0			6,846

Fully-insured		244		1,242		0		0		0			1,486
Specialty		38		260		0		0		0			298
Military services		0		0		0		893		0			893
Medicaid and other		0		0		0		252		0			252

Total premiums		6,035		2,529		0		1,211		0			9,775

Services revenue:
Provider		0		0		233		0		0			233
ASO and other		6		89		0		18		0			113
Pharmacy		0		0		4		0		0			4

Total services revenue		6		89		237		18		0			350

Total revenues—external customers		6,041		2,618		237		1,229		0			10,125

Intersegment revenues
Services		0		4		2,486		0		(2,490	)		0
Products		0		0		584		0		(584	)		0

Total intersegment revenues		0		4		3,070		0		(3,074	)		0

Investment income		19		10		0		14		51			94

Total revenues		6,060		2,632		3,307		1,243		(3,023	)		10,219

Operating expenses:
Benefits		5,287		2,064		0		1,106		(107	)		8,350
Operating costs		628		427		3,154		116		(2,942	)		1,383
Depreciation and amortization		30		20		21		4		(5	)		70

Total operating expenses		5,945		2,511		3,175		1,226		(3,054	)		9,803

Income from operations		115		121		132		17		31			416
Interest expense		0		0		0		0		26			26

Income before income taxes	$	115	$	121	$	132	$	17	$	5		$	390


	Retail		Employer Group		Health and Well-Being Services		Other Businesses		Eliminations/ Corporate			Consolidated
	(in millions)
Three months ended March 31, 2011
Revenues—external customers
Premiums:
Medicare Advantage	$	4,525	$	796	$	0	$	0	$	0		$	5,321
Medicare stand-alone PDP		557		2		0		76		0			635

Total Medicare		5,082		798		0		76		0			5,956

Fully-insured		201		1,199		0		0		0			1,400
Specialty		26		230		0		0		0			256
Military services		0		0		0		923		0			923
Medicaid and other		0		0		0		232		0			232

Total premiums		5,309		2,227		0		1,231		0			8,767

Services revenue:
Provider		0		0		215		0		0			215
ASO and other		3		93		0		22		0			118
Pharmacy		0		0		2		0		0			2

Total services revenue		3		93		217		22		0			335

Total revenues—external customers		5,312		2,320		217		1,253		0			9,102

Intersegment revenues
Services		0		3		2,121		0		(2,124	)		0
Products		0		0		435		0		(435	)		0

Total intersegment revenues		0		3		2,556		0		(2,559	)		0

Investment income		19		12		0		12		46			89

Total revenues		5,331		2,335		2,773		1,265		(2,513	)		9,191

Operating expenses:
Benefits		4,554		1,752		0		1,109		(70	)		7,345
Operating costs		533		424		2,656		119		(2,476	)		1,256
Depreciation and amortization		27		20		20		2		(3	)		66

Total operating expenses		5,114		2,196		2,676		1,230		(2,549	)		8,667

Income from operations		217		139		97		35		36			524
Interest expense		0		0		0		0		27			27

Income before income taxes	$	217	$	139	$	97	$	35	$	9		$	497