| 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 Eliminations/ 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 Eliminations/ 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 Eliminations/ 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 Eliminations/ 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 |
