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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 1-5975
HUMANA INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 61-0647538
(STATE OF INCORPORATION) (I.R.S. EMPLOYER
IDENTIFICATION NUMBER)
500 WEST MAIN STREET 40202
LOUISVILLE, KENTUCKY (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE
OFFICES)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: 502-580-1000
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
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Common Stock, $.16 2/3 par value New York Stock Exchange
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
NONE
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of the Regulation S-K is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in the Registrant's definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. [X]
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [_]
The aggregate market value of voting stock held by non-affiliates of the
Registrant as of February 28, 1997, was $2,978,429,730 calculated using the
average price on such date of $19.5625. The number of shares outstanding of
the Registrant's Common Stock as of February 28, 1997, was 162,716,329.
DOCUMENTS INCORPORATED BY REFERENCE
Part II and portions of Part IV incorporate herein by reference the
Registrant's 1996 Annual Report to Stockholders; Part III incorporates herein
by reference portions of the Registrant's Proxy Statement filed pursuant to
Regulation 14A covering the Annual Meeting of Stockholders scheduled to be
held May 8, 1997.
The Exhibit Index begins on page 15.
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PART I
ITEM 1. BUSINESS
GENERAL
Humana Inc. is a Delaware corporation organized in 1961. Its principal
executive offices are located at 500 West Main Street, Louisville, Kentucky
40202 and its telephone number at that address is (502) 580-1000. As used
herein, the terms "the Company" or "Humana" include Humana Inc. and its
subsidiaries. This Annual Report on Form 10-K contains both historical and
forward-looking information. The forward-looking statements may be
significantly impacted by risks and uncertainties and are made pursuant to the
safe harbor provisions of the Private Securities Litigation Reform Act of
1995. There can be no assurance that anticipated future results will be
achieved because actual results may differ materially from those projected in
the forward-looking statements. Readers are cautioned that a number of
factors, which are described herein, could adversely affect the Company's
ability to obtain these results, including the effects of either federal or
state health care reform or other legislation, renewal of the Company's
Medicare risk contracts with the federal government, the renewal of the
Company's CHAMPUS contract with the federal government, and the effects of
other general business conditions, including but not limited to, government
regulation, competition, premium rate changes, retrospective premium
adjustments relating to federal government contracts, medical cost trends,
changes in Commercial and Medicare risk membership, capital requirements,
general economic conditions, and the retention of key employees. In addition,
past financial performance is not necessarily a reliable indicator of future
performance and investors should not use historical performance to anticipate
results or future period trends.
Since 1983, the Company has offered managed health care products that
integrate medical management with the delivery of health care services through
a network of providers. This network of providers may share financial risk or
have incentives to deliver quality medical services in a cost-effective
manner. These products are marketed primarily through health maintenance
organizations ("HMOs") and preferred provider organizations ("PPOs") that
encourage or require the use of contracting providers. HMOs and PPOs control
health care costs by various means, including pre-admission approval for
hospital inpatient services and pre-authorization of outpatient surgical
procedures. The Company also offers various specialty and administrative
service products including dental, group life, workers' compensation, and
pharmacy benefit management services.
The Company's HMO and PPO products are marketed primarily to employer and
other groups ("Commercial") as well as Medicare and Medicaid-eligible
individuals. The Company's Commercial products are licensed in 47 states and
the District of Columbia. At December 31, 1996, the Company had a total of
2,814,800 fully insured Commercial customers, with an average group size of 24
members. The products marketed to Medicare-eligible individuals are either HMO
products ("Medicare risk") or indemnity insurance policies that supplement
Medicare benefits ("Medicare supplement"). The Medicare risk product provides
managed care services that include all Medicare benefits and, in certain
circumstances, additional managed care services. At December 31, 1996, the
Company had 364,500 Medicare risk members and 97,700 Medicare supplement
members. The Company also offers administrative services ("ASO") to employers
who self-insure their employee health benefits. At December 31, 1996, the
Company provided claims processing, utilization review and other
administrative services to 471,000 ASO members.
On October 11, 1995, the Company acquired EMPHESYS Financial Group, Inc.
("EMPHESYS") for a total purchase price of approximately $650 million. The
purchase was funded through available cash of $400 million and bank borrowings
of $250 million. EMPHESYS was a leading provider of a broad range of PPO and
specialty products to small businesses. The medical loss and administrative
cost ratios relating to the EMPHESYS business tend to be different from
Humana's because of variances in the nature of each entity's products,
customer base and the manner in which products and services are distributed to
customers, as more fully described in Management's Discussion and Analysis of
Financial Condition and Results of Operations contained in the Company's 1996
Annual Report to Stockholders.
On July 1, 1996, the Company began providing managed health care services to
approximately 1.1 million eligible beneficiaries under a potential five-year
contract (a one-year contract renewable annually at the government's option
for up to four additional years) with the United States Department of Defense
under the
1
Civilian Health and Medical Program of the Uniformed Services ("CHAMPUS").
Under the CHAMPUS contract, the Company provides managed care services to the
beneficiaries of active military personnel and retired military personnel and
their beneficiaries located in the southeastern United States. The Company has
subcontracted with third parties to provide certain administration and
specialty services under the contract. Three health benefit options are
available to CHAMPUS beneficiaries. In addition to a traditional indemnity
option, participants may enroll in an HMO-like point-of-service plan or take
advantage of reduced copayments by using a network of preferred providers.
On January 31, 1997, the Company completed the sale of its Washington, D.C.,
health plan to Kaiser Foundation Health Plan of the Mid-Atlantic States, Inc.
On January 16, 1997, the Company signed a definitive agreement to sell its
Alabama operations to PrimeHealth of Alabama, Inc. The Alabama sale excludes
the Company's small group business and the Company's Alabama CHAMPUS
operations. These transactions will not have a material impact on the Company's
financial position, results of operations, or cash flows.
COMMERCIAL PRODUCTS
HMOs
An HMO provides prepaid health care services to its members through primary
care and specialty physicians employed by the HMO at facilities owned by the
HMO, and/or through a network of independent primary care and specialty
physicians and other health care providers who contract with the HMO to furnish
such services. Primary care physicians generally include internists, family
practitioners and pediatricians. Generally, access to specialty physicians and
other health care providers must be approved by the member's primary care
physician. These other health care providers include, among others, hospitals,
nursing homes, home health agencies, pharmacies, mental health and substance
abuse centers, diagnostic centers, optometrists, outpatient surgery centers,
dentists, urgent care centers, and durable medical equipment suppliers. Because
access to these other health care providers must be approved by the primary
care physician, the HMO product is the most restrictive form of managed care.
At December 31, 1996, the Company owned and operated 18 HMOs, which
contracted with approximately 37,700 physicians (including approximately 9,100
primary care physicians) and approximately 600 hospitals. In addition, the
Company had approximately 2,800 contracts with other providers to provide
services to HMO members. The Company also employed approximately 500 physicians
in its staff model HMOs at December 31, 1996.
An HMO member, typically through the member's employer, pays a monthly fee
which generally covers, with minimal copayments, health care services received
from or approved by the member's primary care physician. For the year ended
December 31, 1996, Commercial HMO premium revenues totaled approximately $1.8
billion or 27 percent of the Company's total premium revenues. Approximately
$248 million of the Company's Commercial premium revenues for the year ended
December 31, 1996, were derived from contracts with the United States Office of
Personnel Management ("OPM"), under which the Company provides health care
benefits to approximately 165,000 federal civilian employees and their
dependents. Pursuant to these contracts, payments made by OPM may be
retrospectively adjusted downward by OPM if an audit discloses that a
comparable product was offered by the Company to a similar size subscriber
group at a lower premium rate than that offered to OPM. Management believes
that any retrospective adjustments as a result of OPM audits will not have a
material impact on the Company's financial position, results of operations, or
cash flows. The Company's Washington, D.C., health plan, which was sold
effective January 31, 1997, included approximately 45,000 OPM members at
December 31, 1996, and premium revenues from these OPM contracts totaled
approximately $71 million for the year ended December 31, 1996.
PPOs
PPO products include many elements of managed health care. PPOs are also
similar to traditional health insurance because they provide a member with the
freedom to choose a physician or other health care provider. In a PPO, the
member is encouraged, through financial incentives, to use participating health
care providers which have contracted with the PPO to provide services at
favorable rates. In the event a member chooses not to use a participating
health care provider, the member may be required to pay a greater portion of
the provider's fees.
2
At December 31, 1996, approximately 37,800 physicians and approximately 630
hospitals contracted directly with the Company to provide services to PPO
members. The Company also had approximately 3,200 contracts (including certain
contracts which also service the Company's HMOs) with other providers to
provide services to PPO members. In addition, the Company had access to 21
leased provider networks throughout the country which provided services to
approximately 75 percent of EMPHESYS' PPO membership.
For the year ended December 31, 1996, Commercial PPO premium revenues
totaled approximately $2.3 billion or 34 percent of the Company's total
premium revenues. During 1996, Commercial PPO premiums increased approximately
$1.4 billion, primarily as a result of the acquisition of EMPHESYS in the
fourth quarter of 1995.
Over the previous four years, changes in the Company's Commercial premium
rates have ranged between an approximate 7 percent increase for the year ended
December 31, 1993, to a 0.6 percent decrease for the year ended December 31,
1996. The Company expects that 1997 Commercial premium rates will increase
approximately 2 to 3 percent from 1996 levels.
MEDICARE PRODUCTS
Medicare is a federal program that provides persons age 65 and over and some
disabled persons certain hospital and medical insurance benefits, which
include hospitalization benefits for up to 90 days per incident of illness
plus a lifetime reserve aggregating 60 days. Each Medicare-eligible individual
is entitled to receive inpatient hospital care ("Part A") without the payment
of any premium, but is required to pay a premium to the federal government,
which is adjusted annually, to be eligible for physician care and other
services ("Part B").
Even though participating in both Part A and Part B of the traditional
Medicare program, beneficiaries are still required to pay certain deductible
and coinsurance amounts. They may, if they choose, supplement their Medicare
coverage by purchasing Medicare supplement policies which pay these
deductibles and coinsurance amounts. Many of these policies also cover other
services (such as prescription drugs) which are not included in Medicare
coverage.
Certain managed care companies which operate HMOs contract with the federal
government's Health Care Financing Administration ("HCFA") to provide medical
benefits to Medicare-eligible individuals residing in the geographic areas in
which their HMOs operate in exchange for a fixed monthly payment per member
from HCFA. Individuals who elect to participate in these Medicare risk
programs are relieved of the obligation to pay some or all of the deductible
or coinsurance amounts but are generally required to use exclusively the
services provided by the HMO and are required to pay a Part B premium to the
Medicare program. The enrollee pays the HMO a premium only in cases where the
HMO provides additional benefits and where competitive market conditions
permit.
Medicare Risk
A Medicare risk product involves a contract between an HMO and HCFA pursuant
to which HCFA makes a fixed monthly payment to the HMO on behalf of each
Medicare-eligible individual who chooses to enroll for coverage in the HMO.
Membership may be terminated by the member upon 30 days' notice. The fixed
monthly payment is determined and adjusted annually by HCFA, and takes into
account, among other things, the cost of providing medical care in the
geographic area where the member resides.
The Company markets a variety of Medicare risk HMO products. All of these
products provide an enrolled individual with all of the benefits covered by
the Medicare program but relieve the enrolled individual of the obligation to
pay deductibles and coinsurance that would otherwise apply. Some of these
products also provide additional benefits not covered by Medicare, such as
vision and dental care services and prescription drugs.
Where competitive conditions permit, the Company charges a premium to
members (in addition to the payment from HCFA) for some of its Medicare risk
products. At December 31, 1996, approximately 42,000 members in 12 markets
were paying premiums which totaled approximately $24 million for the year
ended December 31, 1996.
3
As of January 1, 1997, the Company provides Medicare risk services under 10
contracts with HCFA ("HCFA Contracts") in 16 markets. During 1996, the Company
received approval from HCFA to sell its Medicare risk product in Dallas,
Texas, Cincinnati, Ohio, and several additional counties contiguous to
existing markets where it has already been approved. Management believes that
additional growth opportunities exist because only approximately 10 percent of
the country's Medicare-eligible beneficiaries are enrolled in managed care
programs similar to those offered by the Company. The Company intends to
pursue those opportunities in under-penetrated markets which meet the
Company's long-term growth strategies.
At December 31, 1996, HCFA Contracts covered approximately 364,500 Medicare
risk members for which the Company received premium revenues of approximately
$1.9 billion or 29 percent of the Company's total premium revenues for the
year ended December 31, 1996. At December 31, 1996, one such HCFA Contract
covered approximately 227,500 members in Florida and accounted for premium
revenues of approximately $1.3 billion, which represented 67 percent of the
Company's HCFA premium revenues or 19 percent of the Company's total premium
revenues for the year ended December 31, 1996. HCFA Contracts are renewed for
a one-year term each December 31 unless terminated 90 days prior thereto.
Management believes termination of the HCFA Contract covering the members in
Florida would have a material adverse effect on the revenues, profitability,
and business prospects of the Company.
The Company's 1997 average rate of statutory increase under the HCFA
Contracts is approximately 6 percent. However, the Company's expected 1997
HCFA Contract premium rate increase differs from the 6 percent statutory
increase as a result of a 1996 change in the geographic mix of the Company's
members. The Company expects its 1997 HCFA Contract premium rate increase will
be approximately 4 to 5 percent. Over the last five years, annual increases
have ranged from as low as 3 percent in January 1994 to as high as 12 percent
in January 1993, with an average of approximately 7 percent, including the
January 1997 increase.
Current legislative proposals are being considered which include
modification of future reimbursement rates under the Medicare program and
which encourage the use of managed health care for Medicare beneficiaries.
Management is unable to predict the outcome of these proposals or the impact
they may have on the Company's financial position, results of operations, or
cash flows. The loss of these HCFA Contracts or significant changes in the
Medicare risk program as a result of legislative action, including reductions
in payments or increases in benefits without corresponding increases in
payments, would have a material adverse effect on the revenues, profitability,
and business prospects of the Company.
Medicare Supplement
The Company's Medicare supplement product is an insurance policy which pays
for hospital deductibles, copayments and coinsurance for which an individual
enrolled in the traditional Medicare program is responsible.
Under the terms of existing Medicare supplement policies, the Company may
not reduce or cancel the benefits contracted for by policyholders. These
policies are renewable annually by the insured at the Company's prevailing
rates, which may increase subject to approval by appropriate state insurance
regulators.
At December 31, 1996, the Company provided Medicare supplement benefits to
approximately 97,700 members. For the year ended December 31, 1996, Medicare
supplement premium revenues totaled approximately $93 million or 1 percent of
the Company's total premium revenues.
MEDICAID PRODUCT
Medicaid is a federal program that is state-operated to provide health care
services to low-income residents. Each state which chooses to do so develops
through a state specific regulatory agency, a Medicaid managed care initiative
which must be approved by HCFA. HCFA requires that Medicaid managed care plans
meet federal standards and cost no more than the amount that would have been
spent on a comparable fee-for-service basis. States currently use either a
formal proposal process reviewing many bidders or award individual contracts
to qualified bidders which apply for entry to the program. In either case, the
contractual relationship with the state
4
is generally for a one-year period. Management believes that the risks
associated with participation in a state Medicaid managed care program are
similar to the risks associated with the Medicare risk product discussed
previously. In both instances, the Company receives a fixed monthly payment
from a government agency for which it is required to provide managed health
care services to enrolled members. For the year ended December 31, 1996,
premium revenues from the Company's Medicaid products totaled approximately
$71 million or 1 percent of the Company's total premium revenues. At December
31, 1996, the Company had approximately 55,200 Medicaid members in three
markets. Due to the increased emphasis on state health care reform, more
states are utilizing a managed care product in their Medicaid programs.
CHAMPUS
In 1993, the Company established Humana Military Healthcare Services, Inc.,
(a wholly owned subsidiary of the Company), to bid on contracts to provide
managed care services to the beneficiaries of active military personnel and
retired military personnel and their beneficiaries. In November 1995, the
United States Department of Defense awarded the Company its first CHAMPUS
contract covering approximately 1.1 million eligible beneficiaries in Florida,
Georgia, South Carolina, Mississippi, Alabama, Tennessee, and Eastern
Louisiana.
On July 1, 1996, the Company began providing managed health care services to
these approximate 1.1 million eligible beneficiaries under a potential five-
year contract (a one year contract renewable annually at the government's
option for up to four additional years.). The Company has subcontracted with
third parties to provide certain administration and specialty services under
the contract. Three health benefit options are available to CHAMPUS
beneficiaries. In addition to a traditional indemnity option, participants may
enroll in an HMO-like point-of-service plan or take advantage of reduced
copayments by using a network of preferred providers. CHAMPUS premium revenues
for the period July 1 through December 31, 1996, were approximately $351
million or 5 percent of the Company's total premium revenues for the year
ended December 31, 1996.
The Company will actively seek opportunities to provide managed care
services to beneficiaries of federal and state programs, including other
CHAMPUS contracts.
OTHER RELATED PRODUCTS
The Company also offers various specialty and administrative service
products including dental, group life, workers' compensation and pharmacy
benefit management services. Specialty product membership at December 31,
1996, totaled approximately 1.9 million members, including approximately
517,000 members for which the Company provides only administrative services.
Specialty administrative membership includes dental, workers' compensation,
flexible benefit and purchasing pool administration services. The Company also
operates a prescription drug management service which administers drug benefit
programs for various HMOs and PPOs, including those of the Company. Premiums
and other income related to these specialty and administrative service
products totaled approximately $208 million for the year ended December 31,
1996.
PROVIDER ARRANGEMENTS
The Company's HMOs contract with individual or groups of primary care
physicians, generally for an actuarially determined, fixed, per-member-per-
month fee called a "capitation" payment. Under these arrangements, physicians
are paid a fixed amount to provide services to their members. These contracts
typically obligate primary care physicians to provide or make referrals to
other health care providers for the provision of all covered managed health
care services to HMO members. This includes services provided by specialty
physicians and other providers. The capitation payment does not vary with the
nature or extent of services provided to the member and is generally designed
to shift a portion of the HMOs' financial risk to the primary care physician.
The degree to which the Company uses capitation arrangements varies by
provider. The Company also employs approximately 500 physicians in markets
where it operates staff model HMOs. The Company also contracts with medical
specialists and other providers to which a primary care physician may refer a
member. The contracts with specialists may be capitation arrangements or may
provide for payment on a fee-for-service
5
basis based on negotiated fees. Typically, payments by the Company to these
specialists and other providers reduce the ultimate payment that otherwise
would be made to primary care physicians. The Company's HMOs also have
arrangements under which physicians can earn bonuses when certain target goals
relating to quality and cost effectiveness in the provision of patient care
are met. The Company's contracts with capitated physicians generally provide
for stop-loss coverage so that a physician's financial risk for any single
member is limited to a certain amount on an annual basis. The Company remains
financially responsible for the provision of or payment for covered medical
services if primary care or specialty physicians fail to perform their
obligations under the contract.
The focal point for cost control in the Company's HMOs is generally the
primary care physician, whether employed or under contract, who provides
services and controls utilization of appropriate services by directing or
approving hospitalization and referrals to specialists and other providers.
Cost control is further achieved by directly negotiating provider discounts.
Cost control in the Company's PPOs is achieved primarily by establishing a
cost-effective network of participating health care providers and providing
incentives for members to use such providers. These providers are generally
paid on a negotiated fee-for-service basis. With respect to both HMO and PPO
products, cost control is further achieved through the use of a utilization
review system designed to allow only necessary hospital admissions, lengths of
stay and necessary or appropriate medical procedures. The Company's HMOs and
PPOs generally contract for hospital services under per-diem arrangements for
inpatient hospital services and discounted fee-for-service arrangements for
outpatient services. During the year ended December 31, 1996, approximately 42
percent of the Company's total medical costs were for services provided to its
members in hospitals or related facilities.
The Company has certain risk-sharing contracts with physician-hospital
organizations ("PHOs") and independent practice associations ("IPAs") pursuant
to which the PHO or IPA is responsible for providing all covered managed
health care services to its members.
During 1996, the Company began to implement several disease management
programs in various markets. Under these arrangements, the Company provides
financial incentives for contractors to provide the full range of care to
members with respect to a particular high risk or chronic disease in a
quality, cost-effective manner. These programs include congestive heart
failure, prenatal and premature infant care, end stage renal disease, diabetes
and breast cancer screening. As in the case of bonus arrangements, payments
generally are based on performance relative to certain budgeted targets.
QUALITY ASSESSMENT AND CUSTOMER SERVICE
Access to high quality health care services is an important element of the
Company's business. All of the Company's contracts require that the provider
participate in the Company's quality assurance program. Physician
participation in the Company's HMOs and PPOs is conditioned upon the physician
meeting the Company's requirements concerning the physician's professional
qualifications. When considering whether to contract with a physician, the
Company performs rigorous on-going credentialing verifications and peer review
that meet both regulatory and accrediting agency standards.
The Company has a program in place to monitor important aspects of HMO plan-
wide service and quality indicators with oversight by a senior management
committee. Such indicators as credentialing, quality concerns, customer
service, disenrollment, and satisfaction are measured against standards.
Another measure of quality is the reporting of Health Plan Employer Data
Information Sets ("HEDIS"), which the Company has been reporting since June
1994. HEDIS is useful to purchasers of managed health care services to measure
individual health plan quality and service. Each HMO has in place a peer
review procedure which is implemented by a quality management committee
("QMC"). This committee is headed by the HMO's medical director and is
composed of physicians and physician group representatives. The QMC performs
initial evaluation of applicants for credentialing and reviews all providers
on a periodic basis to monitor the appropriateness of members' care.
6
During 1996, the Company implemented several new programs intended to ensure
that members receive high quality treatment in a cost-effective manner, improve
members' health, and increase member satisfaction. Disease management programs
are being implemented in various markets to address the specific needs of
members with high risk or chronic diseases. These programs are designed to
improve outcomes through close follow-up monitoring and data collection and to
prevent costly medical episodes, including unnecessary hospital stays. The
Company has also implemented a Demand Management program which provides members
telephone access to registered nurses 24 hours a day, seven days a week. As of
December 31, 1996, this service was available to approximately 600,000 fully
insured members in nine markets and is expected to be available to all of the
Company's remaining members by December 31, 1997.
HEALTH MAINTENANCE ORGANIZATION ACCREDITATION
With the increasing significance of managed care in the health care industry,
several independent organizations have been formed for the purpose of
responding to external demands for accountability over the managed care
industry. The organizations utilized by the Company are the National Committee
for Quality Assurance ("NCQA") and the Joint Commission on Accreditation of
Healthcare Organizations ("JCAHO"). NCQA performs site reviews of standards
established for quality assurance, credentialing, utilization management,
medical records, preventive services, and member rights and responsibilities.
JCAHO reviews rights, responsibilities and ethics, continuum of care, education
and communication, leadership, management of information and human resources,
and network performance. Both organizations evaluate the mechanisms the
organization has established to ensure continuous quality improvement.
In the states of Kansas and Florida, accreditation or external review by an
accrediting agency is mandatory and generally required for licensure. As of
December 31, 1996, nine of Humana's HMO markets achieved various levels of
accreditation. Humana Medical Plan, Inc. in its South Florida, Orlando, Tampa,
and Daytona markets, Humana Health Plan, Inc. in its Chicago market, and Humana
Health Plan of Texas, Inc. in its San Antonio market (which includes Houston
and Dallas), all received full accreditation status from NCQA. Humana Medical
Plan, Inc. in its Fort Walton market received three year accreditation status
from JCAHO. Humana Medical Plan, Inc. in its Jacksonville market and Humana
Kansas City, Inc. each received one year accreditation from NCQA. The Company
is currently developing plans for achieving accreditation for the remainder of
its HMO plans, beginning with the review of the Cincinnati, Ohio market in
February 1997. The Company is also developing a plan for accreditation of its
Milwaukee, Wisconsin HMO plan which was previously denied accreditation (prior
to purchase in December 1994). The Company has submitted an application to NCQA
requesting a survey of the Milwaukee plan in May 1999. Management believes the
Milwaukee denial has not had a material impact on the Company's financial
position, results of operations, or cash flows.
MANAGEMENT INFORMATION SYSTEMS
The Company's managed care health plans use centralized, integrated
information systems developed and/or customized specifically to meet the
Company's needs and to allow for aggregation of data and comparison across
markets. These information systems support marketing, sales, underwriting,
contract administration, billing, financial, and other administrative functions
as well as customer service, appointment scheduling, authorization and referral
management, concurrent review, physician capitation and claims administration,
provider management, quality management, and utilization review.
Key to the Company's information systems are operational reports, used by
market office and corporate personnel for such items as physician profiling,
utilization review, quality assessment, member satisfaction measurement, and
employer reporting. Clinical software is used as well to assess appropriateness
of medical care provided to the Company's members. The Company's information
systems are continually upgraded to support new products in an integrated
manner as well as to take advantage of the latest advances in technology.
SALES AND MARKETING
Individuals become members of the Company's Commercial HMOs and PPOs through
their employer or other groups which typically offer employees or members a
selection of managed health care products, pay for
7
all or part of the premiums and make payroll deductions for any premiums
payable by the employees. The Company attempts to become an employer's or
group's exclusive source of managed health care benefits by offering HMO and
PPO products that provide cost-effective quality care consistent with the
needs and expectations of the employees or members.
The Company uses various methods to market its Commercial and Medicare
products, including television, radio, telemarketing and mailings. At December
31, 1996, the Company used approximately 34,000 independently licensed brokers
and agents and approximately 300 licensed employees to sell the Company's
Commercial products. Many of the Company's employer group customers are
represented by insurance brokers and consultants who assist these groups in
the design and purchase of health care products. The Company generally pays
brokers a commission based on premiums, with commissions varying by market and
premium volume.
At December 31, 1996, the Company used approximately 1,400 independently
licensed brokers and approximately 600 employed sales representatives, who are
each paid a salary and/or per member commission, to market the Company's
Medicaid and Medicare products. The Company also used approximately 400
telemarketing representatives who assisted in the marketing of Medicaid and
Medicare products by making appointments for broker/sales representatives with
prospective members.
The following table lists the Company's medical membership at December 31,
1996, by state and product:
MEDICAL MEMBERSHIP
(IN THOUSANDS)
COMMERCIAL PERCENT
--------------- MEDICARE MEDICARE OF
PPO HMO(1) RISK CHAMPUS SUPPLEMENT ASO TOTAL TOTAL
------- ------- -------- ------- ---------- ----- ------- -------
Florida................. 185.4 329.4 227.5 416.0 9.1 6.0 1,173.4 24.2%
Illinois................ 176.6 292.0 45.8 -- -- 56.3 570.7 11.8%
Wisconsin............... 101.5 121.5 -- -- -- 204.7 427.7 8.8%
Kentucky................ 145.5 108.4 8.1 -- 34.5 81.8 378.3 7.8%
Georgia................. 85.8 -- -- 261.9 5.2 1.0 353.9 7.3%
Texas................... 200.7 90.4 32.5 -- 11.0 5.9 340.5 7.0%
Missouri/Kansas......... 63.1 124.2 16.7 -- 7.6 40.6 252.2 5.2%
Alabama................. 4.8 16.7 -- 108.7 16.7 7.0 153.9 3.2%
South Carolina.......... 6.2 -- -- 141.2 -- 1.3 148.7 3.1%
Indiana................. 91.7 25.8 -- -- 1.9 21.2 140.6 2.9%
Tennessee............... 58.0 -- -- 71.7 1.3 1.5 132.5 2.7%
Other................... 467.6 119.5 33.9 103.5 10.4 43.7 778.6 16.0%
------- ------- ----- ------- ---- ----- ------- -----
Total............... 1,586.9 1,227.9 364.5 1,103.0 97.7 471.0 4,851.0 100.0%
======= ======= ===== ======= ==== ===== ======= =====
- --------
(1) Includes 55,200 Medicaid members located in Illinois, Wisconsin and
Missouri/Kansas.
RISK MANAGEMENT
Through the use of internally developed underwriting criteria, the Company
determines the risk it is willing to assume and the amount of premium to
charge for its Commercial products. In most instances, employer and other
groups must meet the Company's underwriting standards in order to qualify to
contract with the Company for coverage. Small group reform laws in some states
have imposed regulations which provide for guaranteed issue of certain health
insurance products and prescribe certain limitations on the variation in rates
charged based upon assessment of health conditions.
Underwriting techniques are not employed in connection with Medicare risk
HMO products because HCFA regulations require the Company to accept all
eligible Medicare applicants regardless of their health or prior medical
history. The Company also is not permitted to employ underwriting criteria for
the Medicaid product but rather follows HCFA and state requirements. In
addition, with respect to the CHAMPUS contract, no underwriting techniques are
employed because the Company must accept all eligible beneficiaries who choose
to participate.
8
COMPETITION
The managed health care industry is highly competitive and contracts for the
sale of Commercial products are generally bid or renewed annually. The
Company's competitors vary by local market and include Blue Cross/Blue Shield
(including HMOs and PPOs owned by Blue Cross/Blue Shield plans), national
insurance companies and other HMOs and PPOs. Many of the Company's competitors
have larger membership in local markets or greater financial resources. The
Company's ability to sell its products and to retain customers is or may be
influenced by such factors as benefits, pricing, contract terms, number and
quality of participating physicians and other managed health care providers,
utilization review, claims processing, administrative efficiency, relationships
with agents, quality of customer service, and accreditation results.
GOVERNMENT REGULATION
Of the Company's 18 licensed HMO subsidiaries, nine are qualified under the
Federal Health Maintenance Organization Act of 1973, as amended. Six of these
federally qualified subsidiaries are parties to HCFA Contracts to provide
Medicare risk HMO products in 12 states and the District of Columbia.
To obtain federal qualification, an HMO must meet certain requirements,
including conformance with financial criteria, a standard method of rate
setting, a comprehensive benefit package, and prohibition of medical
underwriting of individuals. In certain markets, and for certain products, the
Company operates HMOs that are not federally qualified because this provides
greater flexibility with respect to product design and pricing than is possible
for federally qualified HMOs.
HCFA conducts audits of Medicare risk HMOs at least biannually and may
perform other reviews more frequently to determine compliance with federal
regulations and contractual obligations. These audits include review of the
HMO's administration and management (including management information and data
collection systems), fiscal stability, utilization management and incentive
arrangements, health services delivery, quality assurance, marketing,
enrollment and disenrollment activity, claims processing, and complaint
systems. HCFA regulations require quarterly and annual submission of financial
statements and restrict the number of Medicare risk and Medicaid members to no
more than the HMO's Commercial membership in a specified service area. HCFA
regulations also require independent review of medical records and quality of
care, review and approval by HCFA of all advertising, marketing and
communication materials, and independent review of all denied claims and
service complaints which are not resolved in favor of a member.
In addition, HCFA has finalized rules that require certain disclosures to
HCFA and to Medicare beneficiaries concerning the financial arrangements which
managed care organizations have with physicians with whom they contract. These
rules also require certain levels of stop-loss coverage to protect contracted
physicians against major losses relating to patient care, depending on the
amount of financial risk they assume.
The Company's Medicaid product is regulated by the applicable state agency in
the state which the Company sells its Medicaid product, in conformance with
federal approval of the state plan, and is subject to periodic reviews by these
agencies. The reviews are similar in nature to those performed by HCFA.
Laws in each of the states in which the Company operates its HMOs and PPOs
regulate the Company's operations, including the scope of benefits, rate
formulas, delivery systems, utilization review procedures, quality assurance,
enrollment requirements, claim payments, marketing, and advertising. The HMO
and PPO products offered by the Company are sold under licenses issued by the
applicable state insurance regulators. The Company's HMOs and PPOs are required
to be in compliance with certain minimum capital requirements. These
requirements must be satisfied by investing in approved investments that
generally cannot be used for other purposes. Under state laws, the Company's
HMOs and PPOs are audited by state departments of insurance for financial and
contractual compliance, and its HMOs are audited for compliance with health
services standards by respective state departments of health. Most states' laws
require such audits to be performed at least triennially.
The Company and its licensed subsidiaries are subject to regulation under
state insurance holding company regulations. These regulations require, among
other things, prior approval and/or notice of certain material transactions,
dividend payments, and the filing of various financial and operational reports.
9
Management believes that the Company is in substantial compliance with all
governmental laws and regulations affecting the Company's business.
HEALTH CARE REFORM
There continues to be diverse legislative and regulatory initiatives at both
the federal and state levels to address aspects of the nation's health care
system.
National
In 1996, Congress passed the Health Insurance Portability and Accountability
Act ("HIPAA") which established portability, pre-existing conditions,
nondiscrimination and guaranteed renewal rules for both the small and large
group markets, including self-funded groups. HIPAA also extended guarantee
issue rules for the small group market, defined as 2 to 50 employees.
Current legislative proposals are being considered which include modification
of future reimbursement rates under the Medicare program and which encourage
the use of managed health care for Medicare beneficiaries. Further, Congress is
evaluating proposals to subsidize health insurance premiums for certain
uninsured groups, including children and the unemployed. Congress is also
likely to consider various managed care proposals to require all plans to meet
minimum quality standards and service delivery requirements. Management
believes that continuing concerns over health care accessability and the cost
of the Medicare and Medicaid programs in their current form will result in
continued legislative efforts to reform health care.
State
Legislation enacted in the states has included, among other things, small
group market reforms, subscriber access standards for network health plans, and
purchasing pools. Issues related to subscriber access and the delivery of care
including any willing provider, mandatory length of stay, direct access and
utilization review (as well as civil liability arising from these decisions)
are being discussed. In addition, states will be addressing insurance market
reform issues such as portability, pre-existing condition exclusions, medical
savings accounts, and rating restrictions as they come into compliance with
recently enacted federal legislation (such as HIPAA).
Management believes that managed care and health care in general will
continue to be scrutinized and may lead to additional legislative health care
reform initiatives. Management is unable to predict how existing federal or
state laws and regulations may be changed or interpreted, what additional laws
or regulations affecting the Company's businesses may be enacted or proposed,
when and which of the proposed laws will be adopted or what effect any such new
laws and regulations will have on the revenues, profitability, and business
prospects of the Company.
OTHER BUSINESSES
Hospital
The Company owns a 170-bed hospital in Lexington, Kentucky, which provides
services primarily to members of the Company's managed care plans in Lexington.
The Company contracted with an independent hospital management company (the
"Management Company") whereby effective March 1, 1995, all operational
functions of the hospital have been managed by the Management Company. The
Company has terminated this contract with the Management Company effective
February 21, 1998.
Captive Insurance Company
The Company insures substantially all professional liability risks through a
wholly owned subsidiary (the "Subsidiary"). The annual premiums paid to the
Subsidiary are determined by independent actuaries. The Subsidiary reinsures
levels of coverage for losses in excess of its retained limits with unrelated
insurance carriers.
10
Centralized Management Services
Centralized management services are provided to each health plan from the
Company's headquarters. These services include management information systems,
product administration, financing, personnel, development, accounting, legal
advice, public relations, marketing, insurance, purchasing, risk management,
actuarial, underwriting, and claims processing.
EMPLOYEES
As of December 31, 1996, the Company had approximately 18,300 employees,
including approximately 1,200 employees covered by collective bargaining
agreements. The Company has not experienced any work stoppages and believes it
has good relations with its employees.
ITEM 2. PROPERTIES
The Company owns its principal executive office, which is located in the
Humana Building, 500 West Main Street, Louisville, Kentucky, 40202.
The Company provides medical services in owned or leased medical centers
ranging in size from approximately 1,500 to 80,000 square feet. The Company's
administrative market offices are generally leased, with square footage ranging
from approximately 700 to 89,000. The following chart lists the location of
properties used in the operation of the Company at December 31, 1996:
MEDICAL ADMINISTRATIVE
CENTERS OFFICES
------------ ----------------
OWNED LEASED OWNED LEASED TOTAL
----- ------ ------- ------- -----
Florida............................... 6 89 -- 40 135
Illinois.............................. 8 18 -- 9 35
Missouri/Kansas....................... 3 10 -- 6 19
Texas................................. 5 4 1 9 19
Kentucky.............................. 8 3 1 3 15
California............................ -- -- -- 10 10
Wisconsin............................. -- -- -- 9 9
Other................................. 4 11 1 55 71
--- --- ------- ------- ---
Total............................. 34 135 3 141 313
=== === ======= ======= ===
In addition, the Company owns buildings in Louisville, Kentucky, San Antonio,
Texas, and Green Bay, Wisconsin, and leases facilities in Jacksonville,
Florida, and Madison, Wisconsin, all of which are used for customer service and
claims processing. The Louisville and Green Bay facilities also perform
enrollment processing and other corporate functions.
The Company also owns a hospital and medical office building in Lexington,
Kentucky.
ITEM 3. LEGAL PROCEEDINGS
1. A class action law suit styled Mary Forsyth, et al v. Humana Inc., et al,
Case #CV-5-89-249-PMP (L.R.L.), (now restyled Marietta Cade, et al v. Humana
Health Insurance of Nevada, Inc., et al) was filed on March 29, 1989, in the
United States District Court for the District of Nevada (the "Forsyth" case).
On November 19, 1996, the Company filed a Petition for Reconsideration on
Rehearing En Banc in the Ninth Circuit Court of Appeals in the Forsyth case.
The Court of Appeals, on November 5, 1996, had reinstated certain claims that
had been dismissed by the U.S. District Court in Nevada in the case involving
claims arising out of the method of calculation of coinsurance for Nevada
insureds prior to 1988. The Petition requested the Court of Appeals to
reconsider its ruling reinstating an antitrust claim and also to clarify the
portion of its ruling reinstating a claim under the Racketeer Influenced and
Corrupt Organizations Act.
11
2. On April 22, 1993, an alleged stockholder of the Company filed a
purported shareholder derivative action in the Court of Chancery of the State
of Delaware, County of New Castle, styled Lewis v. Austen, et al, Civil Action
No. 12937. The action was purportedly brought on behalf of the Company and
Galen Health Care, Inc. ("Galen") against all of the directors of both
companies at the time Galen was spun off from the Company alleging, among
other things, that the defendants had improperly amended the Company's
existing stock option plans to bifurcate their existing options to allow
employees of each company to receive options in the stock of the other
company. The challenged amendment to the plan was approved by the Company's
stockholders at the 1993 Annual Meeting of Stockholders. There has been little
activity in this case. The defendants filed a motion to dismiss the case in
October 1995. That motion is still pending. The Company believes that the
complaint is without merit.
Damages for claims for personal injuries and medical benefit denials are
usual in the Company's business. Personal injury claims are covered by
insurance from the Subsidiary and excess carriers, except to the extent that
claimants seek punitive damages, which may not be covered by insurance if
awarded. Punitive damages generally are not paid where claims are settled and
generally are awarded only where a court determines there has been a willful
act or omission to act.
Management does not believe that any pending legal actions will have a
material adverse effect on the Company's financial position, result of
operations, or cash flows.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
EXECUTIVE OFFICERS OF THE COMPANY
Set forth below are names and ages of all of the current executive officers
of the Company as of February 28, 1997, their positions, date of election to
such position and the date first elected an officer of the Company:
SERVD IN SUCH FIRST
NAME AGE POSITION CAPACITY SINCE ELECTED OFFICER
- ---- --- -------- -------------- ---------------
David A. Jones.......... 65 Chairman of the Board and 08/69 09/64(1)
Chief Executive Officer
Gregory H. Wolf......... 40 President and Chief Operating 09/96 10/95(2)
Officer
David R. Astar.......... 44 Vice President--Customer 12/96 09/96(3)
Service and Quality
Karen A. Coughlin....... 49 Division II--President 07/96 09/88
Kenneth J. Fasola....... 37 Vice President and 12/96 05/96(4)
National Sales Manager
Arthur P. Hipwell....... 48 Senior Vice President and 06/94 08/90(5)
General Counsel
Gail H. Knopf........... 50 Vice President--Information 12/96 08/85
Systems
Michael B. McCallister.. 44 Division I--President 07/96 09/89
James E. Murray......... 43 Chief Financial Officer 01/97 08/90
David R. Nelson......... 42 Vice President--Risk Management 12/96 09/96(6)
and Chief Actuary
Bruce D. Perkins........ 42 Senior Vice President--Provider 07/96 09/94
Affairs and Reengineering
12
SERVD IN SUCH FIRST
NAME AGE POSITION CAPACITY SINCE ELECTED OFFICER
- ---- --- -------- -------------- ---------------
Jerry D. Reeves, M.D.... 52 Senior Vice President and 01/97 01/97(7)
Chief Medical Officer
Gregory K. Rotherham.... 40 Vice President--Marketing 12/96 09/96(8)
Kirk E. Rothrock........ 38 Vice President--Specialty 12/96 05/96(9)
Products and Business
Development
George W. Vieth, Jr..... 41 Vice President--Development and 12/96 12/95(10)
Planning
Tod J. Zacharias........ 35 Vice President--Employers Health 12/96 05/94(11)
Insurance Company
- --------
(1) Elected an officer of a predecessor corporation in 1961.
(2) Mr. Wolf was initially elected an officer of the Company at the time of
the acquisition of EMPHESYS in 1995. Mr. Wolf had been President and Chief
Operating Officer of EMPHESYS (now a wholly owned subsidiary of the
Company) since November 1994. Mr. Wolf was named Executive Vice President
for Employers Health Insurance Company ("EHIC") (a wholly owned subsidiary
of EMPHESYS) in 1993 and was named Senior Vice President for EHIC in 1990
for Marketing, Sales and Business Development.
(3) Mr. Astar was elected to the above position in September 1996. Prior to
his appointment, Mr. Astar was Vice President of Customer Service of EHIC
since 1990.
(4) Mr. Fasola was initially elected as Vice President Commercial Sales of the
Company in May 1996. Prior to his appointment, Mr. Fasola was Vice
President and National Sales Manager of EHIC since 1989.
(5) Mr. Hipwell was initially elected an officer of the Company in 1990 and
previously served in his current capacity since July 1992. Effective with
the spinoff of Galen Health Care Inc. ("Galen"), he became Senior Vice
President and General Counsel of Galen. Mr. Hipwell returned to the
Company in January 1994 and was named Senior Vice President and General
Counsel of the Company in June 1994.
(6) Mr. Nelson was elected to the above position in September 1996. Prior to
his appointment, Mr. Nelson was Vice President and Chief Actuary of EHIC
since 1992.
(7) Dr. Reeves, a pediatric oncologist, joined the Company in January 1997 in
the above position. Prior to his appointment, Dr. Reeves was Senior Vice
President--Health Care Operations and Chief Medical Officer at Sierra
Health Services, Inc. in Las Vegas, Nevada. Dr. Reeves was employed by
Sierra for eight years.
(8) Mr. Rotherham was elected to the above position in September 1996. Prior
to his appointment, Mr. Rotherham served in a similar capacity as Vice
President for EHIC since 1994 and for Schneider National, Inc. in Green
Bay, Wisconsin since 1985.
(9) Mr. Rothrock was elected to the above position in May 1996. Prior to his
appointment, Mr. Rothrock served in a similar capacity as Vice President
for EHIC since 1993 and as an Assistant Vice President since 1991.
(10) Mr. Vieth was elected to the above position in December 1995, having
joined the Company in November 1992 as Director of Development and
Planning. Before joining the Company, Mr. Vieth was Vice President and
General Counsel of Glenmore Distilleries in Louisville, Kentucky since
1989.
(11) Mr. Zacharias was elected to the above position with EHIC in May 1994. He
joined EHIC in 1989 as Controller.
Executive officers are elected annually by the Company's Board of Directors
and serve until their successors are elected or until resignation or removal.
There are no family relationships among any of the directors or executive
officers of the Company, except that Mr. Jones is the father of David A. Jones,
Jr., the Vice Chairman of the Board of Directors. Unless otherwise noted, all
of the above-named executive officers have been employees of the Company for
more than five consecutive years.
13
PART II
Information for Items 5 through 8 of this report, which appears in the 1996
Annual Report to Stockholders as indicated on the following table, is
incorporated by reference herein in this report and filed as an exhibit hereto:
ANNUAL
REPORT
TO
STOCKHOLDERS
PAGE
------------
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS........................................ 33
ITEM 6. SELECTED FINANCIAL DATA................................... 14
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS........................ 15-18
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Consolidated financial statements............................. 19-30
Report of independent accountants............................. 31
Quarterly financial information (unaudited)................... 31
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this Item other than the information set forth in
Part I under the Section entitled "EXECUTIVE OFFICERS OF THE COMPANY," is
herein incorporated by reference from the Registrant's Proxy Statement for the
Annual Meeting of Stockholders scheduled to be held on May 8, 1997, appearing
under the caption "ELECTION OF DIRECTORS OF THE COMPANY FOR 1997" of such Proxy
Statement.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item is herein incorporated by reference
from the Registrant's Proxy Statement for the Annual Meeting of Stockholders
scheduled to be held on May 8, 1997, appearing under the caption "EXECUTIVE
COMPENSATION OF THE COMPANY" of such Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item is herein incorporated by reference
from the Registrant's Proxy Statement for the Annual Meeting of Stockholders
scheduled to be held on May 8, 1997, appearing under the caption "SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS OF COMPANY COMMON STOCK" of such Proxy
Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item is herein incorporated by reference
from the Registrant's Proxy Statement for the Annual Meeting of Stockholders
scheduled to be held on May 8, 1997, appearing under the caption "CERTAIN
TRANSACTIONS WITH MANAGEMENT AND OTHERS" of such Proxy Statement.
14
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(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 14 is
submitted as Item 8 of this report.
(2) Financial Statement Schedules--All schedules have been omitted because
they are not applicable.
(3) Exhibits:
3(a) Restated Certificate of Incorporation 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. Exhibit 4(i) to the
Company's Post-Effective Amendment to the Registration
Statement on Form S-8 (Reg. No. 33-49305) filed February
2, 1994, is incorporated by reference herein.
(b) By-laws, as amended. Exhibit 3(a) to the Company's Current
Report on Form 8-K (File No. 1-5975) filed March 5, 1993,
is incorporated by reference herein.
4(a) Restated Certificate of Incorporation as amended and
corrected and By-laws as amended. (See 3(a) and 3(b)
above.)
(b) Form of Amended and Restated Rights Agreement dated
February 14, 1996, between Humana Inc. and Mid-America
Bank of Louisville and Trust Company. Exhibit 1.3 to the
Registration Statement (File No. 1-5975) on Form 8-A/A
dated February 14, 1996, is incorporated by reference
herein.
(c) 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 the Company on a consolidated basis.
Other long-term indebtedness of the Company is described
in Note 6 of Notes to Consolidated Financial Statements in
the Company's 1996 Annual Report to Stockholders. The
Company agrees to furnish copies of all such instruments
defining the rights of the holders of such indebtedness to
the Commission upon request.
10(a)* 1981 Non-Qualified Stock Option Plan, as amended. Exhibit
10(c) to the Company's Form SE filed on November 25, 1987,
is incorporated by reference herein.
(b)* Amendment No. 2 to the 1981 Non-Qualified Stock Option
Plan, as amended. Annex A to the Company's Proxy Statement
covering the Annual Meeting of Stockholders held on
February 18, 1993, is incorporated by reference herein.
(c)* 1989 Stock Option Plan for Employees. Exhibit A to the
Company's Proxy Statement covering the Annual Meeting of
Stockholders held on January 11, 1990, is incorporated by
reference herein.
(d)* Amendment No. 1 to the 1989 Stock Option Plan for
Employees. Annex B to the Company's Proxy Statement
covering the Annual Meeting of Stockholders held on
February 18, 1993, is incorporated by reference herein.
(e)* Amendment No. 2 to the 1989 Stock Option Plan for
Employees. Exhibit 10(e) to the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 1993, is
incorporated by reference herein.
(f)* 1989 Stock Option Plan for Non-Employee Directors. Exhibit
B to the Company's Proxy Statement covering the Annual
Meeting of Stockholders held on January 11, 1990, is
incorporated by reference herein.
- --------
* Exhibits 10(a) through and including 10(v) are compensatory plans or
management contracts.
15
10(g)* Amendment No. 1 to the 1989 Stock Option Plan for Non-Em-
ployee Directors. Annex C to the Company's Proxy Statement
covering the Annual Meeting of Stockholders held on Febru-
ary 18, 1993, is incorporated by reference herein.
(h)* Amendment No. 2 to the 1989 Stock Option Plan for Non-Em-
ployee Directors. Exhibit 10(h) to the Company's Annual
Report on Form 10-K for the fiscal year ended December 31,
1993, is incorporated by reference herein.
(i)* Executive Management Incentive Compensation Plan--Group A,
Corporate. Exhibit C to the Company's Proxy Statement cov-
ering the Annual Meeting of Stockholders held on May 26,
1994, is incorporated by reference herein.
(j)* Executive Management Incentive Compensation Plan--Group I,
Corporate. Exhibit 10(j) to the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 1993, is
incorporated by reference herein.
(k)* Regional Incentive Compensation Plan--Group I, Regional
Senior Vice President. Exhibit 10(k) to the Company's An-
nual Report on Form 10-K for the fiscal year ended Decem-
ber 31, 1993, is incorporated by reference herein.
(l)* Senior Management Incentive Compensation Plan--Group II,
Corporate. Exhibit 10(l) to the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 1993, is
incorporated by reference herein.
(m)* Restated agreement providing for termination benefits in
the event of a change of control. Exhibit 10(m) to the
Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1994, is incorporated by reference
herein.
(n)* Employment Agreement--David A. Jones, as amended. Exhibit
10(m) to the Company's Annual Report on Form 10-K for the
fiscal year ended August 31, 1991, is incorporated by ref-
erence herein.
(o)* Directors' Retirement Policy as amended. Exhibit 10(p) to
the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1995, is incorporated by reference
herein.
(p)* Humana Officers' Target Retirement Plan as amended. Ex-
hibit 10(q) to the Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 1994, is incorpo-
rated by reference herein.
(q)* Form Letter Agreement concerning Humana Officers' Target
Retirement Plan dated June 18, 1992, for David A. Jones.
Exhibit 10(s) to the Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 1993, is incorpo-
rated by reference herein.
(r)* Humana Thrift Excess Plan as amended. Exhibit 10(s) to the
Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1994, is incorporated by reference
herein.
(s)* Humana Supplemental Executive Retirement Plan as amended.
Exhibit 10(t) to the Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 1994, is incorpo-
rated by reference herein.
(t)* Letter agreement with Company officers concerning health
insurance availability. Exhibit 10(mm) to the Company's
Annual Report on Form 10-K for the fiscal year ended De-
cember 31, 1994, is incorporated by reference herein.
- --------
*Exhibits 10(a) through and including 10(v) are compensatory plans or
management contracts.
16
10(u)* Retention Bonus Agreement between Gregory H. Wolf and the
Company. Exhibit 10(w) to the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 1995, is
incorporated by reference herein.
(v)* Executive Change in Control Severance Policy for EMPHESYS
Financial Group, Inc. and Employers Health Insurance
Company, filed herewith.
(w) Indemnity Agreement. Appendix B to the Company's Proxy
Statement covering the Annual Meeting of Stockholders held
on January 8, 1987, is incorporated by reference herein.
(x) Agreement between the Secretary of the Department of
Health and Human Services and Humana Medical Plan, Inc.
Exhibit 10(w) to the Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 1993, is
incorporated by reference herein.
(y) Humana Inc. Agreement and Amended Credit Agreement dated
August 1, 1995, and an Amendment and Restatement dated as
of September 26, 1995. Exhibit (b)(2) to Amendment No. 4
of the Company's Schedule 14D-1 and 13D is incorporated by
reference herein.
(z) Assumption of Liabilities and Indemnification Agreement
between the Company and Galen Health Care, Inc. ("Galen").
Exhibit 10(g) to the Company's Current Report on Form 8-K
filed on March 5, 1993, is incorporated by reference
herein.
(aa) Loss Portfolio Reinsurance Agreement between Health Care
Indemnity, Inc. and Managed Care Indemnity, Inc. Exhibit
10(j) to the Company's Current Report on Form 8-K filed on
March 5, 1993, is incorporated by reference herein.
(bb) Alternative Dispute Resolution Agreement between the
Company and Galen dated March 8, 1993. Exhibit 10(qq) to
the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1993, is incorporated by reference
herein.
(cc) Agreement between the United States Department of Defense
and Humana Military Healthcare Services, Inc., a wholly
owned subsidiary of the Company. Exhibit 10(dd) to the
Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1995, is incorporated by reference
herein.
12 Statement re: Computation of Ratio of Earnings to Fixed
Charges, filed herewith.
13 1996 Annual Report to Stockholders, filed herewith. The
Annual Report shall not be deemed to be filed with the
Commission except to the extent that information is
specifically incorporated by reference herein.
21 List of Subsidiaries, filed herewith.
23 Consent of Coopers & Lybrand L.L.P., filed herewith.
27 Financial Data Schedule, filed herewith.
- --------
*Exhibits 10(a) through and including 10(v) are compensatory plans or
management contracts.
(b) Reports on Form 8-K:
No reports on Form 8-K were filed by the Company during the last quarter of
the period covered by this report.
17
SIGNATURES
Pursuant to the requirements of Sections 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this report to be signed on
its behalf by the undersigned, thereto duly authorized.
HUMANA INC.
/s/ James E. Murray
By___________________________________
James E. Murray
Chief Financial Officer
Date: March 28, 1997
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the Company
and in the capacities and on the date indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ James E. Murray Chief Financial Officer March 28, 1997
____________________________________ (Principal Accounting
James E. Murray Officer)
/s/ David A. Jones Chairman of the Board and March 28, 1997
____________________________________ Chief Executive Officer
David A. Jones
/s/ David A. Jones, Jr. Vice Chairman of the Board March 28, 1997
____________________________________
David A. Jones, Jr.
/s/ K. Frank Austen, M.D. Director March 28, 1997
____________________________________
K. Frank Austen, M.D.
/s/ Michael E. Gellert Director March 28, 1997
____________________________________
Michael E. Gellert
/s/ John R. Hall Director March 28, 1997
____________________________________
John R. Hall
/s/ Irwin Lerner Director March 28, 1997
____________________________________
Irwin Lerner
/s/ W. Ann Reynolds, Ph.D. Director March 28, 1997
____________________________________
W. Ann Reynolds, Ph.D.
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