Humana 2015 Annual Report Download - page 101

Humana Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
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The transitional reinsurance program requires us to make reinsurance contributions for calendar years 2014 through
2016 to a state or HHS established reinsurance entity based on a national contribution rate per covered member as
determined by HHS. While all commercial medical plans, including self-funded plans, are required to fund the
reinsurance entity, only fully-insured non-grandfathered plans compliant with the Health Care Reform Law in the
individual commercial market will be eligible for recoveries if individual claims exceed a specified threshold.
Accordingly, we account for transitional reinsurance contributions associated with all commercial medical health plans
other than these non-grandfathered individual plans as an assessment in operating costs in our consolidated statements
of income. We account for contributions made by individual commercial plans compliant with the Health Care Reform
Law, which are subject to recoveries, as ceded premiums (a reduction of premiums) and similarly we account for any
recoveries as ceded benefits (a reduction of benefits expense) in our consolidated statements of income.
We are required to remit payment for our per member reinsurance contribution, exclusive of the portion payable
to the U.S. Treasury, by January 15 of the year following the coverage year, or January 15, 2016 for the 2015 coverage
year. The portion of the reinsurance contribution due to the U.S. Treasury must be paid by November 15 of the year
following the coverage year, or November 15, 2016 for the 2015 coverage year. Risk adjustment calculations will be
completed and HHS will notify us of recoveries due or payments owed to/from us under the risk adjustment and
reinsurance programs by June 30 of the year following the coverage year. Following this notification, risk corridor
calculations are then due by July 31 of the year following the coverage year. Payments due to HHS under the risk
adjustment and risk corridor programs must be remitted within 30 days of notification for each program and will be
collected prior to the distribution of recoveries by HHS under each program. Payment and recovery amounts associated
with reinsurance and risk adjustment will generally be settled with HHS annually in the year following the coverage
year. Accordingly, for the 2015 coverage year, we expect to receive recoveries and/or pay amounts due under these
programs in 2016. The risk corridor program is a three year program. We are required to pay gross risk corridor payables
in the second half of the year following the coverage year. Interim settlements of risk corridor receivables in the year
following the coverage year are limited to risk corridor amounts collected by HHS and available for distribution in the
year following the coverage year. HHS guidance provides that risk corridor collections over the life of the three year
program will first be applied to any shortfalls from previous coverage years before application to current year obligations.
Risk corridor payables to issuers are obligations of the United States Government under the Health Care Reform law
which requires the Secretary of HHS to make full payments to issuers. In the event of a shortfall at the end of the three
year program, HHS has asserted it will explore other sources of funding for risk corridor payments, subject to the
availability of appropriations.
See Note 7 for detail regarding amounts recorded to the consolidated balance sheets related to the 3Rs.
In addition to the provisions discussed above, beginning in 2014, HHS pays us a portion of the health care costs
for low-income individual members for which we assume no risk in accordance with the Health Care Reform Law. We
account for these subsidies as a deposit in our consolidated balance sheets and as a financing activity in our consolidated
statements of cash flows. We do not recognize premiums revenue or benefits expense for these subsidies. Receipt and
payment activity is accumulated at the state and legal entity level and recorded in our consolidated balance sheet in
other current assets or trade accounts payable and accrued expenses depending on the state and legal entity balance at
the end of the reporting period. We will be notified of final settlement amounts by June 30 of the year following the
coverage year. Receipts from HHS associated with cost sharing subsidies for which we do not assume risk were
approximately $478 million, exceeding payments of $409 million by $69 million for the year ended December 31,
2015. For the year ended December 31, 2014, receipts from HHS associated with cost sharing subsidies for which we
do not assume risk were approximately $281 million, exceeding payments of $255 million by $26 million. The program
began in 2014, and as such, there were no receipts or payments from HHS for cost sharing subsidies in 2013.
Cash and Cash Equivalents
Cash and cash equivalents include cash, time deposits, money market funds, commercial paper, other money market
instruments, and certain U.S. Government securities with an original maturity of three months or less. Carrying value
approximates fair value due to the short-term maturity of the investments.