Humana 2015 Annual Report Download - page 104

Humana Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
96
Services Revenue
Patient services revenue
Patient services include injury and illness care and related services as well as other healthcare services related to
employer needs or as required by law. Patient services revenues are recognized in the period services are provided to
the customer when the sales price is fixed or determinable, and are net of contractual allowances.
Administrative services fees
Administrative services fees cover the processing of claims, offering access to our provider networks and clinical
programs, and responding to customer service inquiries from members of self-funded groups. Revenues from providing
administration services, also known as administrative services only, or ASO, are recognized in the period services are
performed and are net of estimated uncollectible amounts. ASO fees are estimated by multiplying the membership
covered under the various contracts by the contractual rates. Under ASO contracts, self-funded employers retain the
risk of financing substantially all of the cost of health benefits. However, many ASO customers purchase stop loss
insurance coverage from us to cover catastrophic claims or to limit aggregate annual costs. Accordingly, we have
recorded premiums revenue and benefits expense related to these stop loss insurance contracts. We routinely monitor
the collectibility of specific accounts, the aging of receivables, as well as prevailing and anticipated economic conditions,
and reflect any required adjustments in current operations. ASO fees received prior to the service period are recorded
as unearned revenues.
Under our current TRICARE South Region contract with the Department of Defense, we provide administrative
services, including offering access to our provider networks and clinical programs, claim processing, customer service,
enrollment, and other services, while the federal government retains all of the risk of the cost of health benefits. We
account for revenues under the current contract net of estimated health care costs similar to an administrative services
fee only agreement. The current contract includes fixed administrative services fees and incentive fees and penalties.
Administrative services fees are recognized as services are performed.
Our TRICARE members are served by both in-network and out-of-network providers in accordance with the
current contract. We pay health care costs related to these services to the providers and are subsequently reimbursed
by the DoD for such payments. We account for the payments of the federal government’s claims and the related
reimbursements under deposit accounting in our consolidated balance sheets and as a financing activity under receipts
(withdrawals) from contract deposits in our consolidated statements of cash flows. For 2015, health care cost
reimbursements and payments were each approximately $3.3 billion, with payments exceeding reimbursements by $4
million for the year. For 2014, health care cost reimbursements and payments were each $3.2 billion. For 2013, health
care cost reimbursements and payments were each approximately $3.2 billion, with reimbursements exceeding payments
by $5 million for the year.
Receivables
Receivables, including premium receivables, patient services revenue receivables, and ASO fee receivables, are
shown net of allowances for estimated uncollectible accounts, retroactive membership adjustments, and contractual
allowances.
Policy Acquisition Costs
Policy acquisition costs are those costs that relate directly to the successful acquisition of new and renewal insurance
policies. Such costs include commissions, costs of policy issuance and underwriting, and other costs we incur to acquire
new business or renew existing business. We expense policy acquisition costs related to our employer-group prepaid
health services policies as incurred. These short-duration employer-group prepaid health services policies typically
have a 1-year term and may be cancelled upon 30 days notice by the employer group.
Life insurance, annuities, and certain health and other supplemental policies sold to individuals are accounted for
as long-duration insurance products because they are expected to remain in force for an extended period beyond one
year and premium received in the earlier years is intended to pay anticipated benefits to be incurred in future years. As