Humana 2015 Annual Report Download - page 27

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• we also could be subject to litigation related to our failure to consummate the Merger or to perform our
obligations under the Merger Agreement.
If the Merger is not consummated, these risks may materially and adversely affect our results of operations,
financial position, cash flows and the price per share for our common stock.
Risks Relating to Our Business
If we do not design and price our products properly and competitively, if the premiums we charge are insufficient
to cover the cost of health care services delivered to our members, if we are unable to implement clinical initiatives
to provide a better health care experience for our members, lower costs and appropriately document the risk profile
of our members, or if our estimates of benefits expense are inadequate, our profitability may be materially adversely
affected. We estimate the costs of our benefits expense payments, and design and price our products accordingly,
using actuarial methods and assumptions based upon, among other relevant factors, claim payment patterns, medical
cost inflation, and historical developments such as claim inventory levels and claim receipt patterns. We continually
review these estimates, however these estimates involve extensive judgment, and have considerable inherent
variability because they are extremely sensitive to changes in claim payment patterns and medical cost trends. Any
reserve, including a premium deficiency reserve, may be insufficient.
We use a substantial portion of our revenues to pay the costs of health care services delivered to our members.
These costs include claims payments, capitation payments to providers (predetermined amounts paid to cover services),
and various other costs incurred to provide health insurance coverage to our members. These costs also include estimates
of future payments to hospitals and others for medical care provided to our members. Generally, premiums in the health
care business are fixed for one-year periods. Accordingly, costs we incur in excess of our benefit cost projections
generally are not recovered in the contract year through higher premiums. We estimate the costs of our future benefit
claims and other expenses using actuarial methods and assumptions based upon claim payment patterns, medical
inflation, historical developments, including claim inventory levels and claim receipt patterns, and other relevant factors.
We also record benefits payable for future payments. We continually review estimates of future payments relating to
benefit claims costs for services incurred in the current and prior periods and make necessary adjustments to our reserves,
including premium deficiency reserves where appropriate. However, these estimates involve extensive judgment, and
have considerable inherent variability that is sensitive to claim payment patterns and medical cost trends. Many factors
may and often do cause actual health care costs to exceed what was estimated and used to set our premiums. These
factors may include:
• increased use of medical facilities and services;
• increased cost of such services;
• increased use or cost of prescription drugs, including specialty prescription drugs;
• the introduction of new or costly treatments, including new technologies;
• our membership mix;
• variances in actual versus estimated levels of cost associated with new products, benefits or lines of business,
product changes or benefit level changes;
• changes in the demographic characteristics of an account or market;
• changes or reductions of our utilization management functions such as preauthorization of services,
concurrent review or requirements for physician referrals;
• changes in our pharmacy volume rebates received from drug manufacturers;
• catastrophes, including acts of terrorism, public health epidemics, or severe weather (e.g. hurricanes and
earthquakes);
• medical cost inflation; and
• government mandated benefits or other regulatory changes, including any that result from the Health Care
Reform Law.