Humana 2015 Annual Report Download - page 36

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with programs designed to spread risk among insurers (subject to federal administrative action), and expands eligibility
for Medicaid programs (subject to state-by-state implementation of this expansion). In addition, the Health Care Reform
Law has increased and will continue to increase federal oversight of health plan premium rates and could adversely
affect our ability to appropriately adjust health plan premiums on a timely basis. Financing for these reforms will come,
in part, from material additional fees and taxes on us and other health plans and individuals which began in 2014, as
well as reductions in certain levels of payments to us and other health plans under Medicare. If we fail to effectively
implement our operational and strategic initiatives with respect to the implementation of the Health Care Reform Law,
our business may be materially adversely affected. For additional information, please refer to the section entitled,
“Health Care Reform” in “Item 7 - Management’s Discussion and Analysis of Financial Condition and Results of
Operations” appearing in this annual report.
Our participation in the new federal and state health insurance exchanges, which entail uncertainties associated
with mix, volume of business and the operation of premium stabilization programs, which are subject to federal
administrative action, could adversely affect our results of operations, financial position, and cash flows.
The Health Care Reform Law required the establishment of health insurance exchanges for individuals and small
employers to purchase health insurance that became effective January 1, 2014, with an annual open enrollment period.
Insurers participating on the health insurance exchanges must offer a minimum level of benefits and are subject to
guidelines on setting premium rates and coverage limitations. We may be adversely selected by individuals who have
a higher acuity level than the anticipated pool of participants in this market. In addition, the risk corridor, reinsurance,
and risk adjustment provisions of the Health Care Reform Law, established to apportion risk for insurers, may not be
effective in appropriately mitigating the financial risks related to our products. During 2015, we received our interim
settlement associated with our risk corridor receivables for the 2014 coverage year. The interim settlement, representing
only 12.6% of risk corridor receivables for the 2014 coverage year, was funded by HHS in accordance with previous
guidance, utilizing funds HHS collected from us and other carriers under the 2014 risk corridor program. HHS provided
guidance under the three year risk corridor program that future collections 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. In addition, regulatory
changes to the implementation of the Health Care Reform Law that allowed individuals to remain in plans that are not
compliant with the Health Care Reform Law or to enroll outside of the annual enrollment period may have an adverse
effect on our pool of participants in the health insurance exchange. All of these factors may have a material adverse
effect on our results of operations, financial position, or cash flows if our premiums are not adequate or do not
appropriately reflect the acuity of these individuals. Any variation from our expectations regarding acuity, enrollment
levels, adverse selection, or other assumptions used in setting premium rates could have a material adverse effect on
our results of operations, financial position, and cash flows.
Our business activities are subject to substantial government regulation. New laws or regulations, or changes
in existing laws or regulations or their manner of application, including reductions in Medicare Advantage payment
rates, could increase our cost of doing business and may adversely affect our business, profitability, financial
condition, and cash flows.
In addition to the Health Care Reform Law, the health care industry in general and health insurance are subject to
substantial federal and state government regulation:
Health Insurance Portability and Accountability Act (HIPAA) and the Health Information Technology for Economic
and Clinical Health Act (HITECH Act)
The use of individually identifiable health data by our business is regulated at federal and state levels. These laws
and rules are changed frequently by legislation or administrative interpretation. Various state laws address the use and
maintenance of individually identifiable health data. Most are derived from the privacy provisions in the federal Gramm-
Leach-Bliley Act and the Health Insurance Portability and Accountability Act, or HIPAA. HIPAA includes