Humana 2015 Annual Report Download - page 52

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• During 2015, we recorded transaction costs in connection with the Merger of approximately $23.1 million,
or $0.14 per diluted common share. Certain costs associated with the transaction are not deductible for tax
purposes.
• Excluding the impact of the sale of Concentra and transaction costs associated with the Merger, our pretax
results for 2015 as compared to 2014 reflect year-over-year improvement in the Group and Healthcare Services
segment pretax results and higher investment income, partially offset by a year-over-year decline in Retail
segment pretax results as discussed in the detailed segment results discussion that follows.
• Year-over-year comparisons of the operating cost ratio are impacted by an increase in 2015 of the non-deductible
health insurance industry fee mandated by the Health Care Reform Law. Likewise, year-over-year comparisons
of the benefit ratio reflect the increase in this fee in the pricing of our products for 2015 which reduces our
benefit ratio.
• Investment income increased $97 million in 2015, primarily due to higher realized capital gains in 2015 as a
result of the repositioning of our portfolio given recent market volatility and anticipated changes to interest
rates.
• Year-over-year comparisons of diluted earnings per common share are favorably impacted by a lower number
of shares used to compute diluted earnings per common share reflecting the impact of share repurchases.
• Operating cash flow provided by operations was $868 million for the year ended December 31, 2015 as
compared to operating cash flow of $1.6 billion for the year ended December 31, 2014. The decrease in our
operating cash flows primarily reflects the effect of significant growth in individual commercial medical and
group Medicare Advantage membership in the prior year and changes in the timing of other working capital
items related to the growth in our pharmacy business and growth in net receivables under the commercial risk
adjustment, reinsurance, and risk corridor programs under the Health Care Reform Law, commonly referred
to as the 3Rs. Prior year cash flows were favorably impacted from the typical pattern of claim payments that
lagged premium receipts related to new membership. Individual commercial medical added 548,000 new
members in 2014 compared to a decline of 90,400 members in 2015. Likewise, group Medicare Advantage
added 60,600 new members in 2014 compared to a decline of 5,600 members in 2015.
• In 2015, we paid the federal government $867 million for the annual non-deductible health insurance industry
fee compared to our payment of $562 million in 2014. This fee is not deductible for tax purposes, which
significantly increased our effective income tax rate beginning in 2014. The health insurance industry fee is
further described below under the section titled "Health Care Reform." The Consolidated Appropriations Act,
2016, enacted on December 18, 2015, included a one-time one year suspension in 2017 of the health insurer
fee. This will significantly reduce our effective tax rate in 2017.
• During 2015, we repurchased 1.85 million shares in open market transactions for $329 million and paid
dividends to stockholders of $172 million. Pursuant to the Merger Agreement, after July 2, 2015, we are
prohibited from repurchasing any of our outstanding securities without the prior written consent of Aetna,
other than repurchases of shares of our common stock in connection with the exercise of outstanding stock
options or the vesting or settlement of outstanding restricted stock awards. Accordingly, as announced on July
3, 2015, we have suspended our share repurchase program. Our remaining repurchase authorization was $1.04
billion as of July 3, 2015. The Merger does not impact our ability and intent to continue quarterly dividend
payments prior to the closing of the Merger consistent with our historical dividend payments. Under the terms
of the Merger Agreement, we have agreed with Aetna that our quarterly dividend will not exceed $0.29 per
share prior to the closing of the Merger.
Retail Segment
• On April 6, 2015, CMS announced final 2016 Medicare benchmark payment rates and related technical factors
impacting the bid benchmark premiums, which we refer to as the Final Rate Notice. We believe the Final Rate
Notice, together with the impact of payment cuts associated with the Health Care Reform Law, quality bonuses,