Humana 2015 Annual Report Download - page 58

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50
of $1.57 per diluted common share in 2015. Excluding the impact of the sale of Concentra, the decrease primarily was
due to a decline in Retail segment pretax results, including expense of $0.74 per diluted common share for a premium
deficiency reserve for certain of our individual commercial medical products for the 2016 coverage year, and an increase
in the effective tax rate as discussed below. These items were partially offset by year-over-year improvement in the
Group and Healthcare Services segment pretax results and higher investment income. In addition, 2015 includes
expenses of $0.14 per diluted common share for transaction costs associated with the Merger, certain of which are not
deductible for tax purposes. Net income for 2014 includes expenses of $0.15 per diluted common share associated with
a loss on extinguishment of debt for the redemption of certain senior notes in 2014. Year-over-year comparisons of
diluted earnings per common share are also favorably impacted by a lower number of shares used to compute diluted
earnings per common share in 2015 reflecting the impact of share repurchases.
Premiums Revenue
Consolidated premiums increased $6.5 billion, or 14.0%, from 2014 to $52.4 billion for 2015 primarily reflecting
higher premiums in both the Retail and Group segments. These higher premiums were primarily driven by average
membership growth in the Retail segment and an increase in fully-insured group commercial medical per member
premiums in the Group segment. Average membership is calculated by summing the ending membership for each month
in a period and dividing the result by the number of months in a period. Premiums revenue reflects changes in membership
and average per member premiums. Items impacting average per member premiums include changes in premium rates
as well as changes in the geographic mix of membership, the mix of product offerings, and the mix of benefit plans
selected by our membership.
Services Revenue
Consolidated services revenue decreased $758 million, or 35.0%, from 2014 to $1.4 billion for 2015 primarily due
to the completion of the sale of Concentra on June 1, 2015 as well as the loss of certain large group ASO accounts as
a result of continued discipline in pricing of services for self-funded accounts amid a highly competitive environment.
Investment Income
Investment income totaled $474 million for 2015, an increase of $97 million, or 25.7%, from 2014, 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, with higher average invested balances being substantially offset by lower
interest rates.
Benefits Expense
Consolidated benefits expense was $44.3 billion for 2015, an increase of $6.1 billion, or 16.0%, from 2014 primarily
due to an increase in the Retail segment mainly driven by higher average Medicare Advantage membership and
individual commercial medical on-exchange and off-exchange membership in plans compliant with the Health Care
Reform Law. As more fully described herein under the section entitled “Benefits Expense Recognition”, actuarial
standards require the use of assumptions based on moderately adverse experience, which generally results in favorable
reserve development, or reserves that are considered redundant. We experienced favorable medical claims reserve
development related to prior fiscal years of $236 million in 2015 and $518 million in 2014. The decline in prior-period
medical claims reserve development year over-year primarily was due to Medicare Advantage and individual
commercial medical claims development in the Retail segment as discussed further in the segment results of operations
discussion that follows.
The consolidated benefit ratio for 2015 was 84.5%, an increase of 150 basis points from 2014 primarily due to
increases in the Retail segment, including the impact of a recognizing a premium deficiency reserve for certain of our
individual commercial medical products for the 2016 coverage year, and Group segment ratios as discussed in the
segment results of operations discussions that follows. The increase in benefits expense associated with the recognition
of the premium deficiency reserve increased the consolidated benefit ratio by approximately 30 basis points in 2015.
Favorable prior-period medical claims reserve development decreased the consolidated benefit ratio by approximately
50 basis points in 2015 versus approximately 110 basis points in 2014.