Humana 2015 Annual Report Download - page 59
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51
Operating Costs
Our segments incur both direct and shared indirect operating costs. We allocate the indirect costs shared by the
segments primarily as a function of revenues. As a result, the profitability of each segment is interdependent.
Consolidated operating costs decreased $321 million, or 4.2%, from 2014 to $7.3 billion in 2015 primarily due to
cost management initiatives across all lines of business as well as the completion of the sale of Concentra on June 1,
2015, partially offset by increases in costs mandated by the Health Care Reform Law, including the non-deductible
health insurance industry fee.
The consolidated operating cost ratio for 2015 was 13.6%, decreasing 230 basis points from 2014 primarily due
to decreases in the operating cost ratios in the Group and Retail segments reflecting cost management initiatives, as
well as the completion of the sale of Concentra on June 1, 2015. Concentra carried a higher operating cost ratio.
Depreciation and Amortization
Depreciation and amortization for 2015 totaled $355 million, increasing $22 million, or 6.6% from 2014 reflecting
higher depreciation expense from capital expenditures.
Interest Expense
Interest expense was $186 million for 2015 compared to $192 million for 2014, a decrease of $6 million, or 3.1%,
primarily reflecting a higher average long-term debt balance due to the issuance of senior notes in September 2014,
partially offset by the recognition of a loss on extinguishment of debt of approximately $37 million in October 2014
for the redemption of our $500 million 6.45% senior unsecured notes due June 1, 2016.
Income Taxes
Our effective tax rate during 2015 was 47.5% compared to the effective tax rate of 47.2% in 2014. The increase
in the effective tax rate primarily was due to an increase in the non-deductible health insurance industry fee from 2014,
substantially offset by the favorable tax effect of the gain on the sale of Concentra. See Note 11 to the consolidated
financial statements included in Item 8. – Financial Statements and Supplementary Data for a complete reconciliation
of the federal statutory rate to the effective tax rate. Our effective tax rate for 2016 is expected to be approximately
49% to 51%, excluding the impact of any non-deductible transaction costs associated with the Merger.