Humana 2015 Annual Report Download - page 67

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block of long-term care insurance policies included with Other Businesses as discussed in Note 18 to the consolidated
financial statements included in Item 8. – Financial Statements and Supplementary Data as well as the benefit of a
reduction in benefits expense in 2013 related to a favorable settlement of contract claims with the DoD. Excluding
these items, the increase in net income primarily resulted from higher pretax income in our Healthcare Services segment
substantially offset by lower pretax income in our Retail and Group segments. In addition, 2014 was favorably impacted
by a lower number of shares used to compute diluted earnings per common share reflecting the impact of share
repurchases.
Premiums Revenue
Consolidated premiums increased $7.1 billion, or 18.4%, from 2013 to $46.0 billion for 2014 primarily due to
increases in both Retail and Group segment premiums mainly driven by higher average individual and group Medicare
Advantage membership as well as higher individual commercial medical membership. In addition, year-over-year
comparisons to 2013 were negatively impacted by sequestration which became effective April 1, 2013. Premiums
revenue for our Other Businesses declined primarily due to the loss of our Puerto Rico Medicaid contracts effective
September 30, 2013.
Services Revenue
Consolidated services revenue increased $55 million, or 2.6%, from 2013 to $2.2 billion for 2014 primarily due
to an increase in services revenue in our Retail segment due to the acquisition of American Eldercare in September
2013.
Investment Income
Investment income totaled $377 million for 2014, an increase of $2 million from 2013, as higher average invested
balances were partially offset by lower interest rates.
Benefits Expense
Consolidated benefits expense was $38.2 billion for 2014, an increase of $5.6 billion, or 17.2%, from 2013 primarily
due to increases in both the Retail and Group segments mainly driven by higher average individual and group Medicare
Advantage membership as well as higher individual commercial medical membership. We experienced favorable
medical claims reserve development related to prior fiscal years of $518 million in 2014 and $474 million in 2013.
These increases in favorable medical claims reserve development primarily resulted from increased membership and
better than originally expected utilization across most of our major business lines and increased financial recoveries. The
increase in financial recoveries primarily resulted from claim audit process enhancements as well as increased volume
of claim audits and expanded audit scope. All lines of business benefited from these improvements.
The consolidated benefit ratio for 2014 was 83.0%, a decrease of 90 basis points from 2013 primarily due to reserve
strengthening in 2013 associated with our closed-block of long-term care insurance policies included with Other
Businesses as discussed above, as well as the loss of our Medicaid contracts in Puerto Rico effective September 30,
2013 which more than offset higher ratios year-over-year in the Retail and Group segments.
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 increased $1,284 million, or 20.2%, in 2014 compared to 2013 primarily due to costs
mandated by the Health Care Reform Law, including the non-deductible health insurance industry fee, and investments
in health care exchanges and state-based contracts, partially offset by operating cost efficiencies.
The consolidated operating cost ratio for 2014 was 15.9%, increasing 40 basis points from 2013 primarily due to
increases in the operating cost ratios in our Retail and Group segments due to the same factors impacting consolidated
operating costs as described above.