Humana 2015 Annual Report Download - page 88

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available data and historical trends. We routinely monitor the collectibility of specific accounts, the aging of receivables,
historical retroactivity trends, estimated rebates, as well as prevailing and anticipated economic conditions, and reflect
any required adjustments in the current period’s revenue.
We bill and collect premium from employer groups and members in our Medicare and other individual products
monthly. We receive monthly premiums from the federal government and various states according to government
specified payment rates and various contractual terms. Changes in revenues from for our Medicare and individual
commercial medical products resulting from the periodic changes in risk-adjustment scores derived from medical
diagnoses for our membership are recognized when the amounts become determinable and the collectibility is reasonably
assured.
Medicare Risk-Adjustment Provisions
CMS utilizes a risk-adjustment model which apportions premiums paid to Medicare Advantage plans according
to health severity. The risk-adjustment model pays more for enrollees with predictably higher costs. Under the risk-
adjustment methodology, all Medicare Advantage plans must collect and submit the necessary diagnosis code
information from hospital inpatient, hospital outpatient, and physician providers to CMS within prescribed deadlines.
The CMS risk-adjustment model uses this diagnosis data to calculate the risk-adjusted premium payment to Medicare
Advantage plans. Rates paid to Medicare Advantage plans are established under an actuarial bid model, including a
process that bases our payments on a comparison of our beneficiaries’ risk scores, derived from medical diagnoses, to
those enrolled in the government’s Medicare FFS program. We generally rely on providers, including certain providers
in our network who are our employees, to code their claim submissions with appropriate diagnoses, which we send to
CMS as the basis for our payment received from CMS under the actuarial risk-adjustment model. We also rely on
providers to appropriately document all medical data, including the diagnosis data submitted with claims. We estimate
risk-adjustment revenues based on medical diagnoses for our membership. The risk-adjustment model is more fully
described in Item 1. – Business under the section titled “Individual Medicare.”
Investment Securities
Investment securities totaled $9.1 billion, or 37% of total assets at December 31, 2015, and $9.5 billion, or 41%
of total assets at December 31, 2014. Debt securities, detailed below, comprised this entire investment portfolio at
December 31, 2015 and 2014. The fair value of debt securities were as follows at December 31, 2015 and 2014:
December 31,
2015
Percentage
of Total
December 31,
2014
Percentage
of Total
(dollars in millions)
U.S. Treasury and other U.S.
government corporations and agencies:
U.S. Treasury and agency obligations $ 332 3.6% $ 374 3.9%
Mortgage-backed securities 1,891 20.8% 1,498 15.7%
Tax-exempt municipal securities 2,668 29.3% 3,068 32.1%
Mortgage-backed securities:
Residential 13 0.1% 17 0.2%
Commercial 985 10.8% 843 8.8%
Asset-backed securities 263 2.9% 29 0.3%
Corporate debt securities 2,958 32.5% 3,718 39.0%
Total debt securities $ 9,110 100.0% $ 9,547 100.0%
Approximately 98% of our debt securities were investment-grade quality, with a weighted average credit rating
of AA by S&P at December 31, 2015. Most of the debt securities that were below investment-grade were rated BB, the