SEGMENT INFORMATION

On January 1, 2014, we reclassified certain of our businesses from our Healthcare Services segment to our Employer Group segment to correspond with internal management reporting changes. Our reportable segments remain the same and prior period segment financial information has been recast to conform to the 2014 presentation.

We manage our business with three reportable segments: Retail, Employer Group, and Healthcare Services. In addition, the Other Businesses category includes businesses that are not individually reportable because they do not meet the quantitative thresholds required by generally accepted accounting principles. These segments are based on a combination of the type of health plan customer and adjacent businesses centered on well-being solutions for our health plans and other customers, as described below. These segment groupings are consistent with information used by our Chief Executive Officer to assess performance and allocate resources.

The Retail segment consists of Medicare and commercial fully-insured medical and specialty health insurance benefits, including dental, vision, and other supplemental health and financial protection products, marketed directly to individuals, and includes our contract with CMS to administer the LI-NET prescription drug plan program and contracts with various states to provide Medicaid, dual eligible, and Long-Term Support Services benefits, collectively our state-based contracts. The Employer Group segment consists of Medicare and commercial fully-insured medical and specialty health insurance benefits, including dental, vision, and other supplemental health and voluntary benefit products, as well as administrative services only, or ASO, products and our health and wellness products primarily marketed to employer groups. The Healthcare Services segment includes services offered to our health plan members as well as to third parties including pharmacy solutions, provider services, home based services, integrated behavioral health services, and predictive modeling and informatics services. The Other Businesses category consists of our military services, primarily our TRICARE South Region contract, Puerto Rico Medicaid, and closed-block long-term care insurance policies.

Our Healthcare Services intersegment revenues primarily relate to managing prescription drug coverage for members of our other segments through Humana Pharmacy Solutions^®, or HPS, and includes the operations of RightSourceRx^®, our mail order pharmacy business. These revenues consist of the prescription price (ingredient cost plus dispensing fee), including the portion to be settled with the member (co-share) or with the government (subsidies), plus any associated administrative fees. Services revenues related to the distribution of prescriptions by third party retail pharmacies in our networks are recognized when the claim is processed and product revenues from dispensing prescriptions from our mail order pharmacies are recorded when the prescription or product is shipped. Our pharmacy operations, which are responsible for designing pharmacy benefits, including defining member co-share responsibilities, determining formulary listings, contracting with retail pharmacies, confirming member eligibility, reviewing drug utilization, and processing claims, act as a principal in the arrangement on behalf of members in our other segments. As principal, our Healthcare Services segment reports revenues on a gross basis including co-share amounts from members collected by third party retail pharmacies at the point of service.

In addition, our Healthcare Services intersegment revenues include revenues earned by certain owned providers derived from risk-based managed care agreements with our health plans. Under these agreements, the provider receives a monthly capitated fee that varies depending on the demographics and health status of the member, for each member assigned to these owned providers by our health plans. The owned provider assumes the economic risk of funding the assigned members’ healthcare services and related administrative costs. Accordingly, our Healthcare Services segment reports provider services related revenues on a gross basis. Capitation fee revenue is recognized in the period in which the assigned members are entitled to receive healthcare services.

We present our consolidated results of operations from the perspective of the health plans. As a result, the cost of providing benefits to our members, whether provided via a third party provider or internally through a stand-alone subsidiary, is classified as benefits expense and excludes the portion of the cost for which the health plans do not bear responsibility, including member co-share amounts and government subsidies of $9.7 billion in 2014, $7.3 billion in 2013, and $6.3 billion in 2012. In addition, depreciation and amortization expense associated with certain businesses in our Healthcare Services segment delivering benefits to our members, primarily associated with our provider services and pharmacy operations, are included with benefits expense. The amount of this expense was $116 million in 2014, $93 million in 2013, and $43 million in 2012. The increase in 2013 primarily was due to amortization expense associated with the December 21, 2012 acquisition of Metropolitan.

Other than those described previously, the accounting policies of each segment are the same and are described in Note 2. Transactions between reportable segments consist of sales of services rendered by our Healthcare Services segment, primarily provider, pharmacy, and behavioral health services, to our Retail and Employer Group customers. Intersegment sales and expenses are recorded at fair value and eliminated in consolidation. Members served by our segments often utilize the same provider networks, enabling us in some instances to obtain more favorable contract terms with providers. Our segments also share indirect costs and assets. As a result, the profitability of each segment is interdependent. We allocate most operating expenses to our segments. Assets and certain corporate income and expenses are not allocated to the segments, including the portion of investment income not supporting segment operations, interest expense on corporate debt, and certain other corporate expenses. These items are managed at a corporate level. These corporate amounts are reported separately from our reportable segments and included with intersegment eliminations in the tables presenting segment results below.

Our segment results were as follows for the years ended December 31, 2014, 2013, and 2012:



	Retail		Employer Group		Healthcare Services		Other Businesses		Eliminations/ Corporate			Consolidated
	(in millions)
2014
Revenues—external customers
Premiums:
Medicare Advantage	$	25,941	$	5,490	$	—	$	—	$	—		$	31,431
Medicare stand-alone PDP	3,396		8		—		—		—			3,404
Total Medicare	29,337		5,498		—		—		—			34,835
Fully-insured	3,265		5,339		—		—		—			8,604
Specialty	256		1,098		—		—		—			1,354
Military services	—		—		—		19		—			19
Medicaid and other	1,096		—		—		51		—			1,147
Total premiums	33,954		11,935		—		70		—			45,959
Services revenue:
Provider	—		23		1,183		—		—			1,206
ASO and other	39		339		—		481		—			859
Pharmacy	—		—		99		—		—			99
Total services revenue	39		362		1,282		481		—			2,164
Total revenues—external customers	33,993		12,297		1,282		551		—			48,123
Intersegment revenues
Services	—		78		14,984		—		(15,062		)	—
Products	—		—		3,749		—		(3,749		)	—
Total intersegment revenues	—		78		18,733		—		(18,811		)	—
Investment income	76		44		—		60		197			377
Total revenues	34,069		12,419		20,015		611		(18,614		)	48,500
Operating expenses:
Benefits	28,608		10,019		—		113		(574		)	38,166
Operating costs	4,209		1,987		19,121		405		(18,083		)	7,639
Depreciation and amortization	154		99		155		15		(90		)	333
Total operating expenses	32,971		12,105		19,276		533		(18,747		)	46,138
Income from operations	1,098		314		739		78		133			2,362
Interest expense	—		—		—		—		192			192
Income (loss) before income taxes	$	1,098	$	314	$	739	$	78	$	(59	)	$	2,170

Premium and services revenues derived from our contracts with the federal government, as a percentage of our total premium and services revenues, was approximately 73% for 2014, compared to 75% for 2013 and 2012.



	Retail		Employer Group		Healthcare Services		Other Businesses			Eliminations/ Corporate			Consolidated
	(in millions)
2013
Revenues—external customers
Premiums:
Medicare Advantage	$	22,481	$	4,710	$	—	$	—		$	—		$	27,191
Medicare stand-alone PDP	3,025		8		—		—			—			3,033
Total Medicare	25,506		4,718		—		—			—			30,224
Fully-insured	1,160		5,117		—		—			—			6,277
Specialty	210		1,095		—		—			—			1,305
Military services	—		—		—		25			—			25
Medicaid and other	328		—		—		670			—			998
Total premiums	27,204		10,930		—		695			—			38,829
Services revenue:
Provider	—		21		1,221		—			—			1,242
ASO and other	16		338		—		454			—			808
Pharmacy	—		—		59		—			—			59
Total services revenue	16		359		1,280		454			—			2,109
Total revenues—external customers	27,220		11,289		1,280		1,149			—			40,938
Intersegment revenues
Services	—		51		11,808		—			(11,859		)	—
Products	—		—		2,803		—			(2,803		)	—
Total intersegment revenues	—		51		14,611		—			(14,662		)	—
Investment income	74		42		—		59			200			375
Total revenues	27,294		11,382		15,891		1,208			(14,462		)	41,313
Operating expenses:
Benefits	22,914		9,124		—		935			(409		)	32,564
Operating costs	2,963		1,806		15,223		446			(14,083		)	6,355
Depreciation and amortization	134		102		147		20			(70		)	333
Total operating expenses	26,011		11,032		15,370		1,401			(14,562		)	39,252
Income (loss) from operations	1,283		350		521		(193		)	100			2,061
Interest expense	—		—		—		—			140			140
Income (loss) before income taxes	$	1,283	$	350	$	521	$	(193	)	$	(40	)	$	1,921

Benefits expense for Other Businesses for 2013 includes $243 million for reserve strengthening associated with our closed block of long-term care insurance policies as discussed more fully in Note 18.



	Retail		Employer Group		Healthcare Services		Other Businesses			Eliminations/ Corporate			Consolidated
	(in millions)
2012
Revenues—external customers
Premiums:
Medicare Advantage	$	20,788	$	4,064	$	—	$	—		$	—		$	24,852
Medicare stand-alone PDP	2,853		8		—		—			—			2,861
Total Medicare	23,641		4,072		—		—			—			27,713
Fully-insured	1,004		4,996		—		—			—			6,000
Specialty	171		1,070		—		—			—			1,241
Military services	—		—		—		1,017			—			1,017
Medicaid and other	185		—		—		853			—			1,038
Total premiums	25,001		10,138		—		1,870			—			37,009
Services revenue:
Provider	—		13		1,007		—			—			1,020
ASO and other	24		358		—		308			—			690
Pharmacy	—		—		16		—			—			16
Total services revenue	24		371		1,023		308			—			1,726
Total revenues—external customers	25,025		10,509		1,023		2,178			—			38,735
Intersegment revenues
Services	2		31		9,680		—			(9,713		)	—
Products	—		—		2,342		—			(2,342		)	—
Total intersegment revenues	2		31		12,022		—			(12,055		)	—
Investment income	79		42		—		58			212			391
Total revenues	25,106		10,582		13,045		2,236			(11,843		)	39,126
Operating expenses:
Benefits	21,048		8,471		—		1,802			(336		)	30,985
Operating costs	2,767		1,710		12,530		436			(11,613		)	5,830
Depreciation and amortization	130		89		87		16			(27		)	295
Total operating expenses	23,945		10,270		12,617		2,254			(11,976		)	37,110
Income (loss) from operations	1,161		312		428		(18		)	133			2,016
Interest expense	—		—		—		—			105			105
Income (loss) before income taxes	$	1,161	$	312	$	428	$	(18	)	$	28		$	1,911