SEGMENT INFORMATION

On January 1, 2015, we realigned certain of our businesses among our reportable segments to correspond with internal management reporting changes and renamed our Employer Group segment to the Group segment. Our three reportable segments remain Retail, Group, and Healthcare Services. The more significant realignments included reclassifying Medicare benefits offered to groups to the Retail segment from the Group segment, bringing all of our Medicare offerings, which are now managed collectively, together in one segment, recognizing that in some instances we market directly to individuals that are part of a group Medicare account. In addition, we realigned our military services business, primarily consisting of our TRICARE South Region contract previously included in the Other Businesses category, to our Group segment as we consider this contract with the government to be a group account. Prior period segment financial information has been recast to conform to the 2015 presentation.

We manage our business with three reportable segments: Retail, 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 benefits, marketed to individuals or directly via group accounts, as well as individual commercial fully-insured medical and specialty health insurance benefits, including dental, vision, and other supplemental health and financial protection products. In addition, the Retail segment also 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 Group segment consists of employer group commercial fully-insured medical and specialty health insurance benefits, including dental, vision, and other supplemental health and voluntary insurance benefits, as well as administrative services only, or ASO products. In addition, our Group segment includes our health and wellness products (primarily marketed to employer groups) and military services business, primarily our TRICARE South Region contract. 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, and clinical programs, as well as services and capabilities to advance population health. We will continue to report under the category of Other Businesses those businesses which do not align with the reportable segments described above, primarily our 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 $2.5 billion and $1.9 billion for the three months ended March 31, 2015 and 2014, respectively. 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 $21 million and $25 million for the three months ended March 31, 2015 and 2014, respectively.

Other than those described previously, the accounting policies of each segment are the same and are described in Note 2 to the consolidated financial statements included in our 2014 Form 10-K. Transactions between reportable segments primarily consist of sales of services rendered by our Healthcare Services segment, primarily pharmacy, provider, and home based services as well as clinical programs, to our Retail and Group customers. Intersegment sales and expenses are recorded at fair value and eliminated in consolidation. Members served by our segments often use 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 are included with intersegment eliminations in the tables presenting segment results below.

Our segment results were as follows for the three months ended March 31, 2015 and 2014, respectively:



	Retail		Group		Healthcare Services		Other Businesses		Eliminations/ Corporate			Consolidated
	(in millions)
Three months ended March 31, 2015
Revenues - external customers
Premiums:
Individual Medicare Advantage	$	7,433	$	—	$	—	$	—	$	—		$	7,433
Group Medicare Advantage	1,394		—		—		—		—			1,394
Medicare stand-alone PDP	1,003		—		—		—		—			1,003
Total Medicare	9,830		—		—		—		—			9,830
Fully-insured	1,094		1,384		—		—		—			2,478
Specialty	63		270		—		—		—			333
Medicaid and other	591		6		—		10		—			607
Total premiums	11,578		1,660		—		10		—			13,248
Services revenue:
Provider	—		9		308		—		—			317
ASO and other	4		160		—		2		—			166
Pharmacy	—		—		7		—		—			7
Total services revenue	4		169		315		2		—			490
Total revenues - external customers	11,582		1,829		315		12		—			13,738
Intersegment revenues
Services	—		22		4,413		—		(4,435		)	—
Products	—		—		1,150		—		(1,150		)	—
Total intersegment revenues	—		22		5,563		—		(5,585		)	—
Investment income	27		5		—		15		48			95
Total revenues	11,609		1,856		5,878		27		(5,537		)	13,833
Operating expenses:
Benefits	9,936		1,226		—		23		(180		)	11,005
Operating costs	1,254		453		5,606		3		(5,371		)	1,945
Depreciation and amortization	44		23		42		—		(16		)	93
Total operating expenses	11,234		1,702		5,648		26		(5,567		)	13,043
Income from operations	375		154		230		1		30			790
Interest expense	—		—		—		—		46			46
Income before income taxes	$	375	$	154	$	230	$	1	$	(16	)	$	744



	Retail		Group		Healthcare Services		Other Businesses		Eliminations/ Corporate			Consolidated
	(in millions)
Three months ended March 31, 2014
Revenues - external customers
Premiums:
Individual Medicare Advantage	$	6,460	$	—	$	—	$	—	$	—		$	6,460
Group Medicare Advantage	1,384		—		—		—		—			1,384
Medicare stand-alone PDP	865		—		—		—		—			865
Total Medicare	8,709		—		—		—		—			8,709
Fully-insured	525		1,329		—		—		—			1,854
Specialty	59		275		—		—		—			334
Medicaid and other	169		6		—		11		—			186
Total premiums	9,462		1,610		—		11		—			11,083
Services revenue:
Provider	—		5		307		—		—			312
ASO and other	14		188		—		3		—			205
Pharmacy	—		—		21		—		—			21
Total services revenue	14		193		328		3		—			538
Total revenues - external customers	9,476		1,803		328		14		—			11,621
Intersegment revenues
Services	—		19		3,481		—		(3,500		)	—
Products	—		—		846		—		(846		)	—
Total intersegment revenues	—		19		4,327		—		(4,346		)	—
Investment income	23		6		—		15		47			91
Total revenues	9,499		1,828		4,655		29		(4,299		)	11,712
Operating expenses:
Benefits	8,080		1,167		—		24		(147		)	9,124
Operating costs	1,010		493		4,434		4		(4,156		)	1,785
Depreciation and amortization	40		24		36		1		(19		)	82
Total operating expenses	9,130		1,684		4,470		29		(4,322		)	10,991
Income from operations	369		144		185		—		23			721
Interest expense	—		—		—		—		35			35
Income before income taxes	$	369	$	144	$	185	$	—	$	(12	)	$	686