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 Humana Pharmacy, Inc., 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 $3.0 billion and $2.3 billion for the three months ended June 30, 2015 and 2014, respectively. For the six months ended June 30, 2015 and 2014 these amounts were $5.5 billion and $4.1 billion, 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 $24 million and $27 million for the three months ended June 30, 2015 and 2014, respectively. For the six months ended June 30, 2015 and 2014, the amount of this expense was $45 million and $52 million, 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 and six months ended June 30, 2015 and 2014:



	Retail		Group		Healthcare Services		Other Businesses		Eliminations/ Corporate			Consolidated
	(in millions)
Three months ended June 30, 2015
Revenues - external customers
Premiums:
Individual Medicare Advantage	$	7,434	$	—	$	—	$	—	$	—		$	7,434
Group Medicare Advantage	1,398		—		—		—		—			1,398
Medicare stand-alone PDP	985		—		—		—		—			985
Total Medicare	9,817		—		—		—		—			9,817
Fully-insured	1,113		1,379		—		—		—			2,492
Specialty	66		265		—		—		—			331
Medicaid and other	559		4		—		9		—			572
Total premiums	11,555		1,648		—		9		—			13,212
Services revenue:
Provider	—		11		221		—		—			232
ASO and other	2		163		—		3		—			168
Pharmacy	—		—		7		—		—			7
Total services revenue	2		174		228		3		—			407
Total revenues - external customers	11,557		1,822		228		12		—			13,619
Intersegment revenues
Services	—		22		4,515		—		(4,537		)	—
Products	—		—		1,233		—		(1,233		)	—
Total intersegment revenues	—		22		5,748		—		(5,770		)	—
Investment income	31		6		—		22		54			113
Total revenues	11,588		1,850		5,976		34		(5,716		)	13,732
Operating expenses:
Benefits	10,068		1,341		—		21		(178		)	11,252
Operating costs	1,213		444		5,713		4		(5,557		)	1,817
Depreciation and amortization	47		22		40		—		(19		)	90
Total operating expenses	11,328		1,807		5,753		25		(5,754		)	13,159
Income from operations	260		43		223		9		38			573
Gain on sale of business	—		—		—		—		267			267
Interest expense	—		—		—		—		47			47
Income before income taxes	$	260	$	43	$	223	$	9	$	258		$	793



	Retail		Group		Healthcare Services		Other Businesses		Eliminations/ Corporate			Consolidated
	(in millions)
Three months ended June 30, 2014
Revenues - external customers
Premiums:
Individual Medicare Advantage	$	6,467	$	—	$	—	$	—	$	—		$	6,467
Group Medicare Advantage	1,366		—		—		—		—			1,366
Medicare stand-alone PDP	941		—		—		—		—			941
Total Medicare	8,774		—		—		—		—			8,774
Fully-insured	912		1,321		—		—		—			2,233
Specialty	66		275		—		—		—			341
Medicaid and other	214		4		—		18		—			236
Total premiums	9,966		1,600		—		18		—			11,584
Services revenue:
Provider	—		6		324		—		—			330
ASO and other	13		175		—		3		—			191
Pharmacy	—		—		25		—		—			25
Total services revenue	13		181		349		3		—			546
Total revenues - external customers	9,979		1,781		349		21		—			12,130
Intersegment revenues
Services	—		16		3,724		—		(3,740		)	—
Products	—		—		938		—		(938		)	—
Total intersegment revenues	—		16		4,662		—		(4,678		)	—
Investment income	24		5		—		15		48			92
Total revenues	10,003		1,802		5,011		36		(4,630		)	12,222
Operating expenses:
Benefits	8,495		1,262		—		25		(155		)	9,627
Operating costs	1,071		484		4,770		5		(4,495		)	1,835
Depreciation and amortization	37		26		35		1		(20		)	79
Total operating expenses	9,603		1,772		4,805		31		(4,670		)	11,541
Income from operations	400		30		206		5		40			681
Interest expense	—		—		—		—		35			35
Income before income taxes	$	400	$	30	$	206	$	5	$	5		$	646




	Retail		Group		Healthcare Services		Other Businesses		Eliminations/ Corporate			Consolidated
	(in millions)
Six months ended June 30, 2015
Revenues - external customers
Premiums:
Individual Medicare Advantage	$	14,867	$	—	$	—	$	—	$	—		$	14,867
Group Medicare Advantage	2,792		—		—		—		—			2,792
Medicare stand-alone PDP	1,988		—		—		—		—			1,988
Total Medicare	19,647		—		—		—		—			19,647
Fully-insured	2,207		2,763		—		—		—			4,970
Specialty	129		535		—		—		—			664
Medicaid and other	1,150		10		—		19		—			1,179
Total premiums	23,133		3,308		—		19		—			26,460
Services revenue:
Provider	—		20		529		—		—			549
ASO and other	6		323		—		5		—			334
Pharmacy	—		—		14		—		—			14
Total services revenue	6		343		543		5		—			897
Total revenues - external customers	23,139		3,651		543		24		—			27,357
Intersegment revenues
Services	—		44		8,928		—		(8,972		)	—
Products	—		—		2,383		—		(2,383		)	—
Total intersegment revenues	—		44		11,311		—		(11,355		)	—
Investment income	58		11		—		37		102			208
Total revenues	23,197		3,706		11,854		61		(11,253		)	27,565
Operating expenses:
Benefits	20,004		2,567		—		44		(358		)	22,257
Operating costs	2,467		897		11,319		7		(10,928		)	3,762
Depreciation and amortization	91		45		82		—		(35		)	183
Total operating expenses	22,562		3,509		11,401		51		(11,321		)	26,202
Income from operations	635		197		453		10		68			1,363
Gain on sale of business	—		—		—		—		267			267
Interest expense	—		—		—		—		93			93
Income before income taxes	$	635	$	197	$	453	$	10	$	242		$	1,537




	Retail		Group		Healthcare Services		Other Businesses		Eliminations/ Corporate			Consolidated
	(in millions)
Six months ended June 30, 2014
Revenues - external customers
Premiums:
Individual Medicare Advantage	$	12,927	$	—	$	—	$	—	$	—		$	12,927
Group Medicare Advantage	2,750		—		—		—		—			2,750
Medicare stand-alone PDP	1,806		—		—		—		—			1,806
Total Medicare	17,483		—		—		—		—			17,483
Fully-insured	1,437		2,650		—		—		—			4,087
Specialty	125		550		—		—		—			675
Medicaid and other	383		10		—		29		—			422
Total premiums	19,428		3,210		—		29		—			22,667
Services revenue:
Provider	—		11		631		—		—			642
ASO and other	27		363		—		6		—			396
Pharmacy	—		—		46		—		—			46
Total services revenue	27		374		677		6		—			1,084
Total revenues - external customers	19,455		3,584		677		35		—			23,751
Intersegment revenues
Services	—		35		7,205		—		(7,240		)	—
Products	—		—		1,784		—		(1,784		)	—
Total intersegment revenues	—		35		8,989		—		(9,024		)	—
Investment income	47		11		—		30		95			183
Total revenues	19,502		3,630		9,666		65		(8,929		)	23,934
Operating expenses:
Benefits	16,575		2,429		—		49		(302		)	18,751
Operating costs	2,081		977		9,204		9		(8,651		)	3,620
Depreciation and amortization	77		50		71		2		(39		)	161
Total operating expenses	18,733		3,456		9,275		60		(8,992		)	22,532
Income from operations	769		174		391		5		63			1,402
Interest expense	—		—		—		—		70			70
Income (loss) before income taxes	$	769	$	174	$	391	$	5	$	(7	)	$	1,332