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 $3.3 billion and $2.6 billion for the three months ended September 30, 2015 and 2014, respectively. For the nine months ended September 30, 2015 and 2014, these amounts were $8.8 billion and $6.8 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 $23 million and $27 million for the three months ended September 30, 2015 and 2014, respectively. For the nine months ended September 30, 2015 and 2014, the amount of this expense was $68 million and $79 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 nine months ended September 30, 2015 and 2014:



	Retail		Group		Healthcare Services		Other Businesses		Eliminations/ Corporate			Consolidated
	(in millions)
Three months ended September 30, 2015
Revenues - external customers
Premiums:
Individual Medicare Advantage	$	7,316	$	—	$	—	$	—	$	—		$	7,316
Group Medicare Advantage	1,396		—		—		—		—			1,396
Medicare stand-alone PDP	927		—		—		—		—			927
Total Medicare	9,639		—		—		—		—			9,639
Fully-insured	1,056		1,362		—		—		—			2,418
Specialty	66		260		—		—		—			326
Medicaid and other	592		6		—		6		—			604
Total premiums	11,353		1,628		—		6		—			12,987
Services revenue:
Provider	—		9		61		—		—			70
ASO and other	1		162		—		5		—			168
Pharmacy	—		—		8		—		—			8
Total services revenue	1		171		69		5		—			246
Total revenues - external customers	11,354		1,799		69		11		—			13,233
Intersegment revenues
Services	—		24		4,633		—		(4,657		)	—
Products	—		—		1,271		—		(1,271		)	—
Total intersegment revenues	—		24		5,904		—		(5,928		)	—
Investment income	38		7		—		16		69			130
Total revenues	11,392		1,830		5,973		27		(5,859		)	13,363
Operating expenses:
Benefits	9,777		1,341		—		22		(244		)	10,896
Operating costs	1,241		426		5,659		3		(5,641		)	1,688
Depreciation and amortization	49		24		30		—		(19		)	84
Total operating expenses	11,067		1,791		5,689		25		(5,904		)	12,668
Income from operations	325		39		284		2		45			695
Gain on sale of business	—		—		—		—		—			—
Interest expense	—		—		—		—		47			47
Income (loss) before income taxes	$	325	$	39	$	284	$	2	$	(2	)	$	648



	Retail		Group		Healthcare Services		Other Businesses		Eliminations/ Corporate			Consolidated
	(in millions)
Three months ended September 30, 2014
Revenues - external customers
Premiums:
Individual Medicare Advantage	$	6,448	$	—	$	—	$	—	$	—		$	6,448
Group Medicare Advantage	1,381		—		—		—		—			1,381
Medicare stand-alone PDP	806		—		—		—		—			806
Total Medicare	8,635		—		—		—		—			8,635
Fully-insured	926		1,335		—		—		—			2,261
Specialty	67		274		—		—		—			341
Medicaid and other	352		5		—		13		—			370
Total premiums	9,980		1,614		—		13		—			11,607
Services revenue:
Provider	—		6		320		—		—			326
ASO and other	10		172		—		2		—			184
Pharmacy	—		—		26		—		—			26
Total services revenue	10		178		346		2		—			536
Total revenues - external customers	9,990		1,792		346		15		—			12,143
Intersegment revenues
Services	—		22		3,879		—		(3,901		)	—
Products	—		—		968		—		(968		)	—
Total intersegment revenues	—		22		4,847		—		(4,869		)	—
Investment income	24		6		—		15		50			95
Total revenues	10,014		1,820		5,193		30		(4,819		)	12,238
Operating expenses:
Benefits	8,469		1,324		—		24		(151		)	9,666
Operating costs	1,156		468		4,953		5		(4,684		)	1,898
Depreciation and amortization	43		27		37		—		(22		)	85
Total operating expenses	9,668		1,819		4,990		29		(4,857		)	11,649
Income from operations	346		1		203		1		38			589
Interest expense	—		—		—		—		38			38
Income before income taxes	$	346	$	1	$	203	$	1	$	—		$	551




	Retail		Group		Healthcare Services		Other Businesses		Eliminations/ Corporate			Consolidated
	(in millions)
Nine months ended September 30, 2015
Revenues - external customers
Premiums:
Individual Medicare Advantage	$	22,183	$	—	$	—	$	—	$	—		$	22,183
Group Medicare Advantage	4,188		—		—		—		—			4,188
Medicare stand-alone PDP	2,915		—		—		—		—			2,915
Total Medicare	29,286		—		—		—		—			29,286
Fully-insured	3,263		4,125		—		—		—			7,388
Specialty	195		795		—		—		—			990
Medicaid and other	1,742		16		—		25		—			1,783
Total premiums	34,486		4,936		—		25		—			39,447
Services revenue:
Provider	—		29		590		—		—			619
ASO and other	7		485		—		10		—			502
Pharmacy	—		—		22		—		—			22
Total services revenue	7		514		612		10		—			1,143
Total revenues - external customers	34,493		5,450		612		35		—			40,590
Intersegment revenues
Services	—		68		13,561		—		(13,629		)	—
Products	—		—		3,654		—		(3,654		)	—
Total intersegment revenues	—		68		17,215		—		(17,283		)	—
Investment income	96		18		—		53		171			338
Total revenues	34,589		5,536		17,827		88		(17,112		)	40,928
Operating expenses:
Benefits	29,781		3,908		—		66		(602		)	33,153
Operating costs	3,708		1,323		16,978		10		(16,569		)	5,450
Depreciation and amortization	140		69		112		—		(54		)	267
Total operating expenses	33,629		5,300		17,090		76		(17,225		)	38,870
Income from operations	960		236		737		12		113			2,058
Gain on sale of business	—		—		—		—		267			267
Interest expense	—		—		—		—		140			140
Income before income taxes	$	960	$	236	$	737	$	12	$	240		$	2,185




	Retail		Group		Healthcare Services		Other Businesses		Eliminations/ Corporate			Consolidated
	(in millions)
Nine months ended September 30, 2014
Revenues - external customers
Premiums:
Individual Medicare Advantage	$	19,375	$	—	$	—	$	—	$	—		$	19,375
Group Medicare Advantage	4,131		—		—		—		—			4,131
Medicare stand-alone PDP	2,612		—		—		—		—			2,612
Total Medicare	26,118		—		—		—		—			26,118
Fully-insured	2,363		3,985		—		—		—			6,348
Specialty	192		824		—		—		—			1,016
Medicaid and other	735		15		—		42		—			792
Total premiums	29,408		4,824		—		42		—			34,274
Services revenue:
Provider	—		17		951		—		—			968
ASO and other	37		535		—		8		—			580
Pharmacy	—		—		72		—		—			72
Total services revenue	37		552		1,023		8		—			1,620
Total revenues - external customers	29,445		5,376		1,023		50		—			35,894
Intersegment revenues
Services	—		57		11,084		—		(11,141		)	—
Products	—		—		2,752		—		(2,752		)	—
Total intersegment revenues	—		57		13,836		—		(13,893		)	—
Investment income	71		17		—		45		145			278
Total revenues	29,516		5,450		14,859		95		(13,748		)	36,172
Operating expenses:
Benefits	25,044		3,753		—		73		(453		)	28,417
Operating costs	3,237		1,445		14,157		14		(13,335		)	5,518
Depreciation and amortization	120		77		108		2		(61		)	246
Total operating expenses	28,401		5,275		14,265		89		(13,849		)	34,181
Income from operations	1,115		175		594		6		101			1,991
Interest expense	—		—		—		—		108			108
Income (loss) before income taxes	$	1,115	$	175	$	594	$	6	$	(7	)	$	1,883