SEGMENT INFORMATION

During the three months ended March 31, 2017, we realigned certain of our businesses among our reportable segments to correspond with internal management reporting changes and our previously announced planned exit from the Individual Commercial medical business on January 1, 2018. Additionally, we renamed our Group segment to the Group and Specialty segment, and began presenting the Individual Commercial business results as a separate segment rather than as part of the Retail segment. Specialty health insurance benefits, including dental, vision, other supplement health, and financial protection products, marketed to individuals are now included in the Group and Specialty segment. Specialty health insurance benefits marketed to employer groups continue to be included in the Group and Specialty segment. As a result of this realignment, our reportable segments now include Retail, Group and Specialty, Healthcare Services, and Individual Commercial. Prior period segment financial information has been recast to conform to the 2017 presentation.

We manage our business with four reportable segments: Retail, Group and Specialty, Healthcare Services and Individual Commercial. 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. In addition, the Retail segment also includes our contract with CMS to administer the Limited Income Newly Eligible Transition, or LI-NET, prescription drug plan program and contracts with various states to provide Medicaid, dual eligible, and Long-Term Support Services benefits, which we refer to collectively as our state-based contracts. The Group and Specialty segment consists of employer group commercial fully-insured medical and specialty health insurance benefits marketed to individuals and employer groups, including dental, vision, and other supplemental health and voluntary insurance benefits and financial protection products, as well as administrative services only, or ASO products. In addition, our Group and Specialty segment includes 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, and clinical care service, as well as services and capabilities to promote wellness and advance population health. The Individual Commercial segment consists of our individual commercial fully-insured medical health insurance benefits. We report under the category of Other Businesses those businesses that 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 and non-risk-based managed care agreements with our health plans. Under risk based 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. Under non risk-based agreements, our health plans retain the economic risk of funding the assigned members' healthcare services. Our Healthcare Services segment reports provider services revenues associated with risk-based agreements on a gross basis, whereby capitation fee revenue is recognized in the period in which the assigned members are entitled to receive healthcare services. Provider services revenues associated with non-risk-based agreements are presented net of associated healthcare costs.

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 $3.6 billion for the three months ended September 30, 2017 and 2016. For the nine months ended September 30, 2017 and 2016 these amounts were $9.8 billion and $9.7 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 $26 million and $31 million for the three months ended September 30, 2017 and 2016, respectively. For the nine months ended September 30, 2017 and 2016, the amount of this expense was $79 million and $85 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 2016 Form 10-K. Transactions between reportable segments primarily consist of sales of services rendered by our Healthcare Services segment, primarily pharmacy, provider, and clinical care services, to our Retail, Group and Specialty, and Individual Commercial segment 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, 2017 and 2016:





	Retail		Group and Specialty		Healthcare Services		Individual Commercial		Other Businesses			Eliminations/ Corporate			Consolidated
	(in millions)
Three months ended September 30, 2017
Revenues - external customers
Premiums:
Individual Medicare Advantage	$	8,077	$	—	$	—	$	—	$	—		$	—		$	8,077
Group Medicare Advantage	1,272		—		—		—		—			—			1,272
Medicare stand-alone PDP	921		—		—		—		—			—			921
Total Medicare	10,270		—		—		—		—			—			10,270
Fully-insured	121		1,370		—		224		—			—			1,715
Specialty	—		331		—		—		—			—			331
Medicaid and other	630		—		—		—		9			—			639
Total premiums	11,021		1,701		—		224		9			—			12,955
Services revenue:
Provider	—		—		60		—		—			—			60
ASO and other	2		140		—		—		1			—			143
Pharmacy	—		—		20		—		—			—			20
Total services revenue	2		140		80		—		1			—			223
Total revenues - external customers	11,023		1,841		80		224		10			—			13,178
Intersegment revenues
Services	—		5		4,339		—		—			(4,344		)	—
Products	—		—		1,572		—		—			(1,572		)	—
Total intersegment revenues	—		5		5,911		—		—			(5,916		)	—
Investment income	23		7		9		1		22			42			104
Total revenues	11,046		1,853		6,000		225		32			(5,874		)	13,282
Operating expenses:
Benefits	9,294		1,354		—		147		34			(187		)	10,642
Operating costs	1,081		385		5,726		49		3			(5,556		)	1,688
Depreciation and amortization	61		21		34		3		—			(25		)	94
Total operating expenses	10,436		1,760		5,760		199		37			(5,768		)	12,424
Income (loss) from operations	610		93		240		26		(5		)	(106		)	858
Interest expense	—		—		—		—		—			59			59
Income (loss) before income taxes	$	610	$	93	$	240	$	26	$	(5	)	$	(165	)	$	799





	Retail		Group and Specialty		Healthcare Services		Individual Commercial		Other Businesses			Eliminations/ Corporate			Consolidated
	(in millions)
Three months ended September 30, 2016
Revenues - external customers
Premiums:
Individual Medicare Advantage	$	7,977	$	—	$	—	$	—	$	—		$	—		$	7,977
Group Medicare Advantage	1,067		—		—		—		—			—			1,067
Medicare stand-alone PDP	1,004		—		—		—		—			—			1,004
Total Medicare	10,048		—		—		—		—			—			10,048
Fully-insured	109		1,350		—		882		—			—			2,341
Specialty	—		318		—		—		—			—			318
Medicaid and other	652		2		—		—		10			—			664
Total premiums	10,809		1,670		—		882		10			—			13,371
Services revenue:
Provider	—		—		69		—		—			—			69
ASO and other	2		147		—		—		1			—			150
Pharmacy	—		—		8		—		—			—			8
Total services revenue	2		147		77		—		1			—			227
Total revenues - external customers	10,811		1,817		77		882		11			—			13,598
Intersegment revenues
Services	—		5		4,741		—		—			(4,746		)	—
Products	—		—		1,580		—		—			(1,580		)	—
Total intersegment revenues	—		5		6,321		—		—			(6,326		)	—
Investment income	22		7		8		—		17			42			96
Total revenues	10,833		1,829		6,406		882		28			(6,284		)	13,694
Operating expenses:
Benefits	9,031		1,352		—		727		26			(236		)	10,900
Operating costs	1,143		421		6,073		144		4			(6,046		)	1,739
Merger termination fee and related costs, net	—		—		—		—		—			20			20
Depreciation and amortization	51		19		36		9		—			(29		)	86
Total operating expenses	10,225		1,792		6,109		880		30			(6,291		)	12,745
Income (loss) from operations	608		37		297		2		(2		)	7			949
Interest expense	—		—		—		—		—			47			47
Income (loss) before income taxes	$	608	$	37	$	297	$	2	$	(2	)	$	(40	)	$	902




	Retail		Group and Specialty		Healthcare Services		Individual Commercial		Other Businesses			Eliminations/ Corporate			Consolidated
	(in millions)
Nine months ended September 30, 2017
Revenues - external customers
Premiums:
Individual Medicare Advantage	$	24,735	$	—	$	—	$	—	$	—		$	—		$	24,735
Group Medicare Advantage	3,867		—		—		—		—			—			3,867
Medicare stand-alone PDP	2,787		—		—		—		—			—			2,787
Total Medicare	31,389		—		—		—		—			—			31,389
Fully-insured	357		4,098		—		754		—			—			5,209
Specialty	—		976		—		—		—			—			976
Medicaid and other	1,954		—		—		—		28			—			1,982
Total premiums	33,700		5,074		—		754		28			—			39,556
Services revenue:
Provider	—		—		193		—		—			—			193
ASO and other	6		444		—		—		5			—			455
Pharmacy	—		—		58		—		—			—			58
Total services revenue	6		444		251		—		5			—			706
Total revenues - external customers	33,706		5,518		251		754		33			—			40,262
Intersegment revenues
Services	—		15		12,958		—		—			(12,973		)	—
Products	—		—		4,706		—		—			(4,706		)	—
Total intersegment revenues	—		15		17,664		—		—			(17,679		)	—
Investment income	72		25		25		3		64			127			316
Total revenues	33,778		5,558		17,940		757		97			(17,552		)	40,578
Operating expenses:
Benefits	29,017		3,952		—		389		95			(596		)	32,857
Operating costs	2,998		1,178		17,083		151		9			(16,725		)	4,694
Merger termination fee and related costs, net	—		—		—		—		—			(947		)	(947		)
Depreciation and amortization	176		63		103		10		—			(74		)	278
Total operating expenses	32,191		5,193		17,186		550		104			(18,342		)	36,882
Income (loss) from operations	1,587		365		754		207		(7		)	790			3,696
Interest expense	—		—		—		—		—			166			166
Income (loss) before income taxes	$	1,587	$	365	$	754	$	207	$	(7	)	$	624		$	3,530



	Retail		Group and Specialty		Healthcare Services		Individual Commercial			Other Businesses			Eliminations/ Corporate			Consolidated
	(in millions)
Nine months ended September 30, 2016
Revenues - external customers
Premiums:
Individual Medicare Advantage	$	24,054	$	—	$	—	$	—		$	—		$	—		$	24,054
Group Medicare Advantage	3,229		—		—		—			—			—			3,229
Medicare stand-alone PDP	3,058		—		—		—			—			—			3,058
Total Medicare	30,341		—		—		—			—			—			30,341
Fully-insured	319		4,044		—		2,799			—			—			7,162
Specialty	—		957		—		—			—			—			957
Medicaid and other	1,960		12		—		—			29			—			2,001
Total premiums	32,620		5,013		—		2,799			29			—			40,461
Services revenue:
Provider	—		—		214		—			—			—			214
ASO and other	5		500		1		—			7			—			513
Pharmacy	—		—		22		—			—			—			22
Total services revenue	5		500		237		—			7			—			749
Total revenues - external customers	32,625		5,513		237		2,799			36			—			41,210
Intersegment revenues
Services	—		17		14,292		—			—			(14,309		)	—
Products	—		—		4,373		—			—			(4,373		)	—
Total intersegment revenues	—		17		18,665		—			—			(18,682		)	—
Investment income	68		19		22		3			48			131			291
Total revenues	32,693		5,549		18,924		2,802			84			(18,551		)	41,501
Operating expenses:
Benefits	27,991		3,876		—		2,545			82			(688		)	33,806
Operating costs	3,294		1,278		17,989		465			12			(17,866		)	5,172
Merger termination fee and related costs, net	—		—		—		—			—			81			81
Depreciation and amortization	145		62		107		27			—			(78		)	263
Total operating expenses	31,430		5,216		18,096		3,037			94			(18,551		)	39,322
Income (loss) from operations	1,263		333		828		(235		)	(10		)	—			2,179
Interest expense	—		—		—		—			—			141			141
Income (loss) before income taxes	$	1,263	$	333	$	828	$	(235	)	$	(10	)	$	(141	)	$	2,038