SEGMENT INFORMATION

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 benefits, as well as administrative services only, or ASO products. In addition, our Group and Specialty segment includes military services business, primarily our TRICARE T2017 East 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, such as home health and other services and capabilities to promote wellness and advance population health, including our investment in Kindred at Home. The Individual Commercial segment consisted 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, which were sold.

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 $3.5 billion and $3.6 billion for the three months ended September 30, 2018 and 2017, respectively. For the nine months ended September 30, 2018 and 2017 these amounts were $9.7 billion and $9.8 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 $29 million and $26 million for the three months ended September 30, 2018 and 2017, respectively. For the nine months ended September 30, 2018 and 2017, the amount of this expense was $98 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 2017 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, 2018 and 2017



	Retail		Group and Specialty		Healthcare Services		Individual Commercial			Other Businesses		Eliminations/ Corporate			Consolidated
	(in millions)
Three months ended September 30, 2018
External revenues
Premiums:
Individual Medicare Advantage	$	8,912	$	—	$	—	$	—		$	—	$	—		$	8,912
Group Medicare Advantage	1,542		—		—		—			—		—			1,542
Medicare stand-alone PDP	893		—		—		—			—		—			893
Total Medicare	11,347		—		—		—			—		—			11,347
Fully-insured	129		1,345		—		1			—		—			1,475
Specialty	—		325		—		—			—		—			325
Medicaid and other	561		—		—		—			4		—			565
Total premiums	12,037		1,670		—		1			4		—			13,712
Services revenue:
Provider	—		—		113		—			—		—			113
ASO and other	1		215		—		—			—		—			216
Pharmacy	—		—		52		—			—		—			52
Total services revenue	1		215		165		—			—		—			381
Total external revenues	12,038		1,885		165		1			4		—			14,093
Intersegment revenues
Services	—		4		4,214		—			—		(4,218		)	—
Products	—		—		1,576		—			—		(1,576		)	—
Total intersegment revenues	—		4		5,790		—			—		(5,794		)	—
Investment income	35		5		11		—			10		52			113
Total revenues	12,073		1,894		5,966		1			14		(5,742		)	14,206
Operating expenses:
Benefits	10,020		1,347		—		(4		)	12		(132		)	11,243
Operating costs	1,352		445		5,720		—			2		(5,619		)	1,900
Depreciation and amortization	67		21		40		—			—		(26		)	102
Total operating expenses	11,439		1,813		5,760		(4		)	14		(5,777		)	13,245
Income from operations	634		81		206		5			—		35			961
Loss on sale of business	—		—		—		—			—		(4		)	(4		)
Interest expense	—		—		—		—			—		53			53
Other expense, net	—		—		—		—			—		11			11
Income (loss) before income taxes and equity in net earnings	634		81		206		5			—		(25		)	901
Equity in net earnings of Kindred at Home	—		—		9		—			—		—			9
Segment earnings	$	634	$	81	$	215	$	5		$	—	$	(25	)	$	910




	Retail		Group and Specialty		Healthcare Services		Individual Commercial		Other Businesses			Eliminations/ Corporate			Consolidated
	(in millions)
Three months ended September 30, 2017
External revenues
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 external revenues	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 and equity in net earnings	610		93		240		26		(5		)	(165		)	799
Equity in net earnings of Kindred at Home	—		—		—		—		—			—			—
Segment earnings	$	610	$	93	$	240	$	26	$	(5	)	$	(165	)	$	799




	Retail		Group and Specialty		Healthcare Services		Individual Commercial			Other Businesses		Eliminations/ Corporate			Consolidated
	(in millions)
Nine months ended September 30, 2018
External revenues
Premiums:
Individual Medicare Advantage	$	26,790	$	—	$	—	$	—		$	—	$	—		$	26,790
Group Medicare Advantage	4,575		—		—		—			—		—			4,575
Medicare stand-alone PDP	2,703		—		—		—			—		—			2,703
Total Medicare	34,068		—		—		—			—		—			34,068
Fully-insured	379		4,083		—		6			—		—			4,468
Specialty	—		1,014		—		—			—		—			1,014
Medicaid and other	1,664		—		—		—			22		—			1,686
Total premiums	36,111		5,097		—		6			22		—			41,236
Services revenue:
Provider	—		—		290		—			—		—			290
ASO and other	6		642		—		—			4		—			652
Pharmacy	—		—		148		—			—		—			148
Total services revenue	6		642		438		—			4		—			1,090
Total external revenues	36,117		5,739		438		6			26		—			42,326
Intersegment revenues
Services	—		13		12,426		—			—		(12,439		)	—
Products	—		—		4,722		—			—		(4,722		)	—
Total intersegment revenues	—		13		17,148		—			—		(17,161		)	—
Investment income	102		18		34		—			110		154			418
Total revenues	36,219		5,770		17,620		6			136		(17,007		)	42,744
Operating expenses:
Benefits	30,842		3,977		—		(73		)	77		(374		)	34,449
Operating costs	3,784		1,355		16,910		3			6		(16,648		)	5,410
Depreciation and amortization	199		66		125		—			—		(88		)	302
Total operating expenses	34,825		5,398		17,035		(70		)	83		(17,110		)	40,161
Income from operations	1,394		372		585		76			53		103			2,583
Loss on sale of business	—		—		—		—			—		786			786
Interest expense	—		—		—		—			—		159			159
Other expense, net	—		—		—		—			—		11			11
Income (loss) before income taxes and equity in net earnings	1,394		372		585		76			53		(853		)	1,627
Equity in net earnings of Kindred at Home	—		—		9		—			—		—			9
Segment earnings	$	1,394	$	372	$	594	$	76		$	53	$	(853	)	$	1,636



	Retail		Group and Specialty		Healthcare Services		Individual Commercial		Other Businesses			Eliminations/ Corporate			Consolidated
	(in millions)
Nine months ended September 30, 2017
External Revenues
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 external revenues	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 and equity in net earnings	1,587		365		754		207		(7		)	624			3,530
Equity in net earnings of Kindred at Home	—		—		—		—		—			—			—
Segment earnings	$	1,587	$	365	$	754	$	207	$	(7	)	$	624		$	3,530