SEGMENT INFORMATION

12 Months Ended

Dec. 31, 2019

We manage our business with three reportable segments: Retail, Group and Specialty, and Healthcare Services. Beginning January 1, 2018, we exited the individual commercial fully-insured medical health insurance business, as well as certain other business in 2018, and therefore no longer report separately the Individual Commercial segment and the Other Businesses category in the current year. Previously, the Other Businesses category included businesses that were not individually reportable because they did not meet the quantitative thresholds required by generally accepted accounting principles, primarily our closed-block of commercial long-term care insurance policies which were sold in 2018. The reportable 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, the chief operating decision maker, to assess performance and allocate resources.

The Retail segment consists of Medicare benefits, marketed to individuals or directly via group Medicare 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 our military services business, primarily our TRICARE T2017 East Region contract. The Healthcare Services segment

includes our 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 minority investment in Kindred at Home.

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 $14.9 billion in 2019, $13.4 billion in 2018, and $13.5 billion in 2017. 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 $117 million in 2019, $129 million in 2018, and $107 million in 2017.

Other than those described previously, the accounting policies of each segment are the same and are described in Note 2. 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 and Group and Specialty 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.



	Retail		Group and Specialty		Healthcare Services		Eliminations/ Corporate			Consolidated
	(in millions)
2019
External revenues
Premiums:
Individual Medicare Advantage	$	43,128	$	—	$	—	$	—		$	43,128
Group Medicare Advantage	6,475		—		—		—			6,475
Medicare stand-alone PDP	3,165		—		—		—			3,165
Total Medicare	52,768		—		—		—			52,768
Fully-insured	588		5,123		—		—			5,711
Specialty	—		1,571		—		—			1,571
Medicaid and other	2,898		—		—		—			2,898
Total premiums	56,254		6,694		—		—			62,948
Services revenue:
Provider	—		—		446		—			446
ASO and other	17		790		—		—			807
Pharmacy	—		—		186		—			186
Total services revenue	17		790		632		—			1,439
Total external revenues	56,271		7,484		632		—			64,387
Intersegment revenues
Services	—		18		18,255		(18,273		)	—
Products	—		—		6,894		(6,894		)	—
Total intersegment revenues	—		18		25,149		(25,167		)	—
Investment income	195		23		2		281			501
Total revenues	56,466		7,525		25,783		(24,886		)	64,888
Operating expenses:
Benefits	48,602		5,758		—		(503		)	53,857
Operating costs	5,306		1,651		24,852		(24,428		)	7,381
Depreciation and amortization	323		88		156		(109		)	458
Total operating expenses	54,231		7,497		25,008		(25,040		)	61,696
Income from operations	2,235		28		775		154			3,192
Interest expense	—		—		—		242			242
Other income, net	—		—		—		(506		)	(506		)
Income before income taxes and equity in net earnings	2,235		28		775		418			3,456
Equity in net earnings of Kindred at Home	—		—		14		—			14
Segment earnings	$	2,235	$	28	$	789	$	418		$	3,470

Premium and services revenues derived from our contracts with the federal government, as a percentage of our total premium and services revenues, was approximately 82% for 2019, compared to 81% for 2018, and 79% for 2017.



	Retail		Group and Specialty		Healthcare Services		Individual Commercial			Other Businesses		Eliminations/ Corporate			Consolidated
	(in millions)
2018
External revenues
Premiums:
Individual Medicare Advantage	$	35,656	$	—	$	—	$	—		$	—	$	—		$	35,656
Group Medicare Advantage	6,103		—		—		—			—		—			6,103
Medicare stand-alone PDP	3,584		—		—		—			—		—			3,584
Total Medicare	45,343		—		—		—			—		—			45,343
Fully-insured	510		5,444		—		8			—		—			5,962
Specialty	—		1,359		—		—			—		—			1,359
Medicaid and other	2,255		—		—		—			22		—			2,277
Total premiums	48,108		6,803		—		8			22		—			54,941
Services revenue:
Provider	—		—		404		—			—		—			404
ASO and other	11		835		—		—			4		—			850
Pharmacy	—		—		203		—			—		—			203
Total services revenue	11		835		607		—			4		—			1,457
Total external revenues	48,119		7,638		607		8			26		—			56,398
Intersegment revenues
Services	—		18		16,840		—			—		(16,858		)	—
Products	—		—		6,330		—			—		(6,330		)	—
Total intersegment revenues	—		18		23,170		—			—		(23,188		)	—
Investment income	136		23		34		—			110		211			514
Total revenues	48,255		7,679		23,811		8			136		(22,977		)	56,912
Operating expenses:
Benefits	40,925		5,420		—		(70		)	77		(470		)	45,882
Operating costs	5,327		1,810		22,905		4			6		(22,527		)	7,525
Depreciation and amortization	270		88		163		—			—		(116		)	405
Total operating expenses	46,522		7,318		23,068		(66		)	83		(23,113		)	53,812
Income from operations	1,733		361		743		74			53		136			3,100
Loss on sale of business	—		—		—		—			—		786			786
Interest expense	—		—		—		—			—		218			218
Other expense, net	—		—		—		—			—		33			33
Income (loss) before income taxes and equity in net earnings	1,733		361		743		74			53		(901		)	2,063
Equity in net earnings of Kindred at Home	—		—		11		—			—		—			11
Segment earnings (losses)	$	1,733	$	361	$	754	$	74		$	53	$	(901	)	$	2,074



	Retail		Group and Specialty		Healthcare Services		Individual Commercial		Other Businesses			Eliminations/ Corporate			Consolidated
	(in millions)
2017
External revenues
Premiums:
Individual Medicare Advantage	$	32,720	$	—	$	—	$	—	$	—		$	—		$	32,720
Group Medicare Advantage	5,155		—		—		—		—			—			5,155
Medicare stand-alone PDP	3,702		—		—		—		—			—			3,702
Total Medicare	41,577		—		—		—		—			—			41,577
Fully-insured	478		5,462		—		947		—			—			6,887
Specialty	—		1,310		—		—		—			—			1,310
Medicaid and other	2,571		—		—		—		35			—			2,606
Total premiums	44,626		6,772		—		947		35			—			52,380
Services revenue:
Provider	—		—		258		—		—			—			258
ASO and other	10		626		—		—		8			—			644
Pharmacy	—		—		80		—		—			—			80
Total services revenue	10		626		338		—		8			—			982
Total external revenues	44,636		7,398		338		947		43			—			53,362
Intersegment revenues
Services	—		20		17,293		—		—			(17,313		)	—
Products	—		—		6,292		—		—			(6,292		)	—
Total intersegment revenues	—		20		23,585		—		—			(23,605		)	—
Investment income	90		31		35		4		87			158			405
Total revenues	44,726		7,449		23,958		951		130			(23,447		)	53,767
Operating expenses:
Benefits	38,218		5,363		—		544		131			(760		)	43,496
Operating costs	4,292		1,590		22,848		201		12			(22,376		)	6,567
Merger termination fee and related costs, net	—		—		—		—		—			(936		)	(936		)
Depreciation and amortization	238		84		143		13		—			(100		)	378
Total operating expenses	42,748		7,037		22,991		758		143			(24,172		)	49,505
Income (loss) from operations	1,978		412		967		193		(13		)	725			4,262
Interest expense	—		—		—		—		—			242			242
Income (loss) before income taxes and equity in net earnings	1,978		412		967		193		(13		)	483			4,020
Equity in net earnings of Kindred at Home	—		—		—		—		—			—			—
Segment earnings (losses)	$	1,978	$	412	$	967	$	193	$	(13	)	$	483		$	4,020