16. SEGMENT INFORMATION

We manage our business with three reportable segments: Retail, Employer Group, and Health and Well-Being 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 and commercial fully-insured medical and specialty health insurance benefits, including dental, vision, and other supplemental health and financial protection products, marketed directly to individuals. The Employer Group segment consists of Medicare and commercial fully-insured medical and specialty health insurance benefits, including dental, vision, and other supplemental health and financial protection products, as well as administrative services only products marketed to employer groups. The Health and Well-Being Services segment includes services offered to our health plan members as well as to third parties that promote health and wellness, including provider services, pharmacy, integrated wellness, and home care services. The Other Businesses category consists of our military services, primarily our TRICARE South Region contract, Medicaid, and closed-block long-term care businesses as well as our contract with CMS to administer the LI-NET program.

Our Health and Well-Being 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 RightSourceRx^®, 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, selecting and establishing prices charged by 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 Health and Well-Being Services segment reports pharmacy related 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 Health and Well-Being 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 Health and Well-Being 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 $4.7 billion in 2012, $4.2 billion in 2011, and $3.5 billion in 2010. In addition, depreciation and amortization expense associated with certain businesses in our Health and Well-Being Services segment delivering benefits to our members, primarily associated with our pharmacy operations, are included with benefits expense. The amount of this expense was $43 million in 2012, $33 million in 2011, and $18 million in 2010.

Other than those described previously, the accounting policies of each segment are the same and are described in Note 2. Transactions between reportable segments consist of sales of services rendered by our Health and Well-Being Services segment, primarily pharmacy, behavioral health, and provider services, to our Retail and Employer Group customers. Intersegment sales and expenses are recorded at fair value and eliminated in consolidation. Members served by our segments often utilize 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 included with intersegment eliminations in the tables presenting segment results below.

Our segment results were as follows for the years ended December 31, 2012, 2011, and 2010:


	Retail		Employer Group		Health and Well-Being Services		Other Businesses			Eliminations/ Corporate			Consolidated
	(in millions)
2012
Revenues—external customers
Premiums:
Medicare Advantage	$	20,788	$	4,064	$	0	$	0		$	0		$	24,852
Medicare stand-alone PDP		2,587		8		0		266			0			2,861

Total Medicare		23,375		4,072		0		266			0			27,713

Fully-insured		1,004		4,996		0		0			0			6,000
Specialty		171		1,070		0		0			0			1,241
Military services		0		0		0		1,017			0			1,017
Medicaid and other		0		0		0		1,038			0			1,038

Total premiums		24,550		10,138		0		2,321			0			37,009

Services revenue:
Provider		0		0		1,020		0			0			1,020
ASO and other		24		358		0		308			0			690
Pharmacy		0		0		16		0			0			16

Total services revenue		24		358		1,036		308			0			1,726

Total revenues—external customers		24,574		10,496		1,036		2,629			0			38,735

Intersegment revenues
Services		2		15		9,610		0			(9,627	)		0
Products		0		0		2,342		0			(2,342	)		0

Total intersegment revenues		2		15		11,952		0			(11,969	)		0

Investment income		79		42		0		58			212			391

Total revenues		24,655		10,553		12,988		2,687			(11,757	)		39,126

Operating expenses:
Benefits		20,651		8,524		0		2,198			(388	)		30,985
Operating costs		2,711		1,696		12,407		492			(11,476	)		5,830
Depreciation and amortization		131		80		95		16			(27	)		295

Total operating expenses		23,493		10,300		12,502		2,706			(11,891	)		37,110

Income (loss) from operations		1,162		253		486		(19	)		134			2,016
Interest expense		0		0		0		0			105			105

Income (loss) before income taxes	$	1,162	$	253	$	486	$	(19	)	$	29		$	1,911

Premium and services revenues derived from our contracts with the federal government, as a percentage of our total premium and services revenues, were approximately 75% for 2012, 76% for 2011, and 76% for 2010.

Benefits expense for our Other Businesses for 2012 includes expense of approximately $46 million for a litigation settlement associated with our Military services business.


	Retail		Employer Group		Health and Well-Being Services		Other Businesses		Eliminations/ Corporate			Consolidated
	(in millions)
2011
Revenues—external customers
Premiums:
Medicare Advantage	$	18,100	$	3,152	$	0	$	0	$	0		$	21,252
Medicare stand-alone PDP		2,317		8		0		253		0			2,578

Total Medicare		20,417		3,160		0		253		0			23,830

Fully-insured		861		4,782		0		0		0			5,643
Specialty		124		935		0		0		0			1,059
Military services		0		0		0		3,616		0			3,616
Medicaid and other		0		0		0		958		0			958

Total premiums		21,402		8,877		0		4,827		0			35,106

Services revenue:
Provider		0		0		892		0		0			892
ASO and other		16		356		0		85		0			457
Pharmacy		0		0		11		0		0			11

Total services revenue		16		356		903		85		0			1,360

Total revenues—external customers		21,418		9,233		903		4,912		0			36,466

Intersegment revenues
Services		0		14		8,510		0		(8,524	)		0
Products		0		0		1,820		0		(1,820	)		0

Total intersegment revenues		0		14		10,330		0		(10,344	)		0

Investment income		76		48		0		54		188			366

Total revenues		21,494		9,295		11,233		4,966		(10,156	)		36,832

Operating expenses:
Benefits		17,383		7,318		0		4,411		(289	)		28,823
Operating costs		2,405		1,650		10,798		461		(9,919	)		5,395
Depreciation and amortization		119		85		82		10		(26	)		270

Total operating expenses		19,907		9,053		10,880		4,882		(10,234	)		34,488

Income from operations		1,587		242		353		84		78			2,344
Interest expense		0		0		0		0		109			109

Income (loss) before income taxes	$	1,587	$	242	$	353	$	84	$	(31	)	$	2,235


	Retail		Employer Group		Health and Well-Being Services		Other Businesses			Eliminations/ Corporate			Consolidated
	(in millions)
2010
Revenues—external customers
Premiums:
Medicare Advantage	$	16,265	$	3,021	$	0	$	0		$	0		$	19,286
Medicare stand-alone PDP		1,959		5		0		355			0			2,319

Total Medicare		18,224		3,026		0		355			0			21,605

Fully-insured		746		5,169		0		0			0			5,915
Specialty		82		885		0		0			0			967
Military services		0		0		0		3,462			0			3,462
Medicaid and other		0		0		0		763			0			763

Total premiums		19,052		9,080		0		4,580			0			32,712

Services revenue:
Provider		0		0		34		0			0			34
ASO and other		11		395		0		115			0			521
Pharmacy		0		0		0		0			0			0

Total services revenue		11		395		34		115			0			555

Total revenues—external customers		19,063		9,475		34		4,695			0			33,267

Intersegment revenues
Services		0		12		7,494		0			(7,506	)		0
Products		0		0		1,292		0			(1,292	)		0

Total intersegment revenues		0		12		8,786		0			(8,798	)		0

Investment income		80		42		0		43			164			329

Total revenues		19,143		9,529		8,820		4,738			(8,634	)		33,596

Operating expenses:
Benefits		15,624		7,486		0		4,253			(246	)		27,117
Operating costs		2,113		1,662		8,575		475			(8,445	)		4,380
Depreciation and amortization		117		93		26		12			(3	)		245

Total operating expenses		17,854		9,241		8,601		4,740			(8,694	)		31,742

Income (loss) from operations		1,289		288		219		(2	)		60			1,854
Interest expense		0		0		0		0			105			105

Income (loss) before income taxes	$	1,289	$	288	$	219	$	(2	)	$	(45	)	$	1,749

Retail segment operating costs for 2010 include $147 million for the write-down of deferred acquisition costs associated with our individual commercial medical policies as discussed more fully in Note 17.

Benefits expense for Other Businesses for 2010 includes $139 million for reserve strengthening associated with our closed block of long-term care policies as discussed more fully in Note 17.