Humana (HUM) 10-K risk factor changes: FY2019 vs FY2018

[removed: Risks] [added: Risks] Relating to Our [removed: Business][added: Business]

[removed: If] [added: If] we do not design and price our products properly and competitively, if the premiums we charge are insufficient to cover the cost of health care services delivered to our members, if we are unable to implement clinical initiatives to provide a better health care experience for our members, lower costs and appropriately document the risk profile of our members, or if our estimates of benefits expense are inadequate, our profitability may be materially adversely affected.

Any reserve, including a premium deficiency reserve, may be [removed: insufficient.][added: insufficient.]

| • | government mandated [removed: benefits] [added: benefits, member eligibility criteria,] or other [added: legislative, judicial, or] regulatory changes, including any that result from the Health Care Reform Law. |

Legislative or regulatory actions, such as [added: changes to the programs in which we participate,] those resulting in a reduction in premium payments to us, an increase in our cost of administrative and health care services, or additional fees, taxes or assessments, may have a material adverse effect on our results of operations, financial position, and cash flows.

[removed: If] [added: If] we fail to effectively implement our operational and strategic initiatives, including our Medicare initiatives and our state-based contracts strategy, our business may be materially adversely affected, which is of particular importance given the concentration of our revenues in these products.

In addition, there can be no assurances that we will be successful in maintaining or improving our Star ratings in future [removed: years.][added: years.]

There is significant concentration of our revenues in Medicare products, with approximately [removed: 80%] [added: 82%] of our total premiums and services revenue for the year ended December 31, [removed: 2018] [added: 2019] generated from our Medicare products, including 15% derived from our individual Medicare Advantage contracts with CMS in Florida.

[removed: If] [added: If] we fail to properly maintain the integrity of our data, to strategically implement new information systems, or to protect our proprietary rights to our systems, our business may be materially adversely [removed: affected.][added: affected.]

In addition, substantial litigation regarding intellectual property rights exists in the [added: software industry, including litigation involving end users of software products.]

[removed: Failure to adequately protect and maintain the integrity of our] information systems and data, or to defend against cybersecurity attacks, may result in a material adverse effect on our results of operations, financial position, and cash flows.

[removed: If] [added: If] we are unable to defend our information technology security systems against cybersecurity attacks or prevent other privacy or data security incidents that result in security breaches that disrupt our operations or in the unintended dissemination of sensitive personal information or proprietary or confidential information, we could be exposed to significant regulatory fines or penalties, liability or reputational damage, or experience a material adverse effect on our results of operations, financial position, and cash [removed: flows.][added: flows.]

Although the impact of such attacks has not been material to our operations or results of operations, financial position, or cash flow through December 31, [removed: 2018,] [added: 2019,] we can provide no assurance that we will be able to detect, prevent, or contain the effects of such cybersecurity attacks or other information security risks or threats in the future.

[removed: We] [added: We] are involved in various legal actions and governmental and internal investigations, any of which, if resolved unfavorably to us, could result in substantial monetary damages or changes in our business practices.

Increased litigation and negative publicity could increase our cost of doing [removed: business.][added: business.]

We are or may become a party to a variety of legal actions that affect our business, including breach of contract actions, employment [added: compensation] and [added: other labor and] employment [removed: discrimination-related] [added: practice] suits, employee benefit claims, stockholder suits and other securities laws claims, [added: intellectual] and [added: other property claims, and] tort claims.

| • | claims relating to dispensing of drugs associated with our in-house [removed: mail-order pharmacy;] [added: dispensing pharmacies;] and |

See "Legal Proceedings and Certain Regulatory Matters" in Note [removed: 16] [added: 17] to the consolidated financial statements included in Item 8.

[removed: As] [added: As] a government contractor, we are exposed to risks that may materially adversely affect our business or our willingness or ability to participate in government health care [removed: programs.][added: programs.]

These programs accounted for approximately [removed: 85%] [added: 87%] of our total premiums and services revenue for the year ended December 31, [removed: 2018.][added: 2019.]

[removed: The loss of these and other CMS contracts or significant] changes [removed: in the Medicare program as a result of legislative or regulatory action, including reductions in premium payments] to [removed: us or increases in] member [removed: benefits] [added: eligibility criteria] without corresponding increases in premium payments to us, may have a material adverse effect on our results of operations, financial position, and cash flows.

| • | At December 31, [removed: 2018,] [added: 2019,] our military services business, which accounted for approximately 1% of our total premiums and services revenue for the year ended December 31, [removed: 2018,] [added: 2019,] primarily consisted of the TRICARE T2017 East Region [removed: contract replacing the 5-year T3 South Region contract that expired on December 31, 2017.] [added: contract.] The T2017 East Region contract is a consolidation of the former T3 North and South Regions, comprising thirty-two states and approximately 6 million TRICARE beneficiaries, under which delivery of health care services commenced on January 1, 2018. The T2017 East Region contract is a 5 \-year contract set to expire on December 31, 2022 and is subject to renewals on January 1 of each year during its term at the government's option. The loss of the TRICARE T2017 East Region contract may have a material adverse effect on our results of operations, financial position, and cash flows. |

For [removed: 2018, 15%] [added: 2019, 25%] of the risk score was calculated from claims data submitted through EDS.

[removed: In 2019 and 2020] CMS will increase that percentage to [removed: 25%] [added: 50% in 2020] and [removed: 50%, respectively.][added: has proposed to increase that percentage to 75% in 2021.]

The phase-in from RAPS to EDS could result in different risk scores from each dataset as a result of plan processing issues, CMS processing issues, or filtering logic [added: differences between RAPS and EDS, and could have a material adverse effect on our results of operations, financial position, or cash flows.]

[removed: differences between RAPS and EDS, and] [added: litigation, penalties, fines or other sanctions] could [added: be substantial, and the outcome of these matters may] have a material adverse effect on our results of operations, financial position, [removed: or] [added: and] cash flows.

In 2012, CMS released a “Notice of Final Payment Error Calculation Methodology for Part C Medicare Advantage Risk Adjustment Data Validation (RADV) Contract-Level Audits.” The payment error calculation methodology provided that, in calculating the economic impact of audit results for an MA contract, if any, the results of the RADV audit sample would be extrapolated to the entire MA contract after a comparison of the audit results to a similar audit of [removed: Medicare FFS (we refer to] the [removed: process of accounting for errors in FFS claims as the "FFS Adjuster").][added: government’s traditional fee-for-service Medicare program, or Medicare FFS.]

[added: We refer to the process of accounting for errors in FFS claims as the "FFS Adjuster."] This comparison of RADV audit results to the FFS error rate is necessary to determine the economic impact, if any, of RADV audit results because the government used the Medicare FFS program data set, including any attendant errors that are present in that data set, to estimate the costs of various health status conditions and to set the resulting adjustments to MA plans’ payment rates in order to establish actuarial equivalence in payment rates as required under the Medicare statute.

We [removed: believe, however,] [added: believe] that the Proposed Rule fails to address adequately the statutory requirement of actuarial equivalence, and [removed: we expect to provide] [added: have provided] substantive comments to CMS on the Proposed Rule as part of the notice-and-comment rulemaking process.

[removed: We are also evaluating the potential impact of] [added: Whether, and to what extent, CMS finalizes] the Proposed Rule, and any related regulatory, industry or company reactions, [removed: all or any of which] could have a material adverse effect on our results of operations, financial position, or cash flows.

These statements and policies, such as certain statements contained in the preamble to CMS’ final rule release regarding Medicare Advantage and Part D prescription drug benefit program regulations for Contract Year 2015 (which we refer to as the "Overpayment Rule"), and the Proposed [removed: Rule, appear to equate each Medicare Advantage risk adjustment data error with an “overpayment” without addressing the principles underlying the FFS Adjuster referenced above.]

Our estimate of the settlement associated with the Medicare Part D risk corridor provisions was a net payable of $170 million [removed: and $279 million] at December 31, [removed: 2018] [added: 2019] and [removed: 2017, respectively.][added: 2018.]

[removed: Nevertheless, it is reasonably possible that any such outcome of litigation, penalties, fines or other sanctions could be substantial,] [added: Any failure by us to manage acquisitions, divestitures] and [removed: the outcome of these matters] [added: other significant transactions successfully] may have a material adverse effect on our results of operations, financial position, and cash [removed: flows.][added: flows.]

[removed: The Health Care Reform Law] [added: New laws or regulations, or legislative, judicial, or regulatory changes in existing laws or regulations or their manner of application] could [added: increase our cost of doing business and may] have a material adverse effect on our results of operations (including restricting revenue, enrollment and premium growth in certain products and market segments, restricting our ability to expand into new markets, increasing our medical and operating costs by, among other things, requiring a minimum benefit ratio on insured products, lowering our Medicare payment rates and increasing our expenses associated with [removed: a non-deductible health insurance industry fee and other] assessments); our financial position (including our ability to maintain the value of our goodwill); and our cash [removed: flows.][added: flows.]

[removed: Our] [added: Our] business activities are subject to substantial government regulation.

[removed: Health] [added: *Health] Insurance Portability and Accountability Act (HIPAA) and the Health Information Technology for Economic and Clinical Health Act (HITECH [removed: Act)][added: Act)*]

[removed: HIPAA includes] administrative provisions directed at simplifying electronic data interchange through standardizing transactions, establishing uniform health care provider, payer, and employer identifiers, and seeking protections for confidentiality and security of patient data.

[removed: American] [added: *American] Recovery and Reinvestment Act of 2009 [removed: (ARRA)][added: (ARRA)*]

[removed: Corporate] [added: *Corporate] Practice of Medicine and Other [removed: Laws][added: Laws*]

We believe that our health services operations comply with applicable state statutes regarding corporate practice of medicine, [removed: fee-][added: fee-splitting, and similar issues.]

Failure to adequately protect and maintain the integrity of our

| • | At December 31, 2019, under our contracts with CMS we provided health insurance coverage to approximately 701,400 individual Medicare Advantage members in Florida. These contracts accounted for approximately 15% of our total premiums and services revenue for the year ended December 31, 2019. The loss of these and other CMS contracts or significant changes in the Medicare program as a result of legislative or regulatory action, including reductions in premium payments to us or increases in member benefits or |

Rule, appear to equate each Medicare Advantage risk adjustment data error with an “overpayment” without addressing the principles underlying the FFS Adjuster referenced above.

CMS has appealed the decision to the Circuit Court of Appeals.

| • | We are also subject to various other governmental audits and investigations. Under state laws, our HMOs and health insurance companies are audited by state departments of insurance for financial and contractual compliance. Our HMOs are audited for compliance with health services by state departments of health. Audits and investigations, including audits of risk adjustment data, are also conducted by state attorneys general, CMS, HHS-OIG, the Office of Personnel Management, the Department of Justice, the Department of Labor, and the Defense Contract Audit Agency. All of these activities could result in the loss of licensure or the right to participate in various programs, including a limitation on our ability to market or sell products, the imposition of fines, penalties and other civil and criminal sanctions, or changes in our business practices. The outcome of any current or future governmental or internal investigations cannot be accurately predicted, nor can we predict any resulting penalties, fines or other sanctions that may be imposed at the discretion of federal or state regulatory authorities. Nevertheless, it is reasonably possible that any such outcome of |

*The Health Care Reform Law and Other Current or Future Legislative, Judicial or Regulatory Changes*

Certain significant provisions of the Health Care Reform Law include, among others, mandated coverage requirements, mandated benefits and guarantee issuance associated with commercial medical insurance, rebates to policyholders based on minimum benefit ratios, adjustments to Medicare Advantage premiums, the establishment of federally facilitated or state-based exchanges coupled with programs designed to spread risk among insurers, and the introduction of plan designs based on set actuarial values.

In addition, the Health Care Reform Law established insurance industry assessments, including an annual health insurance industry fee.

The annual health insurance industry fee was suspended in 2019, but will resume for calendar year 2020, not be deductible for income tax purposes, and significantly increase our effective tax rate.

In 2018, the fee levied on the health insurance industry was $14.3 billion.

Under current law, the health industry fee will be permanently repealed beginning in calendar year 2021.

It is reasonably possible that the Health Care Reform Law and related regulations, as well as other current or future legislative, judicial or regulatory changes, including restrictions on our ability to manage our provider network or otherwise operate our business, or restrictions on profitability, including reviews by regulatory bodies that may compare our Medicare Advantage business profitability to our non-Medicare Advantage business profitability, or compare the profitability of various products within our Medicare Advantage business, and require that they remain within certain ranges of each other, increases in member benefits or changes to member eligibility criteria without corresponding increases in premium payments to us, or increases in regulation of our prescription drug benefit businesses, may have a material adverse effect on our results of operations (including restricting revenue, enrollment and premium growth in certain products and market segments, restricting our ability to expand into new markets, increasing our medical and operating costs, further lowering our Medicare payment rates and increasing our expenses associated with assessments); our financial position (including our ability to maintain the value of our goodwill); and our cash flows.

HIPAA includes

The Health Care Reform Law created a federal Medicare-Medicaid Coordination Office to serve dual eligibles.

This Medicare-Medicaid Coordination Office has initiated a series of state demonstration projects to experiment with better coordination of care between Medicare and Medicaid.

Depending upon the results of those demonstration projects, CMS may change the way in which dual eligibles are serviced.

If we are unable to implement our strategic initiatives to address the dual eligibles opportunity, including our participation in state-based contracts, or if our initiatives are not successful at attracting or retaining dual eligible members, our business may be materially adversely affected.

software industry, including litigation involving end users of software products.

| • | At December 31, 2018, under our contracts with CMS we provided health insurance coverage to approximately 636,800 individual Medicare Advantage members in Florida. These contracts accounted for |

approximately 15% of our total premiums and services revenue for the year ended December 31, 2018.

We are studying the Proposed Rule and CMS’ underlying analysis contained therein.

CMS has filed a motion for reconsideration related to certain aspects of the Federal District Court's opinion and has simultaneously filed a notice to appeal the decision to the Circuit Court of Appeals.

| • | We are also subject to various other governmental audits and investigations. Under state laws, our HMOs and health insurance companies are audited by state departments of insurance for financial and contractual compliance. Our HMOs are audited for compliance with health services by state departments of health. Audits and investigations, including audits of risk adjustment data, are also conducted by state attorneys |

general, CMS, HHS-OIG, the Office of Personnel Management, the Department of Justice, the Department of Labor, and the Defense Contract Audit Agency.

All of these activities could result in the loss of licensure or the right to participate in various programs, including a limitation on our ability to market or sell products, the imposition of fines, penalties and other civil and criminal sanctions, or changes in our business practices.

The outcome of any current or future governmental or internal investigations cannot be accurately predicted, nor can we predict any resulting penalties, fines or other sanctions that may be imposed at the discretion of federal or state regulatory authorities.

The provisions of the Health Care Reform Law include, among others, imposing a significant new non-deductible health insurance industry fee and other assessments on health insurers, limiting Medicare Advantage payment rates, stipulating a prescribed minimum ratio for the amount of premiums revenue to be expended on medical costs for insured products, additional mandated benefits and guarantee issuance associated with commercial medical insurance, requirements that limit the ability of health plans to vary premiums based on assessments of underlying risk, and heightened scrutiny by state and federal regulators of our business practices, including our Medicare bid and pricing practices.

The Health Care Reform Law also specifies benefit design guidelines, limits rating and pricing practices, encourages additional competition (including potential incentives for new market entrants), establishes federally-facilitated or state-based exchanges for individuals and small employers (with up to 100 employees) coupled with programs designed to spread risk among insurers (subject to federal administrative action), and expands eligibility for Medicaid programs (subject to state-by-state implementation of this expansion).

Financing for these reforms come, in part, from material additional fees and taxes on us and other health plans and individuals which began in 2014, as well as reductions in certain levels of payments to us and other health plans under Medicare.

If we fail to effectively implement our operational and strategic initiatives with respect to the implementation of the Health Care Reform Law, our business may be materially adversely affected.

For additional information, please refer to the section entitled, “Health Care Reform” in “Item 7 - Management’s Discussion and Analysis of Financial Condition and Results of Operations” appearing in this annual report.

New laws or regulations, or changes in existing laws or regulations or their manner of application, including reductions in Medicare Advantage payment rates, could increase our cost of doing business and may adversely affect our business, profitability, financial condition, and cash flows.

In addition to the Health Care Reform Law, the health care industry in general and health insurance are subject to substantial federal and state government regulation:

splitting, and similar issues.

Any failure by us to manage acquisitions, divestitures and other significant transactions successfully may have a material adverse effect on our results of operations, financial position, and cash flows.

[removed: Executive Overview][added: Executive Overview]

[removed: General][added: General]

[removed: Business Segments][added: Business Segments]

We manage our business with [removed: four] [added: three] reportable segments: Retail, Group and Specialty, [removed: Healthcare Services,] and [removed: Individual Commercial.][added: Healthcare Services.]

[removed: In addition,] [added: Previously,] the Other Businesses category [removed: includes] [added: included] businesses that [removed: are] [added: were] not individually reportable because they [removed: do] [added: did] not meet the quantitative thresholds required by generally accepted accounting [removed: principles.][added: principles, primarily our closed-block of commercial long-term care insurance policies which were sold in 2018.]

[removed: These] [added: 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 [removed: Officer] [added: Officer, the chief operating decision maker,] to assess performance and allocate resources.

See Note [removed: 17] [added: 18] to the consolidated financial statements included in Item 8.

In addition, our Group and Specialty segment includes [added: 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 [added: minority] investment in Kindred at Home.

[removed: The Individual Commercial segment consisted of our] [added: Beginning January 1, 2018, we exited the] individual commercial fully-insured medical health insurance business, [removed: which we exited beginning January 1, 2018.][added: 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.]

[removed: 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.

[removed: Assets] [added: Goodwill] and [added: Long-lived Assets]

[added: 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.

[removed: Seasonality][added: Seasonality]

[removed: Aetna Merger][added: Aetna Merger]

[removed: Acquisitions] [added: Acquisitions] and [removed: Divestitures][added: Divestitures]

[removed: On August 9,] [added: In the third quarter of] 2018, we completed the sale of our wholly-owned [removed: subsidiary,] [added: subsidiary] KMG America Corporation, or KMG, to Continental General Insurance Company, or CGIC, a Texas-based insurance company wholly owned by HC2 Holdings, Inc., a diversified holding company.

KMG's subsidiary, Kanawha Insurance Company, or KIC, [removed: includes] [added: included] our closed block of non-strategic commercial long-term care policies.

[removed: Upon closing, we funded the transaction with] approximately $190 million of parent company cash contributed into KMG, subject to customary adjustments, in addition to the transfer of approximately $160 million of statutory capital with the sale.

[removed: On July 2, 2018 and July 11,] [added: Also in the third quarter of] 2018, [removed: we] [added: we,] along with TPG Capital, or TPG, and [removed: Welsh, Carson, Anderson & Stowe, or WCAS, collectively,] [added: WCAS (together,] the [removed: Sponsors,] [added: "Sponsors"),] completed the acquisitions of Kindred and Curo, respectively, merging Curo with the hospice business of Kindred at Home.

As part of these transactions, we acquired a 40% minority interest in [removed: the combined business,] Kindred at Home, a [added: leading home health and hospice company,] for total cash consideration of approximately $1.1 billion.

[removed: On April 10,] [added: In the second quarter of] 2018, we acquired Family Physicians Group, or FPG, for cash consideration of approximately $185 million, net of cash received.

[added: FPG is one of the largest at-risk providers serving Medicare Advantage and Managed] Medicaid HMO patients in Greater Orlando, Florida with a footprint that includes clinics located in Lake, Orange, Osceola and Seminole counties.

[removed: On March 1,] [added: In the first quarter of] 2018, we acquired the remaining equity interest in MCCI [removed: Holdings] [added: Holdings,] LLC, or MCCI, a privately held management service organization headquartered in Miami, Florida, [removed: that] [added: which] primarily coordinates medical care for Medicare Advantage beneficiaries in Florida and Texas.

These transactions are more fully discussed in Note 3 [added: and Note 4] to the consolidated financial statements.

[removed: Highlights][added: Highlights]

[removed: Consolidated][added: Consolidated]

| • | Our [removed: 2018] [added: 2019] results reflect the continued implementation of our strategy to offer our members affordable health care combined with a positive consumer experience in growing markets. At the core of this strategy is our integrated care delivery model, which unites quality care, high member engagement, and sophisticated data analytics. Our approach to primary, physician-directed care for our members aims to provide quality care that is consistent, integrated, cost-effective, and member-focused, provided by both employed physicians and physicians with network contract arrangements. The model is designed to improve health outcomes and affordability for individuals and for the health system as a whole, while offering our members a simple, seamless healthcare experience. We believe this strategy is positioning us for long-term growth in both membership and earnings. We offer providers a continuum of opportunities to increase the integration of care and offer assistance to providers in transitioning from a fee-for-service to a value-based arrangement. These include performance bonuses, shared savings and shared risk relationships. At December 31, [removed: 2018,] [added: 2019,] approximately [removed: 2,039,100] [added: 2,407,000] members, or 67%, of our individual Medicare Advantage members were in value-based relationships under our integrated care delivery model, as compared to [removed: 1,901,300] [added: 2,039,100] members, or [removed: 66%,] [added: 67%,] at December 31, [removed: 2017.] [added: 2018. Medicare Advantage and dual demonstration program membership enrolled in a Humana chronic care management program was 868,800 at December 31, 2019, an increase of 21.3% from 716,000 at December 31, 2018. These members may not be unique to each program since members have the ability to enroll in multiple programs. The increase is driven by our improved process for identifying and enrolling members in the appropriate program at the right time, coupled with growth in Special Needs Plans, or SNP, membership.] |

[removed: | ◦ | The] [added: In addition, 2019 was impacted by the] loss on [added: the] sale of KMG [removed: of $786 million] [added: recognized] in 2018. [removed: |]

[removed: | • |] The annual health insurance industry fee was suspended for [added: the] calendar year 2017, but resumed in [removed: 2018. Operating costs associated with the] [added: calendar year 2018.The annual] health insurance industry fee [removed: attributable to 2018 were $1.04 billion paid] [added: was again suspended] in [removed: October 2018. This fee is] [added: 2019, but will resume for calendar year 2020,] not [added: be] deductible for [removed: tax purposes, which increases our effective] income tax [removed: rate. The one-year suspension in 2017 of the health insurance industry fee] [added: purposes, and] significantly [removed: reduced] [added: increase] our [removed: operating costs and] effective tax [removed: rate during 2017. The annual health insurance industry fee is also suspended for calendar year 2019, but under current law is scheduled to resume for calendar year 2020. |][added: rate.]

[removed: Retail Segment][added: Retail Segment]

[removed: Group] [added: Group] and Specialty [removed: Segment][added: Segment]

[removed: Healthcare] [added: Healthcare] Services [removed: Segment][added: Segment]

[removed: Health] [added: Health] Care [removed: Reform][added: Reform]

The annual health insurance industry fee [removed: levied on the insurance industry is $14.3 billion] [added: was suspended] in [removed: 2018 and is] [added: 2019, but will resume for calendar year 2020,] not [added: be] deductible for income tax purposes, [removed: which] [added: and] significantly [removed: increases] [added: increase] our effective [removed: income] tax rate.

It is reasonably possible that the Health Care Reform Law and related regulations, as well as [added: other current or] future legislative, judicial or regulatory changes, including restrictions on our ability to manage our provider network or otherwise operate our business, or restrictions on profitability, including reviews by regulatory bodies that may compare our Medicare Advantage profitability to our non-Medicare Advantage business profitability, or compare the profitability of various products within our Medicare Advantage business, and require that they remain within certain ranges of each other, [added: increases] in [added: member benefits or changes to member eligibility criteria without corresponding increases in premium payments to us, or increases in regulation of our prescription drug benefit businesses, in] the aggregate may have a material adverse effect on our results of operations (including restricting revenue, enrollment and premium growth in certain products and market segments, restricting our ability to expand into new markets, increasing our medical and operating costs, further lowering our Medicare payment rates and increasing our expenses associated with [removed: the non-deductible health insurance industry fee and other] assessments); our financial position (including our ability to maintain the value of our goodwill); and our cash flows.

Transactions between reportable segments primarily consist of sales of services rendered [removed: by our Healthcare Services segment, primarily pharmacy, provider, and]

[added: 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 and are described in Note [removed: 17] [added: 18] to the consolidated financial statements included in Item 8.

[added: –] Financial Statements and Supplementary Data in this [removed: 2018] [added: 2019] Form 10-K.

*For discussion of 2017 items and year-over-year comparisons between 2018 and 2017 that are not included in this 2019 Form 10-K, refer to "Item 7.

– Management Discussion and Analysis of Financial Condition and Results of Operations" found in our Form 10-K for the year ended December 31, 2018, that was filed with the Securities and Exchange Commission on February 21, 2019.*

In the first quarter of 2020, we acquired privately held Enclara Healthcare, or Enclara, one of the nation’s largest hospice pharmacy and benefit management providers for cash consideration of approximately $707 million, net of cash received.

The purchase accounting is incomplete due to the timing of the availability of information.

Also in the first quarter of 2020, our Partners in Primary Care wholly-owned subsidiary entered into a strategic partnership with Welsh, Carson, Anderson & Stowe, or WCAS, to accelerate the expansion of our primary care model.

The WCAS partnership is expected to open approximately 50 payor-agnostic, senior-focused primary care centers over 3 years beginning in 2020.

Partners in Primary Care committed to the acquisition of a non-controlling interest in the approximately $600 million entity.

In addition, the agreement includes a series of put and call options through which WCAS may require us to purchase their interest in the entity and, through which we may acquire WCAS’s interest over the next 5 - 10 years.

Upon closing, we funded the transaction with

The acquisition of FPG advances our strategy of helping physicians and clinicians evolve from treating health episodically to managing health holistically.

| • | On February 5, 2020, after the stock market closed, the Centers for Medicare and Medicaid Services (“CMS”) issued Part II of the 2021 Advance Notice of Methodological Changes for Medicare Advantage Capitation Rates and Part C and Part D Payment Policies (the “Advance Notice”). CMS has invited public comment on the Advance Notice before publishing final rates on April 6, 2020 (the “Final Notice”). |

In the Advance Notice, CMS estimates Medicare Advantage plans across the sector will, on average, experience a 0.93 percent increase in benchmark funding based on proposals included therein.

As indicated by CMS, its estimate excludes the impact of fee-for-service county rebasing/repricing because the related impact is dependent upon finalization of certain data, which will be available with the publication of the Final Notice.

Based on our preliminary analysis using the same factors CMS included in its estimate, the components of

which are detailed on CMS’ website, we anticipate that the proposals in the Advance Notice would result in a change to our benchmark funding relatively in line with CMS’ estimate.

Also on February 5, 2020, CMS issued a proposed rule (which we refer to as the “2021 Proposed Rule”) related to the administration of the MA and Part D programs, including, among other things, the Agency’s implementation of recent legislation removing the limitation on MA eligibility for end-stage-renal-disease, or ESRD, Medicare-eligible beneficiaries beginning in 2021, allowing for Medicare Advantage plans to offer additional supplemental benefits including telehealth, and addressing opioid recovery and treatment.

The 2021 Proposed Rule also recognizes the potential opportunity to create new options for beneficiaries, including ESRD beneficiaries, and their access to care through greater flexibility around current network adequacy requirements.

CMS has invited public comments to the 2021 Proposed Rule on or before April 6, 2020.

The Advance Notice and the 2021 Proposed Rule are subject to the required notice and comment period, and we cannot predict when or to what extent CMS will adopt the proposals in the Advance Notice or the 2021 Proposed Rule.

We will be drawing upon our program expertise to provide CMS formal commentary on the impact of both the Advance Notice and the 2021 Proposed Rule and the related impact upon Medicare beneficiaries’ quality of care and service to our members through the MA and Part D programs.

| • | Net income was $2.7 billion for 2019 compared to $1.7 billion in 2018 and earnings per diluted common share increased $7.94 from $12.16 earnings per diluted common share in 2018 to $20.10 earnings per diluted common share in 2019. This comparison was primarily impacted by higher segment earnings in our Retail and Healthcare Services segments, partially offset by lower Group and Specialty segment earnings. These changes were further favorably impacted by the put/call valuation adjustments associated with our investment in Kindred at Home and by a lower number of shares used to compute dilutive earnings per share, primarily reflecting share repurchases. In addition, year-over-year comparison to 2019 was impacted by the loss on the sale of KMG of $786 million recognized in 2018. |

| • | Contributing to our Retail segment revenue growth was our individual and group Medicare Advantage membership, which increased 550,700 members, or 15.5%, from 3,561,800 members at December 31, 2018 to 4,112,500 members at December 31, 2019. |

| • | Our operating cash flow of $5.3 billion for 2019 improved from $2.2 billion for 2018, reflecting the significant impact of increasing premiums and enrollment, as premiums generally are collected in advance of claim payments by a period of up to several months. The year-over-year comparison was further impacted by the timing of other working capital changes, higher earnings in 2019 versus 2018, and the negative impact on 2018 cash flows resulting from the funding of reinsurance transactions in connection with the sale of KMG. |

| • | In July 2019, the Board of Directors approved a $3.0 billion share repurchase authorization with an expiration date of June 30, 2022. We subsequently entered into an agreement with a third-party financial institution on July 31, 2019, to effect a $1.0 billion ASR program under the authorization. Under the terms of this program, which was completed in the fourth quarter of 2019, we repurchased approximately 3,376,200 shares at an average price, after a discount, of $296.19. Aside from the completion of the ASR program, we have not completed any open market stock repurchases. As of February 19, 2020, we had a remaining repurchase authorization of $2.0 billion. |

| • | In August 2019, we issued $500 million of 3.125% senior notes due August 15, 2029, and $500 million of 3.950% senior notes due August 15, 2049. Our net proceeds, reduced for the underwriters discount and commission and offering expenses, were $987 million. We used the net proceeds from this offering, together with available cash, to repay the $650 million outstanding amount due under our term note in August 2019, and the $400 million aggregate principal amount of our 2.625% senior notes due on its maturity date of October 1, 2019. |

| • | In 2019 we initiated an involuntary workforce optimization program that will allow us to promote operational excellence, accelerate our strategy, fund critical initiatives and advance our growth objectives. As a result we recorded estimated charges of $47 million, or $0.26 per diluted common share, on the corporate level, included |

with operating costs in the condensed consolidated statements of income.

We expect this liability to be primarily paid within 12 months.

In 2018, the fee levied on the health insurance industry was $14.3 billion.

Under current law, the health industry fee will be permanently repealed beginning in calendar year 2021.

| Retail | | $ | 56,254 | | | $ | 48,108 | | | $ | 8,146 | | | 16.9 | % |

| Total premiums | | 62,948 | | | | 54,941 | | | | 8,007 | | | | 14.6 | % |

| Retail | | 17 | | | | 11 | | | | 6 | | | | 54.5 | % |

| Healthcare Services | | 632 | | | | 607 | | | | 25 | | | | 4.1 | % |

| Total services | | 1,439 | | | | 1,457 | | | | (18 | | ) | | (1.2 | )% |

| Investment income | | 501 | | | | 514 | | | | (13 | | ) | | (2.5 | )% |

| Total revenues | | 64,888 | | | | 56,912 | | | | 7,976 | | | | 14.0 | % |

| Benefits | | 53,857 | | | | 45,882 | | | | 7,975 | | | | 17.4 | % |

| Operating costs | | 7,381 | | | | 7,525 | | | | (144 | | ) | | (1.9 | )% |

| Other (income) expense, net | | (506 | | ) | | 33 | | | | (539 | | ) | | (1633.3 | )% |

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 in 2018.

As a result, the profitability of each segment is interdependent.

In connection with the sale of KMG, we recognized a pretax loss, including transaction costs, of $786 million and a corresponding $452 million tax benefit.

Prior to the sale of KMG, we entered into reinsurance contracts to transfer the risk associated with certain voluntary benefit and financial protection products previously issued primarily by KIC to a third party.

We transferred approximately $245 million of cash to the third party and recorded a commensurate reinsurance recoverable as a result of these transactions.

The reinsurance recoverable was included as part of the net assets disposed.

There was no material impact to operating results from these reinsurance transactions.

FPG is one of the largest at-risk providers serving Medicare Advantage and Managed

| | |

| --- | --- |

| • | Our consolidated pretax income was $2.06 billion for 2018 compared to $4.02 billion in 2017. A number of significant items effected our year-over-year comparisons including the following: |

| ◦ | The net gain associated with the terminated Merger Agreement, mainly the break-up fee of $936 million in 2017. |

| ◦ | Charges in 2017 of $219 million associated with voluntary and involuntary workforce reduction programs, the Penn Treaty guaranty fund assessment and costs associated with the early retirement of debt. |

| ◦ | Lower year-over-year segment earnings in our Retail, Group and Specialty and Healthcare Services segments reflects the impact of investing the benefit of a lower tax rate from the 2017 Tax Reform Law into the establishment of an annual incentive compensation program for a broader range of employees, together with additional investments in the communities of our members, technology and our integrated care delivery model to drive more affordable healthcare and better clinical outcomes. |

| ◦ | Our year-over-year pretax comparisons were also favorably impacted by strong Medicare Advantage membership growth and operating efficiencies from productivity initiatives implemented in 2017. These increases were partially offset by enhanced 2018 Medicare Advantage benefits resulting from investing the better than expected 2017 individual Medicare Advantage pretax earnings, coupled with the return of the health insurance industry fee, and a more severe flu season in 2018. |

| • | Year-over-year comparisons of diluted earnings per common share were also favorably impacted by a lower number of shares used to compute earnings per common share from share repurchases and the impact of a lower tax rate for the year ended December 31, 2018.The 2017 Tax Reform Law coupled with the tax benefit |

from the sale of KMG, partially offset by return of the nondeductible health insurance industry fee, drove the lower tax rate in 2018.

| • | We returned capital to our shareholders in the form of increased shareholder dividends and significant share repurchase. In 2018, we increased our per share dividend by 25% and repurchased shares worth approximately $1.1 billion, including the accelerated share repurchase agreement, or ASR, that we entered into in November 2018. |

| • | Individual and Group Medicare Advantage membership increased 259,600 members, or 7.9%, in 2018 to 3,561,800 members December 31, 2018. |

| • | On January 30, 2019, after the stock market closed, the Centers for Medicare and Medicaid Services (CMS) issued its preliminary 2020 Medicare Advantage and Part D payment rates and proposed policy changes (collectively, the Advance Notice). CMS has invited public comment on the Advance Notice before publishing final rates on April 1, 2019 (the Final Notice). In the Advance Notice, CMS estimates Medicare Advantage plans across the sector will, on average, experience a 1.59 percent increase in benchmark funding based on proposals included therein. As indicated by CMS, its estimate excludes the impact of fee‐for‐service county rebasing/re‐pricing since the related impact is dependent upon finalization of certain data, which will be available with the publication of the Final Notice. Based on our preliminary analysis using the same factors CMS included in its estimate, the components of which are detailed on CMS’ website, we anticipate the proposals in the Advance Notice would result in a change to our benchmark funding relatively in line with CMS’ estimate. We will be drawing upon our program expertise to provide CMS formal commentary on the impact of the Advance Notice and the related impact upon Medicare beneficiaries’ quality of care and service to our members through the Medicare Advantage program. |

| • | On April 24, 2018, we received a Notice of Intent to be Awarded a Comprehensive Medicaid Contract under Florida’s Statewide Managed Medicaid Program in all 11 regions, including the South Florida, Tampa, Jacksonville, and Orlando metro areas. The comprehensive program combines the traditional Medicaid, or TANF, and Long-Term Care programs. Phase-in under the new contract began December 2018 and was fully implemented February 1, 2019. |

| • | In October 2018, CMS published its updated Star quality ratings for bonus year 2020. We received a 5-star rating on CMS' 5-star rating system for two MA contracts offered in Florida and Tennessee. In addition, we received a 4.5-star rating for two MA contracts offered in Florida, Illinois, Kentucky, Mississippi, North Carolina, and Oregon. We have 12 contracts rated 4-star or above and 3 million members in 4-star or above rated contracts to be offered in 2019, representing 84% of our MA membership as of July 2018. The achievement of a 5-star rating for two MA contracts in Florida and Tennessee provides us the ability to market for these contracts throughout the year, creating an opportunity for increased penetration in these important geographies. We cannot guarantee, however, our ability to maintain or improve our star ratings. |

| • | During 2018, we transitioned to the new, larger T2017 East Region contract increasing membership 2,846,800 or 92.4%.The T2017 East Region contract is a consolidation of the former T3 North and South Regions, comprising thirty-two states and approximately 6 million TRICARE beneficiaries, under which delivery of health care services commenced on January 1, 2018. The T2017 East Region contract is a 5-year contract set |

to expire on December 31, 2022 and is subject to renewals on January 1 of each year during its term at the government's option.

| • | We continued to invest in our Healthcare Services segment necessary to drive effective care delivery and clinical outcomes with our acquisitions of MCCI and FPG and our 40% investment in Kindred at Home. |

| • | Medicare Advantage and dual demonstration program membership enrolled in a Humana chronic care management program was 716,000 at December 31, 2018, a decrease of 9.9% from 794,900 at December 31, 2017. These members may not be unique to each program since members have the ability to enroll in multiple programs. We have undergone an optimization process that ensures the appropriate level of member interaction with clinicians to drive quality outcomes, which has resulted in improved Retail segment operating results. |

A one year suspension of the health insurance industry fee, as we experienced in 2017 and are experiencing in 2019, significantly impacts our trend in key operating metrics including our operating cost and medical expense ratios, as well as our effective tax rate.

The annual health insurance industry fee is scheduled to resume for calendar year 2020 under current law.

As noted above, the Health Care Reform Law required the establishment of health insurance exchanges for individuals and small employers to purchase health insurance that became effective January 1, 2014, with an annual

open enrollment period.

Although we previously participated in these exchanges by offering on-exchange individual

commercial medical plans, effective January 1, 2018, we have exited our Individual Commercial medical business.

On November 2, 2017, we filed suit against the United States of America in the United States Court of Federal Claims, on behalf of our health plans seeking recovery from the federal government of approximately $611 million in payments under the risk corridor premium stabilization program established under the Health Care Reform Law, for years 2014, 2015 and 2016.

Our case has been stayed by the Court, pending resolution of similar cases filed by other insurers.

| | | | | | | | | | | | | | | | |

| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |

| Retail | | $ | 48,108 | | | $ | 44,626 | | | $ | 3,482 | | | 7.8 | % |

| Individual Commercial | | 8 | | | | 947 | | | | (939 | | ) | | (99.2 | )% |

| Total premiums | | 54,941 | | | | 52,380 | | | | 2,561 | | | | 4.9 | % |

| Retail | | 11 | | | | 10 | | | | 1 | | | | 10.0 | % |

There were no borrowings outstanding under our credit agreement at December 31, [removed: 2018] [added: 2019] or December 31, [removed: 2017.][added: 2018.]

Interest rate risk also represents a market risk factor affecting our consolidated financial position due to our significant investment portfolio, consisting primarily of fixed maturity securities of investment-grade quality with a weighted average S&P credit rating of AA at December 31, [removed: 2018.][added: 2019.]

Our net unrealized position [removed: decreased $402] [added: increased $415] million from a net unrealized [removed: gain] [added: loss] position of [removed: $198] [added: $204] million at December 31, [removed: 2017] [added: 2018] to a net unrealized [removed: loss] [added: gain] position of [removed: $204] [added: $211] million at December 31, [removed: 2018.][added: 2019.]

At December 31, [removed: 2018,] [added: 2019,] we had gross unrealized losses of [removed: $213] [added: $8] million on our investment portfolio primarily due to an increase in market interest rates since the time the securities were purchased.

There were no material other-than-temporary impairments during [removed: 2018.][added: 2019.]

The average duration of our investment portfolio, including cash and cash equivalents, was approximately [removed: 2.9] [added: 2.5] years as of December 31, [removed: 2018] [added: 2019] and [removed: 4.1] [added: 2.9] years as of December 31, [removed: 2017.][added: 2018.]

Based on the duration including cash equivalents, a 1% increase in interest rates would generally decrease the fair value of our securities by approximately [removed: $365] [added: $373] million.

The evaluation was based on our investment portfolio and our outstanding indebtedness at December 31, [removed: 2018] [added: 2019] and [removed: 2017.][added: 2018.]

In the past ten years, changes in [removed: 3 month LIBOR] [added: 10 year US treasury] rates during the year have not exceeded 300 basis points, have [removed: not] changed between 200 and 300 basis [removed: points,] [added: points once,] have changed between 100 and 200 basis points [removed: twice,] [added: four times,] and have changed by less than 100 basis points [removed: eight] [added: five] times.

| | | [removed: Increase] [added: Increase] (decrease) in pretax earnings given an interest rate decrease of X basis [removed: points] [added: points] | | | | | | | | | | | | [removed: Increase] [added: Increase] (decrease) in pretax earnings given an interest rate increase of X basis [removed: points] [added: points] | | | | | | | | | | |

| | | [removed: (300)] [added: (300)] | | | | [removed: (200)] [added: (200)] | | | | [removed: (100)] [added: (100)] | | | | [removed: 100] [added: 100] | | | | [removed: 200] [added: 200] | | | | [removed: 300] [added: 300] | | |

| | | [removed: (in millions)] [added: (in millions)] | | | | | | | | | | | | | | | | | | | | | | |

| [removed: As] [added: As] of December 31, [removed: 2018] [added: 2018] | | | | | | | | | | | | | | | | | | | | | | | | |

| Interest expense (b) | | [removed: 2] [added: 10] | | | | [removed: 2] [added: 9] | | | | [removed: 2] [added: 4] | | | | [removed: (2] [added: (4] | | ) | | [removed: (3] [added: (9] | | ) | | [removed: (5] [added: (13] | | ) |

| (a) | As of December 31, [removed: 2018] [added: 2019] and [removed: 2017,] [added: 2018,] some of our investments had interest rates below [removed: 3%] [added: 2%] so the assumed hypothetical change in pretax earnings does not reflect the full [removed: 3%] [added: 2%] point reduction. |

| (b) | The interest rate under our senior notes is fixed. There were no borrowings outstanding under the credit agreement at December 31, [removed: 2018] [added: 2019] or December 31, [removed: 2017.] [added: 2018.] There was [removed: $645] [added: $300] million and [removed: $150] [added: $645] million outstanding under our commercial paper program at December 31, [removed: 2018] [added: 2019] and [removed: 2017,] [added: 2018,] respectively. As of December 31, [removed: 2017,] [added: 2019,] our interest rate under our commercial paper program was less than [removed: 2%] [added: 3%] so the assumed hypothetical change in pretax earnings does not reflect the full [removed: 2%] [added: 3%] point reduction. |

| As of December 31, 2019 | | | | | | | | | | | | | | | | | | | | | | | | |

| Investment income (a) | | $ | (150 | ) | | $ | (133 | ) | | $ | (79 | ) | | $ | 78 | | | $ | 157 | | | $ | 235 | |

| Pretax | | $ | (140 | ) | | $ | (124 | ) | | $ | (75 | ) | | $ | 74 | | | $ | 148 | | | $ | 222 | |

| As of December 31, 2017 | | | | | | | | | | | | | | | | | | | | | | | | |

| Investment income (a) | | $ | (87 | ) | | $ | (83 | ) | | $ | (67 | ) | | $ | 67 | | | $ | 134 | | | $ | 202 | |

| Pretax | | $ | (85 | ) | | $ | (81 | ) | | $ | (65 | ) | | $ | 65 | | | $ | 131 | | | $ | 197 | |

[removed: General][added: General]

As of December 31, [removed: 2018,] [added: 2019,] we had approximately 17 million members in our medical benefit plans, as well as approximately [removed: 6] [added: 5] million members in our specialty products.

During [removed: 2018, 81%] [added: 2019, 82%] of our total premiums and services revenue were derived from contracts with the federal government, including 15% derived from our individual Medicare Advantage contracts in Florida with the Centers for Medicare and Medicaid Services, or CMS, under which we provide health insurance coverage to approximately [removed: 636,800] [added: 701,400] members as of December 31, [removed: 2018.][added: 2019.]

This Annual Report on Form 10-K, or [removed: 2018] [added: 2019] Form 10-K, contains both historical and forward-looking information.

– Risk Factors in this [removed: 2018] [added: 2019] Form 10-K for a description of a number of factors that may adversely affect our results or business.

[removed: Business Segments][added: Business Segments]

We manage our business with [removed: four] [added: three] reportable segments: Retail, Group and Specialty, [removed: Healthcare Services,] and [removed: Individual Commercial.][added: Healthcare Services.]

[removed: In addition,] [added: Previously,] the Other Businesses category [removed: includes] [added: included] businesses that [removed: are] [added: were] not individually reportable because they [removed: do] [added: did] not meet the quantitative thresholds required by generally accepted accounting [removed: principles.][added: principles, primarily our closed-block of commercial long-term care insurance policies which were sold in 2018.]

[removed: These] [added: 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 [removed: Officer] [added: Officer, the chief operating decision maker,] to assess performance and allocate resources.

See Note [removed: 17] [added: 18] to the consolidated financial statements included in Item 8.

[removed: Our Products][added: Our Products]

[removed: Our] [added: Our] Retail Segment [removed: Products][added: Products]

The following table presents our premiums and services revenue for the Retail segment by product for the year ended December 31, [removed: 2018:][added: 2019:]

| | | [removed: Retail] [added: Retail] Segment Premiums and Services [removed: Revenue] [added: Revenue] | | | | [removed: Percent] [added: Percent] of Consolidated Premiums and Services [removed: Revenue] [added: Revenue] | |

| | | [removed: (dollars] [added: (dollars] in [removed: millions)] [added: millions)] | | | | | |

[removed: | Individual] [added: *Individual] Medicare Advantage [removed: | | $ | 35,656 | | | 63.2 | % |][added: Products*]

| Group Medicare Advantage | | [removed: 6,103] [added: 6,475] | | | | [removed: 10.8] [added: 10.1] | % |

| Medicare stand-alone PDP | | [removed: 3,584] [added: 3,165] | | | | [removed: 6.4] [added: 4.9] | % |

| Total Retail Medicare | | [removed: 45,343] [added: 52,768] | | | | [removed: 80.4] [added: 82.0] | % |

[removed: | State-based] [added: State-based] Medicaid [removed: | | 2,255 | | | | 4.0 | % |][added: Contracts]

| Medicare Supplement | | [removed: 510] [added: 588] | | | | 0.9 | % |

| Services | | [removed: 11] [added: 17] | | | | — | % |

| Total premiums and services revenue | | $ | [removed: 48,119] [added: 56,271] | | | [removed: 85.3] [added: 87.4] | % |

[removed: Medicare][added: Medicare]

[added: |] Individual Medicare Advantage [removed: Products][added: | | $ | 43,128 | | | 67.0 | % |]

For [removed: 2018, 15%] [added: 2019, 25%] of the risk score was calculated from claims data submitted through EDS.

[removed: In 2019 and 2020] CMS will increase that percentage to [removed: 25%] [added: 50% in 2020] and [removed: 50%, respectively.][added: has proposed to increase that percentage to 75% in 2021.]

For more information refer to Note [removed: 16] [added: 17] to the consolidated financial statements included in Item 8.

At December 31, [removed: 2018,] [added: 2019,] we provided health insurance coverage under CMS contracts to approximately [removed: 3,064,000] [added: 3,587,200] individual Medicare Advantage members, including approximately [removed: 636,800] [added: 701,400] members in Florida.

These Florida contracts accounted for premiums revenue of approximately [removed: $8.2] [added: $9.5] billion, which represented approximately [removed: 23.0%] [added: 22.0%] of our individual Medicare Advantage premiums revenue, or [removed: 14.6%] [added: 15.0%] of our consolidated premiums and services revenue for the year ended December 31, [removed: 2018.][added: 2019.]

All material contracts between Humana and CMS relating to our Medicare Advantage products have been renewed for [removed: 2019,] [added: 2020,] and all of our product offerings filed with CMS for [removed: 2019] [added: 2020] have been approved.

[removed: Individual] [added: *Individual] Medicare Stand-Alone Prescription Drug [removed: Products][added: Products*]

All material contracts between Humana and CMS relating to our Medicare stand-alone PDP products have been renewed for [removed: 2019,] [added: 2020,] and all of our product offerings filed with CMS for [removed: 2019] [added: 2020] have been approved.

[removed: Group] [added: *Group] Medicare Advantage and Medicare stand-alone [removed: PDP][added: PDP*]

[added: |] State-based Medicaid [removed: Contracts][added: | | 2,898 | | | | 4.5 | % |]

[removed: Our] [added: Prior to January 1, 2020, our] Kentucky Medicaid contract [removed: is] [added: was] subject to a 100% coinsurance contract with CareSource Management Group Company, ceding all the risk to CareSource.

[removed: Our] [added: Our] Group and Specialty Segment [removed: Products][added: Products]

The following table presents our premiums and services revenue for the Group and Specialty segment by product for the year ended December 31, [removed: 2018:][added: 2019:]

| | | [removed: Group] [added: Group] and Specialty Segment Premiums and Services [removed: Revenue] [added: Revenue] | | | | [removed: Percent] [added: Percent] of Consolidated Premiums and Services [removed: Revenue] [added: Revenue] | |

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.

| Total premiums | | 56,254 | | | | 87.4 | % |

Effective January 1, 2020, we terminated the reinsurance agreement with CareSource and assumed full administration of our Kentucky Medicaid contract.

Beginning in 2021, based on new federal requirements, states are expected to strengthen Medicaid-Medicare integration requirements for D-SNPs.

| | | (dollars in millions) | | | | | |

| Total premiums | | 6,694 | | | | 10.4 | % |

| Services | | 790 | | | | 1.2 | % |

The T2017 East Region

| | | (dollars in millions) | | | | | |

We operate these clinics primarily under the Conviva, Partners in Primary Care or Family Physicians Group brands.

In February 2020, Partners in Primary Care entered into a strategic partnership with Welsh, Carson, Anderson & Stowe to open a minimum of 50 additional payor-agnostic, senior-focused primary care centers over the next three

wants.

| Florida | 701.4 | | 10.2 | | 188.6 | | 16.5 | | 460.9 | | | 145.4 | | 36.9 | | — | | 1,559.9 | | 9.4 | % |

| Texas | 285.9 | | 244.5 | | 292.3 | | 19.5 | | — | | | 140.8 | | 31.0 | | — | | 1,014.0 | | 6.1 | % |

| Kentucky | 98.0 | | 65.6 | | 201.4 | | 6.1 | | — | | | 106.6 | | 135.3 | | — | | 613.0 | | 3.7 | % |

| California | 83.9 | | 0.7 | | 436.7 | | 20.7 | | — | | | — | | — | | — | | 542.0 | | 3.3 | % |

| Georgia | 144.4 | | 2.0 | | 113.3 | | 11.4 | | — | | | 135.6 | | 71.3 | | — | | 478.0 | | 2.9 | % |

| Illinois | 126.2 | | 25.0 | | 172.0 | | 7.7 | | 8.1 | | | 36.8 | | 76.7 | | — | | 452.5 | | 2.7 | % |

| Ohio | 150.3 | | 23.3 | | 153.2 | | 42.8 | | — | | | 33.0 | | 31.4 | | — | | 434.0 | | 2.6 | % |

| Missouri/Kansas | 98.1 | | 4.8 | | 189.0 | | 12.1 | | — | | | 38.9 | | 26.0 | | — | | 368.9 | | 2.2 | % |

| North Carolina | 179.2 | | 0.4 | | 148.6 | | 6.5 | | — | | | — | | — | | — | | 334.7 | | 2.0 | % |

| Tennessee | 153.9 | | 4.9 | | 104.8 | | 7.0 | | — | | | 38.3 | | 14.0 | | — | | 322.9 | | 1.9 | % |

| Louisiana | 167.3 | | 13.8 | | 55.5 | | 3.1 | | — | | | 52.7 | | 19.4 | | — | | 311.8 | | 1.9 | % |

| Wisconsin | 63.5 | | 5.7 | | 104.6 | | 7.0 | | — | | | 65.9 | | 32.9 | | — | | 279.6 | | 1.7 | % |

| Indiana | 113.9 | | 7.1 | | 121.9 | | 10.2 | | — | | | 19.3 | | 11.8 | | — | | 284.2 | | 1.7 | % |

| Virginia | 132.2 | | 3.8 | | 139.5 | | 9.2 | | — | | | — | | — | | — | | 284.7 | | 1.7 | % |

| Michigan | 70.9 | | 18.9 | | 118.7 | | 4.7 | | — | | | 1.8 | | — | | — | | 215.0 | | 1.3 | % |

| Arizona | 92.8 | | 0.4 | | 88.0 | | 7.4 | | — | | | 21.5 | | 8.1 | | — | | 218.2 | | 1.3 | % |

| Pennsylvania | 56.6 | | 2.2 | | 139.4 | | 5.6 | | — | | | — | | — | | — | | 203.8 | | 1.1 | % |

| South Carolina | 99.4 | | 0.5 | | 59.0 | | 5.9 | | — | | | — | | — | | — | | 164.8 | | 1.0 | % |

| Military services | — | | — | | — | | — | | — | | | — | | — | | 5,984.3 | | 5,984.3 | | 35.9 | % |

| Others | 769.3 | | 91.5 | | 1,538.7 | | 95.0 | | — | | | 72.0 | | 34.4 | | — | | 2,600.9 | | 15.6 | % |

| Totals | 3,587.2 | | 525.3 | | 4,365.2 | | 298.4 | | 469.0 | | | 908.6 | | 529.2 | | 5,984.3 | | 16,667.2 | | 100.0 | % |

and facilities.

In addition to a commission based directly on premium volume for sales to particular

– Risk Factors in this 2019 Form 10-K.

Information About Our Executive Officers

Set forth below are names and ages of all of our current executive officers as of February 1, 2020, their positions, and the date first elected as an officer:

| | | | | | | | | |

| Total premiums | | 48,108 | | | | 85.3 | % |

Beginning in 2021, based on new federal requirements, D-SNPs will be required to more fully integrate Medicare and Medicaid benefits and states will have authority to require linkages to state-based traditional Medicaid and/or LTSS contracts or alternatively, allow D-SNPs to operate without a link to such state-based contracts while meeting additional coordination standards; CMS has yet to finalize regulations.

| Total premiums | | 6,803 | | | | 12.1 | % |

| Services | | 835 | | | | 1.5 | % |

We participate in the Federal Employee Health Benefits Program, or FEHBP, primarily with our HMO offering in certain markets.

FEHBP is the government’s health insurance program for Federal employees, retirees, former employees, family members, and spouses.

Transcend represents a key component of our integrated care delivery model which we believe is scalable to new markets.

| Florida | 636.8 | | 9.9 | | 234.2 | | 11.4 | | 333.4 | | | 125.7 | | 36.2 | | — | | 1,387.6 | | 8.4 | % |

| Texas | 246.9 | | 241.9 | | 305.1 | | 10.6 | | — | | | 171.6 | | 30.4 | | — | | 1,006.5 | | 6.1 | % |

| Kentucky | 89.0 | | 63.7 | | 215.6 | | 5.8 | | — | | | 112.6 | | 138.5 | | — | | 625.2 | | 3.8 | % |

| California | 70.9 | | 0.2 | | 484.4 | | 20.3 | | — | | | — | | — | | — | | 575.8 | | 3.5 | % |

| Georgia | 114.2 | | 2.2 | | 124.5 | | 11.1 | | — | | | 158.5 | | 45.2 | | — | | 455.7 | | 2.7 | % |

| Illinois | 108.7 | | 23.3 | | 185.2 | | 5.7 | | 7.7 | | | 46.0 | | 76.8 | | — | | 453.4 | | 2.7 | % |

| Ohio | 128.6 | | 22.1 | | 184.3 | | 45.8 | | — | | | 44.6 | | 27.5 | | — | | 452.9 | | 2.7 | % |

| Missouri/Kansas | 82.5 | | 4.9 | | 227.2 | | 9.1 | | — | | | 45.0 | | 17.4 | | — | | 386.1 | | 2.3 | % |

| North Carolina | 149.5 | | 0.5 | | 172.6 | | 6.0 | | — | | | — | | — | | — | | 328.6 | | 2.0 | % |

| Tennessee | 144.3 | | 4.3 | | 117.2 | | 4.9 | | — | | | 41.4 | | 12.9 | | — | | 325.0 | | 2.0 | % |

| Louisiana | 161.1 | | 12.1 | | 61.3 | | 2.2 | | — | | | 59.6 | | 13.5 | | — | | 309.8 | | 1.9 | % |

| Wisconsin | 58.7 | | 10.0 | | 121.6 | | 6.3 | | — | | | 68.7 | | 36.8 | | — | | 302.1 | | 1.8 | % |

| Indiana | 103.5 | | 6.8 | | 145.8 | | 9.0 | | — | | | 21.2 | | 12.6 | | — | | 298.9 | | 1.8 | % |

| Virginia | 121.6 | | 3.1 | | 159.1 | | 8.6 | | — | | | — | | — | | — | | 292.4 | | 1.8 | % |

| Michigan | 52.9 | | 12.9 | | 140.2 | | 3.4 | | — | | | 2.8 | | 0.4 | | — | | 212.6 | | 1.3 | % |

| Arizona | 76.0 | | 0.4 | | 97.6 | | 4.8 | | — | | | 25.0 | | 5.5 | | — | | 209.3 | | 1.3 | % |

| Pennsylvania | 46.6 | | 0.4 | | 156.2 | | 4.7 | | — | | | — | | — | | — | | 207.9 | | 1.2 | % |

| South Carolina | 87.0 | | 0.5 | | 71.3 | | 5.2 | | — | | | — | | — | | — | | 164.0 | | 1.0 | % |

| Military services | — | | — | | — | | — | | — | | | — | | — | | 5,928.6 | | 5,928.6 | | 35.8 | % |

| Others | 585.2 | | 78.6 | | 1,800.9 | | 79.4 | | — | | | 82.0 | | 28.2 | | — | | 2,654.3 | | 15.9 | % |

| Totals | 3,064.0 | | 497.8 | | 5,004.3 | | 254.3 | | 341.1 | | | 1,004.7 | | 481.9 | | 5,928.6 | | 16,576.7 | | 100.0 | % |

Committee for Quality Assurance (NCQA) to evaluate health plans based on various criteria, including effectiveness of care and member satisfaction.

All Federal Employee Health Benefit Plans are required to be accredited.

For a discussion of our material legal actions, including those not in the ordinary course of business, see “Legal Proceedings and Certain Regulatory Matters” in Note [removed: 16] [added: 17] to the consolidated financial statements included in Item 8.

[removed: UNITED STATES][added: UNITED STATES]

[removed: SECURITIES] [added: SECURITIES] AND EXCHANGE [removed: COMMISSION][added: COMMISSION]

[removed: Washington,] [added: Washington,] D.C. [removed: 20549][added: 20549]

[removed: FORM 10-K][added: FORM 10-K]

| [removed: þ] [added: ☑] | [removed: ANNUAL] [added: ANNUAL] REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF [removed: 1934] [added: 1934] |

[removed: For] [added: For] the fiscal year [removed: ended December] [added: ended December] 31, [removed: 2018][added: 2019]

| [removed: ¨] [added: ☐] | [removed: TRANSITION] [added: TRANSITION] REPORT PURSUANT TO SECTION 13 OR [removed: 15 (d)] [added: 15(d)] OF THE SECURITIES EXCHANGE ACT OF [removed: 1934] [added: 1934] |

[removed: For] [added: For] the transition period from [added: _____] to [added: _____]

[removed: Commission] [added: Commission] file [removed: number 1-5975][added: number 1-5975]

[removed: HUMANA INC.][added: HUMANA INC.]

[removed: (Exact] [added: (Exact] name of registrant as specified in its [removed: charter)][added: charter)]

| [removed: Delaware] [added: Delaware] | | [removed: 61-0647538] [added: 61-0647538] |

| (State [added: or other jurisdiction] of [removed: incorporation)] [added: incorporation of organization)] | | (I.R.S. Employer Identification [removed: Number)] [added: No.)] |

[removed: | 500] [added: 500] West Main [removed: Street Louisville, Kentucky | | 40202 |][added: Street, Louisville, Kentucky 40202]

[removed: |] (Address of principal executive [removed: offices) | | (Zip Code) |][added: offices, and zip code)]

[removed: |] Registrant’s telephone number, including area code: [removed: (502) 580-1000 Securities registered pursuant to Section 12(b) of the Act: | | |][added: (502) 580-1000]

| Title of each class | [added: Trading Symbol] | Name of exchange on which registered |

| [removed: Common] [added: Common] stock, $0.16 2/3 par [removed: value] [added: value] | [added: HUM] | [removed: New] [added: New] York Stock [removed: Exchange] [added: Exchange] |

Yes [removed: þ] [added: ☑] No [removed: ¨][added: ☐]

Yes [removed: ¨] [added: ☐] No [removed: þ][added: ☑]

See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting [removed: company,”and] [added: company,” and] "emerging growth company" in Rule 12b-2 of the Exchange Act.

[removed: Large accelerated filer þ Accelerated filer ¨] [added: |] Non-accelerated filer [removed: ¨] [added: | ☐ | |] Smaller reporting company [removed: ¨ Emerging growth company ¨][added: | ☐ |]

The aggregate market value of voting stock held by non-affiliates of the Registrant as of June 30, [removed: 2018] [added: 2019] was [removed: $41,129,697,151] [added: $35,478,894,483] calculated using the average price on June 30, [removed: 2018] [added: 2019] of [removed: $299.02.][added: $263.21.]

The number of shares outstanding of the Registrant’s Common Stock as of January 31, [removed: 2019] [added: 2020] was [removed: 135,566,909.][added: 132,106,497.]

[removed: DOCUMENTS] [added: DOCUMENTS] INCORPORATED BY [removed: REFERENCE][added: REFERENCE]

Parts II and III incorporate herein by reference portions of the Registrant’s Proxy Statement to be filed pursuant to Regulation 14A with respect to the Annual Meeting of Stockholders scheduled to be held on April [removed: 18, 2019.][added: 23, 2020.]

[removed: INDEX] [added: INDEX] TO ANNUAL REPORT ON FORM [removed: 10-K][added: 10-K]

[removed: For] [added: For] the Year [removed: Ended December] [added: Ended December] 31, [removed: 2018][added: 2019]

| | | [removed: Page] [added: Page] |

| | [removed: Part I] [added: Part I] | |

| Item 1A. | [Risk [removed: Factors](#sAB83E1DF5BE95FB887AA0872788BFE73)] [added: Factors](#sF7C1C7184E1B53318D99BB5B66E6AD54)] | [removed: [17](#s222C8856D2245F15A34DD32C6EF968BB)] [added: [19](#sD7387A110D835EB3A8DE840B4760E87D)] |

| Item 1B. | [Unresolved Staff [removed: Comments](#s991A2E4B5D155EE898C4DC00483ECEAB)] [added: Comments](#s21584603CEB459AFAEF73D62FFE648FA)] | [removed: [31](#s126528BFBE1252E6BA4123484A4F33C5)] [added: [33](#s187500FCD85753A98EF5DE773E51D7EE)] |

| Item 3. | [Legal [removed: Proceedings](#sBE2DC5A1CF605BE3BE24698FAAA3C23A)] [added: Proceedings](#s045A029CF0175209B4EA6F3918DD12D5)] | [removed: [33](#s7DB69941FBEB54DD83020E2FA4139F60)] [added: [34](#s4F3A829ADE0353F7842291C494ACDAE3)] |

| Item 4. | [Mine Safety [removed: Disclosures](#sEEC7CDA2C6895EDF849356E086C44E7B)] [added: Disclosures](#sF96B03ED896150C09A6E59156FE50974)] | [removed: [33](#sD3992F3DD5115021A3E28BE529233254)] [added: [34](#sBA14A2056E5F59FFB08B937358F87641)] |

| | [removed: Part II] [added: Part II] | |

| Item 5. | [Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity [removed: Securities](#s9252392D54C0594891985B802016C32E)] [added: Securities](#s6FBBFA33A6D85C28AB51D63A9A49D0B5)] | [removed: [34](#sDDE0B919CF4B567E98C728C715407BE0)] [added: [35](#sE1660FD168DA56A7A212AD89FB735BAF)] |

| Item 6. | [Selected Financial [removed: Data](#s9C6D9A08A6335BD58C1E77E9C1D5810E)] [added: Data](#s1FAC270D1668567881012151031FEEDA)] | [removed: [37](#s0058A93651A05CBFAB79C152CD89566A)] [added: [38](#s46668A53F53153FE8C34D483C9649B25)] |

| Item 7. | [Management’s Discussion and Analysis of Financial Condition and Results of [removed: Operations](#sC46146A036DB5B0F919BE11CD8F4020A)] [added: Operations](#sD6AB944F215E5D6DB6D820C56BDA2397)] | [removed: [38](#s814A7778A84B54BA86DF5FCE79C7644D)] [added: [39](#s9F6AD361A45A526BAAD2E11E3A030D75)] |

| Item 7A. | [Quantitative and Qualitative Disclosures about Market [removed: Risk](#s39683DE7C5D85CE49537D426031CFFB6)] [added: Risk](#sEEB670F2BAE35EAE965FFBEB178A7E4F)] | [removed: [76](#s543A5FE66C335A15B66785AB2A033FFB)] [added: [65](#s29BABD2E3D4D56139457490FFD064F14)] |

| Item 8. | [Financial Statements and Supplementary [removed: Data](#s52E0C752A8F05D988AB1D8160F888AE6)] [added: Data](#sC30898D8EBF258998C70288116857FAB)] | [removed: [78](#s8780C177DEC751B29E12B79305EB65D3)] [added: [67](#sC7ACDCBE169153D0B89BF7A445E6610B)] |

or

Securities registered pursuant to Section 12(b) of the Act:

Yes ☑ No ☐

Yes ☑ No ☐

| | | | | |

| --- | --- | --- | --- | --- |

| | | | | |

| Large accelerated filer | ☑ | | Accelerated filer | ☐ |

| | | | Emerging growth company | ☐ |

Yes ☐ No ☑

HUMANA INC.

| --- | --- | --- |

| Item 1. | [Business](#sF09F560EC5A454AB827B5ECE9580DEFA) | [3](#sD78C502D1EF851638C335033093FE8F4) |

| Item 2. | [Properties](#sE6FA4F5B83C655BA8798445A6F9122F4) | [33](#s331296F1F86D51AEA4F0CD3BB2E071FD) |

| | [Signatures and Certifications](#s3AF54993160E5FAAB6ACC55E54FA7E60) | [142](#sE46514307F665B30A4A63F01AF048605) |

10-K 1 hum-20181231x10k.htm 10-K

OR

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.

| Item 1. | [Business](#s40DBD607DE605EAFB05450045DCB2E62) | [3](#s634F0C6425BF5D48899968A7AFF9D93A) |

| Item 2. | [Properties](#s9141DBDC89CE5B1FAEA5F0ADA75E6074) | [32](#s0CA4B0F9924050E4ADFE9384656CF886) |

| | [Signatures and Certifications](#s8ED78762B1155F73AFC65CB7AEC1D822) | [156](#s56F8B60FCF255156B79C2658F835B2A8) |

[removed: The following table lists, by state, the number of] [added: We owned or leased numerous] medical centers and administrative offices [removed: we owned or leased] at December 31, [removed: 2018:][added: 2019.]

Of [removed: the] [added: these] medical [removed: centers included in the table above,] [added: centers,] approximately [removed: 44] [added: 185] of these facilities are leased or subleased to our contracted providers to operate.

| | | | | | | | | | | | | | | |

| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |

| | Medical Centers | | | | | | Administrative Offices | | | | | | | |

| | Owned | | | Leased | | | Owned | | | Leased | | | Total | |

| Florida | 13 | | | 207 | | | — | | | 69 | | | 289 | |

| Texas | 1 | | | 17 | | | 2 | | | 14 | | | 34 | |

| Kentucky | 2 | | | 3 | | | 15 | | | 12 | | | 32 | |

| Arizona | — | | | 17 | | | — | | | 6 | | | 23 | |

| Louisiana | — | | | 6 | | | — | | | 10 | | | 16 | |

| Virginia | — | | | 8 | | | — | | | 7 | | | 15 | |

| Illinois | — | | | 5 | | | — | | | 10 | | | 15 | |

| California | — | | | 2 | | | — | | | 12 | | | 14 | |

| Ohio | — | | | 1 | | | — | | | 13 | | | 14 | |

| South Carolina | — | | | 6 | | | — | | | 6 | | | 12 | |

| New York | — | | | — | | | — | | | 13 | | | 13 | |

| Nevada | — | | | 7 | | | — | | | 5 | | | 12 | |

| Puerto Rico | — | | | 1 | | | — | | | 10 | | | 11 | |

| Indiana | — | | | 5 | | | — | | | 5 | | | 10 | |

| Georgia | — | | | 8 | | | — | | | 3 | | | 11 | |

| Washington | — | | | 7 | | | — | | | 4 | | | 11 | |

| Tennessee | — | | | — | | | — | | | 9 | | | 9 | |

| New Jersey | — | | | — | | | — | | | 9 | | | 9 | |

| Colorado | — | | | 5 | | | — | | | 3 | | | 8 | |

| Michigan | — | | | 5 | | | — | | | 3 | | | 8 | |

| North Carolina | — | | | 2 | | | — | | | 4 | | | 6 | |

| Others | — | | | 9 | | | 1 | | | 38 | | | 48 | |

| Total | 16 | | | 321 | | | 18 | | | 265 | | | 620 | |

[removed: PART II][added: PART II]

[removed: Market Information][added: Market Information]

[removed: Holders] [added: Holders] of our Capital [removed: Stock][added: Stock]

As of January 31, [removed: 2019,] [added: 2020,] there were [removed: approximately 2,300] [added: 2,100] holders of record of our common stock and [removed: approximately 244,700] [added: 229,470] beneficial holders of our common stock.

[removed: Dividends][added: Dividends]

The following table provides details of dividend payments, excluding dividend equivalent rights, in [removed: 2017] [added: 2018] and [removed: 2018,] [added: 2019,] under our Board approved quarterly cash dividend policy:

| [removed: Record Date] [added: Record Date] | | [removed: Payment Date] [added: Payment Date] | | [removed: Amount per Share] [added: Amount per Share] | | [removed: Total Amount] [added: Total Amount] |

| | | | | | | [removed: (in millions)] [added: (in millions)] |

| [removed: 2018 payments] [added: 2018 payments] | | | | | | |

On [removed: November 2, 2018,] [added: October 24, 2019,] the Board declared a cash dividend of [removed: $0.50] [added: $0.55] per share that was paid on January [removed: 25, 2019] [added: 31, 2020] to stockholders of record on December 31, [removed: 2018,] [added: 2019,] for an aggregate amount of [removed: $68] [added: $73] million.

In February [removed: 2019,] [added: 2020,] the Board declared a cash dividend of [removed: $0.55] [added: $0.625] per share payable on April [removed: 26, 2019] [added: 24, 2020] to stockholders of record on March [removed: 29, 2019.][added: 31, 2020.]

[removed: Stock] [added: Stock] Total Return [removed: Performance][added: Performance]

The following graph compares our total return to stockholders with the returns of the Standard & Poor’s Composite 500 Index (“S&P 500”) and the Dow Jones US Select Health Care Providers Index (“Peer Group”) for the five years ended December 31, [removed: 2018.][added: 2019.]

The graph assumes an investment of $100 in each of our common stock, the S&P 500, and the Peer Group on December 31, [removed: 2013,] [added: 2014,] and that dividends were reinvested when paid.

[removed: ][added: ]

| | [removed: 12/31/2013] [added: 12/31/2014] | | | | [removed: 12/31/2014] [added: 12/31/2015] | | | | [removed: 12/31/2015] [added: 12/31/2016] | | | | [removed: 12/31/2016] [added: 12/31/2017] | | | | [removed: 12/31/2017] [added: 12/31/2018] | | | | [removed: 12/31/2018] [added: 12/31/2019] | | |

[removed: The] [added: *The] stock price performance included in this graph is not necessarily indicative of future stock price [removed: performance.][added: performance.*]

[removed: Issuer] [added: Issuer] Purchases of Equity [removed: Securities][added: Securities]

The following table provides information about purchases by us during the three months ended December 31, [removed: 2018] [added: 2019] of equity securities that are registered by us pursuant to Section 12 of the Exchange Act:

| [removed: Period] [added: Period] | [removed: Total] [added: Total] Number of Shares Purchased [removed: (1)] [added: (1)] | | | [removed: Average] [added: Average] Price Paid per [removed: Share] [added: Share] | | | | [removed: Total] [added: Total] Number of Shares Purchased as Part of Publicly Announced Plans or Programs [removed: (1)(2)] [added: (1)(2)] | | | [removed: Dollar] [added: Dollar] Value of Shares that May Yet Be Purchased Under the Plans or Programs (1) [removed: (2)] [added: (2)] | | |

| (2) | Excludes [removed: 0.15] [added: 0.2] million shares repurchased in connection with employee stock plans. |

| 2019 payments | | | | | | |

| 12/31/2018 | | 1/25/2019 | | $0.50 | | $68 |

| 3/29/2019 | | 4/26/2019 | | $0.55 | | $74 |

| 6/28/2019 | | 7/26/2019 | | $0.55 | | $74 |

| 9/30/2019 | | 10/25/2019 | | $0.55 | | $73 |

| HUM | $ | 100 | | | $ | 125 | | | $ | 144 | | | $ | 177 | | | $ | 205 | | | $ | 265 | |

| S&P 500 | $ | 100 | | | $ | 101 | | | $ | 113 | | | $ | 138 | | | $ | 132 | | | $ | 174 | |

| Peer Group | $ | 100 | | | $ | 106 | | | $ | 107 | | | $ | 135 | | | $ | 149 | | | $ | 183 | |

| October 2019 | — | | | $ | — | | | — | | | $ | 2,000,000,000 | |

| November 2019 | — | | | — | | | | — | | | 2,000,000,000 | | |

| December 2019 | — | | | — | | | | — | | | 2,000,000,000 | | |

| Total | — | | | $ | — | | | — | | | | | |

| (1) | On July 31, 2019, we entered into an accelerated stock repurchase agreement, the July 2019 ASR, with Citibank, N.A., or Citi, to repurchase $1 billion of our common stock. On August 2, 2019, we made a payment of $1 billion to Citi and received an initial delivery of 2.7 million shares of our common stock. We recorded the payment to Citi as a reduction to stockholders’ equity, consisting of an $800 million increase in treasury stock, which reflected the value of the initial 2.7 million shares received upon initial settlement, and a $200 million decrease in capital in excess of par value, which reflected the value of stock held back by Citi pending final settlement of the July 2019 ASR. Upon final settlement of the July 2019 ASR on December 26, 2019, we received an additional 0.7 million shares as determined by the average daily volume weighted-averages share price of our common stock during the term of the agreement, less a discount, of $296.19, bringing the total shares received under the July 2019 ASR to 3.4 million. In addition, upon settlement we reclassified the $200 million value of stock initially held back by Citi from capital in excess of par value to treasury stock. |

| 2017 payments | | | | | | |

| 1/12/2017 | | 1/27/2017 | | $0.29 | | $43 |

| 3/31/2017 | | 4/28/2017 | | $0.40 | | $58 |

| 6/30/2017 | | 7/31/2017 | | $0.40 | | $58 |

| 9/29/2017 | | 10/27/2017 | | $0.40 | | $57 |

| HUM | $ | 100 | | | $ | 140 | | | $ | 176 | | | $ | 202 | | | $ | 247 | | | $ | 287 | |

| S&P 500 | $ | 100 | | | $ | 114 | | | $ | 115 | | | $ | 129 | | | $ | 157 | | | $ | 150 | |

| Peer Group | $ | 100 | | | $ | 128 | | | $ | 135 | | | $ | 137 | | | $ | 173 | | | $ | 191 | |

| October 2018 | — | | | $ | — | | | — | | | $ | 1,776,354,011 | |

| November 2018 | 1,937,797 | | | 309.63 | | | | 1,937,797 | | | 1,176,354,010 | | |

| December 2018 | — | | | — | | | | — | | | 1,176,354,010 | | |

| Total | 1,937,797 | | | $ | 309.63 | | | 1,937,797 | | | | | |

| (1) | On December 14, 2017, our Board of Directors authorized the repurchase of up to $3.0 billion of our common shares expiring on December 31, 2020, exclusive of shares repurchased in connection with employee stock plans. Under the share repurchase authorization, shares may be purchased from time to time at prevailing prices in the open market, by block purchases, through plans designed to comply with Rule 10b5-1 under the Securities Exchange Act of 1934, as amended, or in privately-negotiated transactions, including pursuant to accelerated share repurchase agreements with investment banks, subject to certain regulatory restrictions on volume, pricing, and timing. On November 28, 2018, we entered into an accelerated stock repurchase agreement, the November 2018 ASR, with Goldman, Sachs & Co. LLC, or Goldman Sachs, to repurchase $750 million of our common stock as part of the $3.0 billion share repurchase program authorized by the Board of Directors on December 14, 2017. On November 29, 2018, we made a payment of $750 million to Goldman Sachs from available cash on hand and received an initial delivery of 1.94 million shares of our common stock from Goldman Sachs. The payment to Goldman Sachs was recorded as a reduction to stockholders’ equity, consisting of an $600 million increase in treasury stock, which reflects the value of the initial 1.94 million shares received upon initial settlement, and a $150 million decrease in capital in excess of par value, which reflected the value of stock held back by Goldman Sachs pending final settlement of the November 2018 ASR. Our remaining repurchase authorization was approximately $1,176 million as of February 21, 2019, excluding the $150 million pending final settlement of our November 2018 ASR. |

| | [removed: 2018] [added: 2019] | | | | [removed: 2017] [added: 2018] | | | | [removed: 2016 (a)] [added: 2017 (a)] | | | | [removed: 2015] [added: 2016 (b)] | | | | [removed: 2014] [added: 2015] | | |

| | [removed: (dollars] [added: (dollars] in millions, except per common share [removed: results)] [added: results)] | | | | | | | | | | | | | | | | | | |

| [removed: Summary] [added: Summary] of Operating [removed: Results:] [added: Results] | | | | | | | | | | | | | | | | | | | |

| Total revenues | [removed: 56,912] [added: $] | [added: 64,888] | | | [removed: 53,767] [added: $] | [added: 56,912] | | | [removed: 54,379] [added: $] | [added: 53,767] | | | [removed: 54,289] [added: $] | [added: 54,379] | | | [removed: 48,500] [added: $] | [added: 54,289] | |

| Income from operations | [removed: 3,100] [added: 3,192] | | | | [removed: 4,262] [added: 3,100] | | | | [removed: 1,741] [added: 4,262] | | | | [removed: 2,347] [added: 1,741] | | | | [removed: 2,362] [added: 2,347] | | |

| Loss (gain) on [removed: sale] [added: Sale] of [removed: business] [added: Business] | [removed: 786] [added: —] | | | | [removed: —] [added: 786] | | | | — | | | | [removed: (270] [added: —] | | [removed: )] | | [removed: —] [added: (270] | | [added: )] |

| Interest expense | [removed: 218] [added: 242] | | | | [removed: 242] [added: 218] | | | | [removed: 189] [added: 242] | | | | [removed: 186] [added: 189] | | | | [removed: 192] [added: 186] | | |

| Other [added: (income)] expense, net | [removed: 33] [added: (506] | | [added: )] | | [removed: —] [added: 33] | | | | — | | | | — | | | | — | | |

| Income before income taxes and equity in net earnings | [removed: 2,063] [added: 3,456] | | | | [removed: 4,020] [added: 2,063] | | | | [removed: 1,552] [added: 4,020] | | | | [removed: 2,431] [added: 1,552] | | | | [removed: 2,170] [added: 2,431] | | |

| Provision for income taxes | [removed: 391] [added: 763] | | | | [removed: 1,572] [added: 391] | | | | [removed: 938] [added: 1,572] | | | | [removed: 1,155] [added: 938] | | | | [removed: 1,023] [added: 1,155] | | |

| Equity in net earnings of Kindred at Home | [removed: 11] [added: 14] | | | | [removed: —] [added: 11] | | | | — | | | | — | | | | — | | |

| Net income | $ | [removed: 1,683] [added: 2,707] | | | $ | [removed: 2,448] [added: 1,683] | | | $ | [removed: 614] [added: 2,448] | | | $ | [removed: 1,276] [added: 614] | | | $ | [removed: 1,147] [added: 1,276] | |

| Basic earnings per common share | $ | [removed: 12.24] [added: 20.20] | | | $ | [removed: 16.94] [added: 12.24] | | | $ | [removed: 4.11] [added: 16.94] | | | $ | [removed: 8.54] [added: 4.11] | | | $ | [removed: 7.44] [added: 8.54] | |

| Diluted earnings per common share | $ | [removed: 12.16] [added: 20.10] | | | $ | [removed: 16.81] [added: 12.16] | | | $ | [removed: 4.07] [added: 16.81] | | | $ | [removed: 8.44] [added: 4.07] | | | $ | [removed: 7.36] [added: 8.44] | |

| Dividends declared per common share | $ | [removed: 2.00] [added: 2.20] | | | $ | [removed: 1.60] [added: 2.00] | | | $ | [removed: 1.16] [added: 1.60] | | | $ | [removed: 1.15] [added: 1.16] | | | $ | [removed: 1.11] [added: 1.15] | |

| [removed: Financial Position:] [added: Financial Position] | | | | | | | | | | | | | | | | | | | |

| Cash and investments | $ | [removed: 12,780] [added: 15,432] | | | $ | [removed: 16,344] [added: 12,780] | | | $ | [removed: 13,675] [added: 16,344] | | | $ | [removed: 11,681] [added: 13,675] | | | $ | [removed: 11,482] [added: 11,681] | |

| Total assets | [removed: 25,413] [added: 29,074] | | | | [removed: 27,178] [added: 25,413] | | | | [removed: 25,396] [added: 27,178] | | | | [removed: 24,678] [added: 25,396] | | | | [removed: 23,497] [added: 24,678] | | |

| Benefits payable | [removed: 4,862] [added: 6,004] | | | | [removed: 4,668] [added: 4,862] | | | | [removed: 4,563] [added: 4,668] | | | | [removed: 4,976] [added: 4,563] | | | | [removed: 4,475] [added: 4,976] | | |

| Debt | [removed: 6,069] [added: 5,666] | | | | [removed: 4,920] [added: 6,069] | | | | [removed: 4,092] [added: 4,920] | | | | [removed: 4,093] [added: 4,092] | | | | [removed: 3,795] [added: 4,093] | | |

| Stockholders’ equity | [removed: 10,161] [added: 12,037] | | | | [removed: 9,842] [added: 10,161] | | | | [removed: 10,685] [added: 9,842] | | | | [removed: 10,346] [added: 10,685] | | | | [removed: 9,646] [added: 10,346] | | |

| [removed: Cash] [added: Cash] flows from [removed: operations] [added: operations] | $ | [removed: 2,173] [added: 5,284] | | | $ | [removed: 4,051] [added: 2,173] | | | $ | [removed: 1,936] [added: 4,051] | | | $ | [removed: 868] [added: 1,936] | | | $ | [removed: 1,618] [added: 868] | |

| [removed: Key] [added: Key] Financial [removed: Indicators:] [added: Indicators] | | | | | | | | | | | | | | | | | | | |

| Benefit ratio | [removed: 83.5] [added: 85.6] | | % | | [removed: 83.0] [added: 83.5] | | % | | [removed: 84.9] [added: 83.0] | | % | | [removed: 84.5] [added: 84.9] | | % | | [removed: 83.0] [added: 84.5] | | % |

| Operating cost ratio | [removed: 13.3] [added: 11.5] | | % | | [removed: 12.3] [added: 13.3] | | % | | [removed: 13.3] [added: 12.3] | | % | | [removed: 13.6] [added: 13.3] | | % | | [removed: 15.9] [added: 13.6] | | % |

| [removed: Membership by Segment:] [added: Membership] | | | | | | | | | | | | | | | | | | | |

| [removed: Specialty] [added: Total specialty] membership | [removed: 6,072,300] [added: 5,425,900] | | | | [removed: 6,986,000] [added: 6,072,300] | | | | [removed: 6,961,200] [added: 6,986,000] | | | | [removed: 7,221,800] [added: 6,961,200] | | | | [removed: 7,668,500] [added: 7,221,800] | | |

| Total medical membership | [removed: 16,576,700] [added: 16,667,200] | | | | [removed: 14,003,100] [added: 16,576,700] | | | | [removed: 14,230,200] [added: 14,003,100] | | | | [removed: 14,222,800] [added: 14,230,200] | | | | [removed: 13,841,700] [added: 14,222,800] | | |

| [removed: (a)] [added: (b)] | Includes a reduction in premiums revenue of $583 million ($367 million after tax, or $2.43 per diluted common share) associated with the write-off of commercial risk corridor receivables. Also includes benefits expense of $505 million ($318 million after tax, or $2.11 per diluted common share) for reserve strengthening associated with our non-strategic closed block of long-term care insurance policies, which were sold in 2018. |

| (a) | Included in operating expenses is $936 million (or $4.31 per diluted common stock) associated with the merger termination fee and related costs, net. Under the terms of the Agreement and Plan of Merger with Aetna Inc., and certain wholly owned subsidiaries of Aetna Inc., which we collectively refer to as Aetna, we received a breakup fee of $1 billion from Aetna included in this amount. |

| | |

| --- | --- |

| Revenues: | | | | | | | | | | | | | | | | | | | |

| Premiums | $ | 54,941 | | | $ | 52,380 | | | $ | 53,021 | | | $ | 52,409 | | | $ | 45,959 | |

| Services | 1,457 | | | | 982 | | | | 969 | | | | 1,406 | | | | 2,164 | | |

| Investment income | 514 | | | | 405 | | | | 389 | | | | 474 | | | | 377 | | |

| Operating expenses: | | | | | | | | | | | | | | | | | | | |

| Benefits | 45,882 | | | | 43,496 | | | | 45,007 | | | | 44,269 | | | | 38,166 | | |

| Operating costs | 7,525 | | | | 6,567 | | | | 7,173 | | | | 7,295 | | | | 7,639 | | |

| Merger termination fee and related costs, net | — | | | | (936 | | ) | | 104 | | | | 23 | | | | — | | |

| Depreciation and amortization | 405 | | | | 378 | | | | 354 | | | | 355 | | | | 333 | | |

| Total operating expenses | 53,812 | | | | 49,505 | | | | 52,638 | | | | 51,942 | | | | 46,138 | | |

| Retail segment: | | | | | | | | | | | | | | | | | | | |

| Medical membership | 9,161,500 | | | | 9,206,300 | | | | 8,751,300 | | | | 8,327,700 | | | | 7,360,300 | | |

| Group and Specialty segment: | | | | | | | | | | | | | | | | | | | |

| Medical membership | 7,415,200 | | | | 4,638,200 | | | | 4,793,300 | | | | 4,963,400 | | | | 5,430,200 | | |

| Individual commercial segment: | | | | | | | | | | | | | | | | | | | |

| Medical membership | — | | | | 128,800 | | | | 654,800 | | | | 899,100 | | | | 1,016,200 | | |

| Other Businesses: | | | | | | | | | | | | | | | | | | | |

| Medical membership | — | | | | 29,800 | | | | 30,800 | | | | 32,600 | | | | 35,000 | | |

| Consolidated: | | | | | | | | | | | | | | | | | | | |

| Total specialty membership | 6,072,300 | | | | 6,986,000 | | | | 6,961,200 | | | | 7,221,800 | | | | 7,668,500 | | |

[removed: Humana Inc.][added: Humana Inc.]

[removed: CONSOLIDATED] [added: CONSOLIDATED] BALANCE [removed: SHEETS][added: SHEETS]

| | [removed: December 31,] [added: December 31,] | | | | | | |

| | [removed: 2018] [added: 2018] | | | | [removed: 2017] [added: 2017] | | |

| | [removed: (in] [added: (in] millions, [removed: except share amounts)] [added: except share amounts)] | | | | | | |

| [removed: ASSETS] [added: ASSETS] | | | | | | | |

| Cash and cash equivalents | $ | [removed: 2,343] [added: 4,054] | | | $ | [removed: 4,042] [added: 2,343] | |

| Investment securities | [removed: 10,026] [added: 10,972] | | | | [removed: 9,557] [added: 10,026] | | |

| Receivables, less allowance for doubtful accounts of [removed: $79] [added: $69] in [removed: 2018] [added: 2019] and [removed: $96] [added: $79] in [removed: 2017] [added: 2018] | [removed: 1,015] [added: 1,056] | | | | [removed: 854] [added: 1,015] | | |

| Other current assets | [removed: 3,564] [added: 3,806] | | | | [removed: 2,949] [added: 3,564] | | |

| Total current assets | [removed: 16,948] [added: 19,888] | | | | [removed: 17,402] [added: 16,948] | | |

| Property and equipment, net | [removed: 1,735] [added: 1,955] | | | | [removed: 1,584] [added: 1,735] | | |

| Long-term investment securities | [removed: 411] [added: 406] | | | | [removed: 2,745] [added: 411] | | |

| Equity method investment in Kindred at Home | [removed: 1,047] [added: 1,063] | | | | [removed: —] [added: 1,047] | | |

| Goodwill | [removed: 3,897] [added: 3,928] | | | | [removed: 3,281] [added: 3,897] | | |

| Other long-term assets | [removed: 1,375] [added: 1,834] | | | | [removed: 2,166] [added: 1,375] | | |

| Total assets | $ | [removed: 25,413] [added: 29,074] | | | $ | [removed: 27,178] [added: 25,413] | |

| [removed: LIABILITIES] [added: LIABILITIES] AND STOCKHOLDERS’ [removed: EQUITY] [added: EQUITY] | | | | | | | |

| Benefits payable | $ | [removed: 4,862] [added: 6,004] | | | $ | [removed: 4,668] [added: 4,862] | |

| Trade accounts payable and accrued expenses | [removed: 3,067] [added: 3,754] | | | | [removed: 4,069] [added: 3,067] | | |

| Book overdraft | [removed: 171] [added: 225] | | | | [removed: 141] [added: 171] | | |

| Unearned revenues | [removed: 283] [added: 247] | | | | [removed: 378] [added: 283] | | |

| Short-term debt | [removed: 1,694] [added: 699] | | | | [removed: 150] [added: 1,694] | | |

| Total current liabilities | [removed: 10,077] [added: 10,929] | | | | [removed: 9,406] [added: 10,077] | | |

| Long-term debt | [removed: 4,375] [added: 4,967] | | | | [removed: 4,770] [added: 4,375] | | |

| Future policy benefits payable | [removed: 219] [added: 206] | | | | [removed: 2,923] [added: 219] | | |

| Other long-term liabilities | [removed: 581] [added: 935] | | | | [removed: 237] [added: 581] | | |

| Total liabilities | [removed: 15,252] [added: 17,037] | | | | [removed: 17,336] [added: 15,252] | | |

| Commitments and contingencies (Note [removed: 16)] [added: 17)] | | | | | | | |

| Common stock, $0.16 2/3 par; 300,000,000 shares authorized; [removed: 198,594,841] [added: 198,629,992] shares issued at December 31, [removed: 2018] [added: 2019] and [removed: 198,572,458] [added: 198,594,841] shares issued at December 31, [removed: 2017] [added: 2018] | 33 | | | | 33 | | |

| Capital in excess of par value | [removed: 2,535] [added: 2,820] | | | | [removed: 2,445] [added: 2,535] | | |

| Retained earnings | [removed: 15,072] [added: 17,483] | | | | [removed: 13,670] [added: 15,072] | | |

| Accumulated other comprehensive [removed: (loss)] income [added: (loss)] | [removed: (159] [added: 156] | | [removed: )] | | [removed: 19] [added: (159] | | [added: )] |

| Treasury stock, at cost, [removed: 63,028,169] [added: 66,524,771] shares at December 31, [removed: 2018] [added: 2019] and [removed: 60,893,762] [added: 63,028,169] shares at December 31, [removed: 2017] [added: 2018] | [removed: (7,320] [added: (8,455] | | ) | | [removed: (6,325] [added: (7,320] | | ) |

| Total stockholders’ equity | [removed: 10,161] [added: 12,037] | | | | [removed: 9,842] [added: 10,161] | | |

| Total liabilities and stockholders’ equity | $ | [removed: 25,413] [added: 29,074] | | | $ | [removed: 27,178] [added: 25,413] | |

[removed: CONSOLIDATED] [added: CONSOLIDATED] STATEMENTS OF [removed: INCOME][added: INCOME]

| | [removed: For] [added: For] the year ended December [removed: 31,] [added: 31,] | | | | | | | | | | |

| | [removed: 2018] [added: 2019] | | | | [removed: 2017] [added: 2018] | | | | [removed: 2016] [added: 2017] | | |

| | [removed: (in] [added: (in] millions, except per share [removed: results)] [added: results)] | | | | | | | | | | |

Humana Inc.

Humana Inc.

| | For the year ended December 31, | | | | | | | | | | |

| Net income | $ | 2,707 | | | $ | 1,683 | | | $ | 2,448 | |

Humana Inc.

| Other comprehensive income | | | | | | | | | | | | | | | | 315 | | | | | | | | 315 | | |

| Common stock repurchases | | | | | | | | 150 | | | | | | | | | | | | (1,220 | | ) | | (1,070 | | ) |

| Stock-based compensation | | | | | | | | 163 | | | | | | | | | | | | | | | | 163 | | |

| Balances, December 31, 2019 | 198,630 | | | $ | 33 | | | $ | 2,820 | | | $ | 17,483 | | | $ | 156 | | | $ | (8,455 | ) | | $ | 12,037 | |

Humana Inc.

| | For the year ended December 31, | | | | | | | | | | |

| Net income | $ | 2,707 | | | $ | 1,683 | | | $ | 2,448 | |

| Receivables | (32 | | ) | | (164 | | ) | | 426 | | |

Humana Inc.

| | For the year ended December 31, | | | | | | | | | | |

Humana Inc.

1.

2.

As a result, we recorded charges of $47 million in 2019 and $148 million in 2017.

The remaining 2019 workforce optimization obligation was $45 million as of December 31, 2019.

Humana Inc.

The Further Consolidated Appropriations Act, 2020, enacted on December 20, 2019, permanently repealed the health insurance industry fee beginning in calendar year 2021.

In the event of a credit loss,

Humana Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Humana Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Humana Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

For 2019, health care cost payments of approximately $6.5 billion exceeded reimbursements of approximately $6.4 billion by $63 million.

Humana Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Humana Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Our clinical and provider reporting units primarily provide services to our Retail members.

A significant increase in the discount rate, decrease in the long-term growth rate, or substantial reductions in our underlying cash flow assumptions, including revenue growth rates, medical and operating cost trends, and projected operating income, could have a negative impact on the estimated fair value of these reporting units.

The clinical reporting unit had a fair value of $544 million which exceeded its carrying value of $533 million by $11 million or 2%.

If the discount rate increased 100 basis points, then the clinical reporting unit would incur an impairment loss of approximately $62 million.

The provider reporting unit had a fair value of $2.3 billion which exceeded its carrying value of $1.3 billion by $1.0 billion or 78%.

The provider reporting unit estimate of fair value relies on multiple assumptions regarding the underlying long-term cash flows, any one of which may be significantly impacted by future changes in estimates and may negatively impact fair value.

| | | | | | | | | | | | |

| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |

| Balances, January 1, 2016 | 198,372 | | | $ | 33 | | | $ | 2,530 | | | $ | 11,017 | | | $ | 58 | | | $ | (3,292 | ) | | $ | 10,346 | |

| Other comprehensive loss | | | | | | | | | | | | | | | | (124 | | ) | | | | | | (124 | | ) |

| Stock option and restricted stock tax benefit | | | | | | | | 2 | | | | | | | | | | | | | | | | 2 | | |

| Provision for doubtful accounts | 36 | | | | 20 | | | | 39 | | |

| Receivables | (200 | | ) | | 406 | | | | (158 | | ) |

1.

2.

As a result, in 2017 we recorded charges of $148 million, or $0.64 per diluted common share.

At December 31, 2017, $140 million was classified as a current liability, included in our consolidated balance sheet in the trade accounts payable and accrued expenses line.

In 2016, we paid the federal government $916 million for the annual health insurance industry fee attributed to calendar year 2016.

credit enhancements.

Low-income cost subsidies represent

For 2017, health care cost reimbursements and payments were each approximately $3.4 billion, with reimbursements exceeding payments by $11 million for the year.

For 2016, health care cost reimbursements and payments were each approximately $3.3 billion with payments exceeding reimbursements by $25 million for the year.

As a result, we defer policy acquisition costs, primarily consisting of commissions, and amortize them over the estimated life of the policies in proportion to premiums earned.

See Note 18.

Losses are

The margin on the clinical reporting unit would decline to less than 10% after factoring in a 100 basis point increase in the discount rate.

The provider reporting unit, while not falling beneath this threshold, was closer than any of our other reporting units.

In 2016, we increased our existing $176 million premium deficiency reserve for our individual commercial medical business compliant with the Health Care Reform Law associated with the 2016 coverage year by $208 million.

During 2016, the $384 million current period losses were applied to the premium deficiency liability for the 2016 coverage year.

During 2016, we recorded a loss for a premium deficiency as discussed further in Note 18.

In addition, as previously underwritten members transition to plans compliant with the Health Care Reform Law, it results in policy lapses and the release of reserves for future policy benefits.

exchange-traded instruments as well as debt securities whose value is determined using a pricing model with inputs that are observable in the market or can be derived principally from or corroborated by observable market data.

In May 2014, the Financial Accounting Standards Board, or FASB, issued new guidance that amends the accounting for revenue recognition.

The amendments are intended to provide a more robust framework for addressing revenue issues, improve comparability of revenue recognition practices, and improve disclosure requirements.

Insurance contracts are not included in the scope of this new guidance.

Accordingly, our premiums revenue and investment income, collectively representing approximately 97% of our consolidated external revenues for the year ended December 31, 2018, are not included in the scope of the new guidance.

As the majority of our revenues are not subject to the new guidance and the remaining revenues’ accounting treatment did not materially differ from pre-existing accounting treatment, the adoption of the new standard did not have a material impact on our consolidated results of operations, financial condition, cash flows, or related disclosures.

We elected the package of practical expedients permitted under the transition guidance within the new standard, which among other things, allows us to carryforward the historical lease classification without restating comparative prior periods.

The adoption of the standard resulted in recognition of additional lease assets and lease liabilities of

approximately $470 million as of January 1, 2019.

This guidance will not have a material impact on our results of operations, financial condition or cash flows.

3.

Acquisition of a 40% Minority Interest in Kindred’s Homecare Business

On July 2, 2018, we completed the acquisition of a 40% minority interest in the Kindred at Home Division, or Kindred at Home, of Kindred Healthcare, Inc., or Kindred, for cash consideration of approximately $850 million.

TPG Capital, or TPG, and Welsh, Carson, Anderson & Stowe, or WCAS, collectively, the Sponsors, along with us jointly created a consortium to purchase all of the outstanding and issued securities of Kindred.

Immediately following the closing of that transaction, Kindred at Home and the Specialty Hospital company were separated, with the result being that the Long Term Acute Care and Rehabilitation businesses (the Specialty Hospital Company) are owned by the Sponsors and Kindred at Home is owned by a joint venture owned by the Sponsors and us.

[removed: Management’s] [added: Management’s] Responsibility for Financial Statements and Other [removed: Information][added: Information]

[removed: Evaluation] [added: Evaluation] of Disclosure Controls and [removed: Procedures][added: Procedures]

Based on our evaluation as of December 31, [removed: 2018,] [added: 2019,] we as the principal executive officer, the principal financial officer and the principal accounting officer of the Company have concluded that the Company’s disclosure controls and procedures (as defined in the Securities Exchange Act of 1934) are effective to ensure that the information required to be disclosed by the Company in the reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported as specified in Securities and Exchange Commission rules and forms.

[removed: Management’s] [added: Management’s] Report on Internal Control Over Financial [removed: Reporting][added: Reporting]

We assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, [removed: 2018.][added: 2019.]

In making this assessment, we used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in [removed: Internal] [added: *Internal] Control – Integrated [removed: Framework] [added: Framework*] (2013).