Humana (HUM) 10-K risk factor changes: FY2020 vs FY2019

[removed: We continually review these estimates, however these] [added: These] estimates involve extensive judgment, and have considerable inherent variability because they are extremely sensitive to changes in claim payment patterns and medical cost trends.

[removed: | • |] [added: -] increased use of medical facilities and services; [removed: |]

[removed: | • |] [added: -] increased cost of such services; [removed: |]

[removed: | • |] [added: -] increased use or cost of prescription drugs, including specialty prescription drugs; [removed: |]

[removed: | • |] [added: -] the introduction of new or costly treatments, [removed: including] [added: prescription drugs, or] new technologies; [removed: |]

[removed: | • |] [added: -] our membership mix; [removed: |]

[removed: | • |] [added: -] variances in actual versus estimated levels of cost associated with new products, benefits or lines of business, product changes or benefit level changes; [removed: |]

[removed: | • |] [added: -] changes in the demographic characteristics of an account or market; [removed: |]

[removed: | • |] [added: -] changes or reductions of our utilization management functions such as preauthorization of services, concurrent review or requirements for physician referrals; [removed: |]

[removed: | • |] [added: -] changes in our [added: purchase discounts or] pharmacy volume rebates received from drug [removed: manufacturers; |][added: manufacturers and wholesalers, which are generally passed on to clients in the form of steeper price discounts;]

[removed: | • |] [added: -] catastrophes, including acts of terrorism, public health [removed: epidemics,] [added: emergencies, epidemics] or [added: pandemics (such as the spread of the novel coronavirus (COVID-19) or] severe weather (e.g. hurricanes and [removed: earthquakes); |][added: earthquakes));]

[removed: | • |] [added: -] medical cost inflation; and [removed: |]

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

Our profitability and competitiveness depend in large part [removed: on our ability to]

[added: on our ability to] appropriately manage health care costs through, among other things, the application of medical management programs such as our chronic care management program.

While we proactively attempt to effectively manage our operating expenses, increases or decreases in staff-related expenses, any costs associated with exiting products, additional investment in new products (including our opportunities in the Medicare programs, state-based contracts, and expansion of clinical capabilities as part of our integrated care delivery model), investments in health and well-being product offerings, acquisitions, new taxes and [removed: assessments (including the non-deductible health insurance industry fee),] [added: assessments,] and implementation of regulatory requirements may increase our operating expenses.

We believe that barriers to entry in our markets are not substantial, so the addition of new competitors can occur relatively easily, and customers enjoy significant flexibility in moving between [removed: competitors.][added: competitors through the Medicare Annual Enrollment Period.]

[removed: Contracts] [added: In addition, contracts] for the sale of [added: group] commercial products are generally bid upon or renewed annually.

Factors such as business consolidations, strategic alliances, legislative reform, and marketing practices create pressure to contain premium price increases, despite being faced with increasing medical [added: and administrative] costs.

The growth of our Medicare products is an important part of our business [removed: strategy.][added: strategy, and the attendant concentration of revenues intensifies the risks to us inherent in Medicare products.]

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

[removed: Our information] [added: These] systems require an ongoing commitment of significant resources to maintain, protect, and enhance existing systems and develop new systems to keep pace with continuing changes in information processing technology, evolving industry and regulatory standards, and changing customer preferences.

If the information we rely upon to run our businesses was found to be inaccurate or unreliable or if we fail to maintain effectively our information systems and data integrity, we could have operational disruptions, have problems in determining medical cost estimates and establishing appropriate pricing, have customer and physician and other health care provider disputes, have regulatory or other legal problems, have [added: difficulty preventing and detecting fraud, have] increases in operating expenses, lose existing customers, have difficulty in attracting new customers, or suffer other adverse consequences.

We rely on our agreements with [removed: customers,] [added: customers and service providers,] confidentiality agreements with employees, and our trade secrets and copyrights to protect our proprietary rights.

There can be no assurance that our information technology, or IT, process will successfully [added: maintain and] improve existing systems, develop new systems to support our expanding operations, integrate new systems, protect our proprietary information, [removed: defend against cybersecurity attacks,] or improve service levels.

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

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, [removed: 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 flows.][added: we]

In the ordinary course of our business, we process, store and transmit large amounts of data, [added: and rely on third party service providers to do the same,] including sensitive personal information as well as proprietary or confidential information relating to our business or a third-party.

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: 2019,] [added: 2020,] 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.

A cybersecurity attack that bypasses our IT security [removed: systems successfully] [added: systems, or the security of third party service providers,] could materially affect us due to the theft, destruction, loss, misappropriation or release of confidential data or intellectual property, operational or business delays resulting from the disruption of our IT systems, or negative publicity resulting in reputation or brand damage with our members, customers, providers, and other stakeholders.

The costs to [added: detect, prevent,] eliminate or address cybersecurity threats and vulnerabilities before or after an incident could be substantial.

In addition, breaches of our security measures [added: or the security measures of third party service providers,] and the unauthorized dissemination of sensitive personal information or proprietary or confidential information about us or our members or other third-parties, could expose our associates' or members’ private information and result in the risk of financial or medical identity theft, or expose us or other third-parties to a risk of loss or misuse of this information, result in significant regulatory fines or penalties, litigation and potential liability for us, damage our brand and reputation, or otherwise harm our business.

[removed: | • |] [added: As a government contractor, we may be subject to] qui tam litigation brought by individuals who seek to sue on behalf of the government, alleging that [removed: we, as a] [added: the] government [removed: contractor,] [added: contractor] submitted false claims to the [removed: government including, among other allegations, resulting from coding and review practices under the Medicare risk-adjustment model; |][added: government.]

These programs accounted for approximately [removed: 87%] [added: 88%] of our total premiums and services revenue for the year ended December 31, [removed: 2019.][added: 2020.]

[added: The loss of these and other CMS contracts (which are generally renewed annually) or significant] changes [added: in the Medicare program as a result of legislative or regulatory action, including reductions in premium payments] to [added: us or increases in] member [added: benefits or changes to member] 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.

[removed: | • |] [added: -] There is a possibility of temporary or permanent suspension from participating in government health care programs, including Medicare and Medicaid, if we are convicted of fraud or other criminal conduct in the performance of a health care program or if there is an adverse decision against us under the federal False Claims Act. [removed: As a government contractor, we may be subject to qui tam litigation brought by individuals who seek to sue on behalf of the government, alleging that the government contractor submitted false claims to the government. Litigation of this nature is filed under seal to allow the government an opportunity to investigate and to decide if it wishes to intervene and assume control of the litigation. If the government does not intervene, the lawsuit is unsealed, and the individual may continue to prosecute the action on his or her own. |]

For [removed: 2019, 25%] [added: 2020, 50%] of the risk score was calculated from claims data submitted through EDS.

[removed: CMS already makes other adjustments to payment rates based on a comparison of coding pattern] differences between MA plans and Medicare FFS data (such as for frequency of coding for certain diagnoses in MA plan data versus the Medicare FFS program dataset).

In addition, as part of our internal compliance efforts, we routinely perform ordinary course reviews of our internal business processes related to, among other things, our risk coding and data submissions in connection with the [removed: risk-] [added: risk] adjustment model.

We believe that [removed: CMS'] [added: CMS's] statements and policies regarding the requirement to report and return identified overpayments received by MA plans are inconsistent with [removed: CMS'] [added: CMS's] 2012 RADV audit methodology, and the Medicare statute's requirements.

Accordingly, our reserves may be insufficient.

We use a substantial portion of our revenues to pay the costs of health care services delivered to our members, including claims payments, capitation payments to providers (predetermined amounts paid to cover services), estimates of future payments to hospitals and others for medical care provided to our members, and various other costs.

The misappropriation of our proprietary information and/or third-party infringement claims against any software products we use could hinder our ability to market and sell products and services and may result in a material adverse effect on our results of operations, financial position and cash flows.

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 flows.

These include and could include in the future: claims relating to the methodologies for calculating premiums; claims relating to the denial of health care benefit payments; claims relating to the denial or rescission of insurance coverage; challenges to the use of some software products used in administering claims; claims relating to our administration of our Medicare Part D offerings; medical malpractice actions brought against our employed providers or affiliated physician-owned professional groups, based on our medical necessity decisions or brought against us on the theory that we are liable for a third-party providers' alleged malpractice; claims arising from any adverse medical consequences resulting from our recommendations about the appropriateness of providers’ proposed medical treatment plans for patients; allegations of anti-competitive and unfair business activities; provider disputes over compensation or non-acceptance or termination of provider contracts; disputes related to ASO business, including actions alleging claim administration errors; qui tam litigation brought by individuals who seek to sue on behalf of the government, alleging that we, as a government contractor, submitted false claims to the government including, among other allegations, resulting from coding and review practices under the Medicare risk-adjustment model; claims related to the failure to disclose some business practices; claims relating to customer audits and contract performance; claims relating to dispensing of drugs associated with our in-house dispensing pharmacies; and professional liability claims arising out of the delivery of healthcare and related services to the public.

- At December 31, 2020, under our contracts with CMS we provided health insurance coverage to approximately 728,300 individual Medicare Advantage members in Florida.

These contracts accounted for approximately 14% of our total premiums and services revenue for the year ended December 31, 2020.

- At December 31, 2020, our military services business, which accounted for approximately 1% of our total premiums and services revenue for the year ended December 31, 2020, primarily consisted of the TRICARE T2017 East Region contract.

The T2017 East Region contract is a consolidation of the former T3 North and South Regions, comprising 32 states and approximately six 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.

Litigation of this nature is filed under seal to allow the government an opportunity to investigate and to decide if it wishes to intervene and assume control of the litigation.

If

the government does not intervene, the lawsuit is unsealed, and the individual may continue to prosecute the action on his or her own.

- CMS uses a risk-adjustment model which adjusts premiums paid to Medicare Advantage, or MA, plans according to health status of covered members.

The risk-adjustment model, which CMS implemented pursuant to the Balanced Budget Act of 1997 (BBA) and the Benefits Improvement and Protection Act of 2000 (BIPA), generally pays more where a plan's membership has higher expected costs.

Under this model, rates paid to MA plans are based on actuarially determined bids, which include a process whereby our prospective payments are based on our estimated cost of providing standard Medicare-covered benefits to an enrollee with a "national average risk profile." That baseline payment amount is adjusted to reflect the health status of our enrolled membership.

Under the risk-adjustment methodology, all MA plans must collect from providers and submit the necessary diagnosis code information to CMS within prescribed deadlines.

The CMS risk-adjustment model uses the diagnosis data to calculate the risk-adjusted premium payment to MA plans, which CMS adjusts for coding pattern differences between the health plans and the government fee-for-service program.

We generally rely on providers, including certain providers in our network who are our employees, to code their claim submissions with appropriate diagnoses, which we send to CMS as the basis for our payment received from CMS under the actuarial risk-adjustment model.

We also rely on these providers to document appropriately all medical data, including the diagnosis data submitted with claims.

In addition, we conduct medical record reviews as part of our data and payment accuracy compliance efforts, to more accurately reflect diagnosis conditions under the risk adjustment model.

These compliance efforts include the internal contract level audits described in more detail below, as well as ordinary course reviews of our internal business processes.

CMS increased that percentage to 75% for 2021 and will complete the phased-in transition from RAPS to EDS by using only EDS data to calculate risk scores in 2022.

CMS already makes other adjustments to payment rates based on a comparison of coding pattern

These provisions, certain of which are described below, affect our ultimate payments from CMS.

- 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.

These regulations set

We are subject to various federal and state healthcare fraud and abuse laws including the federal False Claims Act (the “False Claims Act”), the federal anti-kickback statute (the “Anti-Kickback Statute”), the federal “Stark Law,” and related state laws.

Potential sanctions for violating these laws include recoupment or reduction of government reimbursement amounts, civil penalties, treble damages, and exclusion from participating in the Medicare and Medicaid programs or other government healthcare programs.

The False Claims Act prohibits knowingly submitting, conspiring to submit, or causing to be submitted, false claims, records, or statements to the federal government, or intentionally failing to return overpayments, in connection with reimbursement by federal government programs.

The Stark Law prohibits physicians from referring Medicare or Medicaid beneficiaries for certain services to any entity with which the physician, or an immediate family member of the physician, has a financial relationship, unless the financial relationship fits within a permissible exception.

In November 2020, the Office of the Inspector General of the Department of Health and Humana Services issued a final rule to eliminate, under the Anti-Kickback Statute’s regulatory discount safe harbor, protection for rebates paid by manufacturers to Part D plan sponsors or their PBMs in connection with the sale or purchase of Part D drugs.

This regulatory change is currently scheduled to become effective on January 1, 2023.

The final rule also introduced a new safe harbor to protect reductions in price from manufacturers on prescription drugs that are payable under Medicare Part D or by Medicaid managed care organizations when such price reduction is offered at the point of sale.

The precise interpretation, impact, and legality of the final rule are not clear and are subject to pending litigation.

Any reserve, including a premium deficiency reserve, may be insufficient.

We use a substantial portion of our revenues to pay the costs of health care services delivered to our members.

These costs include claims payments, capitation payments to providers (predetermined amounts paid to cover services), and various other costs incurred to provide health insurance coverage to our members.

These costs also include estimates of future payments to hospitals and others for medical care provided to our members.

| | |

| --- | --- |

We have increased the size of our Medicare geographic reach through expanded Medicare product offerings.

We offer both stand-alone Medicare prescription drug coverage and Medicare Advantage health plans with prescription drug coverage in addition to our other product offerings.

We offer a Medicare prescription drug plan in 50 states as well as Puerto Rico and the District of Columbia.

In addition, the expansion of our Medicare products in relation to our other businesses may intensify the risks to us inherent in Medicare products.

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

These expansion efforts may result in less diversification of our revenue stream and increased risks associated with operating in a highly regulated industry, as discussed further below.

As a result of our past and on-going acquisition activities, we have acquired additional information systems.

We have reduced the number of systems we operate, have upgraded and expanded our information systems capabilities, and are gradually migrating existing business to fewer systems.

In addition, there can be no assurance that additional systems issues will not arise in the future.

Failure to adequately protect and maintain the integrity of our

In certain circumstances we may rely on third party vendors to process, store and transmit large amounts of data for our businesses whose operations are subject to similar risks.

These include and could include in the future:

| • | claims relating to the methodologies for calculating premiums; |

| • | claims relating to the denial of health care benefit payments; |

| • | claims relating to the denial or rescission of insurance coverage; |

| • | challenges to the use of some software products used in administering claims; |

| • | claims relating to our administration of our Medicare Part D offerings; |

| • | medical malpractice actions based on our medical necessity decisions or brought against us on the theory that we are liable for providers' alleged malpractice; |

| • | claims arising from any adverse medical consequences resulting from our recommendations about the appropriateness of providers’ proposed medical treatment plans for patients; |

| • | allegations of anti-competitive and unfair business activities; |

| • | provider disputes over compensation or non-acceptance or termination of provider contracts; |

| • | disputes related to ASO business, including actions alleging claim administration errors; |

| • | claims related to the failure to disclose some business practices; |

| • | claims relating to customer audits and contract performance; |

| • | claims relating to dispensing of drugs associated with our in-house dispensing pharmacies; and |

| • | professional liability claims arising out of the delivery of healthcare and related services to the public. |

| • | 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 |

| • | At December 31, 2019, our military services business, which accounted for approximately 1% of our total premiums and services revenue for the year ended December 31, 2019, primarily consisted of the TRICARE T2017 East Region 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. |

| • | CMS uses a risk-adjustment model which adjusts premiums paid to Medicare Advantage, or MA, plans according to health status of covered members. The risk-adjustment model, which CMS implemented pursuant to the Balanced Budget Act of 1997 (BBA) and the Benefits Improvement and Protection Act of 2000 (BIPA), generally pays more where a plan's membership has higher expected costs. Under this model, rates paid to MA plans are based on actuarially determined bids, which include a process whereby our prospective payments are based on our estimated cost of providing standard Medicare-covered benefits to an enrollee with a "national average risk profile." That baseline payment amount is adjusted to reflect the health status of our enrolled membership. Under the risk-adjustment methodology, all MA plans must collect and submit the necessary diagnosis code information from hospital inpatient, hospital outpatient, and physician providers to CMS within prescribed deadlines. The CMS risk-adjustment model uses the diagnosis data to calculate the risk-adjusted premium payment to MA plans, which CMS adjusts for coding pattern differences between the health plans and the government fee-for-service program. We generally rely on providers, including certain providers in our network who are our employees, to code their claim submissions with appropriate diagnoses, which we send to CMS as the basis for our payment received from CMS under the actuarial risk-adjustment model. We also rely on these providers to document appropriately all medical data, including the diagnosis data submitted with claims. In addition, we conduct medical record reviews as part of our data and payment accuracy compliance efforts, to more accurately reflect diagnosis conditions under the risk adjustment model. These compliance efforts include the internal contract level audits described in more detail below, as well as ordinary course reviews of our internal business processes. |

CMS will increase that percentage to 50% in 2020 and has proposed to increase that percentage to 75% in 2021.

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

| • | 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 |

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.

*For discussion of [removed: 2017] [added: 2018] items and year-over-year comparisons between [removed: 2018] [added: 2019] and [removed: 2017] [added: 2018] that are not included in this [removed: 2019] [added: 2020] 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, [removed: 2018,] [added: 2019,] that was filed with the Securities and Exchange Commission on February [removed: 21, 2019.*][added: 20, 2020.*]

The Healthcare Services segment includes [removed: 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: non-consolidating] minority investment in Kindred at [removed: Home.][added: Home and the strategic partnership with WCAS to develop and operate senior-focused, payor-agnostic, primary care centers.]

The results of each segment are measured by income before income taxes and equity in net earnings from [removed: Kindred at Home,] [added: equity method investments,] or segment earnings.

Transactions between reportable segments primarily consist of sales of services rendered [added: by our Healthcare Services segment, primarily pharmacy, provider, and clinical care services, to our Retail and Group and Specialty segment customers.]

These plan designs generally result in us sharing a greater portion of the responsibility for total prescription drug costs in the early stages and less [removed: in the latter stages.]

In the first quarter of 2020, we [removed: acquired] [added: purchased] privately held Enclara Healthcare, or Enclara, one of the nation’s largest hospice pharmacy and benefit management providers for cash consideration of approximately [removed: $707] [added: $709] million, net of cash received.

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

The WCAS partnership [removed: is expected to open approximately 50] [added: opened 20] payor-agnostic, senior-focused primary care centers [added: during 2020, and is expected to open an additional 30] over [removed: 3 years beginning in 2020.][added: the next 2 years.]

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

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

[removed: | • | 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. [removed: |]

The annual health insurance industry [removed: fee was suspended in 2019, but will resume for calendar year 2020,] [added: fee, which is] not [removed: be] deductible for income tax [removed: purposes,] [added: purposes] and significantly [removed: increase] [added: increases] our effective tax [removed: rate.][added: rate, was suspended in 2019, resumed for calendar year 2020 and, under current law, has been 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 [removed: changes,] [added: changes such as the Families First Coronavirus Response Act (the "Families First Act"), the Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act") and other legislative or regulatory action taken in response to COVID-19] 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, 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, 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 assessments); our financial position (including our ability to maintain the value of our goodwill); and our cash flows.

– Financial Statements and Supplementary Data in this [removed: 2019] [added: 2020] Form 10-K.

Comparison of Results of Operations [removed: for 2019 and 2018][added: for 2020 and 2019]

Certain financial data on a consolidated basis and for our segments was as follows for the years ended December 31, [removed: 2019] [added: 2020] and [removed: 2018:][added: 2019:]

| | | | | | | | | | | [added: | | | | | | | |] Change | | | | | | [added: | | |]

| | | [removed: 2019] | | | | [removed: 2018] [added: 2020] | | | | [added: | | 2019 | | | | | |] Dollars | | | | [added: | |] Percentage | | [added: |]

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

| Revenues: | | | | | | | | | | | | | | | | [added: | | | | | | | | | | |]

| Premiums: | | | | | | | | | | | | | | | | [added: | | | | | | | | | | |]

| Group and Specialty | | [added: | | | | 6,460 | | | | | |] 6,694 | | | | [removed: 6,803] | | [added: (234)] | | [removed: (109] | | [removed: )] | | [removed: (1.6] [added: (3.5)] | [removed: )%] | [added: % |]

| Individual Commercial [added: Segment] | | [added: |] — | | | | [removed: 8] | | [added: —] | | [removed: (8] | | [removed: )] | | [removed: (100.0] [added: (57)] | [removed: )%] | [added: | | | | — | | | | | | 57 | | |]

| Other Businesses | | [added: |] — | | | | [removed: 22] | | [added: —] | | [removed: (22] | | [removed: )] | | [removed: (100.0] [added: (2)] | [removed: )%] | [added: | | | | — | | | | | | 2 | | |]

| Services: | | | | | | | | | | | | | | | | [added: | | | | | | | | | | |]

| Group and Specialty | | [added: | | | | 780 | | | | | |] 790 | | | | [removed: 835] | | [added: (10)] | | [removed: (45] | | [removed: )] | | [removed: (5.4] [added: (1.3)] | [removed: )%] | [added: % |]

| Operating expenses: | | | | | | | | | | | | | | | | [added: | | | | | | | | | | |]

| Depreciation and amortization | | [added: | | | | 489 | | | | | |] 458 | | | | [removed: 405] | | [added: 31] | | [removed: 53] | | | | [removed: 13.1] [added: 6.8] | [added: |] % |

| Total operating expenses | | [added: | | | | 72,169 | | | | | |] 61,696 | | | | [removed: 53,812] | | [added: 10,473] | | [removed: 7,884] | | | | [removed: 14.7] [added: 17.0] | [added: |] % |

| Income from operations | | [added: | | | | 4,986 | | | | | |] 3,192 | | | | [removed: 3,100] | | [added: 1,794] | | [removed: 92] | | | | [removed: 3.0] [added: 56.2] | [added: |] % |

| Interest expense | | [added: | | | | 283 | | | | | |] 242 | | | | [removed: 218] | | [added: 41] | | [removed: 24] | | | | [removed: 11.0] [added: 16.9] | [added: |] % |

| Other [removed: (income) expense,] [added: expense (income),] net | | [removed: (506] | | [removed: )] | | [removed: 33] [added: 103] | | | | [removed: (539] | | [removed: )] [added: (506)] | | [removed: (1633.3] | [removed: )%] | [added: | | 609 | | | | | | (120.4) | | % |]

| [removed: Income] [added: Consolidated income] before income taxes and equity in net [removed: earnings | | 3,456 | |] [added: earnings:] | | [removed: 2,063] | | | | [removed: 1,393] | | | | [removed: 67.5] | [removed: %] |

| Provision for income taxes | | [added: | | | | 1,307 | | | | | |] 763 | | | | [removed: 391] | | [added: 544] | | [removed: 372] | | | | [removed: 95.1] [added: 71.3] | [added: |] % |

| Equity in net earnings [removed: of Kindred at Home] | | [added: | | | | 74 | | | | | |] 14 | | | | [removed: 11] | | [added: 60] | | [removed: 3] | | | | [removed: 27.3] [added: 428.6] | [added: |] % |

| [removed: Diluted] [added: Diluted] earnings per common [removed: share | | $ | 20.10 |] [added: share:] | | [removed: $] | [removed: 12.16] | | | [removed: $] | [removed: 7.94] | | | [removed: 65.3] | [removed: %] |

| Benefit ratio (a) | | [removed: 85.6] | | [added: | | 83.1 | |] % | | [removed: 83.5] | | [added: 85.6 | |] % | | | | | | [removed: 2.1] | [added: | | | (2.5) | |] % |

| Operating cost ratio (b) | | [removed: 11.5] | | [added: | | 13.2 | |] % | | [removed: 13.3] | | [added: 11.5 | |] % | | | | | | [removed: (1.8] | [removed: )%] | [added: | | 1.7 | | % |]

| Effective tax rate | | [removed: 22.0] | | [added: | | 28.0 | |] % | | [removed: 18.9] | | [added: 22.0 | |] % | | | | | | [removed: 3.1] | [added: | | | 6.0 | |] % |

COVID-19

During 2020 we took actions to protect, inform, and care for our members, providers, employees, and other stakeholders associated with the outbreak of the novel coronavirus, or COVID-19.

Specifically, we highlight the following actions to support our members:

- waiving all cost sharing for COVID-19 treatment and testing, including inpatient hospital admissions as well as in-network primary care, outpatient behavioral health, and telehealth visits, to reduce financial barriers to members seeking care and to re-engage with their physician, while continuing to encourage the use of telehealth;

- delivering meals to our senior members in need;

- making it easier for members to be tested for COVID-19 by offering at-home testing, as well as offering in-home preventive screening and diabetes testing kits to encourage members to seek preventive care that may have been delayed during the pandemic.

- proactively delivering safety kits, including face masks, to members and employee homes to facilitate access to care and support visits to providers safely;

- extending grace periods for premium payments for our fully-insured commercial group members, to ensure continuity of coverage during times of financial stress; and

- establishing a clinical outreach team to proactively engage with our most vulnerable members.

In addition, we took steps to support our provider partners and boost system viability by:

- increasing provider funding, simplifying and expanding claims processing and releasing advanced funding to providers, to get reimbursement payments to providers as quickly as possible and ease financial concerns so that members are able to continue to access the care and information they need; and

- expanding modifications to certain utilization management processes, to ease administrative stress and make sure providers are able to most efficiently care for their patients.

We also supported our workforce keeping them safe and addressing other needs during this time, highlighting the following:

- transitioning nearly 94% of the workforce to work-at-home and equipping them with the necessary technology and resources for a successful remote work environment.

- providing funding for emergency relief for elder and child caregiving and financial hardship from family job loss, food insecurity and household essentials.

- adjusting pay and leave policies to provide additional paid time off to manage personal challenges as a result of COVID-19 including school closings and child care.

Finally, we continued to support the communities we serve by donating $200 million to the Humana Foundation to address social determinants of health in an effort to promote more health days and encourage greater health equity.

The emergence and spread of COVID-19 has impacted our business.

Beginning in the second half of March 2020, the implementation of stay-at-home and physical distancing orders and other restrictions on movement and economic activity resulted in the temporary deferral of non-essential care and significant reduction in hospital admissions and overall healthcare system utilization during April 2020.

Non-COVID utilization then began to increase during May and June 2020, and continued to rebound throughout the third quarter and early in the fourth quarter of 2020, reaching approximately 95% of historic baseline levels as of the end of October 2020.

Then, in the latter half of November and accelerating throughout the month of December, we experienced a significant increase in COVID-19 admissions in nearly all of the markets in which we operate across our Medicare Advantage, Medicaid, and group commercial insurance business lines, resulting in higher COVID-19 treatment and testing costs.

During this period, we also experienced a corresponding decline in non-COVID utilization in all service categories to well below the near baseline levels of non-COVID utilization witnessed as late as the end of October 2020 (with non-COVID utilization in our Medicare Advantage business running approximately 15% below normal levels at the close of the fourth quarter of 2020).

The impact of this decline in non-COVID utilization more than offset the higher COVID-19 treatment and testing costs during this period.

Our 2020 results were also impacted by our ongoing pandemic relief efforts and strategic investments in our integrated care delivery model.

We currently anticipate that the higher levels of COVID-19 admissions experienced late in 2020, and the corresponding decrease in non-COVID utilization, will continue for at least the first few months of 2021.

Over the course of 2021, we then expect COVID utilization to decline as more of our members are vaccinated, and that non-COVID utilization will trend back to more normal levels.

The significant disruption in utilization during 2020, and in particular the unanticipated decline in non-COVID utilization in November and December, also impacted our ability to implement clinical initiatives to manage health care costs and chronic conditions of our members, and appropriately document their risk profiles.

We currently expect this may impact our 2021 revenues under the risk adjustment payment model for Medicare Advantage plans, but that these trends will also normalize in 2022 as non-COVID utilization trends back to more normal levels throughout 2021.

However, the course and magnitude of these trends and their associated impact remains highly uncertain and subject to a significant number of variables and uncertainties including, among others, the severity and duration of the pandemic, continued actions taken to mitigate the spread of COVID-19 (including new COVID-19 variants) and in turn, relax those restrictions, the timing and degree in resumption of demand for deferred health care services, the pace of administration of COVID-19 vaccines and the effectiveness of those vaccines, and level and cost of treatment and testing, all of which are difficult to predict.

As such, our response to this global health crisis and the subsequent recovery will continue to evolve over the coming months.

COVID-19 disrupted the pattern of our quarterly earnings and operating cash flows in 2020 largely due to the temporary deferral of non-essential care which resulted in significant reductions in hospital admissions and lower overall healthcare system utilization during higher levels of COVID-19 hospital admissions.

Similar impacts and seasonal disruptions from either higher or lower utilization are expected to persist as we respond to and recover from the COVID-19 global health crisis.

in the latter stages.

Recent Transactions

- Our 2020 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.

by our Healthcare Services segment, primarily pharmacy, provider, and clinical care services, to our Retail and Group and Specialty segment customers.

Aetna Merger

On February 16, 2017, under the terms of the Agreement and Plan of Merger, or Merger Agreement, 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, which is included in our consolidated statement of income in the line captioned "Merger termination fee and related costs, net."

Acquisitions and Divestitures

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

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.

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

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.

Also in the third quarter of 2018, we, along with TPG Capital, or TPG, and WCAS (together, the "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 Kindred at Home, a leading home health and hospice company, for total cash consideration of approximately $1.1 billion.

In the second quarter of 2018, we acquired Family Physicians Group, or FPG, for cash consideration of approximately $185 million, net of cash received.

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.

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

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

The purchase price consisted primarily of $169 million cash, as well as our existing investment in MCCI and a note receivable and a revolving note with an aggregate balance of $383 million.

| | |

| --- | --- |

| • | Our 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, 2019, approximately 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 2,039,100 members, or 67%, at December 31, 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. |

| • | 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 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.

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

There were no borrowings outstanding under [removed: our] [added: the] credit agreement at December 31, [removed: 2019] [added: 2020] or December 31, [removed: 2018.][added: 2019.]

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 [removed: AA] [added: AA-] at December 31, [removed: 2019.][added: 2020.]

Our net unrealized position increased [removed: $415] [added: $303] million from a net unrealized [removed: loss] [added: gain] position of [removed: $204] [added: $211] million at December 31, [removed: 2018] [added: 2019] to a net unrealized gain position of [removed: $211] [added: $514] million at December 31, [removed: 2019.][added: 2020.]

At December 31, [removed: 2019,] [added: 2020,] we had gross unrealized losses of [removed: $8] [added: $6] million on our investment portfolio primarily due to an increase in market interest rates since the time the securities were purchased.

While we believe that these impairments [removed: are temporary] [added: will be recovered] and we currently do not have the intent to sell such securities, given the current market conditions and the significant judgments involved, there is a continuing risk that future declines in fair value may occur and material realized losses from sales or [removed: other-than-temporary] impairments may be recorded in future periods.

The average duration of our investment portfolio, including cash and cash equivalents, was approximately [removed: 2.5] [added: 3.0] years as of December 31, [removed: 2019] [added: 2020] and [removed: 2.9] [added: 2.5] years as of December 31, [removed: 2018.][added: 2019.]

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: $373] [added: $541] million.

The evaluation was based on our investment portfolio and our outstanding indebtedness at December 31, [removed: 2019] [added: 2020] and [removed: 2018.][added: 2019.]

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

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

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

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

| As of December 31, 2019 | | | | | | | | | | | | | | | | | | | | | | | | | [added: | | | | | | | | | | | | | |]

| Investment income (a) | | [added: | | | |] $ | [removed: (150] [added: (150)] | [removed: )] | | [added: | |] $ | [removed: (133] [added: (133)] | [removed: )] | | [added: | |] $ | [removed: (79] [added: (79)] | [removed: )] | | [added: | |] $ | 78 | | | [added: | |] $ | 157 | | | [added: | |] $ | 235 | |

| Interest expense (b) | | [removed: 10] | | | | [removed: 9] [added: 2] | | | | [removed: 4] | | [added: 2] | | [removed: (4] | | [removed: )] | | [removed: (9] [added: 2] | | [removed: )] | | [removed: (13] | | [removed: )] [added: (6)] | [added: | | | | | (12) | | | | | | (18) | | |]

| Pretax | | [added: | | | |] $ | [removed: (140] [added: (140)] | [removed: )] | | [added: | |] $ | [removed: (124] [added: (124)] | [removed: )] | | [added: | |] $ | [removed: (75] [added: (75)] | [removed: )] | | [added: | |] $ | 74 | | | [added: | |] $ | 148 | | | [added: | |] $ | 222 | |

| Interest expense (b) | | [removed: 31] | | | | [removed: 20] [added: 10] | | | | [removed: 10] | | [added: 9] | | [removed: (10] | | [removed: )] | | [removed: (20] [added: 4] | | [removed: )] | | [removed: (31] | | [removed: )] [added: (4)] | [added: | | | | | (9) | | | | | | (13) | | |]

[removed: | (a) | As] [added: (a)As] of December 31, [removed: 2019] [added: 2020] and [removed: 2018,] [added: 2019,] some of our investments had interest rates below [removed: 2%] [added: 1% and 2%, respectively,] so the assumed hypothetical change in pretax earnings does not reflect the full [removed: 2%] [added: 1% and 2%, respectively,] point reduction. [removed: |]

[removed: | (b) | The interest rate under our senior notes is fixed. There were no borrowings outstanding under the credit agreement at December 31, 2019 or December 31, 2018. There was $300 million and $645 million outstanding under our commercial paper program at December 31, 2019 and 2018, respectively.] As of December 31, [added: 2020 and] 2019, our interest rate under our commercial paper program was less than [removed: 3%] [added: 1%] so the assumed hypothetical change in pretax earnings does not reflect the full [removed: 3%] [added: 1%] point reduction. [removed: |]

If drawn upon, the revolving credit would revert to using the alternative base rate once LIBOR is discontinued.There were no borrowings outstanding under our credit agreement at December 31, 2020 or December 31, 2019.

We did not record any material credit allowances for debt securities that were in an unrealized loss position during 2020.

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

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

| As of December 31, 2020 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |

| Investment income (a) | | | | | | $ | (44) | | | | | $ | (33) | | | | | $ | (21) | | | | | $ | 91 | | | | | $ | 180 | | | | | $ | 270 | |

| Pretax | | | | | | $ | (42) | | | | | $ | (31) | | | | | $ | (19) | | | | | $ | 85 | | | | | $ | 168 | | | | | $ | 252 | |

(b)The interest rate under our senior notes is fixed.

There was $600 million and $300 million outstanding under our commercial paper program at December 31, 2020 and 2019, respectively.

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

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

| As of December 31, 2018 | | | | | | | | | | | | | | | | | | | | | | | | |

| Investment income (a) | | $ | (154 | ) | | $ | (114 | ) | | $ | (57 | ) | | $ | 58 | | | $ | 116 | | | $ | 175 | |

| Pretax | | $ | (123 | ) | | $ | (94 | ) | | $ | (47 | ) | | $ | 48 | | | $ | 96 | | | $ | 144 | |

| | |

| --- | --- |

As of December 31, [removed: 2019,] [added: 2020,] we had approximately 17 million members in our medical benefit plans, as well as approximately 5 million members in our specialty products.

During [removed: 2019, 82%] [added: 2020, 83%] of our total premiums and services revenue were derived from contracts with the federal government, including [removed: 15%] [added: 14%] 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: 701,400] [added: 728,300] members as of December 31, [removed: 2019.][added: 2020.]

This Annual Report on Form 10-K, or [removed: 2019] [added: 2020] Form 10-K, contains both historical and forward-looking information.

– Risk Factors in this [removed: 2019] [added: 2020] Form 10-K for a description of a number of factors that may adversely affect our results or business.

Beginning January 1, 2018, we exited the individual commercial fully-insured medical health insurance business, as [added: 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.]

The following table presents our premiums and services revenue for the Retail segment by product for the year ended December 31, [removed: 2019:][added: 2020:]

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

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

| Premiums: | | | | | | | | [added: | | | | | | |]

| Individual Medicare Advantage | | [added: | | | |] $ | [removed: 43,128] [added: 51,697] | | | [removed: 67.0] | [added: | 68.0 | |] % |

| Group Medicare Advantage | | [removed: 6,475] | | | | [removed: 10.1] [added: 7,774] | [added: | | | | | 10.2 | |] % |

| Medicare stand-alone PDP | | [removed: 3,165] | | | | [removed: 4.9] [added: 2,742] | [added: | | | | | 3.6 | |] % |

| Total Retail Medicare | | [removed: 52,768] | | | | [removed: 82.0] [added: 62,213] | [added: | | | | | 81.8 | |] % |

| State-based Medicaid | | [removed: 2,898] | | | | [removed: 4.5] [added: 4,223] | [added: | | | | | 5.6 | |] % |

| Medicare Supplement | | [removed: 588] | | | | [added: 688 | | | | | |] 0.9 | [added: |] % |

| Services | | [removed: 17] | | | | [added: 19 | | | | | |] — | [added: |] % |

| Total premiums and services revenue | | [added: | | | |] $ | [removed: 56,271] [added: 67,143] | | | [removed: 87.4] | [added: | 88.3 | |] % |

We contract with CMS under the Medicare Advantage program to provide a comprehensive array of health insurance benefits, including wellness programs, chronic care management, and care coordination, to Medicare eligible persons under HMO, PPO, [removed: and] Private Fee-For-Service, or PFFS, [added: and Special Needs Plans, including Dual Eligible Special Needs, or D-SNP,] plans in exchange for contractual payments received from CMS, usually a fixed payment per member per month.

[removed: With each of these products, the beneficiary receives benefits in excess of Medicare FFS, typically including reduced cost sharing, enhanced prescription drug benefits, care coordination, data] analysis techniques to help identify member needs, complex case management, tools to guide members in their health care decisions, care management programs, wellness and prevention programs and, in some instances, a reduced monthly Part B premium.

For [removed: 2019, 25%] [added: 2020, 50%] of the risk score was calculated from claims data submitted through EDS.

At December 31, [removed: 2019,] [added: 2020,] we provided health insurance coverage under CMS contracts to approximately [removed: 3,587,200] [added: 3,962,700] individual Medicare Advantage members, including approximately [removed: 701,400] [added: 728,300] members in Florida.

These Florida contracts accounted for premiums revenue of approximately [removed: $9.5] [added: $10.9] billion, which represented approximately [removed: 22.0%] [added: 21.1%] of our individual Medicare Advantage premiums revenue, or [removed: 15.0%] [added: 14.4%] of our consolidated premiums and services revenue for the year ended December 31, [removed: 2019.][added: 2020.]

Our [removed: HMO, PPO, and PFFS] [added: individual Medicare Advantage] products covered under Medicare Advantage contracts with CMS are renewed generally for a calendar year term unless CMS notifies us of its decision not to renew by May 1 of the calendar year in which the contract would end, or we notify CMS of our decision not to renew by the first Monday in June of the calendar year in which the contract would end.

All material contracts between Humana and CMS relating to our Medicare Advantage products have been renewed for [removed: 2020,] [added: 2021,] and all of our product offerings filed with CMS for [removed: 2020] [added: 2021] have been approved.

All material contracts between Humana and CMS relating to our Medicare stand-alone PDP products have been renewed for [removed: 2020,] [added: 2021,] and all of our product offerings filed with CMS for [removed: 2020] [added: 2021] have been approved.

These [removed: products] [added: plans] offer the same types of benefits and services available to members in our individual Medicare plans discussed [removed: previously and can be tailored] [added: previously, however, group Medicare Advantage plans typically have richer benefit offerings than individual Medicare Advantage plans, including prescription drug coverage in the gap, for instance, due] to [added: the desire of many customers to] closely match [removed: an employer’s post-retirement] [added: their pre-retirement] benefit structure.

[removed: LTSS is a state and federally funded program that offers] [added: Through the Long-Term Support Services, or LTSS, program,] states [removed: a broad and flexible set of program design options and refers] [added: offer programs] to [removed: the delivery of long-term] [added: deliver] support services [removed: for our members] [added: to people] who receive home and community or institution-based services for long-term care.

[removed: Prior to January 1, 2020,] [added: Originally,] our Kentucky Medicaid contract was subject to a 100% coinsurance contract with CareSource Management Group Company, ceding all the risk to [removed: CareSource.][added: CareSource; however, effective January 1, 2020, we terminated the reinsurance agreement with CareSource and assumed full administration and financial risk.]

These [added: programs] largely operate [removed: separate] [added: separately] from traditional Medicaid and LTSS programs.

Some states are [added: also] moving to support the dual eligible population by linking D-SNP participation to enrollment in a plan that also participates in a state-based Medicaid program to coordinate and integrate both Medicare and Medicaid benefits.

[removed: Beginning] [added: To meet federal requirements that took effect] in 2021, [removed: based on new federal requirements,] states [removed: are expected] [added: have begun] to [added: implement new D-SNP requirements to] strengthen Medicaid-Medicare integration requirements for D-SNPs.

We [removed: currently] [added: also] serve [removed: dual eligible] members [removed: under the CMS stand-alone dual eligible demonstration program in Illinois,] [added: who qualify for both Medicaid] and [removed: continue] [added: Medicare, referred] to [removed: serve other dual eligible members enrolled in] [added: as “dual eligible," through] our [added: Medicaid,] Medicare [removed: Advantage] [added: Advantage,] and stand-alone prescription drug plans.

The following table presents our premiums and services revenue for the Group and Specialty segment by product for the year ended December 31, [removed: 2019:][added: 2020:]

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

| External Revenue: | | | | | | | | [added: | | | | | | |]

| Fully-insured commercial group | | [added: | | | |] $ | [removed: 5,123] [added: 4,761] | | | [removed: 8.0] | [added: | 6.3 | |] % |

| Total premiums and services revenue | | [added: | | | |] $ | [removed: 7,484] [added: 7,240] | | | [removed: 11.6] | [added: | 9.5 | |] % |

| Intersegment services revenue | | [added: | | | |] $ | [removed: 18] [added: 29] | | | [added: | |] n/a | | [added: |]

Our [removed: administrative services only, or ASO,] [added: ASO] products are offered to small group and large group employers who self-insure their employee health plans.

Under ASO contracts, self-funded employers generally retain the risk of financing the costs of health benefits, with large group customers retaining a greater share [removed: and small group customers a smaller share of the cost of health benefits.]

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

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

| Total premiums | | | | | | 67,124 | | | | | | 88.3 | | % |

With each of these products, the beneficiary receives benefits in excess of Medicare FFS, typically including reduced cost sharing, enhanced prescription drug benefits, care coordination, data

CMS increased that percentage to 75% for 2021 and will complete the phased-in transition from RAPS to EDS by using only EDS data to calculate risk scores in 2022.

These products are primarily offered as PPO plans on the same Medicare platform as individual Medicare Advantage plans.

*Medicare Supplement*

We also offer Medicare supplement products that helps pay the medical expenses that Medicare FFS does not cover, such as copayments, coinsurance and deductibles.

Through our state-based contracts, we serve members enrolled in Medicaid, a program funded by both the federal and state governments and administered by states to care for their most vulnerable populations.

Within federal guidelines, states determine whom to cover, but general categories for traditional Medicaid programs include: children and some adults receiving assistance through Temporary Assistance to Needy Families, or TANF, and Aged, Blind, and Disabled, or ABD, adults.

We have contracts in several states to serve Medicaid-eligible members.

In Florida, we cover the traditional programs (TANF and ABD members), as well as provide LTSS services.

In Kentucky, we serve the traditional programs.

In 2021, our Medicaid business significantly expanded in several states, including in Wisconsin with the acquisition of iCare on

January 1, 2021, in Oklahoma with a new contract award; and in South Carolina with the approval to participate in its traditional managed Medicaid program.

As the dual eligible population represents a disproportionate share of costs, Humana is participating in varied integration models designed to improve health outcomes and reduce avoidable costs.

We currently serve dual eligible members under CMS’s dual eligible demonstration program in Illinois, and have been approved to participate in South Carolina’s dual demonstration program starting in January 2022.

As part of our individual Medicare Advantage products, we also offer D-SNP plans.

In connection with offering a D-SNP plan in a particular state, we are required to enter into a special coordinating contract with the applicable state Medicaid agency.

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

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

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

| Premiums: | | | | | | | | | | | | | | |

| Specialty | | | | | | 1,699 | | | | | | 2.2 | | % |

| Total premiums | | | | | | 6,460 | | | | | | 8.5 | | % |

| Services | | | | | | 780 | | | | | | 1.0 | | % |

and small group customers a smaller share of the cost of health benefits.

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

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

| Pharmacy solutions | | | | | | $ | 581 | | | | | 0.8 | | % |

| Provider services | | | | | | 328 | | | | | | 0.4 | | % |

CDO currently operates 156 medical centers and employs or contracts with 662 primary care providers, serving approximately 255,400 members, generally under risk sharing arrangements with Humana and third party health plans.

These capabilities include our health care analytics engine, which reviews billions

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

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

| Florida | | | 728.3 | | | 7.5 | | | 169.7 | | | 18.1 | | | 594.4 | | | | | | 135.2 | | | 40.1 | | | — | | | | | | | | | 1,693.3 | | | 10.1 | | % | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |

| Texas | | | 319.7 | | | 247.9 | | | 266.9 | | | 27.4 | | | — | | | | | | 114.0 | | | 33.4 | | | — | | | | | | | | | 1,009.3 | | | 6.0 | | % | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |

| Kentucky | | | 107.3 | | | 69.2 | | | 167.0 | | | 7.4 | | | 168.6 | | | | | | 94.6 | | | 136.5 | | | — | | | | | | | | | 750.6 | | | 4.5 | | % | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |

| Georgia | | | 196.0 | | | 1.9 | | | 101.8 | | | 11.1 | | | — | | | | | | 113.6 | | | 77.9 | | | — | | | | | | | | | 502.3 | | | 3.0 | | % | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |

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 | % |

CMS will increase that percentage to 50% in 2020 and has proposed to increase that percentage to 75% in 2021.

Our state-based contracts allow us to serve members enrolled in state-based Medicaid programs including Temporary Assistance to Needy Families, or TANF, Aged, Blind, and Disabled, or ABD, Long-Term Support Services, or LTSS, and the CMS Financial Alignment dual eligible demonstration programs.

TANF and ABD programs are traditional Medicaid programs that are state and federally funded and provide cash assistance and supportive services to assist qualifying aged, blind, or disabled individuals, as well as families with children under age 18, helping them achieve economic self-sufficiency.

Our contracts are generally for three to five year terms.

We have contracts to serve Medicaid eligible members in Florida and Kentucky under traditional programs, as well as contracts in Florida under the LTSS program.

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

Medicare beneficiaries who also qualify for Medicaid due to low income or special needs are known as dual eligible beneficiaries, or dual eligibles.

The dual eligible population represents a disproportionate share of Medicaid and Medicare costs.

States require special coordinating contracts for plans to offer Medicare Advantage dual eligible special needs plans, or D-SNPs.

| Specialty | | 1,571 | | | | 2.4 | % |

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

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

The T2017 East Region

| Pharmacy solutions | | $ | 186 | | | 0.3 | % |

| Provider services | | 306 | | | | 0.5 | % |

years and in 2018 we acquired Family Physicians Group, or FPG, serving Medicare Advantage and Managed Medicaid HMO patients through its senior focused clinics in Greater Orlando, Florida.

wants.

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

| 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 | % |

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

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

For the fiscal year [removed: ended December] [added: ended December] 31, [removed: 2019][added: 2020]

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

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

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

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

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

Registrant’s telephone number, including area code: [removed: (502) 580-1000][added: (502) 580-1000]

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

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

| Large accelerated filer | [added: | |] ☑ | | [added: | | | |] Accelerated filer | [added: | |] ☐ | [added: | |]

| Non-accelerated filer | [added: | |] ☐ | | [added: | | | |] Smaller reporting company | [added: | |] ☐ | [added: | |]

| | | | [added: | | | | | |] Emerging growth company | [added: | |] ☐ | [added: | |]

The aggregate market value of voting stock held by non-affiliates of the Registrant as of June 30, [removed: 2019] [added: 2020] was [removed: $35,478,894,483] [added: $50,711,683,757] calculated using the average price on June 30, [removed: 2019] [added: 2020] of [removed: $263.21.][added: $384.15 per share.]

The number of shares outstanding of the Registrant’s Common Stock as of January 31, [removed: 2020] [added: 2021] was [removed: 132,106,497.][added: 128,861,929.]

Parts II and III incorporate herein by reference portions of the Registrant’s [added: Definitive] Proxy Statement to be filed pursuant to Regulation 14A with respect to the Annual Meeting of Stockholders scheduled to be held on April [removed: 23, 2020.][added: 22, 2021.]

For the Year [removed: Ended December] [added: Ended December] 31, [removed: 2019][added: 2020]

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

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

| Item 1. | [removed: [Business](#sF09F560EC5A454AB827B5ECE9580DEFA)] | [removed: [3](#sD78C502D1EF851638C335033093FE8F4)] | [added: Business | | | [4](#i2c77d1c5985b44a58bb9c1d121bae1b2_19) | | |]

| Item 1A. | [removed: [Risk Factors](#sF7C1C7184E1B53318D99BB5B66E6AD54)] | [removed: [19](#sD7387A110D835EB3A8DE840B4760E87D)] | [added: Risk Factors | | | [22](#i2c77d1c5985b44a58bb9c1d121bae1b2_76) | | |]

| Item 1B. | [removed: [Unresolved] [added: | | Unresolved] Staff [removed: Comments](#s21584603CEB459AFAEF73D62FFE648FA)] [added: Comments] | [removed: [33](#s187500FCD85753A98EF5DE773E51D7EE)] | [added: | [37](#i2c77d1c5985b44a58bb9c1d121bae1b2_79) | | |]

| Item 2. | [removed: [Properties](#sE6FA4F5B83C655BA8798445A6F9122F4)] | [removed: [33](#s331296F1F86D51AEA4F0CD3BB2E071FD)] | [added: Properties | | | [37](#i2c77d1c5985b44a58bb9c1d121bae1b2_82) | | |]

| Item 3. | [removed: [Legal Proceedings](#s045A029CF0175209B4EA6F3918DD12D5)] | [removed: [34](#s4F3A829ADE0353F7842291C494ACDAE3)] | [added: Legal Proceedings | | | [37](#i2c77d1c5985b44a58bb9c1d121bae1b2_85) | | |]

| Item 4. | [removed: [Mine] [added: | | Mine] Safety [removed: Disclosures](#sF96B03ED896150C09A6E59156FE50974)] [added: Disclosures] | [removed: [34](#sBA14A2056E5F59FFB08B937358F87641)] | [added: | [37](#i2c77d1c5985b44a58bb9c1d121bae1b2_88) | | |]

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

| Item 5. | [removed: [Market] [added: | | Market] for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity [removed: Securities](#s6FBBFA33A6D85C28AB51D63A9A49D0B5)] [added: Securities] | [removed: [35](#sE1660FD168DA56A7A212AD89FB735BAF)] | [added: | [38](#i2c77d1c5985b44a58bb9c1d121bae1b2_94) | | |]

| Item 6. | [removed: [Selected] [added: | | Selected] Financial [removed: Data](#s1FAC270D1668567881012151031FEEDA)] [added: Data] | [removed: [38](#s46668A53F53153FE8C34D483C9649B25)] | [added: | [41](#i2c77d1c5985b44a58bb9c1d121bae1b2_97) | | |]

| Item 7. | [removed: [Management’s] [added: | | Management’s] Discussion and Analysis of Financial Condition and Results of [removed: Operations](#sD6AB944F215E5D6DB6D820C56BDA2397)] [added: Operations] | [removed: [39](#s9F6AD361A45A526BAAD2E11E3A030D75)] | [added: | [42](#i2c77d1c5985b44a58bb9c1d121bae1b2_100) | | |]

| Item 7A. | [removed: [Quantitative] [added: | | Quantitative] and Qualitative Disclosures about Market [removed: Risk](#sEEB670F2BAE35EAE965FFBEB178A7E4F)] [added: Risk] | [removed: [65](#s29BABD2E3D4D56139457490FFD064F14)] | [added: | [67](#i2c77d1c5985b44a58bb9c1d121bae1b2_118) | | |]

| Item 8. | [removed: [Financial] [added: | | Financial] Statements and Supplementary [removed: Data](#sC30898D8EBF258998C70288116857FAB)] [added: Data] | [removed: [67](#sC7ACDCBE169153D0B89BF7A445E6610B)] | [added: | [69](#i2c77d1c5985b44a58bb9c1d121bae1b2_121) | | |]

| Item 9. | [removed: [Changes] [added: | | Changes] in and Disagreements with Accountants on Accounting and Financial [removed: Disclosure](#sEFC509C626315898B5DA3173F2749BD0)] [added: Disclosure] | [removed: [124](#s80D9E15E2A2854778AA45C91E8E49E90)] | [added: | [124](#i2c77d1c5985b44a58bb9c1d121bae1b2_229) | | |]

| Item 9A. | [removed: [Controls] [added: | | Controls] and [removed: Procedures](#s6423488450F65A19B8E3915EFCF12B1F)] [added: Procedures] | [removed: [124](#sA5E540169822518092DD476C05C4FACC)] | [added: | [124](#i2c77d1c5985b44a58bb9c1d121bae1b2_232) | | |]

| Item 9B. | [removed: [Other Information](#s3E88C2E2D23051FE963D250ED63A6984)] | [removed: [125](#sE4E292C24DF1532F87058C4FA03E7C9C)] | [added: Other Information | | | [125](#i2c77d1c5985b44a58bb9c1d121bae1b2_235) | | |]

| | [added: | |] Part III | | [added: | | | |]

| Item 10. | [removed: [Directors,] [added: | | Directors,] Executive Officers and Corporate [removed: Governance](#sD9D0C98765DD56B4BD9D403D5AC1A6D6)] [added: Governance] | [removed: [126](#s43E8691D0A9257C99B61BF0956F475F2)] | [added: | [126](#i2c77d1c5985b44a58bb9c1d121bae1b2_241) | | |]

| Item 11. | [removed: [Executive Compensation](#sC77EF7E3BEE25616ADE5D5AE157A6A4A)] | [removed: [127](#s87CE26193EA756F99C922FB97806E087)] | [added: Executive Compensation | | | [127](#i2c77d1c5985b44a58bb9c1d121bae1b2_244) | | |]

| Item 12. | [removed: [Security] [added: | | Security] Ownership of Certain Beneficial Owners and Management and Related Stockholder [removed: Matters](#s18FD5BF4873B55F69C3E61E0B7A6E787)] [added: Matters] | [removed: [127](#s197CE0FAD60C5E7DBFBA6CE0E8351990)] | [added: | [127](#i2c77d1c5985b44a58bb9c1d121bae1b2_247) | | |]

| Item 13. | [removed: [Certain] [added: | | Certain] Relationships and Related Transactions, and Director [removed: Independence](#s7DF625F131E1523F9D1C8878C64BC3F3)] [added: Independence] | [removed: [128](#s4BBD13788CA55FA2A1C60B160ED1CA3D)] | [added: | [128](#i2c77d1c5985b44a58bb9c1d121bae1b2_250) | | |]

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Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.

Such Definitive Proxy Statement will be filed with the Securities and Exchange Commission within 120 days after the end of the fiscal year to which this report relates.

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

We owned or leased numerous medical centers and administrative offices at December 31, [removed: 2019.][added: 2020.]

Of these medical centers, approximately [removed: 185] [added: 195] of these facilities are leased or subleased to our contracted providers to operate.

As of January 31, [removed: 2020,] [added: 2021,] there were [removed: 2,100] [added: 1,943] holders of record of our common stock and [removed: 229,470] [added: 297,870] beneficial holders of our common stock.

The following table provides details of dividend payments, excluding dividend equivalent rights, in [removed: 2018] [added: 2019] and [removed: 2019,] [added: 2020,] under our Board approved quarterly cash dividend policy:

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

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

| 2019 payments | | | | | | | [added: | | | | | | | | | | | | | |]

| 12/31/2018 | | [added: | | | |] 1/25/2019 | | [removed: $0.50] | | [added: | | $0.500 | | | | | |] $68 | [added: | |]

| 3/29/2019 | | [added: | | | |] 4/26/2019 | | [removed: $0.55] | | [added: | | $0.550 | | | | | |] $74 | [added: | |]

| 6/28/2019 | | [added: | | | |] 7/26/2019 | | [removed: $0.55] | | [added: | | $0.550 | | | | | |] $74 | [added: | |]

| 9/30/2019 | | [added: | | | |] 10/25/2019 | | [removed: $0.55] | | [added: | | $0.550 | | | | | |] $73 | [added: | |]

On [removed: October 24, 2019,] [added: November 1, 2020,] the Board declared a cash dividend of [removed: $0.55] [added: $0.625] per share that was paid on January [removed: 31, 2020] [added: 29, 2021] to stockholders of record on December 31, [removed: 2019,] [added: 2020,] for an aggregate amount of [removed: $73] [added: $81] million.

In February [removed: 2020,] [added: 2021,] the Board declared a cash dividend of [removed: $0.625] [added: $0.70] per share payable on April [removed: 24, 2020] [added: 30, 2021] to stockholders of record on March 31, [removed: 2020.][added: 2021.]

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: 2019.][added: 2020.]

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: 2014,] [added: 2015,] and that dividends were reinvested when paid.

[removed: ][added: ]

| | [removed: 12/31/2014] | | [added: 12/31/2015] | | [removed: 12/31/2015] | | | | 12/31/2016 | | | | [added: | |] 12/31/2017 | | | | [added: | |] 12/31/2018 | | | | [added: | |] 12/31/2019 | | | [added: | | | 12/31/2020 | | |]

The following table provides information about purchases by us during the three months ended December 31, [removed: 2019] [added: 2020] of equity securities that are registered by us pursuant to Section 12 of the Exchange Act:

| Period | [added: | |] Total Number of Shares Purchased (1) | | | [added: | | |] Average Price Paid per Share | | | | [added: | |] Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (1)(2) | | | [added: | | |] Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs (1) [removed: (2)] [added: (2) (3)] | | |

| October [removed: 2019] [added: 2020] | [added: | |] — | | | [added: | | |] $ | — | | | [added: | |] — | | | [added: | | |] $ | 2,000,000,000 | |

| November [removed: 2019] [added: 2020] | [added: | |] — | | | [added: | | |] — | | | | [added: | |] — | | | [added: | | |] 2,000,000,000 | | |

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

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

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

| 2020 payments | | | | | | | | | | | | | | | | | | | | |

| 12/31/2019 | | | | | | 1/31/2020 | | | | | | $0.550 | | | | | | $73 | | |

| 3/31/2020 | | | | | | 4/24/2020 | | | | | | $0.625 | | | | | | $83 | | |

| 6/30/2020 | | | | | | 7/31/2020 | | | | | | $0.625 | | | | | | $83 | | |

| 9/30/2020 | | | | | | 10/30/2020 | | | | | | $0.625 | | | | | | $83 | | |

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

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

| HUM | | | $ | 100 | | | | | $ | 115 | | | | | $ | 141 | | | | | $ | 164 | | | | | $ | 211 | | | | | $ | 238 | |

| S&P 500 | | | $ | 100 | | | | | $ | 112 | | | | | $ | 136 | | | | | $ | 130 | | | | | $ | 172 | | | | | $ | 203 | |

| Peer Group | | | $ | 100 | | | | | $ | 101 | | | | | $ | 128 | | | | | $ | 140 | | | | | $ | 173 | | | | | $ | 204 | |

| December 2020 | | | 3,829,420 | | | | | | 388.44 | | | | | | 3,829,420 | | | | | | 250,000,000 | | |

| Total | | | 3,829,420 | | | | | | $ | 388.44 | | | | | 3,829,420 | | | | | | | | |

(1) On December 22, 2020, we entered into separate accelerated stock repurchase agreements, ("the December 2020 ASR Agreements"), with Citibank, N.A., or Citi, and JPMorgan Chase Bank, or JPM, to repurchase $1.75 billion of our common stock as part of the $3 billion repurchase program authorized by the Board of Directors on July 30, 2019.

On December 23, 2020, in accordance with the December 2020 ASR Agreements, we made a payment of $1.75 billion ($875 million to Citi and $875 million to JPM) and received an initial delivery of 3.8 million shares of our common stock (1.9 million shares each from Citi and JPM).

We recorded the payments to Citi and JPM as a reduction to stockholders’ equity, consisting of an $1.5 billion increase in treasury stock, which reflects the value of the initial 3.8 million shares received upon initial settlement, and a $262.5 million decrease in capital in excess of par value, which reflects the value of stock held back by Citi and JPM pending final settlement of the December 2020 ASR Agreements.

The final number of shares that we may receive, or be required to remit, under the December 2020 ASR Agreements, will be determined based on the daily volume-weighted average share price of our common stock over the term of the December 2020 ASR Agreements, less a discount and subject to adjustments pursuant to the terms and conditions of the December 2020 ASR Agreements.

We expect final settlement under the December 2020 Agreements to occur during the second quarter of 2021.

The December 2020 Agreements contain provisions customary for agreements of this type, including provisions for adjustments to the transaction terms upon certain specified events, the circumstances generally under which final settlement of the agreement may be accelerated, extended, or terminated early by Citi, JPM or Humana as well as various acknowledgments and representations made by the parties to each other.

At final settlement, under certain circumstances, we may be entitled to receive additional shares of our common stock from Citi and JPM or we may be required to make a payment.

If we are obligated to make a payment, we may elect to satisfy such obligation in cash or shares of our common stock.

(3)On February 18, 2021, the Board of Directors replaced the previous share repurchase authorization of up to $3 billion (of which approximately $250 million remained unused) with a new authorization for repurchases of up to $3 billion of our common shares exclusive of shares repurchased in connection with employee stock plans, expiring as of February 18, 2024.

| | | | | | | |

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

| 2018 payments | | | | | | |

| 12/29/2017 | | 1/26/2018 | | $0.40 | | $55 |

| 3/30/2018 | | 4/27/2018 | | $0.50 | | $69 |

| 6/29/2018 | | 7/27/2018 | | $0.50 | | $69 |

| 9/28/2018 | | 10/26/2018 | | $0.50 | | $69 |

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

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

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

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

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

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

| 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. |

Not applicable.

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

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

| | 2019 | | | | 2018 | | | | 2017 (a) | | | | 2016 (b) | | | | 2015 | | |

| | (dollars in millions, except per common share results) | | | | | | | | | | | | | | | | | | |

| Summary of Operating Results | | | | | | | | | | | | | | | | | | | |

| Total revenues | $ | 64,888 | | | $ | 56,912 | | | $ | 53,767 | | | $ | 54,379 | | | $ | 54,289 | |

| Income from operations | 3,192 | | | | 3,100 | | | | 4,262 | | | | 1,741 | | | | 2,347 | | |

| Loss (gain) on Sale of Business | — | | | | 786 | | | | — | | | | — | | | | (270 | | ) |

| Interest expense | 242 | | | | 218 | | | | 242 | | | | 189 | | | | 186 | | |

| Other (income) expense, net | (506 | | ) | | 33 | | | | — | | | | — | | | | — | | |

| Income before income taxes and equity in net earnings | 3,456 | | | | 2,063 | | | | 4,020 | | | | 1,552 | | | | 2,431 | | |

| Provision for income taxes | 763 | | | | 391 | | | | 1,572 | | | | 938 | | | | 1,155 | | |

| Equity in net earnings of Kindred at Home | 14 | | | | 11 | | | | — | | | | — | | | | — | | |

| Net income | $ | 2,707 | | | $ | 1,683 | | | $ | 2,448 | | | $ | 614 | | | $ | 1,276 | |

| Basic earnings per common share | $ | 20.20 | | | $ | 12.24 | | | $ | 16.94 | | | $ | 4.11 | | | $ | 8.54 | |

| Diluted earnings per common share | $ | 20.10 | | | $ | 12.16 | | | $ | 16.81 | | | $ | 4.07 | | | $ | 8.44 | |

| Dividends declared per common share | $ | 2.20 | | | $ | 2.00 | | | $ | 1.60 | | | $ | 1.16 | | | $ | 1.15 | |

| Financial Position | | | | | | | | | | | | | | | | | | | |

| Cash and investments | $ | 15,432 | | | $ | 12,780 | | | $ | 16,344 | | | $ | 13,675 | | | $ | 11,681 | |

| Total assets | 29,074 | | | | 25,413 | | | | 27,178 | | | | 25,396 | | | | 24,678 | | |

| Benefits payable | 6,004 | | | | 4,862 | | | | 4,668 | | | | 4,563 | | | | 4,976 | | |

| Debt | 5,666 | | | | 6,069 | | | | 4,920 | | | | 4,092 | | | | 4,093 | | |

| Stockholders’ equity | 12,037 | | | | 10,161 | | | | 9,842 | | | | 10,685 | | | | 10,346 | | |

| Cash flows from operations | $ | 5,284 | | | $ | 2,173 | | | $ | 4,051 | | | $ | 1,936 | | | $ | 868 | |

| Key Financial Indicators | | | | | | | | | | | | | | | | | | | |

| Benefit ratio | 85.6 | | % | | 83.5 | | % | | 83.0 | | % | | 84.9 | | % | | 84.5 | | % |

| Operating cost ratio | 11.5 | | % | | 13.3 | | % | | 12.3 | | % | | 13.3 | | % | | 13.6 | | % |

| Membership | | | | | | | | | | | | | | | | | | | |

| Total medical membership | 16,667,200 | | | | 16,576,700 | | | | 14,003,100 | | | | 14,230,200 | | | | 14,222,800 | | |

| Total specialty membership | 5,425,900 | | | | 6,072,300 | | | | 6,986,000 | | | | 6,961,200 | | | | 7,221,800 | | |

| | |

| --- | --- |

| (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. |

| (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. |

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

| | [added: | | 2020 | | | | | |] 2019 | | | | [added: | |] 2018 | | |

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

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

| Current assets: | | | | | | | | [added: | | | |]

| Cash and cash equivalents | [added: | |] $ | [removed: 4,054] [added: 4,673] | | | [added: | |] $ | [removed: 2,343] [added: 4,054] | |

| Investment securities | [removed: 10,972] | | [added: 12,554] | | [removed: 10,026] | | | [added: | 10,972 | | |]

| Receivables, less allowance for doubtful accounts of [removed: $69] [added: $72] in [removed: 2019] [added: 2020] and [removed: $79] [added: $69] in [removed: 2018] [added: 2019] | [removed: 1,056] | | [added: 1,138] | | [removed: 1,015] | | | [added: | 1,056 | | |]

| Other current assets | [removed: 3,806] | | [added: 5,276] | | [removed: 3,564] | | | [added: | 3,806 | | |]

| Total current assets | [removed: 19,888] | | [added: 23,641] | | [removed: 16,948] | | | [added: | 19,888 | | |]

| Property and equipment, net | [removed: 1,955] | | [added: 2,371] | | [removed: 1,735] | | | [added: | 1,955 | | |]

| Long-term investment securities | [removed: 406] | | [added: 1,212] | | [removed: 411] | | | [added: | 406 | | |]

| Goodwill | [removed: 3,928] | | [added: 4,447] | | [removed: 3,897] | | | [added: | 3,928 | | |]

| [removed: Equity] [added: Purchase of equity] method investment in Kindred at Home | [removed: 1,063] | | [added: —] | | [removed: 1,047] | | | [added: | — | | | | | | (1,095) | | |]

| Other long-term assets | [removed: 1,834] | | [added: 2,128] | | [removed: 1,375] | | | [added: | 1,834 | | |]

| Total assets | [added: | |] $ | [removed: 29,074] [added: 34,969] | | | [added: | |] $ | [removed: 25,413] [added: 29,074] | |

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

| Current liabilities: | | | | | | | | [added: | | | |]

| Benefits payable | [added: | |] $ | [removed: 6,004] [added: 8,143] | | | [added: | |] $ | [removed: 4,862] [added: 6,004] | |

| Trade accounts payable and accrued expenses | [removed: 3,754] | | [added: 4,013] | | [removed: 3,067] | | | [added: | 3,754 | | |]

| Book overdraft | [removed: 225] | | [added: 320] | | [removed: 171] | | | [added: | 225 | | |]

| Unearned revenues | [removed: 247] | | [added: 318] | | [removed: 283] | | | [added: | 247 | | |]

| Short-term debt | [removed: 699] | | [added: 600] | | [removed: 1,694] | | | [added: | 699 | | |]

| Total current liabilities | [removed: 10,929] | | [added: 13,394] | | [removed: 10,077] | | | [added: | 10,929 | | |]

| Long-term debt | [removed: 4,967] | | [added: 6,060] | | [removed: 4,375] | | | [added: | 4,967 | | |]

| Future policy benefits payable | [removed: 206] | | [added: (3)] | | [removed: 219] | | | [added: | (3) | | |]

| Other long-term liabilities | [removed: 935] | | | | [removed: 581] | [added: (90)] | | [added: | | | | — | | | | | | (61) | | | | | | — | | |]

| Total liabilities | [removed: 17,037] | | [added: 21,241] | | [removed: 15,252] | | | [added: | 17,037 | | |]

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

| Stockholders’ equity: | | | | | | | | [added: | | | |]

| Preferred stock, $1 par; 10,000,000 shares authorized; none issued | [added: | |] — | | | | [added: | |] — | | |

| Common stock, $0.16 2/3 par; 300,000,000 shares authorized; [removed: 198,629,992] [added: 198,648,742] shares issued at December 31, [removed: 2019] [added: 2020] and [removed: 198,594,841] [added: 198,629,992] shares issued at December 31, [removed: 2018] [added: 2019] | [added: | |] 33 | | | | [added: | |] 33 | | |

| Capital in excess of par value | [removed: 2,820] | | [added: 2,705] | | [removed: 2,535] | | | [added: | 2,820 | | |]

| Retained earnings | [removed: 17,483] | | [added: 20,517] | | [removed: 15,072] | | | [added: | 17,483 | | |]

| Accumulated other comprehensive income (loss) | [removed: 156] | | [added: 391] | | [removed: (159] | | [removed: )] | [added: | 156 | | |]

| Treasury stock, at cost, [removed: 66,524,771] [added: 69,787,614] shares at December 31, [removed: 2019] [added: 2020] and [removed: 63,028,169] [added: 66,524,771] shares at December 31, [removed: 2018] [added: 2019] | [removed: (8,455] | | [removed: )] [added: (9,918)] | | [removed: (7,320] | | [removed: )] | [added: | (8,455) | | |]

| Total stockholders’ equity | [removed: 12,037] | | [added: 13,728] | | [removed: 10,161] | | | [added: | 12,037 | | |]

| Total liabilities and stockholders’ equity | [added: | |] $ | [removed: 29,074] [added: 34,969] | | | [added: | |] $ | [removed: 25,413] [added: 29,074] | |

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

| | [removed: 2019] | | [added: 2020] | | [removed: 2018] | | | | [removed: 2017] [added: 2019] | | | [added: | | | 2018 | | |]

| Equity method investments | | | 1,170 | | | | | | 1,063 | | |

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

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

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

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

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

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

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

| Impact of adopting accounting standard | | | | | | | | | | | | | | | | | | | | | (2) | | | | | | | | | | | | | | | | | | (2) | | |

| Common stock repurchases | | | — | | | | | | | | | | | | (263) | | | | | | | | | | | | | | | | | | (1,557) | | | | | | (1,820) | | |

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

| Balances, December 31, 2020 | | | 198,649 | | | | | | $ | 33 | | | | | $ | 2,705 | | | | | $ | 20,517 | | | | | $ | 391 | | | | | $ | (9,918) | | | | | $ | 13,728 | |

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

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

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

| Net income | | | $ | 3,367 | | | | | $ | 2,707 | | | | | $ | 1,683 | |

| Gains on investment securities, net | | | (838) | | | | | | (62) | | | | | | (90) | | |

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

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

| Repayment of senior notes | | | (400) | | | | | | (400) | | | | | | — | | |

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

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

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

COVID-19

The emergence and spread of COVID-19 has impacted our business.

Beginning in the second half of March 2020, the implementation of stay-at-home and physical distancing orders and other restrictions on movement and economic activity resulted in the temporary deferral of non-essential care and significant reduction in hospital admissions and overall healthcare system utilization during April 2020.

Non-COVID utilization then began to increase during May and June 2020, and continued to rebound throughout the third quarter and early in the fourth quarter of 2020, reaching approximately 95% of historic baseline levels as of the end of October 2020.

Then, in the latter half of November and accelerating throughout the month of December, we experienced a significant increase in COVID-19 admissions in nearly all of the markets in which we operate across our Medicare Advantage, Medicaid, and group commercial insurance business lines, resulting in higher COVID-19 treatment and testing costs.

During this period, we also experienced a corresponding decline in non-COVID utilization in all service categories to well below the near baseline levels of non-COVID utilization witnessed as late as the end of October 2020 (with non-COVID utilization in our Medicare Advantage business running approximately 15%

below normal levels at the close of the fourth quarter of 2020).

The impact of this decline in non-COVID utilization more than offset the higher COVID-19 treatment and testing costs during this period.

Our 2020 results were also impacted by our ongoing pandemic relief efforts and strategic investments in our integrated care delivery model.

We initiated an involuntary workforce reduction program during 2019.

This program impacted approximately 1,000 associates.

On April 27, 2020, the U.S. Supreme Court ruled that the government is obligated to pay the losses under this risk corridor program, and that Congress did not impliedly repeal the obligation under its appropriations riders.

In September 2020, we received a $609 million payment from the U.S Government pursuant to the judgement issued by the Court of Federal Claims on July 7, 2020.

The $609 million payment received from the U.S Government and approximately $31 million in related fees and expenses are reflected in Premiums revenue and Operating costs, respectively, in our consolidated statements of income for the year ended December 31, 2020 and reported in the Corporate segment.

Humana Inc.

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

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| Balances, January 1, 2017 | 198,495 | | | $ | 33 | | | $ | 2,562 | | | $ | 11,454 | | | $ | (66 | ) | | $ | (3,298 | ) | | $ | 10,685 | |

| Common stock repurchases | | | | | | | | (200 | | ) | | | | | | | | | | (3,165 | | ) | | (3,365 | | ) |

| Purchase of equity method investment in Kindred at Home | — | | | | (1,095 | | ) | | — | | |

We initiated involuntary workforce reduction programs during 2019 and 2017, as well as a voluntary early retirement program during 2017.

These programs impacted approximately 1,000 associates in 2019 and 3,600 associates in 2017.

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Aetna Merger

On February 16, 2017, under the terms of the Agreement and Plan of Merger, or Merger Agreement, 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, which is included in our consolidated statement of income in the line captioned "Merger termination fee and related costs, net."

Operating results for our individual commercial medical business compliant with the Health Care Reform Law were challenged primarily due to unanticipated modifications in the program subsequent to the passing of the Health Care Reform Law, resulting in higher covered population morbidity and the ensuing enrollment and claims issues causing volatility in claims experience.

As a result of these and other factors, we exited our individual commercial medical business effective January 1, 2018.

The Consolidated Appropriations Act enacted on December 18, 2015, included a one year suspension in 2017 of the health insurance industry fee.

Investment securities available for current operations are classified as current assets.

In the event of a credit loss,

A decline in fair value is considered other-than-temporary when we do not expect to recover the entire amortized cost basis of the security.

Life insurance, annuities, certain health and other supplemental, and, prior to the sale of our wholly-owned subsidiary, KMG America Corporation, or KMG, in 2018, long term care policies sold to individuals are accounted for as long-duration insurance products because they are expected to remain in force for an extended period beyond one year and premium received in the earlier years is intended to pay anticipated benefits to be incurred in future years*.* 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.

Deferred acquisition costs are reviewed to determine if they are recoverable from future income.

A 100 basis point increase in the discount rate would not have a significant impact on the amount of margin for any of our reporting units with significant goodwill, with the exception of our clinical and provider reporting units in our Healthcare Services segment.

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

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.

The clinical and provider reporting units account for $524 million and $761 million, respectively, of goodwill.

For periods prior to the most recent two months, the key assumption used in estimating our IBNR is that the completion factor pattern remains consistent over a rolling 12-month period after adjusting for known changes in claim inventory levels and known changes in claim payment processes.

Future policy benefits payable include liabilities for long-duration insurance policies including life insurance, annuities, certain health and other supplemental, and prior to the sale of KMG in 2018, long-term care policies sold to individuals for which some of the premium received in the earlier years is intended to pay anticipated benefits to be incurred in future years.

At policy issuance, these reserves are recognized on a net level premium method based on interest rates, mortality, morbidity, and maintenance expense assumptions.

Interest rates are based on our expected net investment returns on the investment portfolio supporting the reserves for these blocks of business.

Mortality, a measure of expected death, and morbidity, a measure of health status, assumptions are based on industry actuarial tables, modified based upon actual experience.

Changes in estimates of these reserves are recognized as an adjustment to benefits expense in the period the changes occur.

We perform loss recognition tests at least annually in the fourth quarter, and more frequently if adverse events or changes in circumstances indicate that the level of the liability, together with the present value of future gross premiums, may not be adequate to provide for future expected policy benefits and maintenance costs.

We adjust future policy benefits payable for the additional liability that would have been recorded if investment securities backing the liability had been sold at their stated aggregate fair value and the proceeds reinvested at current yields.

Based on our evaluation as of December 31, [removed: 2019,] [added: 2020,] 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.

We assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, [removed: 2019.][added: 2020.]

Based on our assessment, we determined that, as of December 31, [removed: 2019,] [added: 2020,] the Company’s internal control over financial reporting was effective based on those criteria.

The effectiveness of our internal control over financial reporting as of December 31, [removed: 2019] [added: 2020] has been audited by PricewaterhouseCoopers LLP, our independent registered public accounting firm, who also audited the Company’s consolidated financial statements included in our Annual Report on Form 10-K, as stated in their report which appears on [removed: page 120.][added: pages 121-123.]

There have been no changes in the Company’s internal control over financial reporting during the quarter ended December 31, [removed: 2019] [added: 2020] that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

The information required by this Item is herein incorporated by reference from our [added: Definitive] Proxy Statement for the Annual Meeting of Stockholders scheduled to be held on April [removed: 23, 2020] [added: 22, 2021] appearing under the caption “Proposal One: Election of Directors” in such [added: Definitive] Proxy Statement.

The Code is available on [added: the Investor Relations section of] our web site at www.humana.com, and any waiver of the application of the Code with respect to directors or executive officers must be made by the Board of Directors and will be promptly disclosed on our web site at www.humana.com.

Also available on [added: the Investor Relations section of] our Internet web site [added: at www.humana.com] is information about our corporate governance, including:

[removed: | • |] [added: -] a determination of independence for each member of our Board of Directors; [removed: |]

[removed: | • |] [added: -] the name, membership, role, and charter of each of the various committees of our Board of Directors; [removed: |]

[removed: | • |] [added: -] the name(s) of the directors designated as a financial expert under rules and regulations promulgated by the SEC; [removed: |]

[removed: | • |] [added: -] the responsibility of the Company’s Lead Independent Director, if applicable, to convene, set the agenda for, and lead executive sessions of the non-management [removed: directors; |][added: directors, pursuant to our Corporate Governance Guidelines;]

[removed: | • |] [added: -] the pre-approval process of non-audit services provided by our independent accountants; [removed: |]

[removed: | • |] [added: -] our By-laws and Certificate of Incorporation; [removed: |]

[removed: | • |] [added: -] our Majority Vote [removed: policy; |][added: policy, pursuant to our By-laws;]

[removed: | • |] [added: -] our Related Persons Transaction Policy; [removed: |]

[removed: | • |] [added: -] the process by which interested parties can communicate with directors; [removed: |]

[removed: | • |] [added: -] the process by which stockholders can make director nominations (pursuant to our By-laws); [removed: |]

[removed: | • |] [added: -] our Corporate Governance Guidelines; [removed: |]

[removed: | • |] [added: -] our Policy Regarding Transactions in Company Securities, Inside Information and Confidentiality; [removed: |]

[removed: | • |] [added: -] Stock Ownership Guidelines for directors and for executive officers; [removed: |]

[removed: | • |] [added: -] the Humana Inc. Ethics Every Day and any waivers thereto; and [removed: |]

[removed: | • |] [added: -] the Code of Conduct for the Chief Executive Officer and Senior Financial Officers and any waivers thereto. [removed: |]

Additional information about these items can be found in, and is incorporated by reference to, our [added: Definitive] Proxy Statement for the Annual Meeting of Stockholders scheduled to be held on April [removed: 23, 2020.][added: 22, 2021.]

The information required by this Item is herein incorporated by reference from our [added: Definitive] Proxy Statement for the Annual Meeting of Stockholders scheduled to be held on April [removed: 23, 2020] [added: 22, 2021] appearing under the caption “Corporate Governance – Audit Committee” of such [added: Definitive] Proxy Statement.

The information required by this Item is herein incorporated by reference from our [added: Definitive] Proxy Statement for the Annual Meeting of Stockholders scheduled to be held on April [removed: 23, 2020] [added: 22, 2021] appearing under the caption “Corporate Governance – Committee Membership and Attendance” of such [added: Definitive] Proxy Statement.

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Additional information required by this Item is incorporated herein by reference from our [added: Definitive] Proxy Statement for the Annual Meeting of Stockholders scheduled to be held on April [removed: 23, 2020.][added: 22, 2021.]

Information concerning stock option awards and the number of securities remaining available for future issuance under our equity compensation plans in effect as of December 31, [removed: 2019] [added: 2020] follows:

| Plan category | [removed: (a) Number] [added: | | (a) Number] of [removed: securities to] [added: securities to] be issued [removed: upon exercise] [added: upon exercise] of [removed: outstanding options, warrants and] [added: outstanding options, warrants and] rights | | | [removed: (b) Weighted-average exercise] [added: | | | (b) Weighted-average exercise] price [removed: of outstanding options, warrants and] [added: of outstanding options, warrants and] rights | | | | [added: | |] (c) Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column(a)) | | | | [added: | | | | |]

| Equity compensation plans [added: not] approved by security holders [removed: (1)] | [removed: 493,723] | | [added: —] | [removed: $] | [removed: 250.460] | | | [removed: 19,627,620] | [added: —] | | [removed: (2)(3)(4)] | [added: | | | — | | | | | | | | |]