Cover and table of contents

156K characters. Original on sec.gov · Markdown

Cover and table of contents

Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2021

OR

☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number 1-5975

HUMANA INC.

(Exact name of registrant as specified in its charter)
Delaware61-0647538
(State or other jurisdiction of incorporation or organization)(I.R.S. Employer Identification No.)

500 West Main Street

Louisville, Kentucky 40202

(Address of principal executive offices, including zip code)

(502) 580-1000

(Registrant’s telephone number, including area code)

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

Title of each classTrading SymbolName of each exchange on which registered
Common stock, $0.16 2/3 par valueHUMNew York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer☒Accelerated filer☐
Non-accelerated filer☐Smaller reporting company☐
Emerging growth company☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒

Indicate the number of shares outstanding of each of the issuer’s classes of common stock as of the latest practicable date.

Class of Common StockOutstanding at September 30, 2021
$0.16 2/3 par value128,534,291 shares

Table of Contents

Humana Inc.

FORM 10-Q

SEPTEMBER 30, 2021

INDEX

Page
Part I: Financial Information
Item 1.Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets at September 30, 2021 and December 31, 20203
Condensed Consolidated Statements of Income for the three and nine months ended September 30, 2021 and 20204
Condensed Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2021 and 20205
Condensed Consolidated Statements of Stockholders' Equity for the three and nine months ended September 30, 2021 and 20206
Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2021 and 20208
Notes to Condensed Consolidated Financial Statements10
Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations37
Item 3.Quantitative and Qualitative Disclosures about Market Risk59
Item 4.Controls and Procedures59
Part II: Other Information
Item 1.Legal Proceedings60
Item 1A.Risk Factors60
Item 2.Unregistered Sales of Equity Securities and Use of Proceeds60
Item 3.Defaults Upon Senior Securities61
Item 4.Mine Safety Disclosures61
Item 5.Other Information61
Item 6.Exhibits62
Signatures63
Certifications

Humana Inc.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

September 30, 2021December 31, 2020
(in millions, except share amounts)
A****SSETS
Current assets:
Cash and cash equivalents$4,304$4,673
Investment securities13,71912,554
Receivables, less allowance for doubtful accounts of $82 in 2021 and $72 in 20201,8791,138
Other current assets5,9135,276
Total current assets25,81523,641
Property and equipment, net2,8982,371
Long-term investment securities1,0951,212
Equity method investments1431,170
Goodwill10,8064,447
Other long-term assets4,5632,128
Total assets$45,320$34,969
L****IABILITIES AND STOCKHOLDERS’ E****QUITY
Current liabilities:
Benefits payable$8,758$8,143
Trade accounts payable and accrued expenses4,9574,013
Book overdraft240320
Unearned revenues277318
Short-term debt795600
Total current liabilities15,02713,394
Long-term debt11,4666,060
Other long-term liabilities2,5451,787
Total liabilities29,03821,241
Stockholders’ equity:
Preferred stock, $1 par; 10,000,000 shares authorized; none issued——
Common stock, $0.16 2/3 par; 300,000,000 shares authorized; 198,648,742 shares issued at September 30, 2021 and December 31, 20203333
Capital in excess of par value3,0642,705
Retained earnings23,19120,517
Accumulated other comprehensive income145391
Treasury stock, at cost, 70,114,451 shares at September 30, 2021 and 69,787,614 shares at December 31, 2020(10,173)(9,918)
Noncontrolling interests22—
Total stockholders’ equity16,28213,728
Total liabilities and stockholders’ equity$45,320$34,969

See accompanying notes to condensed consolidated financial statements.

Humana Inc.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

Three months ended September 30,Nine months ended September 30,
2021202020212020
(in millions, except per share results)
Revenues:
Premiums$19,885$18,904$59,987$55,822
Services8454571,8021,331
Investment (loss) income(33)714221940
Total revenues20,69720,07562,01058,093
Operating expenses:
Benefits17,31615,61151,76145,415
Operating costs2,6032,5136,7266,984
Depreciation and amortization150128436362
Total operating expenses20,06918,25258,92352,761
Income from operations6281,8233,0875,332
Interest expense8875235211
Other (income) expense, net(1,096)(7)(562)63
Income before income taxes and equity in net earnings1,6361,7553,4145,058
Provision for income taxes1204505361,485
Equity in net earnings15356968
Net income$1,531$1,340$2,947$3,641
Less: Net income attributable to noncontrolling interests————
Net income attributable to Humana$1,531$1,340$2,947$3,641
Basic earnings per common share$11.91$10.12$22.90$27.53
Diluted earnings per common share$11.84$10.05$22.77$27.37

See accompanying notes to condensed consolidated financial statements.

Humana Inc.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

Three months ended September 30,Nine months ended September 30,
2021202020212020
(in millions)
Net income$1,531$1,340$2,947$3,641
Other comprehensive income:
Change in gross unrealized investment (losses) gains(63)66(247)332
Effect of income taxes14(15)56(78)
Total change in unrealized investment (losses) gains, net of tax(49)51(191)254
Reclassification adjustment for net realized gains(16)(1)(80)(48)
Effect of income taxes4—1910
Total reclassification adjustment, net of tax(12)(1)(61)(38)
Other comprehensive (loss) gain, net of tax(61)50(252)216
Comprehensive (loss) income attributable to equity method investments(10)36(2)
Comprehensive income (loss) attributable to noncontrolling interests————
Comprehensive income attributable to Humana$1,460$1,393$2,701$3,855

See accompanying notes to condensed consolidated financial statements.

Humana Inc.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(Unaudited)

Common StockCapital In Excess of Par ValueRetained EarningsAccumulated Other Comprehensive Income (loss)Treasury StockNoncontrolling InterestsTotal Stockholders’ Equity
Issued SharesAmount
(dollars in millions, share amounts in thousands)
Three months ended September 30, 2021
Balances, June 30, 2021198,649$33$3,018$21,751$216$(10,175)$—$14,843
Net income1,531—1,531
Acquisition2222
Other comprehensive loss(71)(71)
Common stock repurchases—(3)(3)
Dividends and dividend equivalents(91)(91)
Stock-based compensation4848
Restricted stock unit vesting——(3)3—
Stock option exercises——123
Balances, September 30, 2021198,649$33$3,064$23,191$145$(10,173)$22$16,282
Three months ended September 30, 2020
Balances, June 30, 2020198,630$33$2,898$19,616$317$(8,448)$—$14,416
Net income1,340—1,340
Other comprehensive income5353
Common stock repurchases19—(5)(5)
Dividends and dividend equivalents(84)(84)
Stock-based compensation4747
Restricted stock unit vesting——(6)6—
Stock option exercises——1—1
Balances, September 30, 2020198,649$33$2,940$20,872$370$(8,447)$—$15,768

See accompanying notes to condensed consolidated financial statements.

Humana Inc.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(Unaudited)

Common StockCapital In Excess of Par ValueRetained EarningsAccumulated Other Comprehensive IncomeTreasury StockNoncontrolling InterestsTotal Stockholders’ Equity
Issued SharesAmount
(dollars in millions, share amounts in thousands)
Nine months ended September 30, 2021
Balances, December 31, 2020198,649$33$2,705$20,517$391$(9,918)$—$13,728
Net income2,947—2,947
Acquisition2222
Other comprehensive loss(246)(246)
Common stock repurchases263(299)(36)
Dividends and dividend equivalents(273)(273)
Stock-based compensation132132
Restricted stock unit vesting——(40)40—
Stock option exercises——448
Balances, September 30, 2021198,649$33$3,064$23,191$145$(10,173)$22$16,282
Nine months ended September 30, 2020
Balances, December 31, 2019198,630$33$2,820$17,483$156$(8,455)$—$12,037
Net income3,641—3,641
Impact of adopting ASC 326 - Current expected credit loss standard (CECL)(2)—(2)
Other comprehensive income214214
Common stock repurchases19—(30)(30)
Dividends and dividend equivalents(250)(250)
Stock-based compensation129129
Restricted stock unit vesting——(21)21—
Stock option exercises——121729
Balances, September 30, 2020198,649$33$2,940$20,872$370$(8,447)$—$15,768

See accompanying notes to condensed consolidated financial statements.

Humana Inc.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

For the nine months ended September 30,
20212020
(in millions)
Cash flows from operating activities
Net income$2,947$3,641
Adjustments to reconcile net income to net cash provided by operating activities:
Losses (gains) on investment securities, net18(696)
Gain on Kindred at Home equity method investment(1,129)—
Equity in net earnings(69)(68)
Stock-based compensation132129
Depreciation468390
Amortization5166
Benefit for deferred income taxes—(3)
Changes in operating assets and liabilities, net of effect of businesses acquired:
Receivables(294)(82)
Other assets(476)(1,547)
Benefits payable5732,204
Other liabilities2071,257
Unearned revenues(84)40
Other1425
Net cash provided by operating activities2,3585,356
Cash flows from investing activities
Acquisitions, net of cash and cash equivalents acquired(3,959)(709)
Purchases of property and equipment, net(945)(668)
Purchases of investment securities(6,573)(7,230)
Proceeds from maturities of investment securities2,1033,500
Proceeds from sales of investment securities2,9202,097
Net cash used in investing activities(6,454)(3,010)
Cash flows from financing activities
Receipts (withdrawals) from contract deposits, net605(274)
Proceeds from issuance of senior notes, net2,9841,088
Proceeds from issuance of commercial paper, net19321
Proceeds from term loan5001,000
Repayment of term loan(150)—
Debt issue costs(29)—
Change in book overdraft(80)(11)
Common stock repurchases(36)(30)
Dividends paid(263)(239)
Proceeds from stock option exercises and other, net330
Net cash provided by financing activities3,7271,585
(Decrease) increase in cash and cash equivalents(369)3,931
Cash and cash equivalents at beginning of period4,6734,054
Cash and cash equivalents at end of period$4,304$7,985

Humana Inc.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS—(Continued)

(Unaudited)

For the nine months ended September 30,
20212020
(in millions)
Supplemental cash flow disclosures:
Interest payments$183$159
Income tax payments, net$219$778
Details of businesses acquired in purchase transactions:
Fair value of assets acquired, net of cash acquired$9,572$816
Less: Fair value of liabilities assumed(3,231)(107)
Less: Noncontrolling interests acquired(22)—
Less: Remeasured existing Kindred at Home equity method investment(2,360)—
Cash paid for acquired businesses, net of cash acquired$3,959$709

See accompanying notes to condensed consolidated financial statements.

Table of Contents

Humana Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. BASIS OF PRESENTATION AND SIGNIFICANT EVENTS

The accompanying condensed consolidated financial statements are presented in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the disclosures normally required by accounting principles generally accepted in the United States of America, or GAAP, or those normally made in an Annual Report on Form 10-K. The year-end condensed consolidated balance sheet data was derived from audited financial statements, but does not include all disclosures required by GAAP. For further information, the reader of this Form 10-Q should refer to our Form 10-K for the year ended December 31, 2020, that was filed with the Securities and Exchange Commission, or the SEC, on February 18, 2021. We refer to the Form 10-K as the “2020 Form 10-K” in this document. References throughout this document to “we,” “us,” “our,” “Company,” and “Humana” mean Humana Inc. and its subsidiaries.

The preparation of our condensed consolidated financial statements in accordance with GAAP requires us to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and accompanying notes. The areas involving the most significant use of estimates are the estimation of benefits payable, the impact of risk adjustment provisions related to our Medicare contracts, the valuation and related impairment recognition of investment securities, and the valuation and related impairment recognition of long-lived assets, including goodwill. These estimates are based on knowledge of current events and anticipated future events, and accordingly, actual results may ultimately differ materially from those estimates. Refer to Note 2 to the consolidated financial statements included in our 2020 Form 10-K for information on accounting policies that we consider in preparing our consolidated financial statements. Since the filing of our 2020 Form 10-K we have acquired noncontrolling interest and indefinite-lived intangible assets as part of our acquisition of Kindred at Home, or KAH, during the third quarter of 2021. See Note 3 for further information. We have updated our accounting policies accordingly.

The financial information has been prepared in accordance with our customary accounting practices and has not been audited. In our opinion, the information presented reflects all adjustments necessary for a fair statement of interim results. All such adjustments are of a normal and recurring nature.

Indefinite-lived Assets

We are required to annually compare the fair values of other indefinite-lived intangible assets to their carrying amounts. If the carrying amount of an indefinite-lived intangible asset exceeds its fair value, an impairment loss is recognized. Fair values of indefinite-lived intangible assets are determined based on the income approach.

Noncontrolling Interests

The consolidated financial statements include all assets, liabilities, revenues and expenses of less than 100% owned affiliates that we control. Accordingly, we record noncontrolling interests in the earnings and equity of such entities. We record adjustments to noncontrolling interests for the allocable portion of income or loss to which the noncontrolling interest holders are entitled based upon their portion of the subsidiaries they own. Distributions to holders of noncontrolling interests are adjusted to the respective noncontrolling interest holders’ balances. Noncontrolling interests, which relate to the minority ownership held by third party investors in certain of our Home Health Solutions business, are reported below net income under the heading “Net income attributable to noncontrolling interest” in the condensed consolidated statements of income and presented as a component of equity in the condensed consolidated balance sheets.

COVID-19

The emergence and spread of the novel coronavirus, or COVID-19, beginning in the first quarter of 2020 has impacted our business. During periods of increased incidences of COVID-19, non-essential care from a reduction in non-COVID-19 hospital admissions and lower overall healthcare system consumption decreased utilization. Likewise COVID-19 treatment and testing cost increased utilization. The significant disruption in utilization during

Table of Contents

Humana Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

2020 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, and, as such, is significantly affecting our 2021 revenue under the risk adjustment payment model for Medicare Advantage plans.

Revenue Recognition

Our revenues include premium and service revenues. Service revenues include administrative service fees that are recorded based upon established per member per month rates and the number of members for the month and are recognized as services are provided for the month. Additionally, service revenues include net patient service revenues that are recorded based upon established billing rates, less allowances for contractual adjustments, and are recognized as services are provided. For more information about our revenues, refer to Note 2 to the consolidated financial statements included in our 2020 Form 10-K for information on accounting policies that we consider in preparing our consolidated financial statements. See Note 14 for disaggregation of revenue by segment and type.

At September 30, 2021, accounts receivable related to services were $578 million. For the three and nine months ended September 30, 2021, we had no material bad-debt expense and there were no material contract assets, contract liabilities or deferred contract costs recorded on the condensed consolidated balance sheet at September 30, 2021.

For the three and nine months ended September 30, 2021, services revenue recognized from performance obligations related to prior periods (for example, due to changes in transaction price), was not material. Further, services revenue expected to be recognized in any future year related to remaining performance obligations was not material.

2. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

In September 2018, the FASB issued new guidance related to accounting for long-duration contracts of insurers which revises key elements of the measurement models and disclosure requirements for long-duration contracts issued by insurers, including the amortization of deferred contract acquisition costs and the measurement of liabilities for future policy benefits using current, rather than locked-in assumptions. The new guidance is effective for us beginning with annual and interim periods in 2023, with earlier adoption permitted, and are to be applied to contracts in force or at the beginning of the earliest period presented, with an option to apply retrospectively with a cumulative effect adjustment to the opening balances of retained earnings as of the earliest period presented. We are currently evaluating the impact on our results of operations, financial position and cash flows.

There are no other recently issued accounting standards that apply to us or that are expected to have a material impact on our results of operations, financial condition, or cash flows.

Table of Contents

Humana Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

3. ACQUISITIONS

On August 17, 2021, we acquired the remaining 60% interest in Kindred at Home, or KAH, the nation’s largest home health and hospice provider, from TPG Capital, or TPG, and Welsh, Carson, Anderson & Stowe, or WCAS, two private equity funds, or the Sponsors, for an enterprise value of $8.2 billion, which includes our equity value of $2.4 billion associated with our 40% minority ownership interest. The remeasurement to fair value of our previously held 40% equity method investment with a carrying value of approximately $1.3 billion, resulted in a $1.1 billion gain recognized in "Other (income) expense, net". KAH has locations in 40 states, providing extensive geographic coverage with approximately 65% overlap with our individual Medicare Advantage membership. We paid the approximate $5.8 billion transaction price (net of our existing equity stake) through a combination of debt financing, the assumption of existing KAH indebtedness and parent company cash. The preliminary fair values of KAH’s assets acquired and liabilities assumed at the date of the acquisition are summarized as follows:

Kindred at Home
($ in millions)
Cash and cash equivalents$278
Receivables424
Other current assets63
Property and equipment74
Goodwill5,778
Other intangible assets2,325
Other long-term assets172
Total assets acquired$9,114
Current liabilities$452
Long term debt2,078
Other long-term liabilities392
Total liabilities assumed$2,922
Non-controlling interests22
Net assets acquired$6,170

The other intangible assets primarily consist of Certificate of Needs (CON) and Medicare licenses which have indefinite lives. Amortizing trade names included in other intangibles assets of approximately $18 million have an estimated weighted average useful life of 10 years. The goodwill, allocated to our Healthcare Services segment, primarily relates to the future economic benefit arising from the assets acquired and is consistent with our integrated care delivery strategy. Approximately $132 million of the goodwill is deductible for tax purposes. The purchase price allocation is preliminary, subject to completion of valuation analyses, including, for example, refining assumptions used to calculate the fair value of other intangible assets. The results of operations and financial condition of KAH have been included in our condensed consolidated statements of income and condensed consolidated balance sheets from the acquisition date. In connection with the acquisition, we recognized approximately $45 million of acquisition-related costs, primarily compensation costs as well as banker and other professional fees, in operating costs in our condensed consolidated statements of income. The comparative proforma financial information assuming the acquisition had occurred as of January 1, 2020 was not material to our results of operations.

During 2021 and 2020, we acquired various health and wellness related businesses which, individually or in the aggregate, have not had a material impact on our results of operations, financial condition, or cash flows. The results of operations and financial condition of these businesses acquired in 2021 and 2020 have been included in our condensed consolidated statements of income and condensed consolidated balance sheets from the respective acquisition dates. Acquisition-related costs recognized in 2021 and 2020 were not material to our results of

Table of Contents

Humana Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

operations. The pro forma financial information assuming the acquisitions had occurred as of the beginning of the calendar year prior to the year of acquisition, as well as the revenues and earnings generated during the year of acquisition, were not material for disclosure purposes.

4. INVESTMENT SECURITIES

Investment securities classified as current and long-term were as follows at September 30, 2021 and December 31, 2020, respectively:

Amortized CostGross Unrealized GainsGross Unrealized LossesFair Value
(in millions)
September 30, 2021
U.S. Treasury and other U.S. government corporations and agencies:
U.S. Treasury and agency obligations$656$1$(7)$650
Mortgage-backed securities3,69969(46)3,722
Tax-exempt municipal securities85335(2)886
Mortgage-backed securities:
Residential392—(3)389
Commercial1,43837(7)1,468
Asset-backed securities1,3947(1)1,400
Corporate debt securities5,493152(47)5,598
Total debt securities$13,925$301$(113)14,113
Common stock701
Total investment securities$14,814
December 31, 2020
U.S. Treasury and other U.S. government corporations and agencies:
U.S. Treasury and agency obligations$616$1$(1)$616
Mortgage-backed securities3,115140(1)3,254
Tax-exempt municipal securities1,39354—1,447
Mortgage-backed securities:
Residential17——17
Commercial1,26059(1)1,318
Asset-backed securities1,36410(2)1,372
Corporate debt securities4,672256(1)4,927
Total debt securities$12,437$520$(6)12,951
Common stock815
Total investment securities$13,766

Table of Contents

Humana Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

Gross unrealized losses and fair values aggregated by investment category and length of time of individual debt securities that have been in a continuous unrealized loss position for which no allowances for credit loss has been recorded were as follows at September 30, 2021 and December 31, 2020, respectively:

Less than 12 months12 months or moreTotal
Fair ValueGross Unrealized LossesFair ValueGross Unrealized LossesFair ValueGross Unrealized Losses
(in millions)
September 30, 2021
U.S. Treasury and other U.S. government corporations and agencies:
U.S. Treasury and agency obligations$261$(4)$181$(3)$442$(7)
Mortgage-backed securities2,555(41)231(5)2,786(46)
Tax-exempt municipal securities77(1)28(1)105(2)
Mortgage-backed securities:
Residential348(3)——348(3)
Commercial340(6)98(1)438(7)
Asset-backed securities296(1)277—573(1)
Corporate debt securities1,589(39)223(8)1,812(47)
Total debt securities$5,466$(95)$1,038$(18)$6,504$(113)
December 31, 2020
U.S. Treasury and other U.S. government corporations and agencies:
U.S. Treasury and agency obligations$225$(1)$—$—$225$(1)
Mortgage-backed securities199(1)——199(1)
Tax-exempt municipal securities16—19—35—
Mortgage-backed securities:
Residential17———17—
Commercial193(1)43—236(1)
Asset-backed securities65—498(2)563(2)
Corporate debt securities342(1)16—358(1)
Total debt securities$1,057$(4)$576$(2)$1,633$(6)

Approximately 96% of our debt securities were investment-grade quality, with a weighted average credit rating of AA- by Standard & Poor's Rating Service, or S&P, at September 30, 2021. Most of the debt securities that were below investment-grade were rated BB, the higher end of the below investment-grade rating scale. Tax-exempt municipal securities were diversified among general obligation bonds of states and local municipalities in the United States as well as special revenue bonds issued by municipalities to finance specific public works projects such as utilities, water and sewer, transportation, or education. Our general obligation bonds are diversified across the

Table of Contents

Humana Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

United States with no individual state exceeding 1% of our total debt securities. Our investment policy limits investments in a single issuer and requires diversification among various asset types.

Our unrealized losses from all debt securities were generated from approximately 540 positions out of a total of approximately 1,740 positions at September 30, 2021. All issuers of debt securities we own that were trading at an unrealized loss at September 30, 2021 remain current on all contractual payments. After taking into account these and other factors previously described, we believe these unrealized losses primarily were caused by an increase in market interest rates in the current markets since the time these debt securities were purchased. At September 30, 2021, we did not intend to sell any debt securities with an unrealized loss position in accumulated other comprehensive income, and it is not likely that we will be required to sell these debt securities before recovery of their amortized cost basis. Additionally, we did not record any material credit allowances for debt securities that were in an unrealized loss position for the three and nine months ended September 30, 2021 and 2020.

The detail of gains (losses) related to investment securities and included within investment income was as follows for the three and nine months ended September 30, 2021 and 2020:

Three months ended September 30,Nine months ended September 30,
2021202020212020
(in millions)(in millions)
Gross gains on investment securities$71$2$180$71
Gross losses on investment securities(1)—(1)(18)
Net (losses) gains on equity securities(174)643(197)643
Net (losses) gains on investment securities$(104)$645$(18)$696

Purchases of and proceeds from investment securities for the three and nine months ended September 30, 2021 and 2020 relate primarily to debt securities.

The contractual maturities of debt securities available for sale at September 30, 2021, regardless of their balance sheet classification, are shown below. Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

Amortized CostFair Value
(in millions)
Due within one year$543$547
Due after one year through five years2,1852,254
Due after five years through ten years2,9192,966
Due after ten years1,3551,367
Mortgage and asset-backed securities6,9236,979
Total debt securities$13,925$14,113

Table of Contents

Humana Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

5. FAIR VALUE

Financial Assets

The following table summarizes our fair value measurements at September 30, 2021 and December 31, 2020, respectively, for financial assets measured at fair value on a recurring basis:

Fair Value Measurements Using
Fair ValueQuoted Prices in Active Markets (Level 1)Other Observable Inputs (Level 2)Unobservable Inputs (Level 3)
(in millions)
September 30, 2021
Cash equivalents$3,894$3,894$—$—
Debt securities:
U.S. Treasury and other U.S. government corporations and agencies:
U.S. Treasury and agency obligations650—650—
Mortgage-backed securities3,722—3,722—
Tax-exempt municipal securities886—886—
Mortgage-backed securities:
Residential389—389—
Commercial1,468—1,468—
Asset-backed securities1,400—1,400—
Corporate debt securities5,598—5,598—
Total debt securities14,113—14,113—
Common stock701701——
Total invested assets$18,708$4,595$14,113$—
December 31, 2020
Cash equivalents$4,548$4,548$—$—
Debt securities:
U.S. Treasury and other U.S. government corporations and agencies:
U.S. Treasury and agency obligations616—616—
Mortgage-backed securities3,254—3,254—
Tax-exempt municipal securities1,447—1,447—
Mortgage-backed securities:
Residential17—17—
Commercial1,318—1,318—
Asset-backed securities1,372—1,372—
Corporate debt securities4,927—4,927—
Total debt securities12,951—12,951—
Common stock815815——
Total invested assets$18,314$5,363$12,951$—

Table of Contents

Humana Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

Financial Liabilities

Our debt is recorded at carrying value in our consolidated balance sheets. The carrying value of our senior notes debt outstanding, net of unamortized debt issuance costs, was $9.0 billion at September 30, 2021 and $6.1 billion at December 31, 2020. The fair value of our senior notes debt was $10.1 billion at September 30, 2021 and $7.4 billion at December 31, 2020. The fair value of our senior notes debt is determined based on Level 2 inputs, including quoted market prices for the same or similar debt, or if no quoted market prices are available, on the current prices estimated to be available to us for debt with similar terms and remaining maturities. Due to the short-term duration, carrying value approximates fair value for our term loans and commercial paper borrowings. The term loans, including the assumption of Kindred at Home's term loan, and commercial paper borrowings were $3.2 billion as of September 30, 2021 and our commercial paper borrowings were $0.6 billion as of December 31, 2020.

Put and Call Options Measured at Fair Value

Effective April 27, 2021, with the signing of the definitive agreement to acquire the remaining 60% interest of KAH, the respective put and call options were terminated. As such, the $63 million put and $440 million call fair values as of the first quarter of 2021 were reduced to zero, resulting in $377 million in "Other (income) expense, net" in our condensed consolidated statements of income for the nine months ended September 30, 2021.

The put and call options were measured at fair value using a Monte Carlo simulation which resulted in fair values of $45 million and $503 million, respectively, at December 31, 2020. The put option was included within other long-term liabilities and the call option included within other long-term assets at December 31, 2020. The change in fair value of the put and call options is reflected as "Other (income) expense, net" in our condensed consolidated statements of income.

Other Assets and Liabilities Measured at Fair Value

Certain assets and liabilities are measured at fair value on a non-recurring basis subject to fair value adjustment only in certain circumstances. As disclosed in Note 3, “Acquisitions”, we completed our acquisition of KAH during the third quarter of 2021. The net assets acquired and resulting goodwill and other intangible assets were recorded at fair value primarily using Level 3 inputs. The net tangible assets including receivables and accrued liabilities were recorded at their carrying value which approximated their fair value due to their short term nature. The fair value of goodwill and other intangible assets were internally estimated based primarily on the income approach. The income approach estimates fair value based on the present value of cash flow that the assets could be expected to generate in the future. We developed internal estimates for expected cash flows in the present value calculation using inputs and significant assumptions that include historical revenues and earnings, revenue growth rates, the amount and timing of future cash flows, discount rates, contributory asset charges and future tax rates, among others. The excess purchase price over the fair value of assets and liabilities acquired is recorded as goodwill.

Other than the assets acquired and liabilities assumed in the KAH and other acquisitions in Note 3, there were no other material assets or liabilities measured at fair value on a recurring or nonrecurring basis during 2021.

Table of Contents

Humana Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

6. MEDICARE PART D

We cover prescription drug benefits in accordance with Medicare Part D under multiple contracts with the Centers for Medicare and Medicaid Services, or CMS, as described further in Note 2 to the consolidated financial statements included in our 2020 Form 10-K. The accompanying condensed consolidated balance sheets include the following amounts associated with Medicare Part D at September 30, 2021 and December 31, 2020. CMS subsidies/discounts in the table below include the reinsurance and low-income cost subsidies funded by CMS for which we assume no risk as well as brand name prescription drug discounts for Part D plan participants in the coverage gap funded by CMS and pharmaceutical manufacturers.

September 30, 2021December 31, 2020
Risk Corridor SettlementCMS Subsidies/ DiscountsRisk Corridor SettlementCMS Subsidies/ Discounts
(in millions)
Other current assets$170$1,681$216$1,420
Trade accounts payable and accrued expenses(14)(1,139)(39)(253)
Net current asset1565421771,167
Other long-term assets244—8—
Other long-term liabilities(257)—(90)—
Net long-term liability(13)—(82)—
Total net asset$143$542$95$1,167

7. GOODWILL AND OTHER INTANGIBLE ASSETS

Changes in the carrying amount of goodwill for our reportable segments for the nine months ended September 30, 2021 were as follows:

RetailGroup and SpecialtyHealthcare ServicesTotal
(in millions)
Balance at January 1, 2021$1,535$261$2,651$4,447
Acquisitions205—6,1546,359
Balance at September 30, 2021$1,740$261$8,805$10,806

Table of Contents

Humana Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

The following table presents details of our other intangible assets included in other long-term assets in the accompanying condensed consolidated balance sheets at September 30, 2021 and December 31, 2020.

September 30, 2021December 31, 2020
Weighted Average LifeCostAccumulated AmortizationNetCostAccumulated AmortizationNet
($ in millions)
Other intangible assets:
Certificates of needIndefinite$1,786$—$1,786$—$—$—
Medicare licensesIndefinite522—522———
Customer contracts/ relationships9.4 years876608268849572277
Trade names and technology7.1 years15694621228933
Provider contracts11.7 years705515695019
Noncompetes and other7.0 years342952929—
Total other intangible assets9.1 years$3,444$786$2,658$1,069$740$329

For the three months ended September 30, 2021 and 2020, amortization expense for other intangible assets was approximately $17 million and $23 million, respectively. For the nine months ended September 30, 2021 and 2020, amortization expense for other intangible assets was approximately $47 million and $66 million, respectively. The following table presents our estimate of amortization expense remaining for 2021 and each of the five next succeeding years:

(in millions)
For the years ending December 31,
2021$18
202266
202350
202443
202542
202629

Table of Contents

Humana Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

8. BENEFITS PAYABLE

On a consolidated basis, activity in benefits payable was as follows for the nine months ended September 30, 2021 and 2020:

For the nine months ended September 30,
20212020
(in millions)
Balances, beginning of period$8,143$6,004
Less: Reinsurance recoverables—(68)
Balances, beginning of period, net8,1435,936
Acquisitions42—
Incurred related to:
Current year52,52945,693
Prior years(768)(278)
Total incurred51,76145,415
Paid related to:
Current year(44,370)(37,810)
Prior years(6,818)(5,334)
Total paid(51,188)(43,144)
Reinsurance recoverable—1
Balances, end of period$8,758$8,208

Amounts incurred related to prior periods vary from previously estimated liabilities as the claims ultimately are settled. Negative amounts reported for incurred related to prior years result from claims being ultimately settled for amounts less than originally estimated (favorable development).

Our reserving practice is to consistently recognize the actuarial best estimate of our ultimate liability for claims. Actuarial standards require the use of assumptions based on moderately adverse experience, which generally results in favorable reserve development, or reserves that are considered redundant.

The higher prior year favorable development for the nine months ended September 30, 2021 was primarily attributable to the reversal of actions taken in 2020, including the suspension of certain financial recovery programs for a period of time. The suspension during 2020 was intended to provide financial and administrative relief for providers facing unprecedented strain as a result of the COVID-19 pandemic.

Incurred and Paid Claims Development

The following discussion provides information about incurred and paid claims development for our Retail and Group and Specialty segments as of September 30, 2021 and 2020, net of reinsurance, and the total estimate of benefits payable for claims incurred but not reported, or IBNR, included within the net incurred claims amounts.

Table of Contents

Humana Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

Retail Segment

Activity in benefits payable for our Retail segment was as follows for the nine months ended September 30, 2021 and 2020:

For the nine months ended September 30,
20212020
(in millions)
Balances, beginning of period$7,428$5,363
Less: Reinsurance recoverables—(68)
Balances, beginning of period, net7,4285,295
Acquisitions42—
Incurred related to:
Current year49,24742,186
Prior years(673)(235)
Total incurred48,57441,951
Paid related to:
Current year(41,721)(34,946)
Prior years(6,216)(4,759)
Total paid(47,937)(39,705)
Reinsurance recoverable—1
Balances, end of period$8,107$7,542

At September 30, 2021, benefits payable for our Retail segment included IBNR of approximately $5.4 billion, primarily associated with claims incurred in 2021.

Group and Specialty Segment

Activity in benefits payable for our Group and Specialty segment was as follows for the nine months ended September 30, 2021 and 2020:

For the nine months ended September 30,
20212020
(in millions)
Balances, beginning of period$715$641
Incurred related to:
Current year3,7693,929
Prior years(95)(43)
Total incurred3,6743,886
Paid related to:
Current year(3,136)(3,286)
Prior years(602)(575)
Total paid(3,738)(3,861)
Balances, end of period$651$666

At September 30, 2021, benefits payable for our Group and Specialty segment included IBNR of approximately $564 million, primarily associated with claims incurred in 2021.

Table of Contents

Humana Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

9. EARNINGS PER COMMON SHARE COMPUTATION

Detail supporting the computation of basic and diluted earnings per common share was as follows for the three and nine months ended September 30, 2021 and 2020:

Three months ended September 30,Nine months ended September 30,
2021202020212020
(dollars in millions, except per common share results; number of shares in thousands)
Net income available for common stockholders$1,531$1,340$2,947$3,641
Weighted average outstanding shares of common stock used to compute basic earnings per common share128,518132,318128,714132,234
Dilutive effect of:
Employee stock options681056595
Restricted stock669773619681
Shares used to compute diluted earnings per common share129,255133,196129,398133,010
Basic earnings per common share$11.91$10.12$22.90$27.53
Diluted earnings per common share$11.84$10.05$22.77$27.37
Number of antidilutive stock options and restricted stock excluded from computation136143256311

10. STOCKHOLDERS’ EQUITY

Dividends

The following table provides details of dividend payments, excluding dividend equivalent rights for unvested stock awards, in 2020 and 2021 under our Board approved quarterly cash dividend policy:

Record DatePayment DateAmount per ShareTotal Amount
(in millions)
2020 payments
12/31/20191/31/2020$0.550$73
3/31/20204/24/20200.62583
6/30/20207/31/20200.62583
9/30/202010/30/20200.62583
2021 payments
12/31/20201/29/2021$0.625$81
3/31/20214/30/20210.70090
6/30/20217/30/20210.70090
9/30/202110/29/20210.70090

In October 2021, the Board declared a cash dividend of $0.70 per share payable on January 28, 2022 to stockholders of record on December 31, 2021.

Table of Contents

Humana Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

Stock Repurchases

Our Board of Directors may authorize the purchase of our common stock shares. Under the share repurchase authorization, shares may be purchased from time to time at prevailing prices in the open market, by block purchases, through plans designed to comply with Rule 10b5-1 under the Securities Exchange Act of 1934, as amended, or in privately-negotiated transactions, including pursuant to accelerated share repurchase agreements with investment banks, subject to certain regulatory restrictions on volume, pricing, and timing.

On July 30, 2019, the Board of Directors replaced a previous share repurchase authorization of up to $3 billion (of which approximately $1.03 billion 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 on June 30, 2022.

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 reflects 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 reflects 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.

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. Upon final settlement of the December 2020 ASR agreements with Citi and JPM on May 4, 2021 and May 5, 2021, respectively, we received an additional 0.3 million shares and 0.3 million shares, respectively, 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 $400.07 and $401.49, respectively, bringing the total shares received under the December 2020 ASR agreements to 4.4 million. In addition, upon settlement we reclassified the $262.5 million value of stock initially held back by Citi and JPM from capital in excess of par value to treasury stock.

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. Our remaining repurchase authorization was $3 billion as of November 2, 2021.

In connection with employee stock plans, we acquired 0.09 million common shares for $36 million and 0.08 million common shares for $30 million during the nine months ended September 30, 2021 and 2020, respectively.

Noncontrolling interests

Noncontrolling interests of $22 million as of September 30, 2021 relate to the minority ownership held by third party investors in certain of our Home Solutions businesses as a result of our Kindred at Home acquisition.

Table of Contents

Humana Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

11. INCOME TAXES

The effective income tax rate was 7.2% and 15.4% for the three and nine months ended September 30, 2021, respectively, compared to 25.2% and 29.0% for the three and nine months ended September 30, 2020, respectively, primarily due to the non-taxable gain we recognized on our previously held Kindred at Home equity method investment from our acquisition of the remaining ownership interest in the business in August 2021 and the termination of the non-deductible health insurance industry fee in 2021.

12. DEBT

The carrying value of debt outstanding, net of unamortized debt issuance costs, was as follows at September 30, 2021 and December 31, 2020:

September 30, 2021December 31, 2020
(in millions)
Short-term debt:
Commercial paper$795$600
Total short-term debt$795$600
Long-term debt:
Senior notes:
$600 million, 3.15% due December 1, 2022$599$598
$400 million, 2.90% due December 15, 2022399398
$1.5 billion, 0.650% due August 3, 20231,491—
$600 million, 3.85% due October 1, 2024598598
$600 million, 4.50% due April 1, 2025596595
$750 million, 1.350% due February 3, 2027742—
$600 million, 3.95% due March 15, 2027596596
$500 million, 3.125% due August 15, 2029496495
$500 million, 4.875% due April 1, 2030495494
$750 million, 2.150% due February 3, 2032741—
$250 million, 8.15% due June 15, 2038262262
$400 million, 4.625% due December 1, 2042396396
$750 million, 4.95% due October 1, 2044740739
$400 million, 4.80% due March 15, 2047395396
$500 million, 3.95% due August 15, 2049492493
Term loans:
Gentiva term loan, due July 2, 20251,928—
Delayed draw term loan, due May 28, 2024500—
Total long-term debt$11,466$6,060

Senior Notes

Our senior notes, which are unsecured, may be redeemed at our option at any time at 100% of the principal amount plus accrued interest and a specified make-whole amount. The 8.15% senior notes are subject to an interest rate adjustment if the debt ratings assigned to the notes are downgraded (or subsequently upgraded). In addition, our

Table of Contents

Humana Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

senior notes contain a change of control provision that may require us to purchase the notes under certain circumstances.

In August 2021, we issued $1.5 billion of 0.650% unsecured senior notes due August 3, 2023, $750 million of 1.350% unsecured senior notes due February 3, 2027 and $750 million of 2.150% unsecured senior notes due February 3, 2032. Our net proceeds, reduced for the underwriters' discount and commission and offering expenses paid as of September 30, 2021 were $2.984 billion. We used the net proceeds, together with cash on hand and borrowings under our $500 million delayed draw term loan, to fund the approximately $5.8 billion purchase price of the acquisition of Kindred at Home, which included the assumption of approximately $2.1 billion of Kindred at Home’s indebtedness and is net of our existing 40% equity interest, and to pay related fees and expenses.

Delayed Draw Term Loan Credit Agreement

In May 2021, we entered into a $500 million unsecured delayed draw term loan credit agreement. Under the term loan credit agreement, loans bear interest at either LIBOR plus a spread or the base rate plus a spread. The loans under the term loan credit agreement mature on the third anniversary of the funding date. The LIBOR spread, currently 125 basis points, varies depending on our credit ratings ranging from 100.0 to 162.5 basis points. The term loan credit agreement provides for the transition from LIBOR and does not require amendment in connection with such transition.

In August 2021, we borrowed $500 million under the delayed draw term loan agreement, which was used, in combination with other debt financing, to fund the approximate $5.8 billion transaction price of Kindred at Home. The term loan credit agreement contains customary restrictive covenants and a financial covenant regarding maximum debt to capitalization of 60%, as well as customary events of default. We are in compliance with this financial covenant, with actual debt to capitalization of 43% as measured in accordance with the term loan credit agreement as of September 30, 2021.

We have other customary, arms-length relationships, including financial advisory and banking, with some parties to the term loan agreement.

Gentiva Credit Agreement

Gentiva Health Services, Inc., or Gentiva, an entity within the Kindred at Home organizational structure, and certain of Gentiva’s subsidiaries are a party to a First Lien Credit Agreement, which we refer to as the Gentiva Credit Agreement. The Gentiva Credit Agreement consists of (i) a term loan facility maturing on July 2, 2025, which we refer to as the Gentiva Term Loan, and (ii) a $350 million revolving credit facility maturing on July 2, 2023, which we refer to as the Gentiva Revolver. As of the closing of the acquisition of Kindred at Home on August 17, 2021, we assumed approximately $2.1 billion of borrowings under the Gentiva Term Loan, and subsequent to the acquisition, we repaid $150 million of borrowings under the Gentiva Term Loan. No borrowings were outstanding under the Gentiva Revolver and the Gentiva Revolver was subsequently terminated on September 30, 2021.

Borrowings under the Gentiva Term Loan bear interest at a rate per annum of 175 basis points over the base rate or 275 basis points over the Eurodollar rate. The Gentiva Term Loan requires certain mandatory prepayments of a percentage of excess cash flow (as defined in the Gentiva Credit Agreement) or following certain events, including certain asset sales and casualty events, and requires quarterly amortization payments of 0.25% of the original principal amount of the term loan. The Gentiva Term Loan is not subject to any financial maintenance covenants.

The Gentiva Credit Agreement imposes certain restrictions including, but not limited to, those that restrict (with certain exceptions) Gentiva’s and its guarantor subsidiaries’ ability to incur additional indebtedness or liens, make certain investments or restricted payments (including dividends), engage in new lines of business, sell assets and engage in certain affiliate transactions. The Gentiva Credit Agreement also contains certain customary representations and warranties, covenants, events of default and acceleration provisions upon the occurrence of an

Table of Contents

Humana Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

event of default (including a change of control). All amounts outstanding under the Gentiva Term Loan were repaid on October 29, 2021, and the Gentiva Credit Agreement was terminated.

October 2021 Term Loan Agreement

On October 29, 2021, we entered into a $2.0 billion term loan credit agreement, which we refer to as the October 2021 Term Loan Agreement, with certain lending banks and other financial institutions. Proceeds of the October 2021 Term Loan Agreement were applied to finance the repayment in full of the outstanding debt under the Gentiva Credit Agreement and for other general corporate purposes.

Loans under the October 2021 Term Loan Agreement bear interest at adjusted Term SOFR, as defined in the October 2021 Term Loan Agreement, or the base rate plus a spread. The loans under the October 2021 Term Loan Agreement will mature on the second anniversary of the closing date, October 29, 2023. The October 2021 Term Loan Agreement contains customary covenants, including a maximum debt to capitalization financial condition covenant, as well as customary events of default. The terms of the October 2021 Term Loan Agreement also include customary representations and warranties. We have other relationships, including financial advisory and banking, with some parties to the October 2021 Term Loan Agreement. The foregoing description of the October 2021 Term Loan Agreement does not purport to be complete. For an understanding of the terms and provisions of the October 2021 Term Loan Agreement, reference should be made to the copy of that agreement attached as Exhibit 10.4 to this Form 10-Q and incorporated by reference herein.

At the time of the repayment in full of the Gentiva Credit Agreement, there was $1.9 billion of outstanding debt thereunder and no prepayment penalty was due.

Revolving Credit Agreements

In June 2021, we entered into two separate revolving credit agreements: (i) a 5-year, $2.5 billion unsecured revolving credit agreement and (ii) a 364-day $1.5 billion unsecured revolving credit agreement. Under the revolving credit agreements, at our option, we can borrow on either a competitive advance basis or a revolving credit basis. The revolving credit portion bears interest at either LIBOR plus a spread or the base rate plus a spread. The competitive advance portion of any borrowings will bear interest at market rates prevailing at the time of borrowing on either a fixed rate or a floating rate based on LIBOR, at our option. The revolving credit agreements provide for the transition from LIBOR and do not require amendment in connection with such transition.

The LIBOR spread, currently 110.0 basis points under the 5-year revolving credit agreements and 115.0 basis points under the 364-day revolving credit agreement, varies depending on our credit ratings ranging from 91.0 to 140.0 basis points under the 5-year revolving credit agreement and from 93.0 to 145.0 basis points under the 364-day revolving credit agreement. We also pay an annual facility fee regardless of utilization. This facility fee, currently 15.0 basis points, under the 5-year revolving credit agreement and 10.0 basis points under the 364-day revolving agreement, varies depending on our credit ratings ranging from 9.0 to 22.5 basis points under the 5-year revolving credit agreement and from 7.0 to 17.5 basis points under the 364-day revolving credit agreement.

The terms of the revolving credit agreements include standard provisions related to conditions of borrowing which could limit our ability to borrow additional funds. In addition, the credit agreements contain customary restrictive covenants and a financial covenant regarding maximum debt to capitalization of 60%, as well as customary events of default. We are in compliance with this financial covenant, with actual debt to capitalization of 43% as measured in accordance with the revolving credit agreements as of September 30, 2021. Upon our agreement with one or more financial institutions, we may expand the aggregate commitments under the revolving credit agreements by up to $750 million in the aggregate, to a maximum of $4.75 billion, across the 5-year and 364-day revolving credit agreements.

At September 30, 2021, we had no borrowings and less than $1 million of letters of credit outstanding under the revolving credit agreements. Accordingly, as of September 30, 2021, we had $2.5 billion of remaining borrowing

Table of Contents

Humana Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

capacity under the 5-year revolving credit agreement and $1.5 billion of remaining borrowing capacity under the 364-day revolving credit agreement (which excludes the uncommitted $750 million of incremental loan facilities), none of which would be restricted by our financial covenant compliance requirement.

We have other customary, arms-length relationships, including financial advisory and banking, with some parties to the revolving credit agreements.

Commercial Paper

Under our commercial paper program we may issue short-term, unsecured commercial paper notes privately placed on a discount basis through certain broker dealers at any time not to exceed $2 billion. Amounts available under the program may be borrowed, repaid and re-borrowed from time to time. The net proceeds of issuances have been and are expected to be used for general corporate purposes. The maximum principal amount outstanding at any one time during the nine months ended September 30, 2021 was $1.1 billion, with $795 million outstanding at September 30, 2021 compared to $600 million outstanding at December 31, 2020. The outstanding commercial paper at September 30, 2021 had a weighted average annual interest rate of 0.29%.

Other Short-term Borrowings

We are a member, through one subsidiary, of the Federal Home Loan Bank of Cincinnati, or FHLB. As a member we have the ability to obtain short-term cash advances, subject to certain minimum collateral requirements. At September 30, 2021 we had no outstanding short-term FHLB borrowings.

13. COMMITMENTS, GUARANTEES AND CONTINGENCIES

Government Contracts

Our Medicare products, which accounted for approximately 83% of our total premiums and services revenue for the nine months ended September 30, 2021, primarily consisted of products covered under the Medicare Advantage and Medicare Part D Prescription Drug Plan contracts with the federal government. These contracts 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 products have been renewed for 2022 and all of our product offerings have been approved.

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.

Table of Contents

Humana Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

CMS is phasing-in the process of calculating risk scores using diagnoses data from the Risk Adjustment Processing System, or RAPS, to diagnoses data from the Encounter Data System, or EDS. The RAPS process requires MA plans to apply a filter logic based on CMS guidelines and only submit diagnoses that satisfy those guidelines. For submissions through EDS, CMS requires MA plans to submit all the encounter data and CMS will apply the risk adjustment filtering logic to determine the risk scores. For 2020, 50% of the risk score was calculated from claims data submitted through EDS. 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. The phase-in from RAPS to EDS could result in different risk scores from each dataset as a result of plan processing issues, CMS processing issues, or filtering logic differences between RAPS and EDS, and could have a material adverse effect on our results of operations, financial position, or cash flows.

CMS and the Office of the Inspector General of Health and Human Services, or HHS-OIG, are continuing to perform audits of various companies’ selected MA contracts related to this risk adjustment diagnosis data. We refer to these audits as Risk-Adjustment Data Validation Audits, or RADV audits. RADV audits review medical records in an attempt to validate provider medical record documentation and coding practices which influence the calculation of premium payments to MA plans.

In 2012, CMS released a “Notice of Final Payment Error Calculation Methodology for Part C Medicare Advantage Risk Adjustment Data Validation (RADV) Contract-Level Audits.” The payment error calculation methodology provided that, in calculating the economic impact of audit results for an MA contract, if any, the results of the RADV audit sample would be extrapolated to the entire MA contract after a comparison of the audit results to a similar audit of the government’s traditional fee-for-service Medicare program, or Medicare FFS. We refer to the process of accounting for errors in FFS claims as the "FFS Adjuster." This comparison of RADV audit results to the FFS error rate is necessary to determine the economic impact, if any, of RADV audit results because the government used the Medicare FFS program data set, including any attendant errors that are present in that data set, to estimate the costs of various health status conditions and to set the resulting adjustments to MA plans’ payment rates in order to establish actuarial equivalence in payment rates as required under the Medicare statute. 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).

The final RADV extrapolation methodology, including the first application of extrapolated audit results to determine audit settlements, is expected to be applied to CMS RADV contract level audits conducted for contract year 2011 and subsequent years. CMS is currently conducting RADV contract level audits for certain of our Medicare Advantage plans.

Estimated audit settlements are recorded as a reduction of premiums revenue in our consolidated statements of income, based upon available information. We perform internal contract level audits based on the RADV audit methodology prescribed by CMS. Included in these internal contract level audits is an audit of our Private Fee-For Service business which we used to represent a proxy of the FFS Adjuster which has not yet been finalized. We based our accrual of estimated audit settlements for each contract year on the results of these internal contract level audits and update our estimates as each audit is completed. Estimates derived from these results were not material to our results of operations, financial position, or cash flows. We report the results of these internal contract level audits to CMS, including identified overpayments, if any.

On October 26, 2018, CMS issued a proposed rule and accompanying materials (which we refer to as the “Proposed Rule”) related to, among other things, the RADV audit methodology described above. If implemented, the Proposed Rule would use extrapolation in RADV audits applicable to payment year 2011 contract-level audits and all subsequent audits, without the application of a FFS Adjuster to audit findings. We believe that the Proposed Rule fails to address adequately the statutory requirement of actuarial equivalence, and have provided substantive comments to CMS on the Proposed Rule as part of the notice-and-comment rulemaking process. Whether, and to what extent, CMS finalizes the Proposed Rule, and any related regulatory, industry or company reactions, could have a material adverse effect on our results of operations, financial position, or cash flows.

Table of Contents

Humana Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

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 risk adjustment model. These reviews may also result in the identification of errors and the submission of corrections to CMS, that may, either individually or in the aggregate, be material. As such, the result of these reviews may have a material adverse effect on our results of operations, financial position, or cash flows.

We will continue to work with CMS to ensure that MA plans are paid accurately and that payment model principles are in accordance with the requirements of the Social Security Act, which, if not implemented correctly could have a material adverse effect on our results of operations, financial position, or cash flows.

Our state-based Medicaid business, which accounted for approximately 6% of our total premiums and services revenue for the nine months ended September 30, 2021 primarily consisted of serving members enrolled in Medicaid, and in certain circumstances members who qualify for both Medicaid and Medicare, under contracts with various states.

At September 30, 2021, our military services business, which accounted for approximately 1% of our total premiums and services revenue for the nine months ended September 30, 2021, primarily consisted of the TRICARE T2017 East Region contract. The T2017 East Region contract comprising 32 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 any of the contracts above or significant changes in these programs as a result of legislative or regulatory action, including reductions in premium payments to us, regulatory 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, or increases in member benefits or 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.

Legal Proceedings and Certain Regulatory Matters

As previously disclosed, the Civil Division of the United States Department of Justice provided us with an information request in December 2014, concerning our Medicare Part C risk adjustment practices. The request relates to our oversight and submission of risk adjustment data generated by providers in our Medicare Advantage network, as well as to our business and compliance practices related to risk adjustment data generated by our providers and by us, including medical record reviews conducted as part of our data and payment accuracy compliance efforts, the use of health and well-being assessments, and our fraud detection efforts. We believe that this request for information is in connection with a wider review of Medicare Risk Adjustment generally that includes a number of Medicare Advantage plans, providers and vendors. We continue to cooperate with the Department of Justice. These matters are expected to result in additional qui tam litigation.

As previously disclosed, on January 19, 2016, an individual filed a qui tam suit captioned United States of America ex rel. Steven Scott v. Humana, Inc., in United States District Court, Central District of California, Western Division. The complaint alleges certain civil violations by us in connection with the actuarial equivalence of the plan benefits under Humana’s Basic PDP plan, a prescription drug plan offered by us under Medicare Part D. The action seeks damages and penalties on behalf of the United States under the False Claims Act. The court ordered the qui tam action unsealed on September 13, 2017, so that the relator could proceed, following notice from the U.S. Government that it was not intervening at that time. On January 29, 2018, the suit was transferred to the United States District Court, Western District of Kentucky, Louisville Division. We take seriously our obligations to comply with applicable CMS requirements and actuarial standards of practice, and continue to vigorously defend against these allegations since the transfer to the Western District of Kentucky. We have substantially completed discovery with the relator who has pursued the matter on behalf of the United States following its unsealing, and expect the Court to consider our motion for summary judgment.

Table of Contents

Humana Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

Other Lawsuits and Regulatory Matters

Our current and past business practices are subject to review or other investigations by various state insurance and health care regulatory authorities and other state and federal regulatory authorities. These authorities regularly scrutinize the business practices of health insurance, health care delivery and benefits companies. These reviews focus on numerous facets of our business, including claims payment practices, statutory capital requirements, provider contracting, risk adjustment, competitive practices, commission payments, privacy issues, utilization management practices, pharmacy benefits, access to care, and sales practices, among others. Some of these reviews have historically resulted in fines imposed on us and some have required changes to some of our practices. We continue to be subject to these reviews, which could result in additional fines or other sanctions being imposed on us or additional changes in some of our practices.

We also are involved in various other lawsuits that arise, for the most part, in the ordinary course of our business operations, certain of which may be styled as class-action lawsuits. Among other matters, this litigation may include employment matters, claims of medical malpractice, bad faith, nonacceptance or termination of providers, anticompetitive practices, improper rate setting, provider contract rate and payment disputes, including disputes over reimbursement rates required by statute, disputes arising from competitive procurement process, general contractual matters, intellectual property matters, and challenges to subrogation practices. Under state guaranty assessment laws, including those related to state cooperative failures in the industry, we may be assessed (up to prescribed limits) for certain obligations to the policyholders and claimants of insolvent insurance companies that write the same line or lines of business as we do.

As a government contractor, we may also be subject to false claims litigation, such as qui tam lawsuits brought by individuals who seek to sue on behalf of the government, alleging that the government contractor submitted false claims to the government or related overpayments from the government, including, among other allegations, those resulting from coding and review practices under the Medicare risk adjustment model. Qui tam litigation 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 individual may continue to prosecute the action on his or her own, on behalf of the government. We also are subject to other allegations of nonperformance of contractual obligations to providers, members, and others, including failure to properly pay claims, improper policy terminations, challenges to our implementation of the Medicare Part D prescription drug program and other litigation.

A limited number of the claims asserted against us are subject to insurance coverage. Personal injury claims, claims for extra contractual damages, care delivery malpractice, and claims arising from medical benefit denials are covered by insurance from our wholly owned captive insurance subsidiary and excess carriers, except to the extent that claimants seek punitive damages, which may not be covered by insurance in certain states in which insurance coverage for punitive damages is not permitted. In addition, insurance coverage for all or certain forms of liability has become increasingly costly and may become unavailable or prohibitively expensive in the future.

We record accruals for the contingencies discussed in the sections above to the extent that we conclude it is probable that a liability has been incurred and the amount of the loss can be reasonably estimated. No estimate of the possible loss or range of loss in excess of amounts accrued, if any, can be made at this time regarding the matters specifically described above because of the inherently unpredictable nature of legal proceedings, which also may be exacerbated by various factors, including: (i) the damages sought in the proceedings are unsubstantiated or indeterminate; (ii) discovery is not complete; (iii) the proceeding is in its early stages; (iv) the matters present legal uncertainties; (v) there are significant facts in dispute; (vi) there are a large number of parties (including where it is uncertain how liability, if any, will be shared among multiple defendants); or (vii) there is a wide range of potential outcomes.

The outcome of any current or future litigation or governmental or internal investigations, including the matters described above, cannot be accurately predicted, nor can we predict any resulting judgments, penalties, fines or other sanctions that may be imposed at the discretion of federal or state regulatory authorities or as a result of actions by third parties. Nevertheless, it is reasonably possible that any such outcome of litigation, judgments, penalties, fines

Table of Contents

Humana Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

or other sanctions could be substantial, and the outcome of these matters may have a material adverse effect on our results of operations, financial position, and cash flows, and may also affect our reputation.

14. SEGMENT INFORMATION

We manage our business with three reportable segments: Retail, Group and Specialty, and Healthcare Services. The reportable segments are based on a combination of the type of health plan customer and adjacent businesses centered on well-being solutions for our health plans and other customers, as described below. These segment groupings are consistent with information used by our Chief Executive Officer, the Chief Operating Decision Maker, to assess performance and allocate resources.

The Retail segment consists of Medicare benefits, marketed to individuals or directly via group Medicare accounts. In addition, the Retail segment also includes our contract with CMS to administer the Limited Income Newly Eligible Transition, or LI-NET, prescription drug plan program and contracts with various states to provide Medicaid, dual eligible, and Long-Term Support Services benefits, which we refer to collectively as our state-based contracts. The Group and Specialty segment consists of employer group commercial fully-insured medical and specialty health insurance benefits marketed to individuals and employer groups, including dental, vision, and other supplemental health benefits, as well as administrative services only, or ASO products. In addition, our Group and Specialty segment includes our military services business, primarily our TRICARE T2017 East Region contract. The Healthcare Services segment includes services offered to our health plan members as well as to third parties, including pharmacy solutions, provider services, and home solutions services, such as home health and other services and capabilities to promote wellness and advance population health, including our non-consolidating minority investment in the strategic partnership with WCAS to develop and operate senior-focused, payor-agnostic, primary care centers. Our home solutions business now includes Kindred at Home.

Our Healthcare Services intersegment revenues primarily relate to managing prescription drug coverage for members of our other segments through Humana Pharmacy Solutions®, or HPS, and includes the operations of Humana Pharmacy, Inc., our mail order pharmacy business. These revenues consist of the prescription price (ingredient cost plus dispensing fee), including the portion to be settled with the member (co-share) or with the government (subsidies), plus any associated administrative fees. Services revenues related to the distribution of prescriptions by third party retail pharmacies in our networks are recognized when the claim is processed and product revenues from dispensing prescriptions from our mail order pharmacies are recorded when the prescription or product is shipped. Our pharmacy operations, which are responsible for designing pharmacy benefits, including defining member co-share responsibilities, determining formulary listings, contracting with retail pharmacies, confirming member eligibility, reviewing drug utilization, and processing claims, act as a principal in the arrangement on behalf of members in our other segments. As principal, our Healthcare Services segment reports revenues on a gross basis, including co-share amounts from members collected by third party retail pharmacies at the point of service.

In addition, our Healthcare Services intersegment revenues include revenues earned by certain owned providers derived from risk-based and non-risk-based managed care agreements with our health plans. Under risk based agreements, the provider receives a monthly capitated fee that varies depending on the demographics and health status of the member, for each member assigned to these owned providers by our health plans. The owned provider assumes the economic risk of funding the assigned members’ healthcare services. Under non risk-based agreements, our health plans retain the economic risk of funding the assigned members' healthcare services. Our Healthcare Services segment reports provider services revenues associated with risk-based agreements on a gross basis, whereby capitation fee revenue is recognized in the period in which the assigned members are entitled to receive healthcare services. Provider services revenues associated with non-risk-based agreements are presented net of associated healthcare costs.

We present our condensed consolidated results of operations from the perspective of the health plans. As a result, the cost of providing benefits to our members, whether provided via a third party provider or internally through a stand-alone subsidiary, is classified as benefits expense and excludes the portion of the cost for which the health plans do not bear responsibility, including member co-share amounts and government subsidies of $5.0 billion and $4.4 billion for the three months ended September 30, 2021 and 2020, respectively. For the nine

Table of Contents

Humana Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

months ended September 30, 2021 and 2020 these amounts were $12.9 billion and $11.9 billion, respectively. In addition, depreciation and amortization expense associated with certain businesses in our Healthcare Services segment delivering benefits to our members, primarily associated with our provider services and pharmacy operations, are included with benefits expense. The amount of this expense was $28 million and $33 million for the three months ended September 30, 2021 and 2020, respectively. For the nine months ended September 30, 2021 and 2020, the amount of this expense was $80 million and $94 million, respectively.

Other than those described previously, the accounting policies of each segment are the same and are described in Note 2 to the consolidated financial statements included in our 2020 Form 10-K. Transactions between reportable segments primarily consist of sales of services rendered by our Healthcare Services segment, primarily pharmacy, provider, and home solutions services, to our Retail and Group and Specialty segment customers. Intersegment sales and expenses are recorded at fair value and eliminated in consolidation. Members served by our segments often use the same provider networks, enabling us in some instances to obtain more favorable contract terms with providers. Our segments also share indirect costs and assets. As a result, the profitability of each segment is interdependent. We allocate most operating expenses to our segments. Assets and certain corporate income and expenses are not allocated to the segments, including the portion of investment income not supporting segment operations, interest expense on corporate debt, and certain other corporate expenses. These items are managed at a corporate level. These corporate amounts are reported separately from our reportable segments and are included with intersegment eliminations in the tables presenting segment results below.

Table of Contents

Humana Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

Our segment results were as follows for the three and nine months ended September 30, 2021 and 2020:

RetailGroup and SpecialtyHealthcare ServicesEliminations/ CorporateConsolidated
Three months ended September 30, 2021(in millions)
External revenues
Premiums:
Individual Medicare Advantage$14,642$—$—$—$14,642
Group Medicare Advantage1,737———1,737
Medicare stand-alone PDP541———541
Total Medicare16,920———16,920
Fully-insured1851,052——1,237
Specialty—432——432
Medicaid and other1,296———1,296
Total premiums18,4011,484——19,885
Services revenue:
Home solutions——374—374
Provider——110—110
ASO and other—198——198
Pharmacy——163—163
Total services revenue—198647—845
Total external revenues18,4011,682647—20,730
Intersegment revenues
Services1105,087(5,098)—
Products——2,303(2,303)—
Total intersegment revenues1107,390(7,401)—
Investment income (loss)3831(75)(33)
Total revenues18,4401,6958,038(7,476)20,697
Operating expenses:
Benefits16,2071,282—(173)17,316
Operating costs1,6694217,634(7,121)2,603
Depreciation and amortization1082046(24)150
Total operating expenses17,9841,7237,680(7,318)20,069
Income (loss) from operations456(28)358(158)628
Interest expense———8888
Other income, net———(1,096)(1,096)
Income (loss) before income taxes and equity in net earnings456(28)3588501,636
Equity in net earnings——15—15
Segment earnings (loss)$456$(28)$373$850$1,651
Less: noncontrolling interests—————
Segment earnings (loss) attributable to Humana$456$(28)$373$850$1,651

Table of Contents

Humana Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

RetailGroup and SpecialtyHealthcare ServicesEliminations/ CorporateConsolidated
Three months ended September 30, 2020(in millions)
External revenues
Premiums:
Individual Medicare Advantage$12,949$—$—$—$12,949
Group Medicare Advantage1,880———1,880
Medicare stand-alone PDP622———622
Total Medicare15,451———15,451
Fully-insured1771,169—6021,948
Specialty—424——424
Medicaid and other1,081———1,081
Total premiums16,7091,593—60218,904
Services revenue:
Home solutions——26—26
Provider——81—81
ASO and other4189——193
Pharmacy——157—157
Total services revenue4189264—457
Total external revenues16,7131,78226460219,361
Intersegment revenues
Services—94,852(4,861)—
Products——2,013(2,013)—
Total intersegment revenues—96,865(6,874)—
Investment income2832681714
Total revenues16,7411,7947,131(5,591)20,075
Operating expenses:
Benefits14,2241,481—(94)15,611
Operating costs1,8774526,871(6,687)2,513
Depreciation and amortization872146(26)128
Total operating expenses16,1881,9546,917(6,807)18,252
Income (loss) from operations553(160)2141,2161,823
Interest expense———7575
Other income, net———(7)(7)
Income (loss) before income taxes and equity in net earnings553(160)2141,1481,755
Equity in net earnings——35—35
Segment earnings (loss)$553$(160)$249$1,148$1,790
Less: noncontrolling interests—————
Segment earnings (loss) attributable to Humana$553$(160)$249$1,148$1,790

Table of Contents

Humana Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

RetailGroup and SpecialtyHealthcare ServicesEliminations/ CorporateConsolidated
Nine months ended September 30, 2021(in millions)
External revenues
Premiums:
Individual Medicare Advantage$44,042$—$—$—$44,042
Group Medicare Advantage5,267———5,267
Medicare stand-alone PDP1,867———1,867
Total Medicare51,176———51,176
Fully-insured5453,229——3,774
Specialty—1,298——1,298
Medicaid and other3,739———3,739
Total premiums55,4604,527——59,987
Services revenue:
Home solutions——423—423
Provider——298—298
ASO and other17582——599
Pharmacy——482—482
Total services revenue175821,203—1,802
Total external revenues55,4775,1091,203—61,789
Intersegment revenues
Services13014,838(14,869)—
Products——6,716(6,716)—
Total intersegment revenues13021,554(21,585)—
Investment income15511352221
Total revenues55,6335,15022,760(21,533)62,010
Operating expenses:
Benefits48,5743,674—(487)51,761
Operating costs4,6531,22721,749(20,903)6,726
Depreciation and amortization32063127(74)436
Total operating expenses53,5474,96421,876(21,464)58,923
Income (loss) from operations2,086186884(69)3,087
Interest expense———235235
Other income, net———(562)(562)
Income before income taxes and equity in net earnings2,0861868842583,414
Equity in net earnings——69—69
Segment earnings$2,086$186$953$258$3,483
Less: noncontrolling interests—————
Segment earnings attributable to Humana$2,086$186$953$258$3,483

Table of Contents

Humana Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

RetailGroup and SpecialtyHealthcare ServicesEliminations/ CorporateConsolidated
Nine months ended September 30, 2020(in millions)
External Revenues
Premiums:
Individual Medicare Advantage$38,748$—$—$—$38,748
Group Medicare Advantage5,867———5,867
Medicare stand-alone PDP2,108———2,108
Total Medicare46,723———46,723
Fully-insured5093,606—6024,717
Specialty—1,278——1,278
Medicaid and other3,104———3,104
Total premiums50,3364,884—60255,822
Services revenue:
Home solutions——80—80
Provider——236—236
ASO and other14576——590
Pharmacy——425—425
Total services revenue14576741—1,331
Total external revenues50,3505,46074160257,153
Intersegment revenues
Services—2214,514(14,536)—
Products——5,900(5,900)—
Total intersegment revenues—2220,414(20,436)—
Investment income114122812940
Total revenues50,4645,49421,157(19,022)58,093
Operating expenses:
Benefits41,9393,886—(410)45,415
Operating costs5,0471,31620,274(19,653)6,984
Depreciation and amortization25160135(84)362
Total operating expenses47,2375,26220,409(20,147)52,761
Income from operations3,2272327481,1255,332
Interest expense———211211
Other expense, net———6363
Income before income taxes and equity in net earnings3,2272327488515,058
Equity in net earnings——68—68
Segment earnings$3,227$232$816$851$5,126
Less: noncontrolling interests—————
Segment earnings attributable to Humana$3,227$232$816$851$5,126

Table of Contents

Humana Inc.

Next: Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF