# EDGAR Filing Document

**Accession Number:** 0000049071
**File Stem:** 0001193125-23-063816
**Filing Date:** 2023-3
**Character Count:** 245221
**Document Hash:** cc6e172667a68fea2fa8e879b4d24e00
**Contains OCR:** False
**Source Format:** 

## Filing Content

## Filing Summary
**0001193125-23-063816.hdr.sgml**: 20230308

**ACCESSION NUMBER**: 0001193125-23-063816

**CONFORMED SUBMISSION TYPE**: ARS

**PUBLIC DOCUMENT COUNT**: 1

**CONFORMED PERIOD OF REPORT**: 20221231

**FILED AS OF DATE**: 20230308

**DATE AS OF CHANGE**: 20230308

**EFFECTIVENESS DATE**: 20230308

**FILER**: 

**COMPANY DATA:**
- **COMPANY CONFORMED NAME:** HUMANA INC
- **CENTRAL INDEX KEY:** 0000049071
- **STANDARD INDUSTRIAL CLASSIFICATION:** HOSPITAL & MEDICAL SERVICE PLANS [6324]
- **IRS NUMBER:** 610647538
- **STATE OF INCORPORATION:** DE
- **FISCAL YEAR END:** 1231

**FILING VALUES:**
- **FORM TYPE:** ARS
- **SEC ACT:** 1934 Act
- **SEC FILE NUMBER:** 001-05975
- **FILM NUMBER:** 23714878

**BUSINESS ADDRESS:**
- **STREET 1:** 500 W MAIN ST
- **CITY:** LOUISVILLE
- **STATE:** KY
- **ZIP:** 40202
- **BUSINESS PHONE:** 5025801000

**MAIL ADDRESS:**
- **STREET 1:** 500 W. MAIN ST
- **CITY:** LOUISVILLE
- **STATE:** KY
- **ZIP:** 40202

**FORMER COMPANY:**
- **FORMER CONFORMED NAME:** EXTENDICARE INC
- **DATE OF NAME CHANGE:** 19740404

**FORMER COMPANY:**
- **FORMER CONFORMED NAME:** HERITAGE HOUSE OF AMERICA INC
- **DATE OF NAME CHANGE:** 19671129

### Attached PDF Documents

**Attachment 1:** `d448361dars.pdf`

2022

# Annual Report

![img-0.jpeg](img-0.jpeg)

Humana®

# Humana Inc.
financial highlights

Dollars in millions, except per common share results

![img-1.jpeg](img-1.jpeg)

| Generally Accepted Accounting Principles (GAAP) | 2022 | 2021 | 2020 | 2019 | 2018 |
| --- | --- | --- | --- | --- | --- |
| OPERATING RESULTS |  |  |  |  |  |
| Revenues | $92,870 | $83,064 | $77,155 | $64,888 | $56,912 |
| Net income attributable to Humana | $2,806 | $2,933 | $3,367 | $2,707 | $1,683 |
| Diluted earnings per common share | $22.08 | $22.67 | $25.31 | $20.10 | $12.16 |
| FINANCIAL POSITION |  |  |  |  |  |
| Total assets | $43,055 | $44,358 | $34,969 | $29,074 | $25,413 |
| Total liabilities | $27,685 | $28,255 | $21,241 | $17,037 | $15,252 |
| Total stockholders' equity | $15,370 | $16,103 | $13,728 | $12,037 | $10,161 |
| Cash flows from operations | $4,587 | $2,262 | $5,639 | $5,284 | $2,173 |
| MEMBERSHIP (IN THOUSANDS) |  |  |  |  |  |
| Consolidated medical membership | 17,079.2 | 17,067.0 | 16,831.6 | 16,667.2 | 16,576.7 |
| Consolidated specialty membership | 5,194.8 | 5,294.3 | 5,310.3 | 5,425.9 | 6,072.3 |

1

# Dear fellow stockholders,

2022 was a year of acceleration, marked by a compelling 22% growth in Adjusted earnings per share$^{1}$ and significant advancements in our strategy, including successful execution of our $1 billion value-creation plan, a return to above-market individual Medicare Advantage (MA) membership growth for 2023 and further advancement of our CenterWellTM platform. The strong earnings growth delivered in 2022, combined with the robust membership growth and financial outlook for 2023, increases our confidence in our midterm Adjusted earnings per share target of $37 in 2025.

![img-2.jpeg](img-2.jpeg)

**As an industry leader in senior-focused, integrated value-based care, delivering higher-quality outcomes at a lower cost, Humana is well positioned in the fastest growing segment in healthcare, which will drive significant value in the mid- and long-term.**

## Strong industry fundamentals

Medicare Advantage, with its strong demographic growth and superior value proposition, provides significant growth opportunity ahead. Currently, there are 59.4 million Medicare-eligible individuals in the United States.$^{2}$ Thanks to strong demographic growth tailwinds, this addressable market will continue to grow, and by 2030, one in five U.S. residents will reach retirement age.$^{3}$ When customers age into Medicare eligibility, they have a choice to either enroll in an MA plan or the Original Medicare program.

![img-3.jpeg](img-3.jpeg)

**We have seen Medicare-eligible customers increasingly choose an MA product with penetration of total Medicare eligibles at 51% in January 2023 representing $473 billion in market size.$^{4,5}$**

This penetration rate is up 1,200 basis points from 2018 to January 2023, and we expect high single digit growth rates for the MA industry through 2025.$^{6}$

We believe customers choose an MA product in large part because of the exceptional clinical outcomes and enhanced value proposition.

**MA members have 43% fewer avoidable hospitalizations than Original Medicare, and MA products provide $184 of additional benefits relative to Original Medicare on average, nationally.$^{7}$**

It is also noteworthy that MA plans meaningfully over index in supporting underserved populations, with a majority of Hispanic Americans and nearly half of African Americans choosing an MA product.$^{8}$ In addition, 39% of individuals eligible for Dual Eligible Special Needs Plan (DSNP) are enrolled in a DSNP plan as of January 2023, up from 22% at the end of 2018.$^{9}$

2

![img-4.jpeg](img-4.jpeg)

![img-5.jpeg](img-5.jpeg)

Our ability to continue to provide better outcomes for our members and patients, while also delivering compelling returns to our stockholders, is underpinned by strong fundamentals in the MA industry and bolstered by Humana’s differentiated capabilities and growing payer agnostic CenterWell platform, along with our continued discipline in and focus on productivity and operating efficiencies.

**BRUCE BROUSSARD**  
President and Chief  
Executive Officer

**KURT HILZINGER**  
Chairman of  
the Board

![img-6.jpeg](img-6.jpeg)

3

## Humana's differentiated capabilities

Humana's growth in MA has outpaced the industry historically, with compounded annual growth (CAGR) of 10.4% between 2018 and 2022, while the industry grew at a rate of 9.7% over the same period.10 In addition, we expect growth of at least 775,000 individual MA members for 2023, representing annual growth of 17.0%, meaningfully outpacing industry growth. This strong track record of above-industry growth is supported by our differentiated MA capabilities, including our industry-leading value-based care portfolio, our superior clinical quality solutions, and our differentiated customer-centric operations.

Humana's highly diversified value-based care solutions and locally oriented provider relationship models set us apart from our competitors.

We were proud to close 2022 with 70% of our individual MA members being supported by a value-based provider who is incentivized to comprehensively and proactively manage patient needs, leading to improved health outcomes and lower total cost of care.

We support a wide range of value-based models and customized solutions to support providers wherever they are in their journey of migrating to a value-based clinical and operating model. Our partnership model includes options such as partial or full risk, alliance and joint venture models where we invest in growth together. Humana has a robust people, process and technology infrastructure to help providers succeed in value-based care arrangements.

10.4%
Humana's 2018
to 2022 MA
Membership CAGR

17.0%
Humana's expected
individual MA membership
growth in 2023

We continue to work to increase the penetration of value-based primary care models, given the improved quality and health outcomes these models consistently deliver. Based on 2021 data, members supported by value-based providers experienced 9% fewer trips to the emergency room, and overall, 251,000 fewer days in the hospital. These models also deliver superior economic outcomes, reducing total medical costs by an estimated 20.1%, or $6 billion as compared to the same members had they been enrolled in Original Medicare.11 The higher quality and lower costs associated with value-based primary care creates a virtuous cycle, allowing us to invest cost savings into additional benefits for our members driving greater plan satisfaction, retention and growth at or above industry levels. This is reflected in our plan designs where members associated with value-based providers receive over $500 more in plan benefits on average annually.

These improved experiences and strong value proposition also result in higher relational Net Promoter Score® (NPS)® and retention.

4

![img-7.jpeg](img-7.jpeg)

In 2021, members supported by value-based providers had an 8-point higher NPS versus those supported by fee-for-service providers while retention was 14% higher. The provider also benefits from these models, where physicians practicing under value-based models earn 14.3 cents of every healthcare dollar compared to 6.4 cents for non-value-based physicians.$^{11}$

Our ability to maintain our leadership position in the MA industry is also supported by our excellence in quality and customer experiences. Our success is demonstrated in areas such as Star Ratings, where 96% of our MA members are enrolled in plans rated 4 stars and above for bonus year 2024.$^{12}$ Humana has now achieved the highest percentage of members in 4-plus Star contracts across all our national competitors for five consecutive years.

The success and capability leadership we’ve experienced is enabled and sustained by consistent operational excellence and industry-leading consumer experience.

We have been recognized as leading the industry in member satisfaction and are proud that **Humana has been named the Best Overall Medicare Advantage Insurance Company by U.S. News and World Report**, which created an honor roll based on the Centers for Medicare & Medicaid Services’ 2023 Star Ratings for Medicare Advantage plans. Additionally, Humana was rated as the best company for member experience and best company for low-premium plan availability.

![img-8.jpeg](img-8.jpeg)

5

![img-9.jpeg](img-9.jpeg)

United under the CenterWell brand, we have significantly expanded our payer agnostic healthcare services capabilities, including our senior-focused primary care, pharmacy and home care offerings. We will continue to invest in our growing CenterWell assets and our ability to increase use of these capabilities by our health plan members, while also increasing our total addressable market, unlocking the potential to drive significant Enterprise earnings and margin growth. And as we evolve and accelerate our strategy for continued leadership in an industry that is shifting rapidly toward value-based care, we expect that our CenterWell healthcare services will be an increasingly important contributor to our long-term growth.

## CenterWell Senior Primary Care

**We remain the largest senior-focused value-based primary care platform in the United States, closing 2022 with 235 centers, a 14% year-over-year increase.** Our centers, which operate under the CenterWell and Conviva brands, were staffed by 671 primary care providers serving over 191,000 Medicare patients at the end of 2022. Humana MA members comprised approximately half of the de novo center panel, while comprising over 70% of our wholly-owned center panel.

Our value-based primary care model focuses on personalized patient experience and health outcomes that will continue to reshape how care is provided to seniors. The fee-for-service system oriented to specialized, episodic care is not well structured to meet the needs of an aging population with an increasing chronic disease prevalence where more than half of seniors have two or more chronic conditions, and more than 30% of older Americans have social determinant barriers to health.$^{13,14}$ This has contributed to critical challenges in senior care, including rising costs and complexity, poor outcomes, and poor access to care.

Value-based primary care is uniquely positioned to solve these problems, combining the trust and influence of the primary care physician-patient relationship and a revenue model that rewards investment in proactive, longitudinal care. When compared to a fee-for-service provider model, our value-based primary care model is oriented to smaller patient panels, offers after-hours and same day appointments, longer appointment times, proactive preventative appointment scheduling, and utilizes a multidisciplinary care team, all of which is designed to drive improved quality and health outcomes.

![img-10.jpeg](img-10.jpeg)

**Our Primary Care Organization continues to improve the operating performance in our wholly-owned centers and we are pleased to report that we increased the number of centers that are contribution margin positive from 88 at the end of 2021 to 110 at year-end 2022, a 25% increase year-over-year.**

6

![img-11.jpeg](img-11.jpeg)

In addition, we increased the number of centers that have reached our $3 million contribution margin target from 18 in 2021 to 31 at the end of 2022. We have also demonstrated compelling member satisfaction, with an NPS of 80, and favorable health outcomes with inpatient admits per thousand and emergency department visits per thousand running 43% and 72% lower than Original Medicare, respectively.$^{15,16,17}$

Our market-leading, differentiated provider asset is well positioned for continued center expansion and patient panel growth and is expected to be a meaningful contributor to Enterprise earnings in the future. Through accelerated de novo center expansion, programmatic small and mid-size merger and acquisition activity, and improved organic growth in our wholly-owned centers, we anticipate expanding our number of centers by approximately 30 to 50 centers annually over the next several years and are targeting Medicare patient compounded annual growth of 18% to 20%.

![img-12.jpeg](img-12.jpeg)

**Looking ahead, we expect to have 400 to 450 centers serving approximately 450,000 patients by 2025.**$^{18}$ With this growth, we anticipate a contribution of approximately $100 million - $200 million EBITDA from our Primary Care Organization in 2025, growing to more than $1 billion over the next 10 years.

7

# CenterWell Home Health

![img-13.jpeg](img-13.jpeg)

With approximately 6% market share,$^{19}$ CenterWell Home Health is the largest home health provider in the United States and we are well positioned to continue to grow our core home health business going forward.

The strength of our core fee-for-service home health business was evident in 2022, with total same store admissions up 6.3% year-over-year compared to public peer growth of 0.75%.$^{20}$ We have also grown the CenterWell Home HealthTM penetration rate of Humana home health episodes in markets where there is geographic overlap from 8% in 2017 when we entered into our initial transaction with Kindred at Home (now CenterWell Home Health) to 19% in 2022.$^{21}$ We are confident we can significantly increase this volume in the years to come.

![img-14.jpeg](img-14.jpeg)

We expect our home health admission growth to continue in the mid-single digits in 2023 as we look to offset the declining Original Medicare market with increased penetration of MA patients, including Humana MA members. In addition, CenterWell Home Health is focused on increasing nursing capacity through recruiting and retention initiatives. Our voluntary nursing turnover improved from 31.9% in 2021 to 30.6% in 2022. We continue to invest in clinical orientation and mentors, as well as technology focused on reducing administrative tasks and drive time for clinicians-which we expect to drive further improvement in nurse recruitment and retention.

Beyond growing our core fee-for-service home business, we are focused on providing members and patients with access to holistic, value-based care in the home that enhances the experience, improves outcomes, and reduces total cost of care. Our value-based home model, which coordinates care and optimizes spend across home health, durable medical equipment (DME) and infusion services, is now supporting approximately 15% of our MA members-up from 5% coverage in 2021. In addition, we are implementing some of these capabilities on a standalone basis to accelerate value creation. As of January 2023, we rolled out the home health utilization management and network management capabilities to 1.4 million additional members, bringing the total number of covered members to 1.9 million, creating incremental Enterprise value in advance of the full value-based market rollout.

8

![img-0.jpeg](img-0.jpeg)

Looking forward, we expect to expand coverage of the full value-based home model to approximately

### **1 million additional members by year end 2023,**

800,000 of which are currently served under the utilization and network management model, and are on track to cover approximately 40% of our MA members with the full value-based model by 2025.

Today, on average, health plans in Humana markets with the greatest opportunity spend $35 to $40 per member per month on home health, DME and infusion combined. We believe the value-based home health model can reduce these costs for the Enterprise by a net 10% to 15%, thereby generating between $110 million to $150 million of incremental annual Enterprise value creation by 2025.

![img-1.jpeg](img-1.jpeg)

9

# CenterWell Pharmacy

**Our pharmacy dispensing business remains strong with industry-leading mail-order penetration at 38.6% for our individual MA members in 2022.**

In addition, in more mature CenterWell clinics, we have seen mail-order penetration rates for Humana members approach 50% and when combined with prescriptions dispensed by our co-located retail pharmacies, our total CenterWell PharmacyTM market share can approach 60%. The benefits of mail-order extend beyond our pharmacy operations, leading to better medication adherence and health outcomes, benefiting our members and health plan. As an example, MA members who utilize CenterWell Pharmacy demonstrate medication adherence rates ranging from 650 to 840 basis points higher than we see in traditional retail pharmacies for cholesterol, blood pressure and diabetes treatments.

## Integrating our CenterWell assets

As we look to the long term, the growth and maturation of our CenterWell assets are expected to bolster our ability to continue to drive compelling earnings growth and increased cash flow, creating additional capital deployment opportunities. This time period will also allow for the maturation of the potential benefits from the advancement of the integration of our assets in local markets. **When we integrate our assets effectively in local markets, we see accelerated volume growth, better experiences and clinical outcomes, and improved Humana Enterprise economics. With a health plan member utilizing the full suite of CenterWell assets, we can drive two to four times the direct margin dollars for the Enterprise versus one that utilizes the health plan alone.** In addition, we believe successful integration of our assets can drive additional value in areas such as improved retention and higher Stars scores, which we have not attempted to estimate in the two to four times metric. We believe there is the potential to unlock significant value over time as our integration efforts mature and look forward to providing updates in the future.

![img-2.jpeg](img-2.jpeg)

**Our pharmacy business will benefit from the significant growth in individual MA membership in 2023 as we anticipate maintaining our industry-leading mail-order position, further investing in the consumer experience and encouraging the continued use of mail-order, despite comparable copays in the retail setting beginning in 2023.**

10

![img-3.jpeg](img-3.jpeg)

11

# Environmental, social and governance

![img-4.jpeg](img-4.jpeg)

**We are dedicated to improving the health of every person we serve, demonstrated through our environmental, social and governance (ESG) strategy-to improve the health of each person, each community, the healthcare system and our environment-and it’s our steadfast belief that everyone should have access to the resources and support they need to reach their full health potential.**

We’re continuously working to ensure that our health plan products and services are as affordable as possible, while also creating pathways for access to healthcare, addressing social determinants of health (SDOH) and health-related social needs. Thanks to processes such as integrated care delivery and using health screenings that consider SDOH and

health literacy, we have a clearer view of each member’s very personal barriers to their best health. Through use of our proprietary population health analytics capabilities, we’re able to aggregate and stratify more than 90 data sets to help us learn even more about the unique factors impacting a person’s total health, recognizing that helping them with their health often requires addressing environmental conditions, and social and lifestyle factors (housing, education, employment, etc.) that prevent them from getting and staying well.

Building trust and taking care of people has always been core to our values and our company’s purpose and mission. As we meet people where they are and make things simpler for them, we begin to establish trust, which gives us the permission space to help them achieve their best health. That’s where real transformational change begins.

We know that our role in healthcare goes beyond being a good corporate citizen. For us to have sustainable success as a company, we need to not only have satisfied customers and associates, but we must also contribute to society by tackling larger issues that stand in the way of healthy communities.

![img-5.jpeg](img-5.jpeg)

12

![img-6.jpeg](img-6.jpeg)

Nationally, we are working to advance health equity and are leading by example, using our strengths to bring about lasting change. Whether it's through the unique programs and services we offer aging adults, veterans, and individuals in communities that have been historically underserved, or through our green energy initiatives, stable housing efforts, and customer data privacy protection, we're dedicated to providing support in areas where we can make the most difference.

In our workplaces, we are creating safe and supportive spaces to nurture professional purpose and individual development. **During 2022, approximately 30% of our associates participated in at least one of our 10 associate-led network resource groups that offer opportunities for connection and growth.** In addition, we are investing in programs that encourage our teammates to express their talents through mentorship and volunteering, with the goal of increasing diversity, equity and inclusion. **Last year alone, 38% of Humana associates rolled up their sleeves, clocking nearly 255,200 volunteer hours, giving back to their communities through acts of service.**

In our communities, we support the dedicated people and organizations at the forefront of community health, helping accelerate their reach and impact. These collaborations move us towards the goals of eliminating social and structural barriers to health to achieve health equity. Working closely with physicians, clinicians, community partners and national leaders, we're able to 'treat' social needs and expand community capacity to address SDOH. Many of these undertakings involve deep community collaborations, such as establishing a process to screen patients for food insecurity in their doctor's office and immediately connect them to a local food bank for entitlement program enrollment and emergency food provision.

**We understand that 60% of one's ability to lead a healthy, meaningful life is shaped by environmental conditions and social/lifestyle factors. We're leaning into that.**

Measuring our progress and addressing opportunities is critical to achieving our strategy and creating value. We know that's how we continue to build trust with all of our stakeholders, and is why we are committed to transparent reporting on our ESG measures, presenting both our progress and our shortcomings in our annual Impact Report. We encourage you to read about our 2022 ESG initiatives and disclosures across five categories-talent and diversity, access to healthcare, environmental impact, data privacy and protection, and product quality and safety-to learn how we're operating with you in mind. Because what matters most is you-our customers, our associates, our partners and our communities.

![img-7.jpeg](img-7.jpeg)

**With over 60 years of healthcare experience, our ability to impact the healthcare system has only grown. We take this responsibility seriously by adopting best-practice governance and business policies, following rigorous quality and ethical standards, working closely with healthcare providers, and innovating on behalf of those we serve.**

13

# Conclusion

In closing, our sustained success would not be possible without the trust and dedication of our many stakeholders including our associates, our members and patients, our clinician partners, our governmental partners and our stockholders. We thank each of you for your commitment to Humana and look forward to strengthening our partnership in the future as we continue on our journey of providing better outcomes for our members and patients, while also driving compelling returns to our shareholders.

## Diluted earnings per common share (EPS)

|  | FY 2022 | FY 2021 |
| --- | --- | --- |
| GAAP RESULTS | $22.08 | $22.67 |
| Amortization associated with identifiable intangibles | 0.64 | 0.50 |
| Gain on Kindred at Home equity method investment | - | (8.73) |
| Put/call valuation adjustments associated with company's nonconsolidating minority interest investments | 0.53 | 4.62 |
| Transaction and integration costs | 0.83 | 0.99 |
| Change in fair market value of publicly-traded equity securities | 0.97 | 2.63 |
| Changes associated with productivity initiatives related to the previously disclosed $1 billion value creation plan | 3.72 | - |
| Gain on the sale of Kindred at Home's Hospice and Personal Care divisions | (1.86) | - |
| Tax impact of non-GAAP adjustments | (1.67) | (2.04) |
| ADJUSTED (NON-GAAP) | $25.24 | $20.64 |

The company has included financial measures that are not in accordance with GAAP. Management believes that these measures, when presented in conjunction with the comparable GAAP measures, are useful to both management and its investors in analyzing the company's ongoing business and operating performance. Consequently, management uses these non-GAAP (adjusted) financial measures as indicators of the company's business performance, as well as for operational planning and decision-making purposes. Non-GAAP (adjusted) financial measures should be considered in addition to, but not as a substitute for, or superior to, financial measures prepared in accordance with GAAP. All financial measures herein are in accordance with GAAP unless otherwise indicated.

14

![img-8.jpeg](img-8.jpeg)

Thank you
for your
continued
partnership
and trust in
Humana

Bruce D. Broussard
President, Chief Executive
Officer and Board Member
Humana Inc.

Kurt J. Hilzinger
Chairman of the Board
Humana Inc.

![img-9.jpeg](img-9.jpeg)

15

# Humana Board of Directors

![img-10.jpeg](img-10.jpeg)

RAQUEL C. BONO, M.D.

Principal
RCB Consulting
Chief Health Officer
Viking

![img-11.jpeg](img-11.jpeg)

BRUCE D. BROUSSARD

President and
Chief Executive Officer
Humana Inc.

![img-12.jpeg](img-12.jpeg)

FRANK A. D'AMELIO

Former Executive Vice President,
Chief Financial Officer
Pfizer Inc.

![img-13.jpeg](img-13.jpeg)

DAVID T. FEINBERG, M.D.

Chairman
Oracle Health

![img-14.jpeg](img-14.jpeg)

WAYNE A.I. FREDERICK,
M.D., F.A.C.S.

President
Howard University

![img-15.jpeg](img-15.jpeg)

JOHN W. GARRATT

President and
Chief Financial Officer
Dollar General Corporation

![img-16.jpeg](img-16.jpeg)

KURT J. HILZINGER

Chairman of the Board
Humana Inc.
Partner
Court Square Capital Partners, LP

![img-17.jpeg](img-17.jpeg)

DAVID A. JONES, JR.

Chairman
Chrysalis Ventures, LLC

![img-18.jpeg](img-18.jpeg)

KAREN W. KATZ

Former President and
Chief Executive Officer
Neiman Marcus Group LTD LLC

![img-19.jpeg](img-19.jpeg)

MARCY S. KLEVORN

Former Chief
Transformation Officer
Ford Motor Company

![img-20.jpeg](img-20.jpeg)

WILLIAM J. MCDONALD

Managing Partner
Wild Irishman Advisory, LLC

![img-21.jpeg](img-21.jpeg)

JORGE S. MESQUITA

Former Chief Executive Officer
BlueTriton Brands

![img-22.jpeg](img-22.jpeg)

JAMES J. O'BRIEN

Former Chairman of the
Board and Chief Executive
Officer
Ashland, Inc.

![img-23.jpeg](img-23.jpeg)

BRAD D. SMITH

President
Marshall University

16

# **UNITED STATES**
**SECURITIES AND EXCHANGE COMMISSION**
**Washington, D.C. 20549**
**FORM 10-K**

☑ **ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**

For the fiscal year ended December 31, 2022
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)

**Delaware**

(State or other jurisdiction of incorporation of organization)

**61-0647538**

(I.R.S. Employer Identification No.)

**500 West Main Street, Louisville, Kentucky 40202**

(Address of principal executive offices, and zip code)

Registrant's telephone number, including area code: **(502) 580-1000**

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

| Title of each class | Trading Symbol | Name of exchange on which registered |
| --- | --- | --- |
| Common stock, $0.16 2/3 par value | HUM | New York Stock Exchange |

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☑ No ☐

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☑

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 (§ 232.405 of this chapter) 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 has filed a report on and attestation to its management's assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☑

If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐

Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant's executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐

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

The aggregate market value of voting stock held by non-affiliates of the Registrant as of June 30, 2022 was $59,158,438,222 calculated using the average price on June 30, 2022 of $468.33 per share.

The number of shares outstanding of the Registrant’s Common Stock as of January 31, 2023 was 124,974,862.

#### **DOCUMENTS INCORPORATED BY REFERENCE**

Parts II and III incorporate herein by reference portions of the Registrant’s Definitive Proxy Statement to be filed pursuant to Regulation 14A with respect to the Annual Meeting of Stockholders scheduled to be held on April 20, 2023. Such Definitive Proxy Statement will be filed with the Securities and Exchange Commission within 120 days after the end of the fiscal year to which this report relates.

# **HUMANA INC.**
**INDEX TO ANNUAL REPORT ON FORM 10-K**
**For the Year Ended December 31, 2022**

|  | Page |
| --- | --- |
| Part I |  |
| Item 1. Business | 4 |
| Item 1A. Risk Factors | 21 |
| Item 1B. Unresolved Staff Comments | 35 |
| Item 2. Properties | 35 |
| Item 3. Legal Proceedings | 36 |
| Item 4. Mine Safety Disclosures | 36 |
| Part II |  |
| Item 5. Market for the Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities | 37 |
| Item 6. Reserved | 40 |
| Item 7. Operations | 41 |
| Item 7A. Quantitative and Qualitative Disclosures about Market Risk | 72 |
| Item 8. Financial Statements and Supplementary Data | 74 |
| Item 9. Disclosure | 130 |
| Item 9A. Controls and Procedures | 130 |
| Item 9B. Other Information | 131 |
| Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections | 131 |
| Part III |  |
| Item 10. Directors, Executive Officers and Corporate Governance | 132 |
| Item 11. Executive Compensation | 133 |
| Item 12. Stockholder Matters | 133 |
| Item 13. Certain Relationships and Related Transactions, and Director Independence | 134 |
| Item 14. Principal Accounting Fees and Services | 134 |
| Part IV |  |
| Item 15. Exhibits, Financial Statement Schedule | 135 |
| Item 16. Form 10-K Summary | 147 |
| Signatures and Certifications | 148 |

3

# Forward-Looking Statements

*Some of the statements under “Business,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and elsewhere in this report may contain forward-looking statements which reflect our current views with respect to future events and financial performance. These forward-looking statements are made within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, or the Exchange Act. We intend such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995, and we are including this statement for purposes of complying with these safe harbor provisions. We have based these forward-looking statements on our current expectations and projections about future events, trends and uncertainties. These forward-looking statements are not guarantees of future performance and are subject to risks, uncertainties and assumptions, including the information discussed under the section entitled “Risk Factors” in this report. In making these statements, we are not undertaking to address or update them in future filings or communications regarding our business or results. Our business is highly complicated, regulated and competitive with many different factors affecting results.*

## PART I

### ITEM 1. BUSINESS

#### General

Headquartered in Louisville, Kentucky, Humana Inc. and its subsidiaries, referred to throughout this document as “we,” “us,” “our,” the “Company” or “Humana,” is a leading health and well-being company committed to helping our millions of medical and specialty members achieve their best health. Our successful history in care delivery and health plan administration is helping us create a new kind of integrated care with the power to improve health and well-being and lower costs. Our efforts are leading to a better quality of life for people with Medicare, families, individuals, military service personnel, and communities at large. To accomplish that, we support physicians and other health care professionals as they work to deliver the right care in the right place for their patients, our members. Our range of clinical capabilities, resources and tools, such as in-home care, behavioral health, pharmacy services, data analytics and wellness solutions, combine to produce a simplified experience that makes health care easier to navigate and more effective.

As of December 31, 2022, we had approximately 17 million members in our medical benefit plans, as well as approximately 5 million members in our specialty products. During 2022, 82% of our total premiums and services revenue were derived from contracts with the federal government, including 14% derived from our individual Medicare Advantage contracts in Florida with the Centers for Medicare and Medicaid Services, or CMS, under which we provide health insurance coverage to approximately 771,900 members as of December 31, 2022.

Humana Inc. was organized as a Delaware corporation in 1964. Our principal executive offices are located at 500 West Main Street, Louisville, Kentucky 40202, the telephone number at that address is (502) 580-1000, and our website address is www.humana.com. We have made available free of charge through the Investor Relations section of our web site our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, proxy statements, and, if applicable, amendments to those reports filed or furnished pursuant to Section 13(a) of the Exchange Act, as soon as reasonably practicable after we electronically file such material with, or furnish it to, the Securities and Exchange Commission.

This Annual Report on Form 10-K, or 2022 Form 10-K, contains both historical and forward-looking information. See Item 1A. - Risk Factors in this 2022 Form 10-K for a description of a number of factors that may adversely affect our results or business.

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# Business Segments

During December 2022, we realigned our businesses into two distinct segments: Insurance and CenterWell. The Insurance segment includes the businesses that were previously included in the Retail and Group and Specialty segments, as well as the Pharmacy Benefit Manager, or PBM, business which was previously included in the Healthcare Services segment. The CenterWell segment (formerly Healthcare Services) represents our payor-agnostic healthcare services offerings, including pharmacy dispensing services, provider services, and home services. In addition to the new segment classifications being utilized to assess performance and allocate resources, we believe this simpler structure will create greater collaboration across the Insurance and CenterWell businesses and will accelerate work that is underway to centralize and integrate operations within the organization. Prior period segment financial information has been recast to conform to the 2022 presentation. For a recast of prior period segment financial information, refer to Note 18 to the audited Consolidated Financial Statements included in Part II, Item 8, 'Financial Statements and Supplementary Data' of this Form 10-K.

Our two reportable segments, Insurance and CenterWell, 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. These segment groupings are consistent with information used by our Chief Executive Officer, the Chief Operating Decision Maker, to assess performance and allocate resources. For additional information on our business segments and segment financial information, refer to Note 18 to the audited Consolidated Financial Statements included in Part II, Item 8, 'Financial Statements and Supplementary Data' of this Form 10-K.

# Our Products

Our medical and specialty insurance products allow members to access health care services primarily through our networks of health care providers with whom we have contracted. These products may vary in the degree to which members have coverage. Health maintenance organizations, or HMOs, include comprehensive managed care benefits generally through a participating network of physicians, hospitals, and other providers. Preferred provider organizations, or PPOs, provide members the freedom to choose any health care provider. However, PPOs generally require the member to pay a greater portion of the provider's fee in the event the member chooses not to use a provider participating in the PPO's network. Point of Service, or POS, plans combine the advantages of HMO plans with the flexibility of PPO plans. In general, POS plans allow members to choose, at the time medical services are needed, to seek care from a provider within the plan's network or outside the network. In addition, we offer services to our health plan members as well as to third parties that promote health and wellness, including pharmacy, provider services, and home solutions, as well as services and capabilities to advance population health. At the core of our strategy is our integrated care delivery model, which unites quality care, high member engagement, and sophisticated data analytics. Three core elements of the model are to improve the consumer experience by simplifying the interaction with us, engaging members in clinical programs, and offering assistance to providers in transitioning from a fee-for-service, or FFS, to a value-based arrangement. Our approach to primary, physician-directed care for our members aims to provide quality care that is consistent, integrated, cost-effective, and member-focused. The model is designed to improve health outcomes and affordability for individuals and for the health system as a whole, while offering our members a simple, seamless healthcare experience. The discussion that follows describes the products offered by each of our segments.

5

## Our Insurance Segment Products

The Insurance segment is comprised of products serving Medicare and state-based contract beneficiaries sold on a retail basis to individuals including medical and supplemental benefit plans. This segment also includes products consisting of employer group commercial fully-insured medical and specialty health insurance benefits marketed to individuals and employer groups, including dental, vision and life insurance benefits, as well as administrative services only, or ASO. In addition, our Insurance segment includes our military services business as well as the operations of our PBM business. These products are described in the discussion that follows.

The following table presents our premiums and services revenue for the Insurance segment by product for the year ended December 31, 2022:

|  | Insurance Segment Premiums and Services Revenue | Percent of Consolidated Premiums and Services Revenue |
| --- | --- | --- |
|  | (dollars in millions) |  |
| Premiums: |  |  |
| Individual Medicare Advantage | $65,591 | 70.9% |
| Group Medicare Advantage | 7,297 | 7.9% |
| Medicare stand-alone PDP | 2,269 | 2.5% |
| Total Medicare | 75,157 | 81.3% |
| Medicare Supplement | 743 | 0.8% |
| Commercial fully-insured | 3,733 | 4.0% |
| Total fully-insured | 4,476 | 4.8% |
| Medicaid and other | 6,376 | 6.9% |
| Specialty | 1,703 | 1.8% |
| Total premiums | 87,712 | 94.8% |
| Services | 850 | 0.9% |
| Total premiums and services revenue | $88,562 | 95.8% |

### *Medicare*

We have participated in the Medicare program for private health plans for over 30 years and have established a national presence, offering at least one type of Medicare plan in all 50 states. We have a geographically diverse membership base that we believe provides us with greater ability to expand our network of PPO and HMO providers. We employ strategies including health assessments and clinical guidance programs such as lifestyle and fitness programs for seniors to guide Medicare beneficiaries in making cost-effective decisions with respect to their health care. We believe these strategies result in cost savings that occur from making positive behavior changes.

Medicare is a federal program that provides persons age 65 and over and some disabled persons under the age of 65 certain hospital and medical insurance benefits. CMS, an agency of the United States Department of Health and Human Services, administers the Medicare program. Hospitalization benefits are provided under Part A, without the payment of any premium, for up to 90 days per incident of illness plus a lifetime reserve aggregating 60 days. Eligible beneficiaries are required to pay an annually adjusted premium to the federal government to be eligible for physician care and other services under Part B. Beneficiaries eligible for Part A and Part B coverage under traditional fee-for-service Medicare are still required to pay out-of-pocket deductibles and coinsurance. Throughout this document this program is referred to as Medicare FFS. As an alternative to Medicare FFS, in geographic areas where a managed care organization has contracted with CMS pursuant to the Medicare Advantage program, Medicare beneficiaries may choose to receive benefits from a Medicare Advantage organization under Medicare Part C. Pursuant to Medicare Part C, Medicare Advantage organizations contract with CMS to offer Medicare Advantage plans to provide benefits at least comparable to those offered under Medicare FFS. Our Medicare

6

Advantage, or MA, plans are discussed in the following sections. Prescription drug benefits are provided under Part D.

### *Individual Medicare Advantage Products*

We contract with CMS under the Medicare Advantage program to provide a comprehensive array of health insurance benefits, including wellness programs, chronic care management, and care coordination, to Medicare eligible persons under HMO, PPO, Private Fee-For-Service, or PFFS, and Special Needs Plans, including Dual Eligible Special Needs, or D-SNP, plans in exchange for contractual payments received from CMS, usually a fixed payment per member per month. With each of these products, the beneficiary receives benefits in excess of Medicare FFS, typically including reduced cost sharing, enhanced prescription drug benefits, care coordination, data analysis techniques to help identify member needs, complex case management, tools to guide members in their health care decisions, care management programs, wellness and prevention programs and, in some instances, a reduced monthly Part B premium. Most Medicare Advantage plans offer the prescription drug benefit under Part D as part of the basic plan, subject to cost sharing and other limitations. Accordingly, all of the provisions of the Medicare Part D program described in connection with our stand-alone prescription drug plans in the following section also are applicable to most of our Medicare Advantage plans. Medicare Advantage plans may charge beneficiaries monthly premiums and other copayments for Medicare-covered services or for certain extra benefits. Generally, Medicare-eligible individuals enroll in one of our plan choices between October 15 and December 7 for coverage that begins on the following January 1.

Our Medicare HMO and PPO plans, which cover Medicare-eligible individuals residing in certain counties, may eliminate or reduce coinsurance or the level of deductibles on many other medical services while seeking care from participating in-network providers or in emergency situations. Except in emergency situations or as specified by the plan, most HMO plans provide no out-of-network benefits. PPO plans carry an out-of-network benefit that is subject to higher member cost-sharing. In some cases, these beneficiaries are required to pay a monthly premium to the HMO or PPO plan in addition to the monthly Part B premium they are required to pay the Medicare program.

Most of our Medicare PFFS plans are network-based products with in and out of network benefits due to a requirement that Medicare Advantage organizations establish adequate provider networks, except in geographic areas that CMS determines have fewer than two network-based Medicare Advantage plans. In these areas, we offer Medicare PFFS plans that have no preferred network. Individuals in these plans pay us a monthly premium to receive typical Medicare Advantage benefits along with the freedom to choose any health care provider that accepts individuals at rates equivalent to Medicare FFS payment rates.

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 account for certain demographic characteristics and health status of our enrolled members. 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, collected from providers, to calculate the health status-related risk-adjusted premium payment to MA plans, which CMS further adjusts for coding pattern differences between the health plans and the government fee-for-service (FFS) 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 health status-adjusted 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. For additional information, refer to Note 17 to the audited Consolidated Financial Statements included in Part II, Item 8, 'Financial Statements and Supplementary Data' and Part I, Item 1A, 'Risk Factors' of this Form 10-K.

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At December 31, 2022, we provided health insurance coverage under CMS contracts to approximately 4,565,600 individual Medicare Advantage members, including approximately 771,900 members in Florida. These Florida contracts accounted for premiums revenue of approximately $13.2 billion, which represented approximately 20% of our individual Medicare Advantage premiums revenue, or 14% of our consolidated premiums and services revenue for the year ended December 31, 2022.

Our individual Medicare Advantage products covered under Medicare Advantage contracts with CMS are renewed generally for a calendar year term unless CMS notifies us of its decision not to renew by May 1 of the calendar year in which the contract would end, or we notify CMS of our decision not to renew by the first Monday in June of the calendar year in which the contract would end. All material contracts between Humana and CMS relating to our Medicare Advantage products have been renewed for 2023, and all of our product offerings filed with CMS for 2023 have been approved.

#### *Individual Medicare Stand-Alone Prescription Drug Products*

We offer stand-alone prescription drug plans, or PDPs, under Medicare Part D, including a PDP offering co-branded with Wal-Mart Stores, Inc., or the Humana-Walmart plan. Generally, Medicare-eligible individuals enroll in one of our plan choices between October 15 and December 7 for coverage that begins on the following January 1. Our stand-alone PDP offerings consist of plans offering basic coverage with benefits mandated by Congress, as well as plans providing enhanced coverage with varying degrees of out-of-pocket costs for premiums, deductibles, and co-insurance. Our revenues from CMS and the beneficiary are determined from our PDP bids submitted annually to CMS. These revenues also reflect the health status of the beneficiary and risk sharing provisions as more fully described in Note 2 to the audited Consolidated Financial Statements included in Item 8. - Financial Statements and Supplementary Data, titled “Medicare Part D.” Our stand-alone PDP contracts with CMS are renewed generally for a calendar year term unless CMS notifies us of its decision not to renew by May 1 of the calendar year in which the contract would end, or we notify CMS of our decision not to renew by the first Monday in June of the calendar year in which the contract would end. All material contracts between Humana and CMS relating to our Medicare stand-alone PDP products have been renewed for 2023, and all of our product offerings filed with CMS for 2023 have been approved.

We have administered CMS’s Limited Income Newly Eligible Transition, or LI-NET, prescription drug plan program since 2010. This program allows individuals who receive Medicare’s low-income subsidy to also receive immediate prescription drug coverage at the point of sale if they are not already enrolled in a Medicare Part D plan. CMS temporarily enrolls newly identified individuals with both Medicare and Medicaid into the LI-NET prescription drug plan program, and subsequently transitions each member into a Medicare Part D plan that may or may not be a Humana Medicare plan.

#### *Group Medicare Advantage and Medicare Stand-Alone PDP*

We offer products that enable employers that provide post-retirement health care benefits to replace Medicare wrap or Medicare supplement products with Medicare Advantage or stand-alone PDPs from Humana. These products are primarily offered as PPO plans on the same Medicare platform as individual Medicare Advantage plans. These plans offer the same types of benefits and services available to members in our individual Medicare plans discussed previously, however, group Medicare Advantage plans typically have richer benefit offerings than individual Medicare Advantage plans, including prescription drug coverage in the gap, for instance, due to the desire of many customers to closely match their pre-retirement benefit structure.

#### *Medicare Supplement*

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

8

### ***State-based Medicaid Contracts***

Through our state-based contracts, we serve members enrolled in Medicaid, a program funded by both the federal and state governments and administered by states to care for their most vulnerable populations. Within federal guidelines, states determine whom to cover, but general categories for traditional Medicaid programs include: children and parents receiving assistance through Temporary Assistance to Needy Families (TANF); Aged, Blind, and Disabled (ABD) individuals; and Medicaid Expansion adults. Through Medicaid Managed Long-Term Support Services (MLTSS) programs, states offer programs to deliver support services to people who receive home and community or institution-based services for long-term care.

We have contracts in multiple states to serve Medicaid-eligible members, including Florida, Kentucky, Louisiana, Ohio, South Carolina and Wisconsin. The Louisiana contract was effective January 1, 2023.

We also serve members who qualify for both Medicaid and Medicare, referred to as 'dual eligible', through our Medicaid, Medicare Advantage, and stand-alone prescription drug plans. As the dual eligible population represents a disproportionate share of costs, Humana is participating in varied integration models designed to improve health outcomes and reduce avoidable costs. These programs largely operate separately from traditional Medicaid programs. We currently serve dual eligible members under CMS's dual eligible demonstration program in Illinois.

As part of our individual Medicare Advantage products, we also offer Dual-Eligible Special Needs Plans (D-SNP). In connection with offering a D-SNP in a particular state, we are required to enter into a special coordinating contract with the applicable state Medicaid agency. To meet federal requirements that took effect in 2021, states have begun to implement new D-SNP requirements to strengthen Medicaid-Medicare integration requirements for D-SNPs. Some states are also moving to support the dual eligible population by linking D-SNP participation to enrollment in a plan that also participates in a state-based Medicaid program to coordinate and integrate both Medicare and Medicaid benefits.

### ***Group Commercial Coverage***

Our commercial products sold to employer groups include a broad spectrum of major medical benefits with multiple in-network coinsurance levels and annual deductible choices that employers of all sizes can offer to their employees on either a fully-insured, through HMO, PPO, or POS plans, or self-funded basis. Our plans integrate clinical programs, plan designs, communication tools, and spending accounts.

Our ASO products are offered to small group and large group employers who self-insure their employee health plans. We receive fees to provide administrative services which generally include the processing of claims, offering access to our provider networks and clinical programs, and responding to customer service inquiries from members of self-funded employers. These products may include all of the same benefit and product design characteristics of our fully-insured HMO, PPO, or POS products described previously. Under ASO contracts, self-funded employers generally retain the risk of financing the costs of health benefits, with large group customers retaining a greater share and small group customers a smaller share of the cost of health benefits. All small group ASO customers and many large group ASO customers purchase stop loss insurance coverage from us to cover catastrophic claims or to limit aggregate annual costs.

Employers can customize their offerings with optional benefits such as dental, vision, and life products. We also offer optional benefits such as dental and vision to individuals.

### ***Military Services***

Under our TRICARE contracts with the United States Department of Defense, or DoD, we provide administrative services to arrange health care services for the dependents of active duty military personnel and for retired military personnel and their dependents. We have participated in the TRICARE program since 1996 under contracts with the DoD. Under our contracts, we provide administrative services while the federal government retains all of the risk of the cost of health benefits. Accordingly, we account for revenues under the current contract net of estimated health care costs similar to an administrative services fee only agreement.

9

On January 1, 2018, we began to deliver services under the T2017 East Region contract. The T2017 East Region contract comprises 32 states and approximately 6 million TRICARE beneficiaries. The T2017 East Region contract, which was originally set to expire on December 31, 2022, was subsequently extended by the DoD and is currently scheduled to expire on December 31, 2023, unless further extended.

In December 2022, we were awarded the next generation of TRICARE Managed Care Support Contracts, or T-5, for the TRICARE East Region by the Defense Health Agency of the DoD. The contract is expected to go into effect in 2024. Until then the T2017 contract remains in place. Under the terms of the award, our service area covers approximately 4.6 million beneficiaries in a region consisting of 24 states and Washington, D.C. The length of the contract is one base year with eight annual option periods, which, if all options are exercised, would result in a total contract length of nine years.

## Our CenterWell Segment Products

The products offered by our CenterWell segment are key to our integrated care delivery model. This segment includes our pharmacy, provider services, and home solutions operations. The CenterWell segment also includes our strategic partnerships with Welsh, Carson, Anderson & Stowe, or WCAS, to develop and operate senior-focused, payor-agnostic, primary care centers, as well as our minority ownership interest in hospice operations. Services offered by this segment are designed to enhance the overall healthcare experience. These services may lead to lower utilization associated with improved member health and/or lower drug costs. For information on our intersegment revenues, refer to Note 18 to the audited Consolidated Financial Statements included in Part II, Item 8, 'Financial Statements and Supplementary Data' of this Form 10-K.

The following table presents our services revenue for the CenterWell segment by line of business for the year ended December 31, 2022:

|  | CenterWell Segment Services Revenue | Percent of Consolidated Premiums and Services Revenue |
| --- | --- | --- |
|  | (dollars in millions) |  |
| Intersegment revenues: |  |  |
| Home solutions | $553 | n/a |
| Pharmacy | 9,841 | n/a |
| Provider services | 2,979 | n/a |
| Total intersegment revenues | $13,373 |  |
| External services revenue: |  |  |
| Home solutions | $2,333 | 2.5% |
| Pharmacy | 1,025 | 1.1% |
| Provider services | 568 | 0.6% |
| Total external services revenue | $3,926 | 4.2% |

### *Pharmacy*

Our pharmacy business includes the operations of CenterWell Pharmacy (our mail-order pharmacy business), CenterWell Specialty Pharmacy, and other retail pharmacies located within CenterWell Primary Care clinics for brand, generic, specialty drugs, over the counter medications and supplies, and hospice pharmacy drugs.

### *Provider Services*

We operate full-service, value-based senior focused primary care centers in a number of states, including Georgia, Florida, Kansas, Louisiana, Missouri, Nevada, North Carolina, South Carolina, Texas, Arizona and

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Kentucky staffed by primary care providers and medical specialists with a primary focus on the senior population under our Primary Care Organization, or PCO. PCO operates these clinics primarily under the Conviva Care Centers and CenterWell Senior Primary Care brands. Our primary care subsidiaries operate our medical center business through both employed physicians and care providers, and through third party management service organizations with whom we contract to arrange for and manage certain clinical services. PCO currently operates 235 primary care clinics and employs approximately 670 primary care providers. PCO serves approximately 247,900 patients, primarily under risk sharing arrangements with Humana Medicare Advantage health plans, third party Medicare Advantage health plans and CMS administered risk sharing arrangements for Medicare FFS.

PCO also operates a Medical Services Organization, or MSO, through Conviva that coordinates medical care for Medicare Advantage beneficiaries in Florida and Texas. This MSO provides resources in care coordination, financial risk management, clinical integration and patient engagement that help physicians improve the patient experience as well as care outcomes. Conviva’s MSO collaborates with physicians, medical groups and integrated delivery systems to successfully transition to value-based care by engaging, partnering and offering practical services and solutions.

In 2020, our Primary Care Organization entered into a strategic partnership with Welsh, Carson, Anderson & Stowe, or WCAS, to accelerate the expansion of our primary care model. In May 2022, we established a second strategic partnership with WCAS to develop additional centers between 2023 and 2025. As of December 31, 2022, there were 50 primary care clinics operating under the partnership and we intend to open approximately 100 additional primary care clinics in future periods under the existing arrangements. For additional information, refer to Note 4 to the audited Consolidated Financial Statements included in Part II, Item 8, 'Financial Statements and Supplementary Data' of this Form 10-K.

### *Home Solutions*

#### *CenterWell Home Health*

We are actively involved in the care management of our customers with the greatest needs via in-home care. On August 17, 2021, we fully acquired Kindred at Home, or KAH, the nation’s largest home health and hospice provider with locations in 40 states, providing extensive geographic coverage with approximately 65% overlap with our individual Medicare Advantage membership. Our home solutions geographic scale and clinical breadth provides the opportunity to offer care beyond our health plan members. We have fully-integrated the home health operations, now branded CenterWell Home Health, allowing us to accelerate clinical innovation and the development and roll out of a value-based operating model at scale, more closely aligning incentives to focus on improving patient outcomes and reducing the total cost of care. This is critical to deploying a value-based, advanced home health model at scale that makes it easier for patients and providers to benefit from our full continuum of home-based capabilities, leveraging the best channel to deliver the right care needed at the right time.

#### *Onehome*

Onehome serves as the convener for the value-based model meeting the needs of health plans by serving their members through a full-risk model for integrated home-based services. Onehome manages a full range of post-acute patient needs, integrating and coordinating with physicians, hospitals and health plans for the provision of home health and infusion services as well as the distribution of durable medical equipment, or DME, at patients’ homes. Onehome served 15% of our MA members with our value-based model as of December 31, 2022.

#### *Hospice*

Hospice care is an important offering in the full continuum of care we offer patients, and we have been successful in delivering the desired patient experience and outcomes through partnership models, including through participation in the CMS hospice Value-Based Insurance Design, or VBID, model. As such, on August 11, 2022, we completed the sale of a 60% interest in Humana’s Kindred at Home Hospice subsidiary, or KAH Hospice, to Clayton, Dubilier & Rice, or CD&R. Upon closing, KAH Hospice was restructured into a new stand-alone company. We continue to own a 40% minority ownership in hospice operations. For additional information on the

11

sale of KAH Hospice, refer to Note 3 to the audited Consolidated Financial Statements included in Part II, Item 8, 'Financial Statements and Supplementary Data' of this Form 10-K.

## Membership

The following table summarizes total medical membership (in thousands) at December 31, 2022, by market and product:

|  | Insurance |  |  |  |  |  |  |  | Total | Percent of Total |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
|  | Individual Medicare Advantage | Group Medicare Advantage | Medicare stand-alone PDP | Medicare Supplement | State-based contracts and Other | Fully-insured commercial Group | ASO | Military services |  |  |
| Florida | 771.9 | 7.3 | 158.3 | 17.3 | 835.0 | 105.2 | 32.2 | - | 1,927.2 | 11.30% |
| Kentucky | 112.8 | 75.2 | 169.5 | 9.3 | 172.9 | 73.7 | 145.8 | - | 759.2 | 4.40% |
| Texas | 366.5 | 4.3 | 239.5 | 26.8 | 2.0 | 78.8 | 40.8 | - | 758.7 | 4.40% |
| California | 103.7 | 1.4 | 401.3 | 17.7 | 4.0 | - | - | - | 528.1 | 3.10% |
| Georgia | 278.4 | 2.8 | 94.7 | 9.0 | - | 64.4 | 72.3 | - | 521.6 | 3.10% |
| North Carolina | 217.7 | 163.8 | 115.3 | 6.2 | - | - | - | - | 503.0 | 2.90% |
| Ohio | 176.0 | 18.8 | 104.3 | 34.1 | - | 24.2 | 23.9 | - | 381.3 | 2.20% |
| Tennessee | 184.4 | 7.5 | 88.5 | 7.9 | 36.1 | 29.6 | 15.5 | - | 369.5 | 2.20% |
| Illinois | 157.4 | 30.4 | 126.8 | 6.8 | 17.1 | 16.3 | 2.5 | - | 357.3 | 2.10% |
| Missouri/Kansas | 109.9 | 7.4 | 150.9 | 10.9 | - | 23.0 | 22.7 | - | 324.8 | 1.90% |
| Louisiana | 211.3 | 14.5 | 50.5 | 4.1 | - | 22.9 | 18.1 | - | 321.4 | 1.90% |
| Wisconsin | 69.0 | 6.9 | 74.7 | 7.2 | 45.1 | 39.8 | 23.9 | - | 266.6 | 1.60% |
| Indiana | 122.2 | 11.2 | 86.4 | 12.7 | - | 12.5 | 7.9 | - | 252.9 | 1.50% |
| Virginia | 140.7 | 3.2 | 100.6 | 6.5 | - | - | - | - | 251.0 | 1.50% |
| New York | 107.5 | 10.7 | 120.4 | 8.3 | 1.1 | - | - | - | 248.0 | 1.50% |
| Michigan | 113.9 | 27.9 | 87.6 | 4.6 | - | 0.7 | 1.7 | - | 236.4 | 1.40% |
| Alabama | 93.3 | 86.1 | 47.6 | 4.1 | - | - | - | - | 231.1 | 1.40% |
| South Carolina | 154.7 | 0.4 | 49.1 | 6.3 | 17.5 | - | - | - | 228.0 | 1.30% |
| Pennsylvania | 87.7 | 4.5 | 116.1 | 5.4 | - | - | - | - | 213.7 | 1.30% |
| Arizona | 118.8 | 0.4 | 70.9 | 8.2 | - | 9.7 | 5.1 | - | 213.1 | 1.20% |
| Military services | - | - | - | - | - | - | - | 5,959.9 | 5,959.9 | 34.90% |
| Others | 867.8 | 80.4 | 1,098.3 | 100.2 | 6.5 | 55.5 | 17.7 | - | 2,226.4 | 12.90% |
| Totals | 4,565.6 | 565.1 | 3,551.3 | 313.6 | 1,137.3 | 556.3 | 430.1 | 5,959.9 | 17,079.2 | 100.0% |

## Provider Arrangements

We provide our members with access to health care services through our networks of health care providers whom we employ or with whom we have contracted, including hospitals and other independent facilities such as outpatient surgery centers, primary care providers, specialist physicians, dentists, and providers of ancillary health care services and facilities. These ancillary services and facilities include laboratories, ambulance services, medical equipment services, home health agencies, mental health providers, rehabilitation facilities, nursing homes, optical services, and pharmacies. Our membership base and the ability to influence where our members seek care generally enable us to obtain contractual discounts with providers.

We use a variety of techniques to provide access to effective and efficient use of health care services for our members. These techniques include the coordination of care for our members, product and benefit designs, hospital inpatient management systems, the use of sophisticated analytics, and enrolling members into various care management programs. The focal point for health care services in many of our HMO networks is the primary care provider who, under contract with us, provides services to our members, and may control utilization of appropriate services by directing or approving hospitalization and referrals to specialists and other providers. Some physicians may have arrangements under which they can earn bonuses when certain target goals relating to the provision of quality patient care are met. We have available care management programs related to complex chronic conditions

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such as congestive heart failure and coronary artery disease. We also have programs for prenatal and premature infant care, asthma related illness, end stage renal disease, diabetes, cancer, and certain other conditions.

We typically contract with hospitals on either (1) a per diem rate, which is an all-inclusive rate per day, (2) a case rate for diagnosis-related groups (DRG), which is an all-inclusive rate per admission, or (3) a discounted charge for inpatient hospital services. Outpatient hospital services generally are contracted at a flat rate by type of service, ambulatory payment classifications, or APCs, or at a discounted charge. APCs are similar to flat rates except multiple services and procedures may be aggregated into one fixed payment. These contracts are often multi-year agreements, with rates that are adjusted for inflation annually based on the consumer price index, other nationally recognized inflation indexes, or specific negotiations with the provider. Outpatient surgery centers and other ancillary providers typically are contracted at flat rates per service provided or are reimbursed based upon a nationally recognized fee schedule such as the Medicare allowable fee schedule.

Our contracts with physicians typically are renewed automatically each year, unless either party gives written notice, generally ranging from 90 to 120 days, to the other party of its intent to terminate the arrangement. Most of the physicians in our PPO networks and some of our physicians in our HMO networks are reimbursed based upon a fixed fee schedule, which typically provides for reimbursement based upon a percentage of the standard Medicare allowable fee schedule.

The terms of our contracts with hospitals and physicians may also vary between Medicare and commercial business. A significant portion of our Medicare network contracts, including those with both hospitals and physicians, are tied to Medicare reimbursement levels and methodologies.

## Capitation

We offer providers a continuum of opportunities to increase the integration of care and offer assistance to providers in transitioning from a fee-for-service to a value-based arrangement. These include performance bonuses, shared savings and shared risk relationships. For some of our medical membership, we share risk with providers under capitation contracts where physicians and hospitals accept varying levels of financial risk for a defined set of membership, primarily HMO membership. Under the typical capitation arrangement, we prepay these providers a monthly fixed-fee per member, known as a capitation (per capita) payment, to cover all or a defined portion of the benefits provided to the capitated member.

We believe these value-based arrangements represent a key element of our integrated care delivery model at the core of our strategy. Our health plan subsidiaries may enter into these value-based arrangements with third party providers or our owned provider subsidiaries.

At December 31, 2022, approximately 1,850,500 members, or 10.8% of our medical membership, were covered under shared risk value-based arrangements, which provide all member benefits, including 1,563,700 individual Medicare Advantage members, or 34.2% of our total individual Medicare Advantage membership.

Physicians under capitation arrangements typically have stop loss coverage so that a physician’s financial risk for any single member is limited to a maximum amount on an annual basis. We typically process all claims and measure the financial performance of our capitated providers and require guarantees in certain instances. However, we delegated claim processing functions under capitation arrangements covering approximately 250,900 HMO members, including 246,100 individual Medicare Advantage members, or 15.7% of the 1,563,700 individual Medicare Advantage members covered under value-based contracts at December 31, 2022, with the provider assuming substantially all the risk of coordinating the members’ health care benefits. Capitation expense under delegated arrangements for which we have a limited view of the underlying claims experience was approximately $3.0 billion, or 3.9% of total benefits expense, for the year ended December 31, 2022. We remain financially responsible for health care services to our members in the event our providers fail to provide such services.

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# Accreditation Assessment

Our accreditation assessment program consists of several internal programs, including those that credential providers and those designed to meet the audit standards of federal and state agencies as well as external accreditation standards. We also offer quality and outcome measurement and improvement programs such as the Health Care Effectiveness Data and Information Set, or HEDIS, which is used by employers, government purchasers and the National Committee for Quality Assurance (NCQA) to evaluate health plans based on various criteria, including effectiveness of care and member satisfaction.

Providers participating in our networks must satisfy specific criteria, including licensing, patient access, office standards, after-hours coverage, and other factors. Most participating hospitals also meet accreditation criteria established by CMS and/or The Joint Commission.

Recredentialing of participating providers occurs every three years, unless otherwise required by state or federal regulations. Recredentialing of participating providers includes verification of their medical licenses, review of their malpractice liability claims histories, review of their board certifications, if applicable, and review of applicable quality information. A committee composed of a peer group of providers reviews the applications of providers being considered for credentialing and recredentialing.

We maintain accreditation for certain of our health plans and/or departments from NCQA, the Accreditation Association for Ambulatory Health Care (AAAHC), and/or URAC. Certain commercial businesses, such as those impacted by a third-party labor agreement or those where a request is made by the employer, may require or prefer accredited health plans.

NCQA reviews our compliance based on standards for quality improvement, population health management, credentialing, utilization management, network management, and member experience. We have achieved and maintained NCQA accreditation in many of our commercial, Medicare and Medicaid markets for HMO, POS, and PPO products, and our wellness program, Go365. Humana’s pharmacy organization is accredited by URAC.

# Sales and Marketing

We use various methods to market our products, including television, radio, the Internet, telemarketing, and direct mailings.

At December 31, 2022, we employed approximately 1,400 sales representatives, as well as approximately 1,900 telemarketing representatives who assisted in the marketing of Medicare products, including Medicare Advantage and PDP, and specialty products in our Insurance segment, including making appointments for sales representatives with prospective members. We have a marketing arrangement with Wal-Mart Stores, Inc., or Wal-Mart, for our individual Medicare stand-alone PDP offering. We also sell group Medicare Advantage products through large employers. In addition, we market our Medicare and individual specialty products through licensed independent brokers and agents. For our Medicare products, commissions paid to employed sales representatives and independent brokers and agents are based on a per unit commission structure, regulated in structure and amount by CMS. For our individual specialty products, we generally pay brokers a commission based on premiums, with commissions varying by market and premium volume. In addition to a commission based directly on premium volume for sales to particular customers, we also have programs that pay brokers and agents based on other metrics. These include commission bonuses based on sales that attain certain levels or involve particular products. We also pay additional commissions based on aggregate volumes of sales involving multiple customers.

In our Insurance segment, individuals may become members of our commercial HMOs and PPOs through their employers or other groups, which typically offer employees or members a selection of health insurance products, pay for all or part of the premiums, and make payroll deductions for any premiums payable by the employees. We attempt to become an employer’s or group’s exclusive source of health insurance benefits by offering a variety of HMO, PPO, and specialty products that provide cost-effective quality health care coverage consistent with the needs and expectations of their employees or members. We use licensed independent brokers, independent agents, digital insurance agencies, and employees to sell our group products. Many of our larger employer group customers are

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represented by insurance brokers and consultants who assist these groups in the design and purchase of health care products. We pay brokers and agents using the same commission structure described above for our specialty products.

## Underwriting

Since 2014, the Patient Protection and Affordability Care Act and The Health Care and Education Reconciliation Act of 2010, which we collectively refer to as the Health Care Reform Law, requires certain group health plans to guarantee issuance and renew coverage without pre-existing condition exclusions or health-status rating adjustments. Accordingly, certain group health plans are not subject to underwriting. Further, underwriting techniques are not employed in connection with our individual Medicare, military services, or Medicaid products because government regulations require us to accept all eligible applicants regardless of their health or medical history.

## Competition

The health benefits industry is highly competitive. Our competitors vary by local market and include other managed care companies, national insurance companies, and other HMOs and PPOs. Many of our competitors have a larger membership base and/or greater financial resources than our health plans in the markets in which we compete. Our ability to sell our products and to retain customers may be influenced by such factors as those described in Item 1A. - Risk Factors in this 2022 Form 10-K.

## Government Regulation

Diverse legislative and regulatory initiatives at both the federal and state levels continue to affect aspects of the nation’s health care system, including the Health Care Reform Law at the federal level and laws in certain states limiting the entry of new providers or services though a certificate of need, or CON, process.

Our management works proactively to ensure compliance with all governmental laws and regulations affecting our business. We are unable to predict how existing federal or state laws and regulations may be changed or interpreted, what additional laws or regulations affecting our businesses may be enacted or proposed, when and which of the proposed laws will be adopted or what effect any such new laws and regulations will have on our results of operations, financial position, or cash flows.

For a description of certain material current activities in the federal and state legislative areas, see Item 1A. - Risk Factors in this 2022 Form 10-K.

## Certain Other Services

### *Captive Insurance Company*

We bear general business risks associated with operating our Company such as professional and general liability, employee workers’ compensation, cybersecurity, and officer and director errors and omissions risks. Professional and general liability risks may include, for example, medical malpractice claims and disputes with members regarding benefit coverage. We retain certain of these risks through our wholly-owned, captive insurance subsidiary. We reduce exposure to these risks by insuring levels of coverage for losses in excess of our retained limits with a number of third-party insurance companies. We remain liable in the event these insurance companies are unable to pay their portion of the losses.

### *Centralized Intercompany Services*

We provide centralized intercompany services to each of our health plans and to our business segments from our headquarters and service centers. These services include management information systems, product development and administration, finance, human resources, accounting, law, public relations, marketing, insurance, purchasing, risk management, internal audit, actuarial, underwriting, claims processing, billing/enrollment, and customer service.

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Through intercompany service agreements approved, if required, by state regulatory authorities, Humana Inc., our parent company, charges a services fee for reimbursement of certain centralized services provided to its subsidiaries to the extent that Humana Inc. is the service provider.

## Human Capital Management

Our associates are essential to our success in delivering on our core strategy, and creating positive healthcare experiences for our members. We are committed to recruiting, developing, and retaining strong, diverse teams, actively promoting a culture of inclusion and diversity. As of December 31, 2022, we had approximately 67,100 associates.

### *Our Culture*

We believe that our members' experience is linked to our associates' experience and that engaged, productive associates are the key to building a healthy company and a caring environment where our associates go above and beyond for our members, driving innovation, and offering fulfilling experiences that incentivizes them to stay with us over the long-term. We provide opportunities for our associates to add to their personal well-being experiences that go beyond health to enhance their individual need for purpose, belonging and security. We regularly measure our success and opportunities to advance engagement through methods like a third-party administered Associate Experience Survey and continuous listening campaigns. Continuous listening involves our proactive solicitation, analysis and response to associate feedback. Pulse surveys are sent to associates throughout the year to get feedback on how we're doing, allowing us to assess our approach to work and act when needed. We believe this helps to strengthen our culture and support associate engagement. We also provide survey results to our entire associate population and encourage leaders to use the information to create open, honest action plans with their teams to build upon and further deepen our collective engagement.

Our culture is further strengthened by optimizing the well-being and effectiveness of our workforce. Through alternative work styles, we help associates work more productively, communicate more easily and collaborate more freely. Alternate work styles enable associates to work from a job-appropriate location of their choice for all or some portion of their work schedule and to create a work schedule that better fits the diverse demands of today's work environment. When managed effectively, alternative work styles can enhance a company's employment brand, foster the development and effective delivery of innovative and diverse business solutions, right-size a company's energy-consumption footprint, and increase associate engagement and well-being.

Similar to many companies, we experienced lower engagement and higher turnover in 2022 and 2021 than in prior years. Our associate voluntary turnover rate, or VTR, for 2022 was 17.0%, up from 15.1% in 2021. However, associate engagement and well-being rates remained higher than average, despite challenges posed by the Great Resignation, COVID-19 and workforce optimization efforts to fulfill our commitment to execute on our value creation initiative to allow for increased investment in our Medicare Advantage benefits and healthcare services capabilities.

### *Inclusion and Diversity*

Our Office of Inclusion & Diversity, or I&D Office, efforts are led by our Chief Inclusion and Diversity Officer, who reports directly to the Chief Administrative Officer. The I&D Office connects to business groups across the enterprise to cultivate a diverse and inclusive culture that is representative of the communities we serve. By prioritizing I&D across our business, we enable associates to bring their whole selves to work, while also driving the innovation and insights needed to better serve our diverse members and communities. We strive to accelerate our culture of inclusion to build deep relationships and create simple, personalized experiences for all of our stakeholders.

To help integrate inclusion and diversity into the fabric of the organization from the top down, the Executive Inclusion & Diversity Council is led by our President and CEO, with top priorities consisting of (i) leading and informing the strategy to drive the hiring, development, promotion and retention of our full diverse workforce; (ii) creating and maintaining an inclusive culture; (iii) reviewing our supply base and spend for diversification

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opportunities; and (iv) improving transparency and accountability to sustain outcomes. We are committed to having balanced diversity at all levels and have developed a pathway for diverse talent within our recruiting initiatives. We've also incorporated balanced interview panels into our interview process, through which we strategically engage a broad spectrum of interviewers that bring greater diversity and perspective. This proven best practice strengthens the candidate experience and hiring of diverse talent, ensuring we get the right talent for any given role, and minimizes the potential for personal blind spots when evaluating candidates.

Our inclusion and diversity objectives also aim to build an awareness of biases and beliefs, identify differences and similarities of our multi-generational workforce and enable associates to leverage differences to drive innovation and create value. We are committed to growing our associates' inclusion skills and diversity knowledge and provide a variety of associate training programs and workshop opportunities in areas of unconscious bias, disability awareness, cultural competency, racial equity, and social justice, among others. It is also our fundamental belief that every person has the right to a safe workplace. This includes having freedom of gender identity and expression, which we have included within our non-discrimination and anti-harassment policies.

Our associates' vast experiences and perceptions, unique characteristics, backgrounds and beliefs, drive the groundbreaking, strategic thinking that gives our Company its competitive edge in a diverse marketplace. Our approach fosters innovative thinking and creativity, expands insights and generates better business outcomes.

# ***Pay and Benefits Philosophy, Compensation and Financial Security***

We believe all of our associates have the right to receive a fair living wage and we are committed to maintaining a pay and benefits philosophy that is market-based and recognizes an associate's contributions so that we can attract and retain an engaged, talented team. Our Company's pay and benefits structure is designed to motivate, incentivize and reward our associates - at all levels of the organization - for their skill development, demonstration of our values and performance. While our programs vary by location, associate type and business, they generally include:

| Financial | Health | Life |
| --- | --- | --- |
| Competitive Base Pay | Medical, Dental and Vision Benefits | Paid Time Off, Paid Holidays, Paid Volunteer Time Off and Jury Duty Pay |
| Associate Incentive Plan (Annual Bonus) | Supplemental Health Benefits | Adoption Assistance |
| Supplemental Pay (Including Overtime) | Long-term Care Insurance | Paid Parental Leave Program (6 weeks) |
| Recognition Pay and Service Awards | Wellness and Rewards Program | Paid Caregiver Time Off Program (2 weeks) |
| 401(k) Retirement Savings Plan with Company Match Program | Health Plan Incentives | Employee Assistance Program |
| Life Insurance | On-site Health and Fitness Centers | Associate Discount Programs and Services |
| Short- and Long-Term Disability Insurance | On-site Health Screenings and Vaccinations | Helping Hands Program |
| Tuition Assistance Program |  | Transit Services |

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### *Talent Development and Growth Opportunities*

We champion the individual goals and development of our associates, and provide a number of programs and resources to support their efforts. We provide opportunities for our associates to earn professional certifications through continued education programs and to participate in instructor-led and online courses designed to strengthen soft and hard-skills and enhance leadership development. Our Career Cultivation team sponsors workshops and events to promote associate accountability within their personal and professional growth as part of overall career development. Our associates are also encouraged to participate in mentoring programs with people of various backgrounds and cultures. We view mentoring as an essential development tool for sharing skills and knowledge so we can all succeed. Our commitment to mentoring feeds the successful future of our Company. Additionally, we utilize development programs to enhance talent within our organizations through targeted internal initiatives, where we aim to upskill and reskill existing associates for opportunities in new career pathways.

Additional information related to our human capital can be found by referencing our Definitive Proxy Statement of the Annual Meeting of Stockholders scheduled to be held on April 20, 2023 appearing under the caption 'Human Capital Management.'

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## Information About Our Executive Officers

Set forth below are names and ages of all of our current executive officers as of February 1, 2023, their positions, and the date first elected as an executive officer:

| Name | Age | Position | First Elected Officer |
| --- | --- | --- | --- |
| Bruce D. Broussard | 60 | President and Chief Executive Officer, Director | 12/11 (1) |
| Vishal Agrawal, M.D. | 48 | Chief Strategy and Corporate Development Officer | 12/18 (2) |
| Andrew C. Agwunobi, M.D. | 57 | Segment President, Home Solutions | 02/22 (3) |
| Samir M. Deshpande | 58 | Chief Information Officer | 07/17 (4) |
| Susan M. Diamond | 49 | Chief Financial Officer | 07/19 (5) |
| John-Paul W. Felter | 39 | Senior Vice President, Chief Accounting Officer and Controller | 08/22 (6) |
| William K. Fleming, PharmD | 55 | Segment President, Pharmacy Solutions & Chief Corporate Affairs Officer | 03/17 (7) |
| Timothy S. Huval | 56 | Chief Administrative Officer | 12/12 (8) |
| George Renaudin II | 54 | President, Medicare & Medicaid | 02/23 (9) |
| Susan D. Schick | 60 | Segment President, Group and Military Business | 09/21 (10) |
| Joseph C. Ventura | 46 | Chief Legal Officer | 02/19 (11) |

(1) Mr. Broussard currently serves as Director, President and Chief Executive Officer (Principal Executive Officer), having held these positions since January 1, 2013. Mr. Broussard was elected President upon joining the Company in December 2011 and served in that capacity through December 2012. Prior to joining the Company, Mr. Broussard was Chief Executive Officer of McKesson Specialty/US Oncology, Inc. US Oncology was purchased by McKesson in December 2010. At US Oncology, Mr. Broussard served in a number of senior executive roles, including Chief Financial Officer, Chief Executive Officer, and Chairman of the Board.

(2) Dr. Agrawal currently serves as Chief Strategy and Corporate Development Officer, having joined the Company in December 2018. Prior to joining the Company, Dr. Agrawal was Senior Advisor for The Carlyle Group L.P., having held that position from October 2017 to December 2018. Previously, Dr. Agrawal was President and Chief Growth Officer of Ciox Health, the largest health information exchange and release of information services organization in the U.S. from December of 2015 to October 2018. Prior to joining Ciox Health, Dr. Agrawal served as President of Harris Healthcare Solutions from January 2013 to December 2015.

(3) Dr. Agwunobi currently serves as Segment President, Home Solutions, having joined Humana in February 2022. Prior to joining the Company, Dr. Agwunobi served as Interim President of the University of Connecticut (UConn) from May 2021 until February 2022, and the Chief Executive Officer and Executive Vice President for Health Affairs for UConn Health from 2014 to February 2022.

(4) Mr. Deshpande currently serves as Chief Information Officer, having been elected to this position in July 2021, from his prior role as Chief Technology and Risk Officer. Before joining the Company in July 2017, Mr. Deshpande spent 17 years at Capital One in key leadership positions, most recently as Business Chief Risk Officer for the U.S. and international card business. He previously served as the Business Chief Risk Officer and Head of Enterprise Services for the Financial Services Division, responsible for Business Risk, Data Science, Data Quality, Process Excellence and Project Management. He also led marketing and

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analysis for the Home Loans, Auto Finance, and Credit Card businesses, with responsibilities for business strategy, credit, product and marketing.

(5) Ms. Diamond currently serves as Chief Financial Officer, having been elected to this position in June 2021, from her prior role as Segment President, Home Business. Ms. Diamond joined the Company in June 2004 and has spent the majority of her career in various leadership roles in the Medicare and Home businesses, with a particular passion and emphasis on growth and consumer segmentation strategies for the Company's individual Medicare Advantage and Stand Alone Part D offerings. Ms. Diamond also served for two and a half years as the Enterprise Vice President of Finance, where she was responsible for enterprise planning and forecasting, trend analytics and had responsibility for each of the Company's line of business CFOs and controllers.

(6) Mr. Felter currently serves as Senior Vice President, Chief Accounting Officer and Controller, having been elected to this position in August 2022. Before joining the Company, Mr. Felter served as Senior Director - Investment Finance for OneAmerica Financial Partners, Inc. from May 2022 until June 2022. Prior to OneAmerica, Mr. Felter spent nearly 11 years as a Senior Manager at Ernst & Young LLP where he oversaw large audit engagements for public and private entities with a concentration in the health insurance sector.

(7) Dr. Fleming currently serves as Segment President, Pharmacy Solutions and Chief Corporate Affairs Officer, having been elected to this position in July 2021, from his prior role as Segment President, Clinical and Pharmacy Solutions. Prior to that, Dr. Fleming held positions of Segment President, Healthcare Services as well as President of the Company's pharmacy business. Dr. Fleming joined the Company in 1994.

(8) Mr. Huval currently serves as Chief Administrative Officer, having been elected to this position in July 2019, from his previous role as Chief Human Resources Officer. Prior to joining the Company, Mr. Huval spent 10 years at Bank of America in multiple senior-level roles, including Human Resources executive and Chief Information Officer for Global Wealth & Investment Management, as well as Human Resources executive for both Global Treasury Services and Technology & Global Operations.

(9) Mr. Renaudin currently services as President, Medicare & Medicaid, having been elected to this position in February 2023. He joined the Company in April 2004 and since then has held various leadership roles of increasing responsibility, most recently holding the position of President, Medicare.

(10) Ms. Schick currently serves as Segment President, Group and Military Business, having been elected to this position in September 2021. Ms. Schick joined the Company in February 2020 in the role of Senior Vice President, Employer Group. Before she joined the Company, Ms. Schick spent 16 years in a range of senior-level leadership roles at United Healthcare in its Medicaid and Commercial businesses.

(11) Mr. Ventura currently serves as Chief Legal Officer. He joined the Company in January 2009 and since then has held various positions of increasing responsibility in the Company's Law Department, including most recently, Senior Vice President, Associate General Counsel & Corporate Secretary from July 2017 until February 2019.

Executive officers are elected annually by our Board of Directors and serve until their successors are elected or until resignation or removal. There are no family relationships among any of our executive officers.

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# ITEM 1A. RISK FACTORS

## Risks Relating to Our Business

*If we do not design and price our products properly and competitively, if the premiums we charge are insufficient to cover the cost of health care services delivered to our members, if we are unable to implement clinical initiatives to provide a better health care experience for our members, lower costs and appropriately document the risk profile of our members, or if our estimates of benefits expense are inadequate, our profitability may be materially adversely affected. We estimate the costs of our benefits expense payments, and design and price our products accordingly, using actuarial methods and assumptions based upon, among other relevant factors, claim payment patterns, medical cost inflation, and historical developments such as claim inventory levels and claim receipt patterns. These estimates involve extensive judgment, and have considerable inherent variability because they are extremely sensitive to changes in claim payment patterns and medical cost trends. Accordingly, our reserves may be insufficient.*

We use a substantial portion of our revenues to pay the costs of health care services delivered to our members, including claims payments, capitation payments to providers (predetermined amounts paid to cover services), estimates of future payments to hospitals and others for medical care provided to our members, and various other costs. Generally, premiums in the health care business are fixed for one-year periods. Accordingly, costs we incur in excess of our benefit cost projections generally are not recovered in the contract year through higher premiums. We estimate the costs of our future benefit claims and other expenses using actuarial methods and assumptions based upon claim payment patterns, medical inflation, historical developments, including claim inventory levels and claim receipt patterns, and other relevant factors. We also record benefits payable for future payments. We continually review estimates of future payments relating to benefit claims costs for services incurred in the current and prior periods and make necessary adjustments to our reserves, including premium deficiency reserves where appropriate. However, these estimates involve extensive judgment, and have considerable inherent variability that is sensitive to claim payment patterns and medical cost trends. Many factors may and often do cause actual health care costs to exceed what was estimated and used to set our premiums. These factors may include:

- • increased use of medical facilities and services, and the increased cost of such services;
- • increased use or cost of prescription drugs, including specialty prescription drugs;
- • the introduction of new or costly treatments, prescription drugs, or new technologies;
- • our membership mix;
- • variances in actual versus estimated levels of cost associated with new products, benefits or lines of business, product changes or benefit level changes;
- • changes in the demographic characteristics of an account or market;
- • changes or reductions of our utilization management functions such as preauthorization of services, concurrent review or requirements for physician referrals;
- • changes in our purchase discounts or pharmacy volume rebates received from drug manufacturers and wholesalers, which are generally passed on to clients in the form of steeper price discounts;
- • catastrophes, including acts of terrorism, public health emergencies, epidemics or pandemics (such as the spread of COVID-19 or natural disasters (such as hurricanes and earthquakes) which could occur more frequently or with more intense effects as a result of the impact of global climate change;
- • medical cost inflation; and
- • government mandated benefits, member eligibility criteria, or other legislative, judicial, or regulatory changes.

Key to our operational strategy is the implementation of clinical initiatives that we believe provide a better health care experience for our members, lower the cost of healthcare services delivered to our members, and appropriately document the risk profile of our members. Our profitability and competitiveness depend in large part

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

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

Failure to adequately price our products or estimate sufficient benefits payable or effectively manage our operating expenses, may result in a material adverse effect on our results of operations, financial position, and cash flows.

We are in a highly competitive industry. Some of our competitors are more established in the health care industry in terms of a larger market share and have greater financial resources than we do in some markets. In addition, other companies may enter our markets in the future, including emerging competitors in the Medicare program or competitors in the delivery of health care services. We believe that barriers to entry in our markets are not substantial, so the addition of new competitors can occur relatively easily, and customers enjoy significant flexibility in moving between competitors through the Medicare Annual Enrollment Period. In addition, contracts for the sale of group commercial products are generally bid upon or renewed annually. While health plans compete on the basis of many factors, including service and the quality and depth of provider networks, we expect that price will continue to be a significant basis of competition. In addition to the challenge of controlling health care costs, we face intense competitive pressure to contain premium prices. Factors such as business consolidations, strategic alliances, legislative reform, and marketing practices create pressure to contain premium price increases, despite being faced with increasing medical and administrative costs.

The policies and decisions of the federal and state governments regarding the Medicare Advantage and Prescription Drug Plans, military and Medicaid programs in which we participate have a substantial impact on our profitability. These governmental policies and decisions, which we cannot predict with certainty, directly shape the premiums or other revenues to us under the programs, the eligibility and enrollment of our members, the services we provide to our members, and our administrative, health care services, and other costs associated with these programs. Legislative or regulatory actions, such as changes to the programs in which we participate, those resulting in a reduction in premium payments to us, an increase in our cost of administrative and health care services, or additional fees, taxes or assessments, may have a material adverse effect on our results of operations, financial position, and cash flows.

Premium increases, introduction of new product designs, and our relationships with our providers in various markets, among other issues, could also affect our membership levels. Other actions that could affect membership levels include our possible exit from or entrance into Medicare or commercial markets, or the termination of a large contract.

If we do not compete effectively in our markets, if we set rates too high or too low in highly competitive markets to keep or increase our market share, if membership does not increase as we expect, if membership declines, or if we lose membership with favorable medical cost experience while retaining or increasing membership with unfavorable medical cost experience, our results of operations, financial position, and cash flows may be materially adversely affected.

*If we fail to effectively implement our operational and strategic initiatives, including our Medicare initiatives, which are of particular importance given the concentration of our revenues in these products, our state-based contracts strategy, the growth of our CenterWell businesses, and our integrated care delivery model, our business may be materially adversely affected. In addition, there can be no assurances that we will be successful in maintaining or improving our Star ratings in future years.*

Our future performance depends in large part upon our ability to execute our strategy, including opportunities created by the expansion of our Medicare programs, our strategy with respect to state-based contracts, including

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those covering members dually eligible for the Medicare and Medicaid programs, the growth of our pharmacy, provider services, and home solutions businesses, and the successful implementation of our integrated care delivery model.

We have made substantial investments in the Medicare program to enhance our ability to participate in these programs. The growth of our Medicare products is an important part of our business strategy, and the attendant concentration of revenues intensifies the risks to us inherent in Medicare products. Any failure to achieve this growth may have a material adverse effect on our results of operations, financial position, or cash flows.

The achievement of star ratings of 4-star or higher qualifies Medicare Advantage plans for premium bonuses. Our Medicare Advantage plans' operating results may be significantly affected by their star ratings. Despite our operational efforts to improve our star ratings, there can be no assurances that we will be successful in maintaining or improving our star ratings in future years. In addition, audits of our performance for past or future periods may result in downgrades to our star ratings. Accordingly, our plans may not be eligible for full level quality bonuses, which could adversely affect the benefits such plans can offer, reduce membership and/or reduce profit margins.

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

Our business depends significantly on effective information systems and the integrity and timeliness of the data we use to run our business. Our business strategy involves providing members and providers with easy to use products that leverage our information to meet their needs. Our ability to adequately price our products and services, provide effective and efficient service to our customers, and to timely and accurately report our financial results depends significantly on the integrity of the data in our information systems. These systems require an ongoing commitment of significant resources to maintain, protect, and enhance existing systems and develop and integrate new systems to keep pace with continuing changes in information processing technology, evolving industry and regulatory standards, and changing customer preferences, and even with such resources there is no assurance that we will be able to do so. If the information we rely upon to run our businesses was found to be inaccurate or unreliable or if we fail to improve service levels or maintain effectively our information systems and data integrity, we could have operational disruptions, problems in determining medical cost estimates and establishing appropriate pricing, customer and health care provider disputes, regulatory or other legal problems, difficulty preventing and detecting fraud, have increases in operating expenses, loss of existing customers, difficulty in attracting new customers, or other adverse consequences, each of which may result in a material adverse effect on our results of operations, financial position, and cash flows.

We depend on independent third parties for significant portions of our systems-related support, equipment, facilities, and certain data, including data center operations, data network, voice communication services and pharmacy data processing. This dependence makes our operations vulnerable to such third parties' failure to perform adequately under the contract, due to internal or external factors. A change in service providers could result in a decline in service quality and effectiveness or less favorable contract terms which may adversely affect our operating results.

We rely on our agreements with customers and service providers, confidentiality agreements with employees, and our trade secrets and copyrights to protect our proprietary rights. These legal protections and precautions may not prevent misappropriation of our proprietary information. The misappropriation of our proprietary information could hinder our ability to market and sell products and services and may result in a material adverse effect on our results of operations, financial position and cash flows.

*If we, and the third-party service providers on whom we rely, are unable to defend our information technology security systems against cybersecurity attacks or prevent other privacy or data security incidents that result in security breaches that disrupt our operations or in the unintentional dissemination of sensitive personal information or proprietary or confidential information, we could be exposed to significant regulatory fines or penalties, liability or reputational damage, or experience a material adverse effect on our results of operations, financial position, and cash flows.*

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In the ordinary course of our business, we process, store and transmit large amounts of data, and rely on third-party service providers to do the same, including sensitive personal information as well as proprietary or confidential information relating to our business or a third-party. We have been, and will likely continue to be, regular targets of attempted cybersecurity attacks and other security threats and may be subject to breaches of our information technology security systems. Although the impact of such attacks has not been material to our operations or results of operations, financial position, or cash flow through December 31, 2022, we can provide no assurance that we will be able to detect, prevent, or contain the effects of such cybersecurity attacks or other information security risks or threats in the future. A cybersecurity attack may penetrate our layered security controls and misappropriate or compromise sensitive personal information or proprietary or confidential information or that of third-parties, create system disruptions, cause shutdowns, or deploy viruses, worms, and other malicious software programs that attack our systems. A cybersecurity attack that bypasses our IT security systems, or the security of third-party service providers, could materially affect us due to the theft, destruction, loss, misappropriation or release of confidential data or intellectual property, operational or business delays resulting from the disruption of our IT systems, or negative publicity resulting in reputation or brand damage with our members, customers, providers, and other stakeholders.

The costs to detect, prevent, eliminate or address cybersecurity threats and vulnerabilities before or after an incident could be substantial. Our remediation efforts may not be successful and could result in interruptions, delays, or cessation of service, and loss of existing or potential members. In addition, breaches of our security measures or the security measures of third-party service providers, and the unauthorized dissemination of sensitive personal information or proprietary or confidential information about us or our members or other third-parties, could expose our associates' or members' private information and result in the risk of financial or medical identity theft, or expose us or other third-parties to a risk of loss or misuse of this information, result in significant regulatory fines or penalties, litigation and potential liability for us, damage our brand and reputation, or otherwise harm our business.

*We are involved in various legal actions and governmental and internal investigations, any of which, if resolved unfavorably to us, could result in substantial monetary damages or changes in our business practices. Increased litigation and negative publicity could increase our cost of doing business.*

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

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

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In some cases, substantial non-economic or punitive damages as well as treble damages under the federal False Claims Act, Racketeer Influenced and Corrupt Organizations Act and other statutes may be sought.

While we currently have insurance coverage for some of these potential liabilities, other potential liabilities may not be covered by insurance, insurers may dispute coverage, or the amount of our insurance may not be enough to cover the damages awarded. In addition, some types of damages, like punitive damages, may not be covered by insurance. In some jurisdictions, coverage of punitive damages is prohibited. Insurance coverage for all or some forms of liability may become unavailable or prohibitively expensive in the future.

The health benefits industry continues to receive significant negative publicity reflecting the public perception of the industry. This publicity and perception have been accompanied by increased litigation, including some large jury awards, legislative activity, regulation, and governmental review of industry practices. These factors may materially adversely affect our ability to market our products or services, may require us to change our products or services or otherwise change our business practices, may increase the regulatory burdens under which we operate, and may require us to pay large judgments or fines. Any combination of these factors could further increase our cost of doing business and adversely affect our results of operations, financial position, and cash flows.

See "Legal Proceedings and Certain Regulatory Matters" in Note 17 to the audited Consolidated Financial Statements included in Item 8. - Financial Statements and Supplementary Data. We cannot predict the outcome of these matters with certainty.

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

A significant portion of our revenues relates to federal and state government health care coverage programs, including the Medicare, military, and Medicaid programs. These programs accounted for approximately 88% of our total premiums and services revenue for the year ended December 31, 2022. These programs involve various risks, as described further below.

- At December 31, 2022, under our contracts with CMS we provided health insurance coverage to approximately 771,900 individual Medicare Advantage members in Florida. These contracts accounted for approximately 14% of our total premiums and services revenue for the year ended December 31, 2022. The loss of these and other CMS contracts (which are generally renewed annually) or significant changes in the Medicare Advantage and Prescription Drug Plan programs as a result of legislative or regulatory action, including changes to the Part D prescription drug benefit design or reductions in premium payments to us or increases in member benefits or changes to member eligibility criteria without corresponding increases in premium payments to us, may have a material adverse effect on our results of operations, financial position, and cash flows.
- Our military services business, which accounted for approximately 1% of our total premiums and services revenue for the year ended December 31, 2022, primarily consisted of the TRICARE T2017 East Region contract. The T2017 East Region contract is a consolidation of the former T3 North and South Regions, comprising 32 states and approximately six million TRICARE beneficiaries, under which delivery of health care services commenced on January 1, 2018. On December 23, 2022, the Department of Defense ("DoD") exercised its option to extend the T2017 East Region contract, adding Option Periods 6 & 7, and exercised Option Period 6 which extends the T2017 East Region contract through December 31, 2023. On December 22, 2022, we were notified by the DoD that we were awarded the new contract for the TRICARE East Region, with delivery of health care services expected to commence in 2024. The next generation East Region contract awards may be subject to protests by unsuccessful bidders before the U.S. Court of Federal Claims. The loss of the current T2017 East Region contract or an overturn of the award of the new East Region contract to us, should either occur, may have a material adverse effect on our results of operations, financial position, and cash flows.

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- 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 account for certain demographic characteristics and health status of our enrolled members. 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, collected from providers, to calculate the health status-related risk-adjusted premium payment to MA plans, which CMS further adjusts for coding pattern differences between the health plans and the government fee-for-service (FFS) 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 health status-adjusted 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.

CMS and the Office of the Inspector General of Health and Human Services, or HHS-OIG, perform audits of various companies' risk adjustment diagnosis data submissions. 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 that influence the calculation of health status-related premium payments to MA plans.

In 2012, CMS released an MA contract-level RADV methodology that would extrapolate the results of each CMS RADV audit sample to the audited MA contract's entire health status-related risk adjusted premium amount for the year under audit. In doing so, CMS recognized 'that the documentation standard used in RADV audits to determine a contract's payment error (medical records) is different from the documentation standard used to develop the Part C risk-adjustment model (FFS claims).' To correct for this difference, CMS stated that it would apply a 'Fee-for-Service Adjuster (FFS Adjuster)' as 'an offset to the preliminary recovery amount.' This adjuster would be 'calculated by CMS based on a RADV-like review of records submitted to support FFS claims data.' CMS stated that this methodology would apply to audits beginning with PY 2011. Humana relied on CMS's 2012 guidance in submitting MA bids to CMS. Humana also launched a 'Self-Audits' program in 2013 that applied CMS's 2012 RADV audit methodology and included an estimated FFS Adjuster. Humana completed Self-Audits for PYs 2011-2016 and reported results to CMS.

In October 2018, however, CMS issued a proposed rule announcing possible changes to the RADV audit methodology, including elimination of the FFS Adjuster. CMS proposed applying its revised methodology, including extrapolated recoveries without application of a FFS Adjuster, to RADV audits dating back to PY 2011. On January 30, 2023, CMS published a final rule related to the RADV audit methodology (Final RADV Rule). The Final RADV Rule confirmed CMS's decision to eliminate the FFS Adjuster. The Final RADV Rule states CMS's intention to extrapolate results from CMS and HHS-OIG RADV audits beginning with PY 2018, rather than PY 2011 as proposed. However, CMS's Final RADV Rule does not adopt a specific sampling, extrapolation or audit methodology. CMS instead stated its general plan to rely on 'any statistically valid method . . . that is determined to be well-suited to a particular audit.'

Humana is considering its legal options with respect to CMS's changed position on the FFS Adjuster and seeking clarity regarding our compliance obligations in light of the Final RADV Rule. We believe that the Final RADV Rule fails to address adequately the statutory requirement of actuarial equivalence. Further, Humana's actuarially certified bids through PY 2023 preserved Humana's position that CMS

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should apply an FFS Adjuster in any RADV audit that CMS intends to extrapolate. We expect CMS to apply the Final RADV Rule, including the first application of extrapolated audit results to determine audit settlements without a FFS Adjuster, to CMS and HHS-OIG RADV audits conducted for PY 2018 and subsequent years. The Final RADV Rule, including the lack of a FFS Adjuster, and any related regulatory, industry or company reactions, could have a material adverse effect on our results of operations, financial position, or cash flows.

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.

As we explore our legal options and compliance obligations, we remain committed to working alongside CMS to promote the integrity of the MA program as well as affordability and cost certainty for our members. It is critical that MA plans are paid accurately and that payment model principles, including the application of a FFS Adjuster, 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 CMS contracts which cover members' prescription drugs under Medicare Part D contain provisions for risk sharing and certain payments for prescription drug costs for which we are not at risk. These provisions, certain of which are described below, affect our ultimate payments from CMS.

The premiums from CMS are subject to risk corridor provisions which compare costs targeted in our annual bids to actual prescription drug costs, limited to actual costs that would have been incurred under the standard coverage as defined by CMS. Variances exceeding certain thresholds may result in CMS making additional payments to us or require us to refund to CMS a portion of the premiums we received (known as a 'risk corridor'). We estimate and recognize an adjustment to premiums revenue related to the risk corridor payment settlement based upon pharmacy claims experience. The estimate of the settlement associated with these risk corridor provisions requires us to consider factors that may not be certain, including member eligibility differences with CMS.

Reinsurance and low-income cost subsidies represent payments from CMS in connection with the Medicare Part D program for which we assume no risk. Reinsurance subsidies represent payments for CMS's portion of claims costs which exceed the member's out-of-pocket threshold, or the catastrophic coverage level. Low-income cost subsidies represent payments from CMS for all or a portion of the deductible, the coinsurance and co-payment amounts above the out-of-pocket threshold for low-income beneficiaries. Monthly prospective payments from CMS for reinsurance and low-income cost subsidies are based on assumptions submitted with our annual bid. A reconciliation and settlement of CMS's prospective subsidies against actual prescription drug costs we paid is made after the end of the applicable year.

Settlement of the reinsurance and low-income cost subsidies as well as the risk corridor payment is based on a reconciliation made approximately 9 months after the close of each calendar year. This reconciliation process requires us to submit claims data necessary for CMS to administer the program. Our claims data may not pass CMS's claims edit processes due to various reasons, including discrepancies in eligibility or classification of low-income members. To the extent our data does not pass CMS's claim edit processes, we may bear the risk for all or a portion of the claim which otherwise may have been subject to the risk corridor provision or payment which we would have otherwise received as a low-income subsidy or reinsurance claim. In addition, in the event the settlement represents an amount CMS owes us, there is a negative impact on our cash flows and financial condition as a result of financing CMS's share of the risk. The opposite is true in the event the settlement represents an amount we owe CMS. Further, legislative or regulatory changes to how actual prescription drug costs are

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reported or calculated or other changes to the Part D prescription drug benefit design may lower reinsurance or low-income cost subsidies paid by CMS and may have a material adverse effect on our results of operations, financial position, or cash flows.

- We are subject to various other governmental audits and investigations. Under state laws, our HMOs and health insurance companies are audited by state departments of insurance for financial and contractual compliance. Our HMOs are audited for compliance with health services by state departments of health. Audits and investigations, including audits of risk adjustment data, are also conducted by state attorneys general, CMS, HHS-OIG, the Office of Personnel Management, the Department of Justice, the Department of Labor, and the Defense Contract Audit Agency. All of these activities could result in the loss of licensure or temporary or permanent exclusion from participating in various government health care programs (such as Medicare and Medicaid), including a limitation on our ability to market or sell products, the imposition of fines, penalties and other civil and criminal sanctions, or changes in our business practices. The outcome of any current or future governmental or internal investigations cannot be accurately predicted, nor can we predict any resulting penalties, fines or other sanctions that may be imposed at the discretion of federal or state regulatory authorities. Nevertheless, it is reasonably possible that any such outcome of litigation, penalties, fines 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. Certain of these matters could also affect our reputation. In addition, disclosure of any adverse investigation or audit results or sanctions could negatively affect our industry or our reputation in various markets and make it more difficult for us to sell our products and services.

*Our business activities are subject to substantial government regulation. New laws or regulations, or legislative, judicial, or regulatory changes in existing laws or regulations or their manner of application could increase our cost of doing business and may have a material adverse effect on our results of operations, or cash flows.*

#### *New Laws or Regulations, or Future Legislative, Judicial or Regulatory Changes*

We are and will continue to be regularly subject to new laws and regulations, changes to existing laws and regulations, and judicial determinations that impact the interpretation and applicability of those laws and regulations. The Patient Protection and Affordable Care Act and The Health Care and Education Reconciliation Act of 2010 (which we collectively refer to as the Health Care Reform Law), the Families First Coronavirus Response Act (the “Families First Act”), the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), and the Inflation Reduction Act of 2022 (the “Inflation Reduction Act”), and related regulations, are examples of laws which have enacted significant reforms to various aspects of the U.S. health insurance industry, including among others, mandated coverage requirements, mandated benefits and guarantee issuance associated with commercial medical insurance, rebates to policyholders based on minimum benefit ratios, adjustments to Medicare Advantage premiums, the establishment of federally facilitated or state-based exchanges coupled with programs designed to spread risk among insurers, the introduction of plan designs based on set actuarial values, and changes to the Part D prescription drug benefit design.

It is reasonably possible that these laws and regulations, as well as other current or future legislative, judicial or regulatory changes (including further legislative or regulatory action taken in response to COVID-19), including restrictions on our ability to manage our provider network or otherwise operate our business, or restrictions on profitability, including reviews by regulatory bodies that may compare our Medicare Advantage business profitability to our non-Medicare Advantage business profitability, or compare the profitability of various products within our Medicare Advantage business, and require that they remain within certain ranges of each other, increases in member benefits or changes to member eligibility criteria without corresponding increases in premium payments to us, increases in regulation of our prescription drug benefit businesses, or changes to the Part D prescription drug benefit design may have a material adverse effect on our results of operations (including restricting revenue, enrollment and premium growth in certain products and market segments, restricting our ability to expand into new markets, increasing our medical and operating costs, further lowering our Medicare payment rates and increasing

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our expenses associated with assessments); our financial position (including our ability to maintain the value of our goodwill); and our cash flows.

Additionally, potential legislative changes or judicial determinations, including activities to repeal or replace these laws and regulations, including the Health Care Reform Law or declare all or certain portions of these laws and regulations unconstitutional or contrary to law, create uncertainty for our business, and we cannot predict when, or in what form, such legislative changes or judicial determinations may occur.

# *Health Insurance Portability and Accountability Act (HIPAA) and the Health Information Technology for Economic and Clinical Health Act (HITECH Act)*

The use of individually identifiable health data by our business is regulated at federal and state levels. These laws and rules are changed frequently by legislation or administrative interpretation. Various state laws address the use and maintenance of individually identifiable health data. Most are derived from the privacy provisions in the federal Gramm-Leach-Bliley Act and the Health Insurance Portability and Accountability Act, or HIPAA. HIPAA includes administrative provisions directed at simplifying electronic data interchange through standardizing transactions, establishing uniform health care provider, payer, and employer identifiers, and seeking protections for the confidentiality and security of patient data. The rules do not provide for complete federal preemption of state laws, but rather preempt all inconsistent state laws unless the state law is more stringent. These regulations set standards for the security of electronic health information, including requirements that insurers provide customers with notice regarding how their non-public personal information is used, including an opportunity to 'opt out' of certain disclosures.

The HITECH Act, one part of the American Recovery and Reinvestment Act of 2009, significantly broadened and strengthened the scope of the privacy and security regulations of HIPAA and imposes additional limits on the use and disclosure of protected health information, or PHI. Among other requirements, the HITECH Act and HIPAA requires us and other covered entities to report any unauthorized release or use of or access to PHI to any impacted individuals and to HHS in those instances where the unauthorized activity poses a significant risk of financial, reputational or other harm to the individuals, and to notify the media in any states where 500 or more people are impacted by any unauthorized release or use of or access to PHI, requires business associates to comply with certain provisions of the HIPAA privacy and security rule, and grants enforcement authority to state attorneys general in addition to the HHS Office of Civil Rights.

In addition, there are numerous federal and state laws and regulations addressing patient and consumer privacy concerns, including unauthorized access or theft of personal information. State statutes and regulations vary from state to state and could impose additional penalties. Violations of HIPAA or applicable federal or state laws or regulations could subject us to significant criminal or civil penalties, including significant monetary penalties. Compliance with HIPAA and other privacy regulations requires significant systems enhancements, training and administrative effort. HIPAA can also expose us to additional liability for violations by our business associates (e.g., entities that provide services to health plans and providers).

# *Corporate Practice of Medicine and Other Laws*

As a corporate entity, Humana Inc. is not licensed to practice medicine. Many states in which we operate through our subsidiaries limit the practice of medicine to licensed individuals or professional organizations comprised of licensed individuals, and business corporations generally may not exercise control over the medical decisions of physicians. Statutes and regulations relating to the practice of medicine, fee-splitting between physicians and referral sources, and similar issues vary widely from state to state. Under management agreements between certain of our subsidiaries and affiliated physician-owned professional groups, these groups retain sole responsibility for all medical decisions, as well as for hiring and managing physicians and other licensed healthcare providers, developing operating policies and procedures, implementing professional standards and controls, and maintaining malpractice insurance. We believe that our health services operations comply with applicable state statutes regarding corporate practice of medicine, fee-splitting, and similar issues. However, any enforcement actions by governmental officials alleging non-compliance with these statutes, which could subject us to penalties or

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restructuring or reorganization of our business, may result in a material adverse effect on our results of operations, financial position, or cash flows.

# *Anti-Kickback, Physician Self-Referral, and Other Fraud and Abuse Laws*

We are subject to various federal and state healthcare fraud and abuse laws including the federal False Claims Act (the “False Claims Act”), the federal anti-kickback statute (the “Anti-Kickback Statute”), the federal “Stark Law,” and related state laws. Potential sanctions for violating these laws include recoupment or reduction of government reimbursement amounts, civil penalties, treble damages, and exclusion from participating in the Medicare and Medicaid programs or other government healthcare programs. The False Claims Act prohibits knowingly submitting, conspiring to submit, or causing to be submitted, false claims, records, or statements to the federal government, or intentionally failing to return overpayments, in connection with reimbursement by federal government programs. The Anti-Kickback Statute prohibits the offer, payment, solicitation, or receipt of any form of remuneration to induce, or in return for, the referral of business under Medicare or other governmental health program. The Stark Law prohibits physicians from referring Medicare or Medicaid beneficiaries for certain services to any entity with which the physician, or an immediate family member of the physician, has a financial relationship, unless the financial relationship fits within a permissible exception.

Many states also have enacted laws similar in scope and purpose to the Anti-Kickback Statute and, in more limited instances, the Stark Law, that are not limited to services for which Medicare or Medicaid payment is made. In addition, most states have statutes, regulations, or professional codes that restrict a physician from accepting various kinds of remuneration in exchange for making referrals. These laws vary from state to state and have seldom been interpreted by the courts or regulatory agencies. In states that have enacted these statutes, we believe that regulatory authorities and state courts interpreting these statutes may regard federal law under the Anti-Kickback Statute and the Stark Law as persuasive.

We believe that our operations comply with the Anti-Kickback Statute, the Stark Law, and similar federal or state laws addressing fraud and abuse. These laws are subject to modification and changes in interpretation, and are enforced by authorities vested with broad discretion. We continually monitor developments in this area. If these laws are interpreted in a manner contrary to our interpretation or are reinterpreted or amended, or if new legislation is enacted with respect to healthcare fraud and abuse, illegal remuneration, or similar issues, we may be required to restructure our affected operations to maintain compliance with applicable law. There can be no assurances that any such restructuring will be possible or, if possible, would not have a material adverse effect on our results of operations, financial position, or cash flows.

# *State Regulation of our Products and Services*

Laws in each of the states (and Puerto Rico) in which we operate our HMOs, PPOs and other health insurance-related services regulate our operations including: capital adequacy and other licensing requirements, policy language describing benefits, mandated benefits and processes, entry, withdrawal or re-entry into a state or market, rate increases, delivery systems, utilization review procedures, quality assurance, complaint systems, enrollment requirements, claim payments, marketing, and advertising. The HMO, PPO, and other health insurance-related products we offer are sold under licenses issued by the applicable insurance regulators.

Our licensed insurance subsidiaries are also subject to regulation under state insurance holding company and Puerto Rico regulations. These regulations generally require, among other things, prior approval and/or notice of new products, rates, benefit changes, and certain material transactions, including dividend payments, purchases or sales of assets, intercompany agreements, and the filing of various financial and operational reports.

Certain of our healthcare services businesses require a Certificate of Need, or CON, to operate in certain states. These states restrict the entry of new providers or services and the expansion of existing providers or services in their state through a CON process, which is periodically evaluated and updated as required by applicable state law. To the extent that we require a CON or other similar approvals to expand our operations, our expansion could be adversely affected by our inability to obtain the necessary approval. To the extent laws in these CON states change,

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including the elimination of the CON requirement, the intangible value associated with these CONs may be impaired.

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

As part of our business strategy, we frequently engage in discussions with third parties regarding possible investments, acquisitions, divestitures, strategic alliances, joint ventures, and outsourcing transactions and often enter into agreements relating to such transactions in order to further our business objectives. In order to pursue our acquisition strategy successfully, we must identify suitable candidates for and successfully complete transactions, some of which may be large and complex, and manage post-closing issues such as the integration of acquired companies or employees. Integration and other risks can be more pronounced for larger and more complicated transactions, transactions outside of our core business space, or if multiple transactions are pursued simultaneously. The failure to successfully integrate acquired entities and businesses or failure to produce results consistent with the financial model used in the analysis of our transactions may cause asset write-offs, restructuring costs or other expenses and may have a material adverse effect on our results of operations, financial position, and cash flows. If we fail to identify and complete successfully transactions that further our strategic objectives, we may be required to expend resources to develop products and technology internally. In addition, from time to time, we evaluate alternatives for our businesses that do not meet our strategic, growth or profitability objectives, and we may divest or wind down such businesses. There can be no assurance that we will be able to complete any such divestiture on terms favorable to us, and the divestiture of certain businesses could result, individually or in the aggregate, in the recognition of material losses and a material adverse effect on our results of operations.

*If we fail to develop and maintain satisfactory relationships with the providers of care to our members, our business may be adversely affected.*

We employ or contract with physicians, hospitals and other providers to deliver health care to our members. Our products encourage or require our customers to use these contracted providers. A key component of our integrated care delivery strategy is to increase the number of providers who share medical cost risk with us or have financial incentives to deliver quality medical services in a cost-effective manner.

In any particular market, providers could refuse to contract with us, demand higher payments, or take other actions that could result in higher health care costs for us, less desirable products for customers and members or difficulty meeting regulatory or accreditation requirements. In some markets, some providers, particularly hospitals, physician specialty groups, physician/hospital organizations, or multi-specialty physician groups, may have significant market positions and negotiating power. In addition, physician or practice management companies, which aggregate physician practices for administrative efficiency and marketing leverage, may compete directly with us. If these providers refuse to contract with us, use their market position to negotiate unfavorable contracts with us or place us at a competitive disadvantage, or do not enter into contracts with us that encourage the delivery of quality medical services in a cost-effective manner, our ability to market products or to be profitable in those areas may be adversely affected.

In some situations, we have contracts with individual or groups of primary care providers for an actuarially determined, fixed fee per month to provide a basket of required medical services to our members. This type of contract is referred to as a “capitation” contract. The inability of providers to properly manage costs under these capitation arrangements can result in the financial instability of these providers and the termination of their relationship with us. In addition, payment or other disputes between a primary care provider and specialists with whom the primary care provider contracts can result in a disruption in the provision of services to our members or a reduction in the services available to our members. The financial instability or failure of a primary care provider to pay other providers for services rendered could lead those other providers to demand payment from us even though we have made our regular fixed payments to the primary provider. There can be no assurance that providers with whom we contract will properly manage the costs of services, maintain financial solvency or avoid disputes with other providers. Any of these events may have a material adverse effect on the provision of services to our members and our results of operations, financial position, and cash flows.

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The success of our healthcare services businesses depends on our ability, and the ability of our affiliated physician-owned professional groups and management services organizations, to recruit, hire, acquire, contract with, and retain physicians, nurses and other medical professionals who are experienced in providing care services to older adults. The market to acquire or manage physician practices, and to employ or contract with individual physicians, nurses and other medical professionals is, and is expected to remain, highly competitive, and the performance of our healthcare services businesses may be adversely impacted if we, and our affiliated physician-owned professional groups and management services organizations, are unable to attract, maintain satisfactory relationships with, and retain physicians, nurses and other medical professionals, or if these businesses are unable to retain patients following the departure of a physician, nurses or other medical professional. In addition, our healthcare services businesses contract with competitors of our health benefits businesses, and these businesses could suffer if they are unable to maintain relationships with these companies, or fail to adequately price their contracts with these third-party payers.

*We face significant competition in attracting and retaining talented employees. Further, managing succession for, and retention of, key executives is critical to our success, and our failure to do so could adversely affect our businesses, operating results and/or future performance.*

Our success depends on our ability to attract, develop and retain qualified employees and executives, including those with diverse backgrounds, experiences and skill sets, to operate and expand our business. We face intense competition for qualified employees, and there can be no assurance that we will be able to attract and retain such employees or that such competition among potential employers will not result in increasing salaries. In addition, while we have development and succession plans in place for our key employees and executives, these plans do not guarantee the services of our key employees and executives will continue to be available to us. If we are unable to attract, develop, retain and effectively manage the development and succession plans for key employees and executives, our business, results of operations and future performance could be adversely affected.

*Our pharmacy business is highly competitive and subjects us to regulations and distribution and supply chain risks in addition to those we face with our core health benefits businesses.*

Our in-house dispensing pharmacy business competes with locally owned drugstores, retail drugstore chains, supermarkets, discount retailers, membership clubs, internet companies and other mail-order and long-term care pharmacies.

Our pharmacy business also subjects us to extensive federal, state, and local regulation. The practice of pharmacy is generally regulated at the state level by state boards of pharmacy. Many of the states where we deliver pharmaceuticals, including controlled substances, have laws and regulations that require out-of-state mail-order pharmacies to register with that state’s board of pharmacy. Federal agencies further regulate our pharmacy operations, requiring registration with the U.S. Drug Enforcement Administration and individual state controlled substance authorities in order to dispense controlled substances. In addition, the FDA inspects facilities in connection with procedures to effect recalls of prescription drugs. The Federal Trade Commission also has requirements for mail-order sellers of goods. The U.S. Postal Service, or USPS, has statutory authority to restrict the transmission of drugs and medicines through the mail to a degree that may have an adverse effect on our mail-order operations. The USPS historically has exercised this statutory authority only with respect to controlled substances. If the USPS restricts our ability to deliver drugs through the mail, alternative means of delivery could be significantly more expensive. The U.S. Department of Transportation has regulatory authority to impose restrictions on drugs inserted in the stream of commerce. These regulations generally do not apply to the USPS and its operations. In addition, we are subject to CMS rules regarding the administration of our PDP plans and intercompany pricing between our PDP plans and our pharmacy business.

We are also subject to risks inherent in the packaging and distribution of pharmaceuticals and other health care products, including the application of state laws and regulations related to the operation of internet and mail-order pharmacies, violations of which could expose us to civil and criminal penalties, and manufacturing, distribution or other supply chain disruptions (including disruptions that occur as a result of catastrophes, including acts of

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terrorism, public health emergencies, epidemics or pandemics (such as the spread of COVID-19), or natural disasters (such as hurricanes and earthquakes) which could occur more frequently or with more intense effects as a result of the impacts of global climate change), each of which could impact the availability or cost of supplying of such products.

*Changes in the prescription drug industry pricing benchmarks may adversely affect our financial performance.*

Contracts in the prescription drug industry generally use certain published benchmarks to establish pricing for prescription drugs. These benchmarks include average wholesale price, which is referred to as “AWP,” average selling price, which is referred to as “ASP,” and wholesale acquisition cost. It is uncertain whether payors, pharmacy providers, pharmacy benefit managers, or PBMs, and others in the prescription drug industry will continue to utilize AWP as it has previously been calculated, or whether other pricing benchmarks will be adopted for establishing prices within the industry. Legislation may lead to changes in the pricing for Medicare and Medicaid programs. Regulators have conducted investigations into the use of AWP for federal program payment, and whether the use of AWP has inflated drug expenditures by the Medicare and Medicaid programs. Federal and state proposals have sought to change the basis for calculating payment of certain drugs by the Medicare and Medicaid programs. Adoption of ASP in lieu of AWP as the measure for determining payment by Medicare or Medicaid programs for the drugs sold in our in-house dispensing pharmacy business may reduce the revenues and gross margins of this business which may result in a material adverse effect on our results of operations, financial position, and cash flows.

*Our ability to obtain funds from certain of our licensed subsidiaries is restricted by state insurance regulations.*

Because we operate as a holding company, we are dependent upon dividends and administrative expense reimbursements from our subsidiaries to fund the obligations of Humana Inc., our parent company. Certain of our insurance subsidiaries operate in states that regulate the payment of dividends, loans, administrative expense reimbursements or other cash transfers to Humana Inc., and require minimum levels of equity as well as limit investments to approved securities. The amount of dividends that may be paid to Humana Inc. by these insurance subsidiaries, without prior approval by state regulatory authorities, or ordinary dividends, is limited based on the entity's level of statutory income and statutory capital and surplus. In most states, prior notification is provided before paying a dividend even if approval is not required. Actual dividends paid may vary due to consideration of excess statutory capital and surplus and expected future surplus requirements related to, for example, premium volume and product mix. Dividends from our non-insurance companies such as in our CenterWell segment are generally not restricted by Departments of Insurance. In the event that we are unable to provide sufficient capital to fund the obligations of Humana Inc., our results of operations, financial position, and cash flows may be materially adversely affected.

*Downgrades in our debt ratings, should they occur, may adversely affect our business, results of operations, and financial condition.*

Claims paying ability, financial strength, and debt ratings by recognized rating organizations are an increasingly important factor in establishing the competitive position of insurance companies. Ratings information is broadly disseminated and generally used throughout the industry. Historically, rating agencies take action to lower ratings due to, among other things, perceived concerns about liquidity or solvency, the competitive environment in the insurance industry, the inherent uncertainty in determining reserves for future claims, the outcome of pending litigation and regulatory investigations, and possible changes in the methodology or criteria applied by the rating agencies. Each of the rating agencies reviews its ratings periodically and there can be no assurance that current ratings will be maintained in the future. Our ratings reflect each rating agency’s opinion of our financial strength, operating performance, and ability to meet our debt obligations or obligations to policyholders, but are not evaluations directed toward the protection of investors in our common stock and should not be relied upon as such.

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We believe that certain of our customers place importance on our claims paying ability, financial strength, and debt ratings, and we may lose customers and compete less successfully if our ratings were to be downgraded. In addition, our credit ratings impact our ability to obtain future borrowings and investment capital on favorable terms. If our credit ratings were to be lowered, our cost of borrowing likely would increase, our sales and earnings could decrease, and our results of operations, financial position, and cash flows may be materially adversely affected.

*The securities and credit markets may experience volatility and disruption, which may adversely affect our business.*

Ongoing volatility or disruption in the securities and credit markets could impact our investment portfolio. We evaluate our investment securities for impairment on a quarterly basis. This review is subjective and requires a high degree of judgment. For the purpose of determining gross realized gains and losses, the cost of investment securities sold is based upon specific identification. For debt securities held, we recognize an impairment loss in income when the fair value of the debt security is less than the carrying value and we have the intent to sell the debt security or it is more likely than not that we will be required to sell the debt security before recovery of our amortized cost basis, or if a credit loss has occurred. When we do not intend to sell or are not required to sell a security in an unrealized loss position, potential credit related impairments are considered using a variety of factors, including the extent to which the fair value has been less than cost, adverse conditions specifically related to the industry, geographic area or financial condition of the issuer or underlying collateral of a security; payment structure of the security; changes in credit rating of the security by the rating agencies; the volatility of the fair value changes; and changes in fair value of the security after the balance sheet date. For debt securities, we take into account expectations of relevant market and economic data. We continuously review our investment portfolios and there is a continuing risk that declines in fair value may occur and additional material realized losses from sales or credit related impairments may be recorded in future periods.

We believe our cash balances, investment securities, operating cash flows, and funds available under our credit agreement or from other public or private financing sources, taken together, provide adequate resources to fund ongoing operating and regulatory requirements, acquisitions, future expansion opportunities, and capital expenditures for at least the next twelve months, as well as to refinance or repay debt, and repurchase shares. However, continuing adverse securities and credit market conditions may significantly affect the availability of credit. While there is no assurance in the current economic environment, including the heightened uncertainty created by the COVID-19 pandemic, we have no reason to believe the lenders participating in our credit agreement will not be willing and able to provide financing in accordance with the terms of the agreement.

Our access to additional credit will depend on a variety of factors such as market conditions, the general availability of credit, both to the overall market and our industry, our credit ratings and debt capacity, as well as the possibility that customers or lenders could develop a negative perception of our long or short-term financial prospects. Similarly, our access to funds could be limited if regulatory authorities or rating agencies were to take negative actions against us. If a combination of these factors were to occur, we may not be able to successfully obtain additional financing on favorable terms or at all.

*The spread of, and response to, COVID-19 underscores certain risks we face, including those discussed above, and the ongoing, heightened uncertainty created by the pandemic precludes any prediction as to the ultimate adverse impact to us of COVID-19.*

COVID-19 underscores certain risks we face, including those discussed above. As the COVID-19 pandemic continues, the premiums we charge may prove to be insufficient to cover the cost of health care services delivered to our members, each of which could be impacted by many factors, including the impacts that we have experienced, and may continue to experience, to our revenues due to limitations on our ability to implement clinical initiatives to manage health care costs and chronic conditions of our members, and appropriately document their risk profiles, as a result of our members being unable or unwilling to see their providers due to actions taken to mitigate the spread of COVID-19; increased costs that may result from higher utilization rates of medical facilities and services and other increases in associated hospital and pharmaceutical costs; and shifts in our premium and medical claims cost trends to reflect the demographic impact of higher mortality during the COVID-19 pandemic. In addition, we are offering,

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and have been mandated by legislative and regulatory action (including the Families First Act and CARES Act) to provide, certain expanded benefit coverage to our members, such as waiving, or reimbursing, certain costs for COVID-19 testing, vaccinations and treatment. These measures taken by us, or governmental action, to respond to the ongoing impact of COVID-19 (including further expansion or modification of the services delivered to our members, the adoption or modification of regulatory requirements associated with those services and the costs and challenges associated with ensuring timely compliance with such requirements), and the potential for widespread testing, treatments and the distribution and administration of COVID-19 vaccines, could adversely impact our profitability.

The spread and impact of COVID-19 and additional variants, or actions taken to mitigate this spread, could have material and adverse effects on our ability to operate effectively, including as a result of the complete or partial closure of facilities or labor shortages. Disruptions in public and private infrastructure, including communications, availability of in-person sales and marketing channels, financial services and supply chains, could materially and adversely disrupt our normal business operations. A significant subset of our and our third party providers' employee populations are in a remote work environment in an effort to mitigate the spread of COVID-19, which may exacerbate certain risks to our business, including an increased demand for information technology resources, increased risk of phishing and other cybersecurity attacks, and increased risk of unauthorized dissemination of sensitive personal, or proprietary and/or confidential information. The continued COVID-19 pandemic has severely impacted global economic activity, including the businesses of some of our commercial customers, and caused significant volatility and negative pressure in the financial markets. In addition to disrupting our operations, these developments may adversely affect the timing of commercial customer premium collections and corresponding claim payments, the value of our investment portfolio, or future liquidity needs.

The ongoing, heightened uncertainty created by the pandemic precludes any prediction as to the ultimate adverse impact to us of COVID-19. We are continuing to monitor the spread of COVID-19, changes to our benefit coverages, and the ongoing costs and business impacts of dealing with COVID-19, including the potential costs and impacts associated with lifting, or reimposing, restrictions on movement and economic activity, the timing and degree in resumption of demand for deferred healthcare services, the pace of administration of COVID-19 vaccines and the effectiveness of those vaccines, and related risks. The magnitude and duration of the pandemic remains uncertain, and its ultimate impact on our business, results of operations, financial position, and cash flows could be material.

## ITEM 1B. UNRESOLVED STAFF COMMENTS

None.

## ITEM 2. PROPERTIES

Our principal executive office is located in the Humana Building, 500 West Main Street, Louisville, Kentucky 40202. In addition to the headquarters in Louisville, Kentucky, we maintain other principal operating facilities used for customer service, enrollment, and/or claims processing and certain other corporate functions in Louisville, Kentucky; Green Bay, Wisconsin; Tampa, Florida; Cincinnati, Ohio; San Antonio, Texas; San Juan, Puerto Rico; Atlanta, Georgia; Mooresville, North Carolina and Austin, Texas.

We owned or leased numerous medical centers and administrative offices at December 31, 2022. The medical centers we operate are primarily located in Florida and Texas, including full-service, multi-specialty medical centers staffed by primary care providers and medical specialists. Of these medical centers, approximately 289 of these facilities are leased or subleased to our contracted providers to operate.

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### ITEM 3. LEGAL PROCEEDINGS

We are party to a variety of legal actions in the ordinary course of business, 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 disputes, qui tam litigation brought by individuals seeking to sue on behalf of the government, failure to disclose network discounts and various other provider arrangements, general contractual matters, intellectual property matters, and challenges to subrogation practices. For a discussion of our material legal actions, including those not in the ordinary course of business, see “Legal Proceedings and Certain Regulatory Matters” in Note 17 to the audited Consolidated Financial Statements included in Item 8. - Financial Statements and Supplementary Data. We cannot predict the outcome of these suits with certainty.

### ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

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## PART II

### ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

#### *Market Information*

Our common stock trades on the New York Stock Exchange under the symbol HUM.

#### *Holders of our Capital Stock*

As of January 31, 2023, there were 1,707 holders of record of our common stock and 634,739 beneficial holders of our common stock.

#### *Dividends*

The following table provides details of dividend payments, excluding dividend equivalent rights, in 2021 and 2022, under our Board approved quarterly cash dividend policy:

| Record Date | Payment Date | Amount per Share | Total Amount (in millions) |
| --- | --- | --- | --- |
| 2021 payments |  |  |  |
| 12/31/2020 | 1/29/2021 | $0.6250 | $81 |
| 3/31/2021 | 4/30/2021 | $0.7000 | $90 |
| 6/30/2021 | 7/30/2021 | $0.7000 | $90 |
| 9/30/2021 | 10/29/2021 | $0.7000 | $90 |
| 2022 payments |  |  |  |
| 12/31/2021 | 1/28/2022 | $0.7000 | $90 |
| 3/31/2022 | 4/29/2022 | $0.7875 | $100 |
| 6/30/2022 | 7/29/2022 | $0.7875 | $100 |
| 9/30/2022 | 10/28/2022 | $0.7875 | $100 |

In October 2022, the Board declared a cash dividend of $0.7875 per share payable on January 27, 2023 to stockholders of record on December 31, 2021 for an aggregate amount of $98 million. In February 2023, the Board declared a cash dividend of $0.8850 per share payable on April 28, 2023 to stockholders of record on March 31, 2023. Declaration and payment of future quarterly dividends is at the discretion of our Board and may be adjusted as business needs or market conditions change.

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### Stock Total Return Performance

The following graph compares our total return to stockholders with the returns of the Standard & Poor's Composite 500 Index ('S&P 500') and the Dow Jones US Select Health Care Providers Index ('Peer Group') for the five years ended December 31, 2022. The graph assumes an investment of $100 in each of our common stock, the S&P 500, and the Peer Group on December 31, 2017, and that dividends were reinvested when paid.

![img-0.jpeg](img-0.jpeg)

|  | 12/31/2017 | 12/31/2018 | 12/31/2019 | 12/31/2020 | 12/31/2021 | 12/31/2022 |
| --- | --- | --- | --- | --- | --- | --- |
| HUM | $100 | $116 | $150 | $169 | $192 | $213 |
| S&P 500 | $100 | $96 | $126 | $149 | $191 | $157 |
| Peer Group | $100 | $110 | $135 | $160 | $199 | $186 |

*The stock price performance included in this graph is not necessarily indicative of future stock price performance.*

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### *Issuer Purchases of Equity Securities*

The following table provides information about purchases by us during the three months ended December 31, 2022 of equity securities that are registered by us pursuant to Section 12 of the Exchange Act:

| Period | Total Number of Shares Purchased (1) | Average Price Paid per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (1)(2) | Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs (1) (2) (3) |
| --- | --- | --- | --- | --- |
| October 2022 | - | $ - | - | $2,000,000,000 |
| November 2022 | 1,518,996 | 534.02 | 1,518,996 | 1,150,000,000 |
| December 2022 | 353,604 | 534.02 | 353,604 | 1,000,000,000 |
| Total | 1,872,600 | $534.02 | 1,872,600 |  |

(1) On November 2, 2022, we entered into separate accelerated stock repurchase agreements, the November 2022 ASR Agreements, with Goldman Sachs & Co. LLC, or Goldman Sachs, and Mizuho Markets Americas LLC, or Mizuho, to repurchase $1 billion of our common stock as part of the $3 billion repurchase program authorized by the Board of Directors on February 18, 2021. In accordance with the November 2022 ASR Agreements, we made a payment of $1 billion ($500 million to Goldman Sachs on November 3, 2022 and $500 million to Mizuho on November 4, 2022) and received an initial delivery of 1.5 million shares of our common stock (0.760 million shares each from Goldman Sachs and Mizuho). In November 2022, we recorded the payments to Goldman Sachs and Mizuho as a reduction to stockholders' equity, consisting of an $850 million increase in treasury stock, which reflects the value of the initial 1.5 million shares received upon initial settlement, and a $150 million decrease in capital in excess of par value, which reflects the value of stock held back by Goldman Sachs and Mizuho pending final settlement of the November 2022 ASR Agreements. Upon final settlement of the November 2022 ASR Agreements with Goldman Sachs and Mizuho on December 15, 2022 and December 16, 2022, respectively, we received an additional 0.177 million shares and 0.177 million shares, respectively, as determined by the average daily volume weighted-averages share price of our common stock during the terms of the agreements, less a discount, of $534.16 and $533.87, respectively, bringing the total shares received under the November 2022 ASR Agreements to 1.8 million. In addition, upon settlement we reclassified the $150 million value of stock initially held back by Goldman Sachs and Mizuho from capital in excess of par value to treasury stock.

(2) Excludes 0.2 million shares repurchased in connection with employee stock plans.

(3) On February 15, 2023, the Board of Directors replaced the previous share repurchase authorization of up to $3 billion (of which approximately $1 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 as of February 15, 2026.

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# **ITEM 6. [Reserved]**

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# ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

*For discussion of 2020 items and year-over-year comparisons between 2021 and 2020 that are not included in this 2022 10-K and were not impacted by our segment realignment, refer to 'Item 7. - Management Discussion and Analysis of Financial Condition and Results of Operations' found in our Form 10-K for the year ended December 31, 2021, that was filed with the Securities and Exchange Commission on February 17, 2022.*

## Executive Overview

### General

Humana Inc., headquartered in Louisville, Kentucky, is a leading health and well-being company committed to helping our millions of medical and specialty members achieve their best health. Our successful history in care delivery and health plan administration is helping us create a new kind of integrated care with the power to improve health and well-being and lower costs. Our efforts are leading to a better quality of life for people with Medicare, families, individuals, military service personnel, and communities at large. To accomplish that, we support physicians and other health care professionals as they work to deliver the right care in the right place for their patients, our members. Our range of clinical capabilities, resources and tools, such as in-home care, behavioral health, pharmacy services, data analytics and wellness solutions, combine to produce a simplified experience that makes health care easier to navigate and more effective.

The health benefits industry relies on two key statistics to measure performance. The benefit ratio, which is computed by taking total benefits expense as a percentage of premiums revenue, represents a statistic used to measure underwriting profitability. The operating cost ratio, which is computed by taking total operating costs, excluding depreciation and amortization, as a percentage of total revenue less investment income, represents a statistic used to measure administrative spending efficiency.

### Sale of Hospice and Personal Care Divisions

On August 11, 2022, we completed the sale of a 60% interest in Humana's Kindred at Home Hospice subsidiary, or KAH Hospice, to Clayton, Dubilier & Rice, or CD&R, for cash proceeds of approximately $2.7 billion, net of cash disposed, including debt repayments from KAH Hospice to Humana of $1.9 billion. In connection with the sale we recognized a pre-tax gain, net of transaction costs, of $237 million which is reported as a gain on sale of KAH Hospice in the accompanying consolidated statements of income for the year ended December 31, 2022.

### Kindred at Home Acquisition

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 and Welsh, Carson, Anderson & Stowe, two private equity funds, 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.

### 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, a reduction in non-COVID-19 hospital admissions for non-emergent and elective medical care have resulted in lower overall healthcare system utilization. At the same time, COVID-19 treatment and testing costs increased utilization. During 2022, we experienced lower overall utilization of the healthcare system than anticipated, as the reduction in COVID-19 utilization following the increased incidence associated with the Omicron variant outpaced the increase in non-COVID-19 utilization. The

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significant disruption in utilization during 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, significantly affected our 2021 revenue under the risk adjustment payment model for Medicare Advantage plans. Finally, changes in utilization patterns and actions taken in 2020 and 2021 as a result of the COVID-19 pandemic, including the suspension of certain financial recovery programs for a period of time and shifting the timing of claim payments and provider capitation surplus payments, impacted our claim reserve development and operating cash flows for 2020 and 2021.

### ***Value Creation Initiatives***

During 2022, in order to create capacity to fund growth and investment in our Medicare Advantage business and further expansion of our healthcare services capabilities in 2023, we committed to drive additional value for the enterprise through cost saving, productivity initiatives, and value acceleration from previous investments. As a result of these initiatives, we recorded charges of $473 million included within operating costs in the consolidated statement of income for the year ended December 31, 2022. These charges primarily relate to $248 million in asset impairments, including software and abandonment, and $116 million of severance charges in connection with workforce optimization. The remainder of the charges primarily relate to external consulting fees. These charges were recorded at the corporate level and not allocated to the segments.

### ***Business Segments***

During December 2022, we realigned our businesses into two distinct segments: Insurance and CenterWell. The Insurance segment includes the businesses that were previously included in the Retail and Group and Specialty segments, as well as the Pharmacy Benefit Manager, or PBM, business which was previously included in the Healthcare Services segment. The CenterWell segment (formerly Healthcare Services) represents our payor-agnostic healthcare services offerings, including pharmacy dispensing services, provider services, and home services. In addition to the new segment classifications being utilized to assess performance and allocate resources, we believe this simpler structure will create greater collaboration across the Insurance and CenterWell businesses and will accelerate work that is underway to centralize and integrate operations within the organization. Prior period segment financial information has been recast to conform to the 2022 presentation. For a recast of prior period segment financial information, refer to Note 18 to the audited Consolidated Financial Statements included in Part II, Item 8, 'Financial Statements and Supplementary Data' of this Form 10-K.

Our two reportable segments, Insurance and CenterWell, 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. For segment financial information, refer to Note 18 to the audited Consolidated Financial Statements included in Part II, Item 8, 'Financial Statements and Supplementary Data' of this Form 10-K.

The Insurance segment consists of Medicare benefits, marketed to individuals or directly via group Medicare accounts, as well as 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 demonstration, and Long-Term Support Services benefits, which we refer to collectively as our state-based contracts. This segment also includes products consisting 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. In addition, our Insurance segment includes our military services business, primarily our T-2017 East Region contract, as well as the operations of our PBM business.

The CenterWell segment includes our pharmacy, provider services, and home solutions operations. The segment also includes our strategic partnerships with WCAS to develop and operate senior-focused, payor-agnostic, primary care centers, as well as our minority ownership interest in hospice operations. Services offered by this segment are designed to enhance the overall healthcare experience. These services may lead to lower utilization associated with improved member health and/or lower drug costs.

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The results of each segment are measured by income before income taxes and equity in net (losses) earnings from equity method investments, or segment earnings. Transactions between reportable segments primarily consist of sales of services rendered by our CenterWell segment, primarily pharmacy, provider, and home services, to our Insurance 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.

### *Seasonality*

COVID-19 disrupted the pattern of our quarterly earnings and operating cash flows largely due to the temporary deferral of non-essential care which resulted in reductions in non-COVID-19 hospital admissions and lower overall healthcare system utilization during higher levels of COVID-19 hospital admissions. At the same time, during periods of increased incidences of COVID-19, COVID-19 treatment and testing costs increase. Similar impacts and seasonal disruptions from either higher or lower utilization are expected to persist as we respond to and recover from the COVID-19 global health crisis.

One of the product offerings of our Insurance segment is Medicare stand-alone prescription drug plans, or PDP, under the Medicare Part D program. Our quarterly Insurance segment earnings and operating cash flows are impacted by the Medicare Part D benefit design and changes in the composition of our membership. The Medicare Part D benefit design results in coverage that varies as a member’s cumulative out-of-pocket costs pass through successive stages of a member’s plan period, which begins annually on January 1 for renewals. These plan designs generally result in us sharing a greater portion of the responsibility for total prescription drug costs in the early stages and less in the latter stages. As a result, the PDP benefit ratio generally decreases as the year progresses. In addition, the number of low income senior members as well as year-over-year changes in the mix of membership in our standalone PDP products affects the quarterly benefit ratio pattern.

The Insurance segment also experiences seasonality in the fully-insured product offering. The effect on the Insurance's segment benefit ratio is opposite of the Medicare stand-alone PDP impact, with the benefit ratio increasing as fully-insured members progress through their annual deductible and maximum out-of-pocket expenses.

In addition, the Insurance segment also experiences seasonality in the operating cost ratio as a result of costs incurred in the second half of the year associated with the Medicare marketing season.

### *Highlights*

- Our strategy offers our members affordable health care combined with a positive consumer experience in growing markets. At the core of this strategy is our integrated care delivery model, which unites quality care, high member engagement, and sophisticated data analytics. Our approach to primary, physician-directed care for our members aims to provide quality care that is consistent, integrated, cost-effective, and member-focused, provided by both employed physicians and physicians with network contract arrangements. The model is designed to improve health outcomes and affordability for individuals and for the health system as a whole, while offering our members a simple, seamless healthcare experience. We believe this strategy is positioning us for long-term growth in both membership and earnings. We offer providers a continuum of opportunities to increase the integration of care and offer assistance to providers in transitioning from a fee-for-service to a value-based arrangement. These include performance bonuses, shared savings and shared risk relationships. At December 31, 2022, approximately 3,175,500 members, or 70%, of our individual Medicare Advantage members were in value-based relationships under our integrated care delivery model, as compared to 3,009,600 members, or 68%, at December 31, 2021.

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- On February 1, 2023, Centers for Medicare & Medicaid Services, or CMS, issued its preliminary 2024 Medicare Advantage and Part D payment rates and proposed policy changes, collectively, the Advance Notice. CMS has invited public comment on the Advance Notice before publishing final rates on or before April 3, 2023, or the Final Notice. In the Advance Notice, CMS estimates Medicare Advantage plans across the sector will, on average, experience a 2.27% decrease in benchmark funding based on proposals included therein. As indicated by CMS, its estimate excludes the impact of fee-for-service county rebasing/re-pricing since the related impact is dependent upon finalization of certain data, which will be available with the publication of the Final Notice. Further the benchmark decrease excludes MA risk score trend as individual plans’ experience will vary. Based on the company’s preliminary analysis using the same factors CMS included in its estimate, the components of which are detailed on CMS’s website, we anticipate the proposals in the Advance Notice would result, on average, in a change relatively in line with CMS’ estimate, with the exception of Humana’s Medicare Star Ratings for bonus year 2024, which led the company’s peers, as well as the Risk Model Revision and Normalization Adjustment, which the company continues to analyze. With respect to the Risk Model Revision and Normalization adjustment, CMS provided detail to the company indicating an average impact to Humana relatively in line with the average negative 3.12% industry impact. The company continues to analyze the Advance Notice, including CMS’ estimate of the Humana specific impact related to the Risk Model Revision and Normalization adjustment, which is likely to have a more negative impact on individual plans and specific membership cohorts with greater risk score trend, and will be drawing upon its program expertise to provide CMS formal commentary on the impact of the Advance Notice and the related impact on Medicare beneficiaries’ quality of care and service to its members through the Medicare Advantage program.

- Net income was $2.8 billion, or $22.08 per diluted common share, and $2.9 billion, or $22.67 per diluted common share, in 2022 and 2021, respectively. This comparison was significantly impacted by the gain on KAH equity method investment recognized in August 2021, put/call valuation adjustments associated with non-consolidating minority interest investments, transaction and integration costs, the change in the fair value of publicly-traded equity securities, charges associated with productivity initiatives related to previously disclosed $1 billion value creation plan, and the net gain on the sale of KAH Hospice. The impact of these adjustments to our consolidated income before income taxes and equity in net (losses) earnings and diluted earnings per common share was as follows for the 2022 and 2021 periods:

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|  | 2022 | 2021 |
| --- | --- | --- |
|  | (in millions) |  |
| Consolidated income before income taxes and equity in net (losses) earnings: |  |  |
| Gain on Kindred at Home equity method investment | $ - | $(1,129) |
| Gain on sale of KAH Hospice | (237) | - |
| Charges associated with productivity initiatives related to the previously disclosed $1 billion value creation plan | 473 | - |
| Put/call valuation adjustments associated with our non consolidating minority interest investments | 68 | 597 |
| Transaction and integration costs | 105 | 128 |
| Change in the fair value of publicly-traded equity securities | 123 | 341 |
|  | $532 | $(63) |
|  | 2022 | 2021 |
| Diluted earnings per common share: |  |  |
| Gain on Kindred at Home equity method investment | $ - | $(8.73) |
| Gain on sale of KAH Hospice | (1.86) | - |
| Charges associated with productivity initiatives related to the previously disclosed $1 billion value creation plan | 3.72 | - |
| Put/call valuation adjustments associated with our non consolidating minority interest investments | 0.53 | 4.62 |
| Transaction and integration costs | 0.83 | 0.99 |
| Change in the fair value of publicly-traded equity securities | 0.97 | 2.63 |
| Tax impact of all transactions | (1.52) | (1.93) |
|  | $2.67 | $(2.42) |

45

### ***Health Care Reform***

We are and will continue to be regularly subject to new laws and regulations, changes to existing laws and regulations, and judicial determinations that impact the interpretation and applicability of those laws and regulations. The Health Care Reform Law, the Families First Act, the CARES Act, and the Inflation Reduction Act, and related regulations, are examples of laws which have enacted significant reforms to various aspects of the U.S. health insurance industry, including, among others, mandated coverage requirements, mandated benefits and guarantee issuance associated with commercial medical insurance, rebates to policyholders based on minimum benefit ratios, adjustments to Medicare Advantage premiums, the establishment of federally facilitated or state-based exchanges coupled with programs designed to spread risk among insurers, and the introduction of plan designs based on set actuarial values, and changes to the Part D prescription drug benefit design.

It is reasonably possible that these laws and regulations, as well as other current or future legislative, judicial or regulatory changes (including further legislative or regulatory action taken in response to COVID-19) including restrictions on our ability to manage our provider network or otherwise operate our business, or restrictions on profitability, including reviews by regulatory bodies that may compare our Medicare Advantage profitability to our non-Medicare Advantage business profitability, or compare the profitability of various products within our Medicare Advantage business, and require that they remain within certain ranges of each other, increases in member benefits or changes to member eligibility criteria without corresponding increases in premium payments to us, or increases in regulation of our prescription drug benefit businesses, in the aggregate may have a material adverse effect on our results of operations (including restricting revenue, enrollment and premium growth in certain products and market segments, restricting our ability to expand into new markets, increasing our medical and operating costs, further lowering our Medicare payment rates and increasing our expenses associated with assessments); our financial position (including our ability to maintain the value of our goodwill); and our cash flows.

We intend for the discussion of our financial condition and results of operations that follows to assist in the understanding of our financial statements and related changes in certain key items in those financial statements from year to year, including the primary factors that accounted for those changes. Transactions between reportable segments primarily consist of sales of services rendered by our CenterWell segment, primarily pharmacy, provider services, and home solutions, to our Insurance segment customers and are described in Note 18 to the audited Consolidated Financial Statements included in Item 8. - Financial Statements and Supplementary Data in this 2022 Form 10-K.

46

## Comparison of Results of Operations for 2022 and 2021

Certain financial data on a consolidated basis and for our segments was as follows for the years ended December 31, 2022 and 2021:

### Consolidated

|  | 2022 | 2021 | Change |  |
| --- | --- | --- | --- | --- |
|  |  |  | Dollars | Percentage |
| (dollars in millions, except per common share results) |  |  |  |  |
| Revenues: |  |  |  |  |
| Premiums: |  |  |  |  |
| Insurance | $87,712 | $79,822 | $7,890 | 9.9% |
| Total premiums revenue | 87,712 | 79,822 | 7,890 | 9.9% |
| Services: |  |  |  |  |
| Insurance | 850 | 853 | (3) | (0.4)% |
| CenterWell | 3,926 | 2,202 | 1,724 | 78.3% |
| Total services revenue | 4,776 | 3,055 | 1,721 | 56.3% |
| Investment income | 382 | 187 | 195 | 104.3% |
| Total revenues | 92,870 | 83,064 | 9,806 | 11.8% |
| Operating expenses: |  |  |  |  |
| Benefits | 75,690 | 69,199 | 6,491 | 9.4% |
| Operating costs | 12,671 | 10,121 | 2,550 | 25.2% |
| Depreciation and amortization | 709 | 596 | 113 | 19.0% |
| Total operating expenses | 89,070 | 79,916 | 9,154 | 11.5% |
| Income from operations | 3,800 | 3,148 | 652 | 20.7% |
| Gain on sale of KAH Hospice | (237) | - | 237 | 100.0% |
| Interest expense | 401 | 326 | 75 | 23.0% |
| Other expense (income), net | 68 | (532) | 600 | 112.8% |
| Income before income taxes and equity in net (losses) earnings | 3,568 | 3,354 | 214 | 6.4% |
| Provision for income taxes | 762 | 485 | 277 | 57.1% |
| Equity in net (losses) earnings | (4) | 65 | (69) | (106.2)% |
| Net income | $2,802 | $2,934 | $(132) | (4.5)% |
| Diluted earnings per common share | $22.08 | $22.67 | $(0.59) | (2.6)% |
| Benefit ratio (a) | 86.3% | 86.7% |  | (0.4)% |
| Operating cost ratio (b) | 13.7% | 12.2% |  | 1.5% |
| Effective tax rate | 21.4% | 14.2% |  | 7.2% |

(a) Represents total benefits expense as a percentage of premiums revenue.

(b) Represents total operating costs, excluding depreciation and amortization, as a percentage of total revenues less investment income.

47

### *Premiums Revenue*

Consolidated premiums revenue increased $7.9 billion, or 9.9%, from $79.8 billion in the 2021 period to $87.7 billion in the 2022 period primarily due to individual Medicare Advantage and state-based contracts membership growth and higher per member individual Medicare Advantage and commercial fully-insured medical premiums, partially offset by declining year-over-year membership associated with the group commercial medical products and the phase-out of COVID-19 sequestration relief in the 2022 period.

### *Services Revenue*

Consolidated services revenue increased $1.7 billion, or 56.3%, from $3.1 billion in the 2021 period to $4.8 billion in the 2022 period primarily due to the impact of our home solutions revenues which reflect the acquisition of the remaining 60% interest in KAH during August 2021 partially offset by the divestiture of the 60% ownership interest in KAH Hospice during August 2022.

### *Investment Income*

Investment income increased $195 million, or 104.3%, from $187 million in the 2021 period to $382 million in the 2022 period primarily due to lower mark to market losses on our publicly traded equity securities during the 2022 period compared to the 2021 period.

### *Benefits Expense*

Consolidated benefits expense increased $6.5 billion, or 9.4%, from $69.2 billion in the 2021 period to $75.7 billion in the 2022 period. The consolidated benefit ratio decreased 40 basis points from 86.7% in the 2021 period to 86.3% in the 2022 period primarily due to higher per member individual Medicare Advantage premiums and lower inpatient utilization associated with the individual Medicare Advantage business. These factors were partially offset by lower favorable prior-period medical claims reserve development. Further, the 2022 period ratio reflects a shift in line of business mix, with continued growth in certain government programs, which carry a higher benefits expense ratio, combined with a decline in Medicare stand-alone PDP, which has a lower benefits expense ratio.

Consolidated benefits expense included $415 million of favorable prior-period medical claims reserve development in the 2022 period and $825 million of favorable prior-period medical claims reserve development in the 2021 period. Prior-period medical claims reserve development decreased the consolidated benefit ratio by approximately 50 basis points in the 2022 period and decreased the consolidated benefit ratio by approximately 100 basis points in the 2021 period.

### *Operating Costs*

Our segments incur both direct and shared indirect operating costs. We allocate the indirect costs shared by the segments primarily as a function of revenues. As a result, the profitability of each segment is interdependent.

Consolidated operating costs increased $2.6 billion, or 25.2%, from $10.1 billion in the 2021 period to $12.7 billion in the 2022 period. The consolidated operating cost ratio increased 150 basis points from 12.2% in the 2021 period to 13.7% in the 2022 period. The ratio increase was primarily due to the impact of the consolidation of KAH operations, which have a significantly higher operating cost ratio than our historical consolidated operating cost ratio, the net impact of charges associated with initiatives undertaken associated with our value creation initiatives, as well as the impact of higher marketing spend in 2022 to support individual Medicare Advantage growth. These increases were partially offset by scale efficiencies associated with growth in individual Medicare Advantage membership.

48

### *Depreciation and Amortization*

Depreciation and amortization increased $113 million, or 19.0%, from $596 million in the 2021 period to $709 million in the 2022 period primarily due to capital expenditures.

### *Interest Expense*

Interest expense increased $75 million, or 23.0%, from $326 million in the 2021 period to $401 million in the 2022 period primarily due to higher average borrowings outstanding partially offset by lower interest rates.

### *Income Taxes*

Our effective tax rate during 2022 was 21.4% compared to the effective tax rate of 14.2% in 2021. The year-over-year increase in the effective income tax rates is primarily due to the impact of the August 2021 acquisition of the remaining 60% interest in KAH. In that period, we recognized a $1.1 billion mark-to-market gain related to our previously held 40% investment in KAH. This unrealized gain was not taxable, thereby reducing the effective income tax rate for the 2021 period. The increase is partially offset by the August 2022 disposition of our 60% interest in KAH Hospice, which resulted in an increase to our tax basis in both the shares sold and the shares retained, thereby reducing the effective income tax rate for the 2022 period. For a complete reconciliation of the federal statutory rate to the effective tax rate, refer to Note 12 to the audited Consolidated Financial Statements included in Part II, Item 8, 'Financial Statements and Supplementary Data' of this Form 10-K.

49

## Insurance Segment

|  | 2022 | 2021 | Change |  |
| --- | --- | --- | --- | --- |
|  |  |  | Members | % |
| Membership: |  |  |  |  |
| Individual Medicare Advantage | 4,565,600 | 4,409,100 | 156,500 | 3.5% |
| Group Medicare Advantage | 565,100 | 560,600 | 4,500 | 0.8% |
| Medicare stand-alone PDP | 3,551,300 | 3,606,200 | (54,900) | (1.5)% |
| Total Medicare | 8,682,000 | 8,575,900 | 106,100 | 1.2% |
| Medicare Supplement | 313,600 | 331,900 | (18,300) | (5.5)% |
| Commercial fully-insured | 556,300 | 674,600 | (118,300) | (17.5)% |
| Total fully-insured | 869,900 | 1,006,500 | (136,600) | (13.6)% |
| Medicaid and other | 1,137,300 | 940,100 | 197,200 | 21.0% |
| Military services | 5,959,900 | 6,049,000 | (89,100) | (1.5)% |
| ASO | 430,100 | 495,500 | (65,400) | (13.2)% |
| Total Medical Membership | 17,079,200 | 17,067,000 | 12,200 | 0.1% |
| Total Specialty Membership | 5,194,800 | 5,294,300 | (99,500) | (1.9)% |

|  | 2022 | 2021 | Change |  |
| --- | --- | --- | --- | --- |
|  |  |  | $ | % |
| (in millions) |  |  |  |  |
| Premiums and Services Revenue: |  |  |  |  |
| Premiums: |  |  |  |  |
| Individual Medicare Advantage | $65,591 | $58,654 | $6,937 | 11.8% |
| Group Medicare Advantage | 7,297 | 6,955 | 342 | 4.9% |
| Medicare stand-alone PDP | 2,269 | 2,371 | (102) | (4.3)% |
| Total Medicare | 75,157 | 67,980 | 7,177 | 10.6% |
| Medicare Supplement | 743 | 731 | 12 | 1.6% |
| Commercial fully-insured | 3,733 | 4,271 | (538) | (12.6)% |
| Total fully-insured | 4,476 | 5,002 | (526) | (10.5)% |
| Medicaid and other | 6,376 | 5,109 | 1,267 | 24.8% |
| Specialty | 1,703 | 1,731 | (28) | (1.6)% |
| Total premiums revenue | 87,712 | 79,822 | 7,890 | 9.9% |
| Services revenue | 850 | 853 | (3) | (0.4)% |
| Total premiums and services revenue | $88,562 | $80,675 | $7,887 | 9.8% |
| Income from operations | $3,022 | $2,412 | $610 | 25.3% |
| Benefit ratio | 86.6% | 87.2% |  | (0.6)% |
| Operating cost ratio | 10.4% | 10.3% |  | 0.1% |

### *Income from operations*

Insurance segment income from operations increased $0.6 billion, or 25.3%, from $2.4 billion in the 2021 period to $3.0 billion in the 2022 period primarily due to the same factors impacting the segment's lower benefit ratio offset by the same factors impacting the segment's higher operating cost ratio as more fully described below.

50

### *Enrollment*

Individual Medicare Advantage membership increased 156,500 members, or 3.5%, from 4,409,100 members as of December 31, 2021 to 4,565,600 members as of December 31, 2022 primarily due to membership additions associated with the 2022 Annual Election Period, or AEP. The year-over-year growth was further impacted by continued enrollment resulting from special elections, age-ins, and Dual Eligible Special Need Plans, or D-SNP, membership. Individual Medicare Advantage membership includes 668,900 D-SNP members as of December 31, 2022, a net increase of 92,800 members, or 16.1%, from 576,100 members as of December 31, 2021. For the full year 2023, we anticipate a net membership growth in our individual Medicare Advantage offerings of at least 625,000 members.

Group Medicare Advantage membership increased 4,500 members, or 0.8%, from 560,600 members as of December 31, 2021 to 565,100 members as of December 31, 2022 reflecting smaller account sales and organic growth in concurrent accounts with no large accounts won or lost for the period. For the full year 2023, we anticipate a net membership decline in our group Medicare Advantage offerings of approximately 60,000 members.

Medicare stand-alone PDP membership decreased 54,900 members, or 1.5%, from 3,606,200 members as of December 31, 2021 to 3,551,300 members as of December 31, 2022 primarily due to continued intensified competition for Medicare stand-alone PDP offerings. For the full year 2023, we anticipate a net membership decline in our Medicare stand-alone PDP offerings of approximately 800,000 members.

Medicaid and other membership increased 197,200 members, or 21.0%, from 940,100 members as of December 31, 2021 to 1,137,300 members as of December 31, 2022 reflecting the suspension of state eligibility redetermination efforts due to the currently enacted public health emergency, or PHE. For the full year 2023, we anticipate a net membership growth in our state-based contracts of approximately 25,000 to 100,000 members.

Commercial fully-insured medical membership decreased 118,300 members, or 17.5%, from 674,600 members as of December 31, 2021 to 556,300 members as of December 31, 2022 reflecting the impact of pricing discipline to address COVID-19 and improve profitability.

ASO commercial medical membership decreased 65,400 members, or 13.2%, from 495,500 members as of December 31, 2021 to 430,100 members as of December 31, 2022 reflecting continued intensified competition for small group accounts, partially offset by strong retention among large group accounts. For the full year 2023, we anticipate a net membership decline in our group commercial medical offerings, which includes fully-insured and ASO, of approximately 300,000 members.

Military services membership decreased 89,100 members, or 1.5%, from 6,049,000 members as of December 31, 2021 to 5,959,900 members as of December 31, 2022. Membership includes military service members, retirees, and their families to whom we are providing healthcare services under the current TRICARE East Region contract.

Specialty membership decreased 99,500 members, or 1.9%, from 5,294,300 members as of December 31, 2021 to 5,194,800 members as of December 31, 2022 primarily due to the loss of dental and vision groups cross-sold with medical, as reflected in the loss of group fully-insured commercial medical membership above. In addition, current membership reflects the economic impact of the COVID-19 pandemic.

### *Premiums revenue*

Insurance segment premiums revenue increased $7.9 billion, or 9.9%, from $79.8 billion in the 2021 period to $87.7 billion in the 2022 period primarily due to individual Medicare Advantage and state-based contracts membership growth and higher per member individual Medicare Advantage and commercial fully-insured medical premiums, partially offset by declining year-over-year membership associated with the group commercial medical products and the phase-out of COVID-19 sequestration relief in the 2022 period.

51

### *Services revenue*

Insurance segment services revenue decreased $3 million, or 0.4%, from $853 million in the 2021 period to $850 million in the 2022 period.

### *Benefits expense*

The Insurance segment benefit ratio decreased 60 basis points from 87.2% in the 2021 period to 86.6% in the 2022 period primarily due to higher per member individual Medicare Advantage premiums and lower inpatient utilization associated with the individual Medicare Advantage business. These factors were partially offset by lower favorable prior-period medical claims reserve development. Further, the 2022 period ratio reflects a shift in line of business mix, with continued growth in certain government programs, which carry a higher benefits expense ratio, combined with a decline in Medicare stand-alone PDP, which has a lower benefits expense ratio.

The Insurance segment benefits expense included $415 million of favorable prior-period medical claims reserve development in the 2022 period and $825 million of favorable prior-period medical claims reserve development in the 2021 period. Prior-period medical claims reserve development decreased the Insurance's segment benefit ratio by approximately 50 basis points in the 2022 period and decreased the Insurance's segment benefit ratio by approximately 100 basis points in the 2021 period.

### *Operating costs*

The Insurance segment operating cost ratio increased 10 basis points from 10.3% in the 2021 period to 10.4% in the 2022 period primarily due to strategic investments to position the segment for long-term success, including the impact of higher marketing spend in the 2022 period to support individual Medicare Advantage growth. These factors were partially offset by scale efficiencies associated with growth in the individual Medicare Advantage membership.

52

## CenterWell Segment

|  | 2022 | 2021 (in millions) | Change |  |
| --- | --- | --- | --- | --- |
|  |  |  | Dollars | Percentage |
| Revenues: |  |  |  |  |
| Services: |  |  |  |  |
| Home solutions | $2,333 | $1,166 | $1,167 | 100.1% |
| Pharmacy | 1,025 | 623 | 402 | 64.5% |
| Provider services | 568 | 413 | 155 | 37.5% |
| Total services revenue | 3,926 | 2,202 | 1,724 | 78.3% |
| Intersegment revenues: |  |  |  |  |
| Home solutions | 553 | 352 | 201 | 57.1% |
| Pharmacy | 9,841 | 9,024 | 817 | 9.1% |
| Provider services | 2,979 | 2,476 | 503 | 20.3% |
| Total intersegment revenues | 13,373 | 11,852 | 1,521 | 12.8% |
| Total services and intersegment revenues | $17,299 | 14,054 | 3,245 | 23.1% |
| Income from operations | $1,291 | $938 | $353 | 37.6% |
| Operating cost ratio | 91.5% | 92.3% |  | (0.8)% |

### *Income from operations*

CenterWell segment income from operations increased $353 million, or 37.6%, from $938 million in the 2021 period to $1.3 billion in the 2022 period primarily due to the same factors impacting the increase in services revenue and intersegment revenues as well as the same factors impacting the segment's lower operating cost ratio in the 2022 period as more fully described below.

### *Services revenue*

CenterWell segment services revenue increased $1.7 billion, or 78.3%, from $2.2 billion in the 2021 period to $3.9 billion in the 2022 period primarily due to the impact of our home solutions revenues which reflect the acquisition of the remaining 60% interest in KAH during August 2021 partially offset by the divestiture of the 60% ownership interest in KAH Hospice during August 2022.

### *Intersegment revenues*

CenterWell segment intersegment revenues increased $1.5 billion, or 12.8%, from $11.9 billion in the 2021 period to $13.4 billion in the 2022 period primarily due to individual Medicare Advantage membership growth, combined with the impact of greater mail-order pharmacy penetration for Medicare Advantage members, which lead to higher pharmacy revenues, as well as higher revenues associated with growth in our provider business.

### *Operating costs*

The CenterWell segment operating cost ratio decreased 80 basis points from 92.3% in the 2021 period to 91.5% in the 2022 period primarily represents the consolidation of KAH operations for the entire 2022 period compared to the partial 2021 period due to timing of the previously disclosed transaction. The KAH operations have a lower operating cost ratio than other businesses within the segment. The year-over-year favorability was further impacted by our pharmacy operations partially offset by investments in KAH to abate the pressures of the current nursing labor environment as well as the divestiture of the 60% interest in KAH Hospice during August 2022.

53

## Comparison of Results of Operations for 2021 and 2020

Certain financial data on a consolidated basis and for our segments reflect our segment realignment and are recast as follows for the years ended December 31, 2021 and 2020:

### Consolidated

|  | 2021 | 2020 | Change |  |
| --- | --- | --- | --- | --- |
|  |  |  | Dollars | Percentage |
| (dollars in millions, except per common share results) |  |  |  |  |
| Revenues: |  |  |  |  |
| Premiums: |  |  |  |  |
| Insurance | $79,822 | $73,584 | $6,238 | 8.5% |
| Corporate | - | 602 | (602) | (100.0)% |
| Total premiums revenue | 79,822 | 74,186 | 5,636 | 7.6% |
| Services: |  |  |  |  |
| Insurance | 853 | 813 | 40 | 4.9% |
| CenterWell | 2,202 | 1,002 | 1,200 | 119.8% |
| Total services revenue | 3,055 | 1,815 | 1,240 | 68.3% |
| Investment income | 187 | 1,154 | (967) | (83.8)% |
| Total revenues | 83,064 | 77,155 | 5,909 | 7.7% |
| Operating expenses: |  |  |  |  |
| Benefits | 69,199 | 61,628 | 7,571 | 12.3% |
| Operating costs | 10,121 | 10,052 | 69 | 0.7% |
| Depreciation and amortization | 596 | 489 | 107 | 21.9% |
| Total operating expenses | 79,916 | 72,169 | 7,747 | 10.7% |
| Income from operations | 3,148 | 4,986 | (1,838) | (36.9)% |
| Interest expense | 326 | 283 | 43 | 15.2% |
| Other (income) expense, net | (532) | 103 | 635 | 616.5% |
| Income before income taxes and equity in net earnings | 3,354 | 4,600 | (1,246) | (27.1)% |
| Provision for income taxes | 485 | 1,307 | (822) | (62.9)% |
| Equity in net earnings | 65 | 74 | (9) | (12.2)% |
| Net income | $2,934 | $3,367 | $(433) | (12.9)% |
| Diluted earnings per common share | $22.67 | $25.31 | $(2.64) | (10.4)% |
| Benefit ratio (a) | 86.7% | 83.1% |  | 3.6% |
| Operating cost ratio (b) | 12.2% | 13.2% |  | (1.0)% |
| Effective tax rate | 14.2% | 28.0% |  | (13.8)% |

(a) Represents total benefits expense as a percentage of premiums revenue.

(b) Represents total operating costs, excluding depreciation and amortization, as a percentage of total revenues less investment income.

54

### *Premiums Revenue*

Consolidated premiums increased $5.6 billion, or 7.6%, from $74.2 billion in the 2020 period to $79.8 billion in the 2021 period primarily due to higher premium revenues from Medicare Advantage and state-based contracts membership growth, higher per member Medicare Advantage premiums as a result of the improving CMS benchmark rate for 2021, net of Medicare Risk Adjustment (MRA) headwinds resulting from COVID-19 related utilization disruption in 2020, as well as the additional quarter impact of Medicare sequestration relief in 2021 that was not enacted until the second quarter of 2020. These increases were partially offset by declining stand-alone PDP, group commercial medical, and group Medicare Advantage membership, as well as the 2020 impact of the receipt of commercial risk corridor receivables previously written off.

### *Services Revenue*

Consolidated services revenue increased $1.2 billion, or 68.3%, from $1.8 billion in the 2020 period to $3.1 billion in the 2021 period primarily due to higher home solutions revenues associated with consolidation of Kindred at Home earnings.

### *Investment Income*

Investment income decreased $967 million, or 83.8%, from $1.2 billion in the 2020 period to $187 million in the 2021 period primarily due to a significant decrease in the fair value of our publicly-traded equity securities investments.

### *Benefits Expense*

Consolidated benefits expense increased $7.6 billion, or 12.3%, from $61.6 billion in the 2020 period to $69.2 billion in the 2021 period. The consolidated benefit ratio increased 360 basis points from 83.1% in the 2020 period to 86.7% in the 2021 period. These increases reflect the termination in 2021 of the non-deductible health insurance industry fee which, along with a portion of the related tax benefit, was contemplated in the pricing and benefit design of our products, and COVID-19 impacts, including the impact of the deferral of non-essential care, net of meaningful COVID-19 treatment and testing costs, our pandemic relief efforts in 2020, as well as 2021 MRA headwinds resulting from this COVID-19 related utilization disruption in 2020. The year over year increase further reflects the 2020 impact of the receipt of commercial risk corridor receivables that were previously written off, and the 2021 impact associated with the competitive nature of the group Medicare Advantage business, particularly in large group accounts that were recently procured, as well as in the stand-alone PDP business. These factors were partially offset by higher favorable prior-period medical claims reserve development in 2021.

The higher favorable prior-period medical claims reserve development was primarily attributable to the reversal of actions taken in 2020, including the suspension of certain financial recovery programs for a period of time impacting our claim payment patterns. 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. The favorable prior-period medical claims reserve development decreased the consolidated benefit ratio by approximately 100 basis points in the 2021 period versus approximately 40 basis points in the 2020 period.

### *Operating Costs*

Our segments incur both direct and shared indirect operating costs. We allocate the indirect costs shared by the segments primarily as a function of revenues. As a result, the profitability of each segment is interdependent.

Consolidated operating costs increased $0.07 billion, or 0.7%, from $10.05 billion in the 2020 period to $10.12 billion in the 2021 period. The consolidated operating cost ratio decreased 100 basis points from 13.2% in the 2020 period to 12.2% in the 2021 period. The ratio decrease was primarily due to the termination of the non-deductible health insurance industry fee in 2021, as well as lower COVID-19 related administrative costs in 2021 compared to 2020. Administrative costs in 2020 included costs associated with personal protective equipment, member response efforts, and the build-out of infrastructure necessary to support employees working remotely. The decrease was

55

further impacted by scale efficiencies associated with growth in our individual Medicare Advantage membership, operating cost efficiencies in 2021 from previously implemented productivity initiatives, as well as the impact of a $200 million contribution to the Humana Foundation in the first half of 2020 to support communities served by the Company, particularly those with social and health disparities. These factors were partially offset by the consolidation of Kindred at Home operations as the business has a significantly higher operating cost ratio than our historical consolidated operating cost ratio, continued strategic and technology modernization investments made to position us for long-term success, transaction and integration costs associated with the Kindred at Home transaction, as well as the 2020 impact of the receipt of the commercial risk corridor receivables that were previously written off. The non-deductible health insurance industry fee impacted the operating cost ratio by 160 basis points in the 2020 period.

#### *Depreciation and Amortization*

Depreciation and amortization increased $107 million, or 21.9%, from $489 million in the 2020 period to $596 million in the 2021 period primarily due to capital expenditures.

#### *Interest Expense*

Interest expense increased $43 million, or 15.2%, from $283 million in the 2020 period to $326 million in the 2021 period from borrowings to fund the KAH acquisition.

#### *Income Taxes*

Our effective tax rate during 2021 was 14.2% compared to the effective tax rate of 28.0% in 2020. The change was 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.

56

## Insurance Segment

|  | 2021 | 2020 | Change |  |
| --- | --- | --- | --- | --- |
|  |  |  | Members | % |
| Membership: |  |  |  |  |
| Individual Medicare Advantage | 4,409,100 | 3,962,700 | 446,400 | 11.3% |
| Group Medicare Advantage | 560,600 | 613,200 | (52,600) | (8.6)% |
| Medicare stand-alone PDP | 3,606,200 | 3,866,700 | (260,500) | (6.7)% |
| Total Medicare | 8,575,900 | 8,442,600 | 133,300 | 1.6% |
| Medicare Supplement | 331,900 | 335,600 | (3,700) | (1.1)% |
| Commercial fully-insured | 674,600 | 777,400 | (102,800) | (13.2)% |
| Total fully-insured | 1,006,500 | 1,113,000 | (106,500) | (9.6)% |
| Medicaid and other | 940,100 | 772,400 | 167,700 | 21.7% |
| Military services | 6,049,000 | 5,998,700 | 50,300 | 0.8% |
| ASO | 495,500 | 504,900 | (9,400) | (1.9)% |
| Total Medical Membership | 17,067,000 | 16,831,600 | 235,400 | 1.4% |
| Total Specialty Membership | 5,294,300 | 5,310,300 | (16,000) | (0.3)% |

|  | 2021 | 2020 | Change |  |
| --- | --- | --- | --- | --- |
|  |  |  | $ | % |
| (in millions) |  |  |  |  |
| Premiums and Services Revenue: |  |  |  |  |
| Premiums: |  |  |  |  |
| Individual Medicare Advantage | $58,654 | $51,697 | $6,957 | 13.5% |
| Group Medicare Advantage | 6,955 | 7,774 | (819) | (10.5)% |
| Medicare stand-alone PDP | 2,371 | 2,742 | (371) | (13.5)% |
| Total Medicare | 67,980 | 62,213 | 5,767 | 9.3% |
| Medicare Supplement | 731 | 688 | 43 | 6.3% |
| Commercial fully-insured | 4,271 | 4,761 | (490) | (10.3)% |
| Total fully-insured | 5,002 | 5,449 | (447) | (8.2)% |
| Medicaid and other | 5,109 | 4,223 | 886 | 21.0% |
| Specialty | 1,731 | 1,699 | 32 | 1.9% |
| Total premiums revenue | 79,822 | 73,584 | 6,238 | 8.5% |
| Services revenue | 853 | 813 | 40 | 4.9% |
| Total premiums and services revenue | $80,675 | $74,397 | $6,278 | 8.4% |
| Income from operations | $2,412 | $3,120 | $(708) | (22.7)% |
| Benefit ratio | 87.2% | 84.1% |  | 3.1% |
| Operating cost ratio | 10.3% | 12.3% |  | (2.0)% |

### *Income from operations*

Insurance segment income from operations decreased $0.7 billion, or 22.7%, from $3.1 billion in the 2020 period to $2.4 billion in the 2021 period primarily due to the same factors impacting the segment's higher benefit ratio offset by the same factors impacting the segment's lower operating cost ratio as more fully described below.

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### *Enrollment*

Individual Medicare Advantage membership increased 446,400 members, or 11.3%, from 3,962,700 members as of December 31, 2020 to 4,409,100 members as of December 31, 2021 primarily due to membership additions associated with the previous Annual Election Period, or AEP, and Open Election Period, or OEP, for Medicare beneficiaries. The membership growth was further impacted by continued enrollment resulting from special elections, age-ins, and Dual Eligible Special Need Plans, or D-SNP, members. The OEP sales period, which ran from January 1 to March 31, 2021 added approximately 36,000 members compared to the 2020 OEP that added approximately 30,000 members. Individual Medicare Advantage membership includes 576,100 D-SNP members as of December 31, 2021, a net increase of 170,000 members, or 42%, from 406,100 members as of December 31, 2020.

Group Medicare Advantage membership decreased 52,600 members, or 8.6%, from 613,200 members as of December 31, 2020 to 560,600 members as of December 31, 2021 primarily due to the net loss of certain large accounts in January 2021, partially offset by continued growth in small group accounts.

Medicare stand-alone PDP membership decreased 260,500 members, or 6.7%, from 3,866,700 members as of December 31, 2020 to 3,606,200 members as of December 31, 2021 primarily due to anticipated declines as a result of the Walmart Value plan no longer being the low cost leader in 2021.

Medicaid and other membership increased 167,700 members, or 21.7%, from 772,400 members as of December 31, 2020 to 940,100 members as of December 31, 2021 primarily reflecting additional enrollment as a result of the suspension of state eligibility redetermination efforts due to the currently-enacted Public Health Emergency, as well as our acquisition of the remaining 50% ownership interest in Wisconsin health care company iCare.

Commercial fully-insured medical membership decreased 102,800 members, or 13.2%, from 777,400 members as of December 31, 2020 to 674,600 members as of December 31, 2021 reflecting lower small group quoting activity and sales attributable to depressed economic activity from the COVID-19 pandemic, partially offset by higher retention of existing customers, particularly in larger groups. The portion of commercial fully-insured medical membership in small group accounts was approximately 50% at December 31, 2021 and 54% at December 31, 2020.

ASO commercial medical membership decreased 9,400 members, or 1.9%, from 504,900 members as of December 31, 2020 to 495,500 members as of December 31, 2021. Small group membership comprised 43% of ASO commercial medical membership at December 31, 2021 and 45% at December 31, 2020. The membership change reflects intensified competition for small group accounts, partially offset by strong retention among large group accounts.

Military services membership increased 50,300 members, or 0.8%, from 5,998,700 members as of December 31, 2020 to 6,049,000 members as of December 31, 2021. Membership includes military service members, retirees, and their families to whom we are providing healthcare services under the current TRICARE East Region contract.

Specialty membership decreased 16,000 members, or 0.3%, from 5,310,300 members as of December 31, 2020 to 5,294,300 members as of December 31, 2021 primarily due to the loss of dental and vision groups cross-sold with medical, as reflected in the loss of commercial fully-insured medical membership described above. The decrease also reflects the impact of the economic downturn driven by the COVID-19 pandemic.

### *Premiums revenue*

Insurance segment premiums increased $6.2 billion, or 8.5%, from $73.6 billion in the 2020 period to $79.8 billion in the 2021 period primarily due to higher premium revenues from Medicare Advantage and state-based contracts membership growth, higher per member Medicare Advantage premiums as a result of the improving CMS benchmark rate for 2021, net of Medicare Risk Adjustment (MRA) headwinds resulting from COVID-19 related

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utilization disruption in 2020, as well as the additional quarter impact of Medicare sequestration relief in 2021 that was not enacted until the second quarter of 2020. These increases were partially offset by declining Medicare stand-alone PDP, commercial fully insured, and group Medicare Advantage membership.

#### *Services revenue*

Insurance segment services revenue increased $40 million, or 4.9%, from $813 million in the 2020 period to $853 million in the 2021 period primarily due to higher TRICARE services revenue partially offset by lower ASO membership described previously.

#### *Benefits expense*

The Insurance segment benefit ratio increased 310 basis points from 84.1% in the 2020 period to 87.2% in the 2021 period. This increase reflects the termination in 2021 of the non-deductible health insurance industry fee which, along with a portion of the related tax benefit, was contemplated in the pricing and benefit design of our products, and COVID-19 impacts, including the impact of the deferral of non-essential care, net of meaningful COVID-19 treatment and testing costs, our pandemic relief efforts in 2020, as well as 2021 MRA headwinds resulting from this COVID-19 related utilization disruption in 2020. The year over year increase further reflects the 2021 impact associated with the competitive nature of the group Medicare Advantage business, particularly in large group accounts that were recently procured, as well as in the stand-alone PDP business. These factors were partially offset by higher favorable prior-period medical claims reserve development in 2021.

The Insurance segment benefits expense included $825 million of favorable prior-period medical claims reserve development in the 2021 period and $313 million of favorable prior-period medical claims reserve development in the 2021 period. Prior-period medical claims reserve development decreased the Insurance's segment benefit ratio by approximately 100 basis points in the 2021 period and decreased the Insurance's segment benefit ratio by approximately 40 basis points in the 2020 period.

The higher favorable prior-period medical claims reserve development was primarily attributable to the reversal of actions taken in 2020, including the suspension of certain financial recovery programs for a period of time impacting our claim payment patterns. 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.

#### *Operating costs*

The Insurance segment operating cost ratio decreased 200 basis points from 12.3% in the 2020 period to 10.3% in the 2022 period primarily due to the termination of the non-deductible health insurance industry fee in 2021, lower COVID-19 related administrative costs, as previously discussed, scale efficiencies associated with growth in our individual Medicare Advantage membership, as well as operating cost efficiencies driven by previously implemented productivity initiatives. These improvements were partially offset by continued strategic investments made in 2021 to position us for long-term success. The non-deductible health insurance industry fee impacted the operating cost ratio by 160 basis points in the 2020 period.

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## CenterWell Segment

|  | 2021 | 2020 | Change |  |
| --- | --- | --- | --- | --- |
|  | (in millions) |  | Dollars | Percentage |
| Revenues: |  |  |  |  |
| Services: |  |  |  |  |
| Home solutions | $1,166 | $107 | $1,059 | 989.7% |
| Pharmacy | 623 | 567 | 56 | 9.9% |
| Provider services | 413 | 328 | 85 | 25.9% |
| Total services revenue | 2,202 | 1,002 | 1,200 | 119.8% |
| Intersegment revenues: |  |  |  |  |
| Home solutions | 352 | 279 | 73 | 26.2% |
| Pharmacy | 9,024 | 7,928 | 1,096 | 13.8% |
| Provider services | 2,476 | 2,268 | 208 | 9.2% |
| Total intersegment revenues | 11,852 | 10,475 | 1,377 | 13.1% |
| Total services and intersegment revenues | 14,054 | 11,477 | 2,577 | 22.5% |
| Income from operations | $938 | $624 | $314 | 50.3% |
| Operating cost ratio | 92.3% | 93.3% |  | (1.0)% |

### *Income from operations*

CenterWell segment income from operations increased $314 million, or 50.3%, from $624 million in the 2020 period to $938 million in the 2021 period primarily due to consolidation of Kindred at Home earnings, individual Medicare Advantage and state-based contracts membership growth leading to higher pharmacy revenues, higher revenues associated with growth in our provider business, as well as the factors that drove the segment declining operating cost ratio as more fully described below.

### *Services revenue*

CenterWell segment services revenue increased $1.2 billion, or 119.8%, from $1.0 billion in the 2020 period to $2.2 billion in the 2021 period primarily due to consolidation of Kindred at Home earnings. The 2021 period further reflects higher revenue from growth in the number of primary care clinics serving third party payors, and additional pharmacy revenues associated with the acquisition of Enclara which was closed during the first quarter of 2020.

### *Intersegment revenues*

CenterWell segment intersegment revenues increased $1.4 billion, or 13.1%, from $10.5 billion in the 2020 period to $11.9 billion in the 2021 period primarily due to individual Medicare Advantage and state-based contracts membership growth, as well as higher revenues associated with our provider business. These increases were partially offset by the loss of intersegment revenues associated with the decline in stand-alone PDP and group Medicare Advantage membership as previously discussed.

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### *Operating costs*

The CenterWell segment operating cost ratio decreased 100 basis points from 93.3% in the 2020 period to 92.3% in the 2021 period primarily due to consolidation of Kindred at Home operations which have a lower operating cost ratio than other businesses within the segment, the 2020 impact associated with COVID-19 administrative related costs, including expenses associated with additional safety measures taken for our pharmacy, provider, and home solutions teams who continued to provide services to members throughout the crisis, as well as operational improvements in our provider services business, largely related to Conviva, along with operating cost efficiencies driven by previously implemented productivity initiatives in 2021. The decrease further reflects the impact of additional investments in the segment's provider business during 2020 related to marketing and AEP initiatives. These decreases were partially offset by increased administrative costs in the pharmacy operations as a result of incremental spend to accelerate growth within the business, increased utilization levels in our provider business in 2021 compared to levels in 2020 amid the COVID-19 pandemic, as well as increased pharmacy labor-related overtime costs due to weather disruptions occurring in the first quarter of 2021.

### **Liquidity**

Historically, our primary sources of cash have included receipts of premiums, services revenue, and investment and other income, as well as proceeds from the sale or maturity of our investment securities, and borrowings. Our primary uses of cash historically have included disbursements for claims payments, operating costs, interest on borrowings, taxes, purchases of investment securities, acquisitions, capital expenditures, repayments on borrowings, dividends, and share repurchases. Because premiums generally are collected in advance of claim payments by a period of up to several months, our business normally should produce positive cash flows during periods of increasing premiums and enrollment. Conversely, cash flows would be negatively impacted during periods of decreasing premiums and enrollment. From period to period, our cash flows may also be affected by the timing of working capital items including premiums receivable, benefits payable, and other receivables and payables. Our cash flows are impacted by the timing of payments to and receipts from CMS associated with Medicare Part D subsidies for which we do not assume risk. The use of cash flows may be limited by regulatory requirements of state departments of insurance (or comparable state regulators) which require, among other items, that our regulated subsidiaries maintain minimum levels of capital and seek approval before paying dividends from the subsidiaries to the parent. Our use of cash flows derived from our non-insurance subsidiaries, such as in our CenterWell segment, is generally not restricted by state departments of insurance (or comparable state regulators).

For additional information on our liquidity risk, please refer to Item 1A. - Risk Factors in this 2022 Form 10-K.

Cash and cash equivalents increased to $5.1 billion at December 31, 2022 from $3.4 billion at December 31, 2021. The change in cash and cash equivalents for the years ended December 31, 2022, 2021 and 2020 is summarized as follows:

|  | 2022 | 2021 | 2020 |
| --- | --- | --- | --- |
|  | (in millions) |  |  |
| Net cash provided by operating activities | $4,587 | $2,262 | $5,639 |
| Net cash used in investing activities | (1,006) | (6,556) | (3,065) |
| Net cash (used in) provided by financing activities | (1,914) | 3,015 | (1,955) |
| Increase (decrease) in cash and cash equivalents | $1,667 | $(1,279) | $619 |

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### *Cash Flow from Operating Activities*

Cash flows provided by operations of $4.6 billion in the 2022 period increased $2.3 billion from cash flows provided by operations of $2.3 billion in the 2021 period primarily due to higher earnings in 2022, exclusive of the gain on the sale of KAH Hospice recognized in the 2022 period and the gain on the KAH equity method investment recognized in the 2021 period, combined with positive working capital impacts in 2022, and the 2021 period impact associated with the pay down of claims inventory and capitation for provider surplus amounts earned in 2020 and additional provider support.

The most significant drivers of changes in our working capital are typically the timing of payments of benefits expense and receipts for premiums. Benefits expense includes claim payments, capitation payments, pharmacy costs net of rebates, allocations of certain centralized expenses and various other costs incurred to provide health insurance coverage to members, as well as estimates of future payments to hospitals and others for medical care and other supplemental benefits provided on or prior to the balance sheet date. For additional information regarding our benefits payable and benefits expense recognition, refer to Note 2 to the audited Consolidated Financial Statements included in Part II, Item 8, 'Financial Statements and Supplementary Data' of this Form 10-K.

The detail of total net receivables was as follows at December 31, 2022, 2021 and 2020:

|  | 2022 | 2021 | 2020 | Change |  |
| --- | --- | --- | --- | --- | --- |
|  |  |  |  | 2022 | 2021 |
|  | (in millions) |  |  |  |  |
| Medicare | $1,260 | $1,214 | $928 | $46 | $286 |
| Commercial and other | 383 | 579 | 122 | (196) | 457 |
| Military services | 101 | 104 | 160 | (3) | (56) |
| Allowance for doubtful accounts | (70) | (83) | (72) | 13 | (11) |
| Total net receivables | $1,674 | $1,814 | $1,138 | (140) | 676 |
| Reconciliation to cash flow statement: |  |  |  |  |  |
| Change in receivables from disposition (acquisition) of business |  |  |  | 194 | (396) |
| Change in receivables per cash flow statement resulting in cash used by operations |  |  |  | $54 | $280 |

The changes in Medicare receivables for both the 2022 period and the 2021 period reflect individual Medicare Advantage membership growth and the typical pattern caused by the timing of accruals and related collections associated with the CMS risk-adjustment model. The decrease in Commercial and other receivables and the allowance for doubtful accounts for 2022 primarily relates to the KAH Hospice disposition. The increase in Commercial and other receivables in 2021 primarily relates to the Kindred at Home acquisition.

### *Cash Flow from Investing Activities*

During 2022, we acquired various businesses totaling to approximately $337 million, net of cash received.

During 2021, we acquired Kindred at Home and other primary care businesses for cash consideration of approximately $4.2 billion, net of cash received.

During 2020, we acquired Enclara Healthcare, a hospice, pharmacy and benefit provider, for cash consideration of approximately $709 million, net of cash received.

During 2022, we completed the sale of a 60% interest in Humana's Kindred at Home Hospice subsidiary, or KAH Hospice, to Clayton, Dubilier & Rice, or CD&R, for cash proceeds of approximately $2.7 billion, net of cash disposed, including debt repayments from KAH Hospice to Humana of $1.9 billion. In connection with the sale, we recognized a pre-tax gain, net of transaction costs, of $237 million which is reported as a gain on sale of KAH Hospice in the accompanying consolidated statement of income for the year ended December 31, 2022.

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