Annual Report (Form 10-K), fiscal year 1993

ITEM 1. BUSINESS
GENERAL
Humana Inc. is a Delaware corporation organized in 1961. Its principal executive offices are located at 500 West Main Street, Louisville, Kentucky 40202, and its telephone number at that address is (502) 580-1000. As used herein, the term "the Company" includes Humana Inc. and its subsidiaries.
On March 1, 1993, the Company separated its acute-care hospital and managed care health plan businesses into two independent publicly-held companies (the "Spinoff"). The Spinoff was effected through the distribution to Humana stockholders of record as of the close of business on March 1, 1993, of all of the outstanding shares of common stock of a new hospital company, Galen Health Care, Inc. ("Galen"). Galen was subsequently merged, through an unrelated transaction, with a subsidiary of Columbia Healthcare Corporation (now Columbia/HCA Healthcare Corporation) ("Columbia") and, therefore, became a wholly-owned subsidiary of Columbia. The Company continues to operate the managed care health plan business. In conjunction with the Spinoff, the Company changed its fiscal year end from August 31 to December 31.
Since 1983, the Company has offered managed health care products which integrate financing and management with the delivery of health care services through a network of providers who share financial risk or who have incentives to deliver cost-effective medical services. These products are marketed primarily through health maintenance organizations ("HMOs") and preferred provider organizations ("PPOs") that encourage, and in most HMO products require, use of contracting providers. HMOs and PPOs also control health care costs by various other means, including the use of utilization controls such as pre-admission approval for hospital inpatient services and pre-authorization of outpatient surgical procedures.
The HMO and PPO products of the Company are primarily marketed to employer and other groups ("Commercial") and Medicare-eligible individuals. The products marketed to Medicare-eligible individuals are either HMO products that provide health care services which include all Medicare benefits, and in certain circumstances, additional health care services that are not included in Medicare benefits ("Medicare risk") or indemnity insurance policies that supplement Medicare benefits ("Medicare supplement"). Since 1983, the growth in the Company's HMO business has been primarily attributable to acquisitions, while the growth in its PPO business has been exclusively from internally produced sales.
COMMERCIAL PRODUCTS
HMOs
An HMO provides prepaid health care services to its members through primary care and specialty physicians employed by the HMO at facilities owned by the HMO, or through a network of independent primary care and specialty physicians and other health care providers who contract with the HMO or the primary care physician to furnish such services. Primary care physicians include internists, family practitioners and pediatricians. Generally, access to specialty physicians and other health care providers must be approved by the member's primary care physician. These other health care providers include, among others, hospitals, nursing homes, home health agencies, pharmacies, mental health and substance abuse centers, diagnostic centers, optometrists, outpatient surgery centers, dentists, urgent care centers, and durable medical equipment suppliers. Because access to these other health care providers must be approved by the primary care physician, the HMO product is the most restrictive form of managed care.
At December 31, 1993, the Company owned and operated ten HMOs, which contract with approximately 27,400 physicians (including approximately 5,900 primary care physicians) and 480 hospitals. In addition, the Company has approximately 1,300 contracts with other providers to provide services to HMO members. The Company also employed approximately 450 physicians in its HMOs.
An HMO member pays a monthly fee which generally covers, with minimal co-payments, health care services received or approved by the member's primary care physician. For the year ended December 31, 1993, Commercial HMO premium revenues totaled approximately $1.4 billion or 43 percent of the Company's
premium revenues of $3.1 billion. Approximately $168 million of the Company's premium revenues for the year ended December 31, 1993, were derived from contracts with the United States Office of Personnel Management ("OPM") under which the Company provides health care benefits to approximately 122,700 federal civilian employees and their dependents. Pursuant to these contracts, payments made by OPM may be retrospectively adjusted downward by OPM if an audit discloses that a comparable product was offered by the Company to a similarly sized subscriber group using a rating formula which resulted in a lower premium rate than that offered to OPM.
PPOs
PPO products include many elements of managed health care. In a PPO, the enrollee is encouraged, through financial incentives, to use preferred health care providers which have contracted with the PPO to provide services at favorable rates. PPOs are also similar to traditional health insurance because they provide an enrollee with the freedom to choose a physician or other health care provider.
At December 31, 1993, approximately 24,300 physicians and 480 hospitals contracted with the Company to provide services to PPO enrollees. In addition, the Company has approximately 1,300 contracts with other providers to provide services to PPO enrollees.
For the year ended December 31, 1993, premium revenues from Commercial PPOs totaled $357 million or 11 percent of the Company's premium revenues of $3.1 billion.
MEDICARE PRODUCTS
Medicare is a federal program that provides persons age 65 and over and some disabled persons certain hospital and medical insurance benefits, which include hospitalization benefits for up to 90 days per incident of illness plus a lifetime reserve aggregating 60 days. Each Medicare eligible individual is entitled to receive inpatient hospital care (Part A) without the payment of any premium, but is required to pay a premium to the federal government, which is annually adjusted, to be eligible for physician and other services (Part B).
Even though participating in both Part A and Part B of Medicare, beneficiaries are still required to pay certain deductible and co-insurance amounts. They may, if they choose, supplement their Medicare coverage by purchasing policies which pay these deductibles and co-insurance amounts. Many of these policies also cover other services (such as prescription drugs) which are not included in Medicare coverage. These policies are known as Medicare supplement policies.
Certain managed care companies which operate HMOs contract with the federal government's Health Care Financing Administration ("HCFA") to provide medical benefits to Medicare-eligible individuals residing in the geographic areas in which their HMOs operate in exchange for a fixed monthly payment from HCFA per enrollee. Individuals who elect to participate in these Medicare risk programs are relieved of the obligation to pay some or all of the deductible or co-insurance amounts but are required to use exclusively the services provided by the HMO. Other than the Part B premium paid by the enrollee to the Medicare program, the enrollee does not pay the HMO a premium for these services except where the benefits provided by the HMO exceed the benefits provided by the Medicare program.
Medicare Risk
As discussed above, a Medicare risk product involves a contract between an HMO and HCFA pursuant to which HCFA makes a fixed monthly payment to the HMO on behalf of each Medicare-eligible individual who chooses to enroll for coverage by the HMO. Enrollment may be terminated by the member upon 30 days' notice. The fixed monthly payment is determined and adjusted annually by HCFA, and takes into account, among other things, the cost of providing medical care in the geographic area where the member resides.
The Company markets a variety of Medicare risk HMO products. All of these products provide an enrolled individual with all of the benefits covered by the Medicare program but relieve the enrolled individual of the obligation to pay deductibles and co-insurance that would otherwise apply. Some of these products also
provide additional benefits not covered by Medicare, such as vision and dental care services and prescription drugs.
Where competitive conditions permit, the Company also charges a premium to members (in addition to the payment from HCFA) for some of the Medicare risk products. At December 31, 1993, approximately 73,300 members in nine markets were paying premiums which totaled $51 million for the year ended December 31, 1993.
The Company provides Medicare risk services under seven contracts with HCFA ("HCFA Contracts") in 10 markets. At December 31, 1993, HCFA Contracts covered approximately 270,800 Medicare risk members for which the Company received HCFA revenues of approximately $1.2 billion or 40 percent of the Company's premium revenues for the year ended December 31, 1993, of $3.1 billion. At December 31, 1993, one such HCFA Contract covered approximately 210,000 members in Florida. For the year ended December 31, 1993, this Florida HCFA Contract accounted for $1 billion or 80 percent of the Company's HCFA revenues of approximately $1.2 billion or 32 percent of the Company's total premium revenues. Each HCFA Contract is renewed each December 31 unless HCFA or the Company terminates it upon at least 90 days' notice prior thereto. Management believes termination of the HCFA Contract covering the members in Florida would have a material adverse effect on the Company's revenues, profitability and business prospects. Moreover, changes in the Medicare risk program, such as reduction in payments by HCFA or mandated increases in benefits without corresponding increases in payments, could also have a material adverse effect on the Company's revenues, profitability and business prospects.
Effective January 1, 1994, payments under the Company's HCFA Contracts increased by an average of approximately 3 percent. Although annual increases have varied significantly, increases have averaged approximately 7 percent over the last five years, including the increase of January 1994.
Medicare Supplement
The Company's Medicare supplement product is an insurance policy which pays for hospital deductibles, co-payments and co-insurance for which the Medicare program participant is responsible.
Under the terms of existing Medicare supplement policies, the Company may not reduce or cancel the benefits contracted for by policyholders. These policies are annually renewable by the insured at the Company's prevailing rates, which may increase subject to approval by appropriate state insurance regulators.
At December 31, 1993, the Company provided Medicare supplement benefits to approximately 153,600 members. Premium revenues derived from this product for the year ended December 31, 1993, totaled $132 million.
PROVIDER ARRANGEMENTS
The Company's HMOs contract with individual or groups of primary care physicians, generally for an actuarially determined, fixed, per-member-per-month fee called a "capitation" payment. These contracts typically obligate primary care physicians to provide or arrange for the provision of all covered health care services to HMO members, including health care services provided by specialty physicians and other health care providers. The capitation payment does not vary with the nature or extent of health care services arranged for or provided to the member and is generally designed to shift all or part of the HMO's financial risk to the primary care physician. However, the degree to which the Company shifts its risk varies by provider. The Company remains financially responsible for the provision of or payment for such health care services if a primary care physician fails to perform his or her obligations under the contract. The Company also employs 450 physicians in markets where it operates staff model HMOs. The Company is directly responsible for all health care services provided by these employed physicians. In order to control costs, improve quality and create comprehensive networks, the Company also contracts with medical specialists and other providers to which a primary care physician may refer a member. Typically, payments by the Company to these specialists and other providers reduce the ultimate payment that otherwise would be made to a primary care physician.
The Company's HMOs and PPOs contract for hospital services generally under a per diem payment arrangement for inpatient hospital services and a discounted fee-for-service payment arrangement for outpatient services. The Company's PPOs contract on a per diem or discounted basis with other health care providers.
Many of the physicians who contract with the Company's HMOs also contract with its PPOs to provide services to enrollees at discounted fees. In addition, in a number of markets the Company's PPOs contract with physicians who have not contracted with its HMOs.
Physician participation in the Company's HMOs and PPOs is conditioned upon meeting its HMOs' and PPOs' requirements concerning the physician's professional qualifications.
Effective with the consummation of the Spinoff, the Company entered into a three-year operating agreement with Galen whereby the Company will use the services of Galen's hospitals guaranteeing certain minimum utilization levels. The rate increases charged for such services are defined under the terms of the agreement. Commercial rate increases are limited to the lesser of the increase in the hospital Consumer Price Index or the Company's premium rate increases, less 1 percent. The Medicare risk rate increases are equal to the percentage adjustment in HCFA's market specific hospital payment rate to the Company. During the year ended December 31, 1993, 16 percent of the Company's total medical costs were incurred in Galen's hospitals.
MARKETING
Individuals become members of the Company's Commercial HMOs and PPOs through their employer or other groups which typically offer employees or members a selection of health care products, pay for all or part of the premiums and make payroll deductions for any premiums payable by the employees. The Company attempts to become an employer's or group's exclusive source of health care benefits by offering HMO and PPO products that provide cost-effective quality care consistent with the health care needs and expectations of the employees or members.
The Company uses various methods to market its Commercial and Medicare products, including television, radio, telemarketing and mailings. At December 31, 1993, the Company used approximately 2,000 independent licensed brokers and agents and 160 licensed employees to sell its Commercial products. Many employer groups are represented by insurance brokers and consultants who assist these groups in the design and purchase of health care products. The Company generally pays brokers a commission based on premiums, with commissions varying by market and premium volume. At December 31, 1993, approximately 260 independent licensed brokers and 430 employed sales representatives, who are each paid a salary and/or per member commission, marketed the Company's Medicare products.
The following table lists the Company's Commercial, Medicare risk and Medicare supplement membership at December 31, 1993, by market and product:
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(1) Includes Dade, Broward and Palm Beach counties.
The Company acquired an HMO in Washington, D.C., with approximately 125,000 members for $55 million on February 28, 1994.
The Company's 25 largest group contracts at December 31, 1993, accounted for approximately 33 percent of total Commercial membership. No one group contract accounted for as much as 5 percent of the Company's Commercial product premium revenues; however, certain employer groups accounted for a significant percentage of Commercial insurance premiums in some markets. The loss of one or more of these contracts in a particular market could have a material adverse effect on the Company's operations in that market.
CONTROL OF HEALTH CARE COSTS
The focal point for cost control in the Company's HMOs is the primary care physician, whether employed or under contract, who provides services and controls utilization of services by directing or approving hospitalization and referrals to specialists and other health care providers. Cost control in the Company's PPOs is achieved through obtaining discounts from participating health care providers. With respect to both HMO and PPO products, cost control is further achieved through use of a utilization review system managed by the Company designed to reduce unnecessary hospital admissions and lengths of stay and unnecessary or inappropriate medical procedures.
New technologies (which typically require substantial expenditures), inflation, increasing hospital costs and numerous other external factors may adversely affect the ability of the Company to control health care costs in the future.
RISK MANAGEMENT
Through the use of internally developed underwriting criteria, the Company determines the risk it is willing to assume and the amount of premium to charge for its Commercial products. Employer and other groups must meet the Company's underwriting standards in order to qualify to contract with the Company for coverage. Underwriting techniques are not employed in connection with Medicare risk HMO products
because of HCFA regulations that require the Company to accept all eligible Medicare applicants regardless of their health or prior medical history.
COMPETITION
The health care benefit industry is highly competitive and contracts for the sale of Commercial products are generally bid or renewed annually. The Company's competitors vary by local market and include Blue Cross/Blue Shield (including HMOs and PPOs owned by Blue Cross/Blue Shield plans), national insurance companies and other HMOs and PPOs. Many of the Company's competitors have larger enrollments in local markets or greater financial resources. The Company's ability to sell its products and to retain customers is influenced by such factors as benefits, pricing, contract terms, number and quality of participating physicians and other health care providers, utilization review, claims processing and administrative efficiency.
GOVERNMENT REGULATION
Of the Company's 13 licensed HMO subsidiaries, six are qualified under the Federal Health Maintenance Organization Act of 1973, as amended. Four of these six subsidiaries are parties to HCFA Contracts to provide Medicare risk HMO products in 10 markets.
An HMO which is federally qualified may require employers with more than 25 employees that offer health insurance benefits to include federally qualified HMO products as an option available to their employees. To obtain federal qualification, an HMO must meet certain requirements, including conformance with financial criteria, a standard method of rate setting, a comprehensive benefit package, and prohibition of medical underwriting of individuals. In certain markets, and for certain products, the Company operates HMOs that are not federally qualified because this provides greater flexibility with respect to product design and pricing than is possible for federally qualified HMOs.
HCFA audits Medicare risk HMOs at least biannually and may perform other reviews more frequently to determine compliance with federal regulations and contractual obligations. These audits include review of the HMOs' administration and management (including management information and data collection systems), fiscal stability, utilization management and incentive arrangements, health services delivery, quality assurance, marketing, enrollment activity, claims processing and complaint systems. HCFA regulations require quarterly and annual submission of financial statements and restrict the number of Medicare risk enrollees to no more than the HMO's Commercial enrollment in a specified service area. HCFA regulations also require independent review of medical records and quality of care, review and approval by HCFA of all advertising, marketing and communication materials, and independent review of all denied claims and service complaints which are not resolved in favor of a member.
Laws in each of the states in which the Company operates its HMOs and PPOs regulate its operations, including the scope of benefits, rate formula, delivery systems, utilization review procedures, quality assurance, enrollment requirements, claim payments, marketing and advertising. The PPO products offered by the Company are sold under insurance licenses issued by the applicable state insurance regulators. The Company's HMOs and PPOs are required to be in compliance with certain minimum capital requirements. These requirements must be satisfied by investing in approved investments that generally cannot be used for other purposes. Under state laws, the Company's HMOs and PPOs are audited by state departments of insurance for financial and contractual compliance, and its HMOs are audited for compliance with health services standards by respective state departments of health.
Management believes that the Company is in substantial compliance with all governmental laws and regulations affecting its business.
NATIONAL HEALTH CARE REFORM
Congress is in the process of evaluating a number of legislative proposals that would effect major changes in the United States health care system. Among the proposals under consideration are government imposed cost controls, measures to increase the availability of group health insurance coverage to employees, and the
creation of statewide health alliances that would cover individuals and families not enrolled in large employer health plans. Legislative reform is not anticipated before the latter part of 1994 and implementation of any reform package could take several additional years. In general, managed care is being considered as a means by which health care costs may be reduced. Although management believes the Company is well positioned to take advantage of the opportunities which will be afforded by national health care reform, it is not possible to predict the final form these proposals will take or the affect these proposals may have on the Company's operations.
STATE HEALTH CARE REFORM
During 1993, the State of Florida adopted health care reform legislation which, among other things, established a mechanism through which small employers and self-employed individuals may acquire health care coverage through state chartered non-profit entities known as Community Health Purchasing Alliances (CHPAs). It is intended the CHPAs will also be used to acquire insurance for state employees and Medicaid beneficiaries in the future. The legislation divides the state into 11 geographic areas and establishes a separate CHPA in each area. Humana intends to offer products in each of these geographic areas.
In order to sell health care coverage to CHPA membership, an entity must register as an Accountable Health Partnership (AHP). An AHP may be either an insurer or an HMO and must specify in which geographic areas it wishes to offer its product. There are other requirements relating to organization, grievance procedures, terminations and product offerings for AHPs. Applicable Company HMOs and PPOs are in the process of registering as AHPs.
Certain other states in which the Company operates are also actively pursuing health care reform; however, at this time it is not possible to predict the ultimate impact on the Company's operations.
OTHER RELATED PRODUCTS
The Company offers administrative services to employers who self-insure their employee health benefits. At December 31, 1993, the Company provided claims processing, utilization review and other administrative services to 40 self-insured employer groups, for approximately 63,700 employees and employee dependents. For the year ended December 31, 1993, revenues from these services totaled approximately $5 million.
The Company operates a prescription drug management service which administers drug benefit programs for various HMOs and PPOs, including those of the Company. For the year ended December 31, 1993, prescription drug management service revenues from third-party customers totaled approximately $3 million.
On June 30, 1993, the Company acquired the operations of a dental services company which provides dental products to employer groups, HMOs and PPOs, including those of the Company. Since the acquisition, dental service revenues from third-party customers totaled approximately $2 million.
On March 3, 1994, the Company acquired a minority interest in a mental health HMO, which will provide services to the Company's members in certain markets as well as to third-party customers.
OTHER BUSINESSES
Hospital
The Company operates a 170-bed hospital in Lexington, Kentucky, which was contributed to the Company by Galen in connection with the Spinoff. The hospital provides care primarily to members of the Company's managed care plans in Lexington. The Company is currently reviewing alternatives for the ultimate sale or third-party management of the hospital.
Captive Insurance Company
The Company insures substantially all professional liability risks through a wholly-owned subsidiary (the "Captive Subsidiary") which was incorporated in January 1993 in the State of Vermont. Previous to the Captive Subsidiary beginning operations in February 1993, professional liability risks were insured by a
subsidiary of Galen. In connection with the Spinoff, the Captive Subsidiary and the Galen subsidiary entered into a loss portfolio reinsurance agreement whereby the Captive Subsidiary will indemnify the Galen subsidiary, subject to aggregate limits, against all liabilities incurred by the Galen subsidiary related to the professional liability risks of the Company prior to September 1, 1993.
Centralized Management Services
Centralized management services are provided to each health plan from the Company's headquarters. These services include management information systems, financing, personnel, development, accounting, legal advice, public relations, marketing, insurance, purchasing, risk management, actuarial, underwriting and claims processing.
EMPLOYEES
As of December 31, 1993, the Company and its subsidiaries had approximately 8,800 full-time employees.
ITEM 2.



ITEM 2. PROPERTIES
The Company owns its principal executive office, which is located in the Humana Building, 500 West Main Street, Louisville, Kentucky 40202.
The Company provides medical services in medical centers owned or leased ranging in size from approximately 1,200 to 80,000 square feet. The Company's administrative market offices are generally leased, with square footage ranging from 1,000 to 75,000. The following chart lists the location of properties used in the operation of the Company at December 31, 1993:
In addition, the Company owns buildings in Louisville, Kentucky, and San Antonio, Texas, and leases a facility in Jacksonville, Florida, which are used for customer service and claims processing. The Louisville facility also performs enrollment processing and other corporate functions.
The Company also owns a hospital and medical office building in Lexington, Kentucky.
ITEM 3.

ITEM 3. LEGAL PROCEEDINGS
1. A class action law suit styled Mary Forsyth, et al v. Humana Inc., et al, Case #CV-5-89-249-PMP(L.R.L.), was filed on March 29, 1989, in the United States District Court for the District of Nevada (the "Forsyth" case). The claims asserted by plaintiffs included an ERISA count seeking $49,440,000 of damages plus approximately $15,396,000 of interest, a RICO count seeking $103,562,165 of damages (before trebling) plus approximately $31,800,000 of interest, and an antitrust count for an unspecified
amount of damages which appears to be similar to those sought in the RICO count. Despite allegations made by the plaintiffs, the Company considered the substance of these claims to be a dispute concerning the calculation of health insurance benefits and believed the claimed damages were greatly in excess of any possible recovery even if plaintiffs were successful on every claim asserted.
On July 21, 1993, summary judgment was entered in favor of the Company on all counts, although the court granted the co-payer class until August 24, 1993, to file a third amended complaint in which its members could seek to recover the difference between their co-insurance payments and what those payments would have been if co-insurance obligations of the co-payer class had originally been based on the discounted payments made by Humana Health Insurance Company of Nevada to Sunrise Hospital and Medical Center, Las Vegas, Nevada, (now owned by Columbia).
On August 24, 1993, a third amended complaint styled Marietta Cade, et al vs. Humana Health Insurance of Nevada, Inc., et al was filed seeking damages as described above. On January 28, 1994, summary judgment was entered in favor of plaintiffs on this third amended complaint. A subsequent hearing will ascertain the amount of damages suffered by the co-payer class. The Company believes the final resolution of this litigation will not have a material adverse effect on its operations or financial position.
2. On April 22, 1993, an alleged stockholder of the Company filed a purported shareholder derivative action in the Court of Chancery of the State of Delaware, County of New Castle, styled Lewis v. Austen, et al, Civil Action No. 12937. The action was purportedly brought on behalf of the Company and Galen against all of the directors of both companies at the time of the Spinoff alleging, among other things, that the defendants had improperly amended the Company's existing stock option plans in connection with the Spinoff. The plaintiff claims that the amendment to the stock option plans constituted a waste of corporate assets to the extent that employees of each company received options in the stock of the other company. (The challenged amendment to the plan was approved by the Company's stockholders at the 1993 Annual Meeting of Stockholders.) The plaintiff requests, among other things, an injunction prohibiting the exercise of Galen (now Columbia) stock options by the Company's personnel and the exercise of Company stock options by Galen (now Columbia) personnel and an award of damages. On June 14, 1993, the defendants filed a motion to dismiss the plaintiff's complaint. That motion is still pending. The Company believes that the complaint is without merit.
Damages for claims for personal injuries and medical benefit denials are usual in the Company's business. Personal injury claims are covered by insurance from the Captive Subsidiary and excess carriers, except to the extent that claimants seek punitive damages, which may not be covered by insurance if awarded. Punitive damages generally are not paid where claims are settled and generally are awarded only where there has been a willful act or omission to act. The Company does not believe that any pending actions will have a material adverse effect on its consolidated financial condition.
ITEM 4.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
EXECUTIVE OFFICERS OF THE COMPANY
Set forth below are names and ages of all of the current executive officers of the Company as of March 1, 1994, their positions, date of election to such position and the date first elected an officer of the Company:
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(1) Elected an officer of a predecessor corporation in 1961. (2) Mr. Murray was appointed Controller of the Company at the time of the Spinoff, previous to which he served in the capacity of Vice President and Controller -- Health Plans since August 1990 and Controller -- Health Care Division since October 1989. From October 1985 to October 1989, he was a Certified Public Accountant with Coopers & Lybrand.
Executive officers are elected annually by the Company's Board of Directors and serve until their successors are elected or until resignation or removal. There are no family relationships among any of the directors or executive officers of the Company, except that Mr. Jones is the father of David A. Jones, Jr., a director of the Company. Except for Mr. Murray, all of the above-named executive officers have been employees of the Company for more than five years.
PART II
Information for Items 5 through 8 of this Report which appears in the 1993 Annual Report to Stockholders as indicated on the following table is incorporated by reference in this report:
ITEM 9.






ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10.



ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this Item other than the information set forth in Part I under the Section entitled "EXECUTIVE OFFICERS OF THE COMPANY", is herein incorporated by reference from the Registrant's Proxy Statement for the Annual Meeting of Stockholders scheduled to be held on May 26, 1994, appearing under the caption "ELECTION OF DIRECTORS OF THE COMPANY FOR 1994" on pages 3 through 6 of the Proxy Statement.
ITEM 11.

ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item is herein incorporated by reference from the Registrant's Proxy Statement for the Annual Meeting of Stockholders scheduled to be held on May 26, 1994, appearing under the caption "EXECUTIVE COMPENSATION OF THE COMPANY" on pages 9 through 15 of the Proxy Statement.
ITEM 12.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item is herein incorporated by reference from the Registrant's Proxy Statement for the Annual Meeting of Stockholders scheduled to be held on May 26, 1994, appearing under the caption "SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS OF COMPANY COMMON STOCK" on pages 6 through 8 of the Proxy Statement.
ITEM 13.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
PART IV
ITEM 14.

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(3) Exhibits:
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* Exhibits 10(a) through and including 10(u) are compensatory plans or management contracts.
(b) Reports on Form 8-K:
No reports on Form 8-K were filed by the Company during the last quarter of the period covered by this report.
SIGNATURES
Pursuant to the requirements of Sections 13 or 15(d) of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned, thereto duly authorized.
HUMANA INC.
By: /s/ W. ROGER DRURY
------------------------------------ W. Roger Drury Chief Financial Officer
Date: March 29, 1994
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Company and in the capacities and on the dates indicated.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders Humana Inc.
We have audited the consolidated financial statements and the financial statement schedules of Humana Inc. as listed in Item 14(a) of this Form 10-K. These financial statements and financial statement schedules are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and financial statement schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe our audits provide a reasonable basis for our opinion.
In our opinion the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Humana Inc. as of December 31, 1993, and 1992, and the consolidated results of operations and cash flows for the years ended December 31, 1993, December 31, 1992, August 31, 1992, and August 31, 1991, and for the four-month period ended December 31, 1992, in conformity with generally accepted accounting principles. In addition, in our opinion the financial statement schedules referred to above, when considered in relation to the basic financial statements taken as a whole, present fairly, in all material respects, the information required to be included therein.
As discussed in Note 2 to the consolidated financial statements, Humana Inc. adopted the provisions of Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes", effective September 1, 1991, and the provisions of Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities", effective December 31, 1993.
COOPERS & LYBRAND
Louisville, Kentucky January 31, 1994
HUMANA INC.
SCHEDULE II -- AMOUNTS RECEIVABLE FROM RELATED PARTIES AND UNDERWRITERS, PROMOTERS AND EMPLOYEES OTHER THAN RELATED PARTIES FOR THE YEARS ENDED DECEMBER 31, 1993, DECEMBER 31, 1992, AUGUST 31, 1992, AND AUGUST 31, 1991, AND THE FOUR MONTHS ENDED DECEMBER 31, 1992 (DOLLARS IN THOUSANDS)
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(a) Noninterest bearing ; collateralized by deed of trust on personal residence; payable either in periodic installments or upon termination of employment, sale of residence or default on any collateral instrument having priority over Humana Inc.'s deed of trust.
(b) Bears interest at the rate of three percent; collateralized by second mortgage on personal residence; payable upon sale of residence, termination of employment or default on any other financing arrangement which is secured by a mortgage on the residence.
HUMANA INC.
SCHEDULE III -- PARENT COMPANY FINANCIAL INFORMATION(A) CONDENSED BALANCE SHEET DECEMBER 31, 1993 AND 1992 (DOLLARS IN MILLIONS)
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(a) Parent company financial information has been derived from the consolidated financial statements of the Company and excludes the accounts of all operating subsidiaries. This information should be read in conjunction with the consolidated financial statements of the Company.
(b) In the normal course of business the parent company indemnifies certain of its subsidiaries for their health plan obligations.
HUMANA INC.
SCHEDULE III -- PARENT COMPANY FINANCIAL INFORMATION(A) CONDENSED STATEMENT OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1993, DECEMBER 31, 1992, AUGUST 31, 1992, AND AUGUST 31, 1991, AND THE FOUR MONTHS ENDED DECEMBER 31, 1992 (DOLLARS IN MILLIONS)
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(a) Parent company financial information has been derived from the consolidated financial statements of the Company and excludes the accounts of all operating subsidiaries. This information should be read in conjunction with the consolidated financial statements of the Company.
HUMANA INC.
SCHEDULE III -- PARENT COMPANY FINANCIAL INFORMATION(A) CONDENSED STATEMENT OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 1993, DECEMBER 31, 1992, AUGUST 31, 1992, AND AUGUST 31, 1991, AND THE FOUR MONTHS ENDED DECEMBER 31, 1992 (DOLLARS IN MILLIONS)
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(a) Parent company financial information has been derived from the consolidated financial statements of the Company and excludes the accounts of all operating subsidiaries. This information should be read in conjunction with the consolidated financial statements of the Company.
HUMANA INC.
SCHEDULE VIII -- VALUATION AND QUALIFYING ACCOUNTS FOR THE YEARS ENDED DECEMBER 31, 1993, DECEMBER 31, 1992, AUGUST 31, 1992, AND AUGUST 31, 1991, AND THE FOUR MONTHS ENDED DECEMBER 31, 1992 (DOLLARS IN MILLIONS)
Exhibit Index
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* Exhibits 10(a) through and including 10(u) are compensatory plans or management contracts.