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Humana Reports Third Quarter Financial Results, Provides 2009 Financial Guidance, Comments on Capital and Liquidity

Humana Reports Third Quarter Financial Results, Provides 2009 Financial Guidance, Comments on Capital and Liquidity

October 27, 2008 at 5:01 AM EDT

View Press Release in PDF format

    --  2009 earnings per share projected in range of $5.90 to $6.10

    --  Business operating results and cash flows in line with
        management's expectations

    --  3Q08 EPS of $1.09 included $0.40 in realized losses from
        distressed securities

    --  3Q08 cash flows from operations of over $575 million

    --  Strong capital position and ample liquidity levels expected to
        continue

LOUISVILLE, Ky.--(BUSINESS WIRE)--Oct. 27, 2008--Humana Inc. (NYSE: HUM) today reported diluted earnings per common share (EPS) for the quarter ended September 30, 2008 (3Q08) of $1.09 compared to $1.78 per share for the quarter ended September 30, 2007 (3Q07). The 3Q08 results included $0.40 per share in realized losses primarily associated with other-than-temporary impairments in the company's investment and securities lending portfolios as well as sales of distressed financial institution securities during 3Q08. Excluding the $0.40 in realized losses, non-GAAP 3Q08 EPS of $1.49(a)(e) was at the upper end of the company's prior guidance of $1.45 to $1.50 per share.

Looking ahead to the year ending December 31, 2009 (FY09), the company anticipates a significant increase in earnings over that for the year ending December 31, 2008 (FY08) with EPS projected for FY09 to be in the range of $5.90 to $6.10.

"Our operating results came in as expected during the third quarter and, more importantly, we're forecasting good EPS growth in 2009," said Michael B. McCallister, Humana's president and chief executive officer. "As we previously disclosed, a relatively small portion of our investments were in financial institutions that are now in distress. However, that did not impact our operational progress and our financial position remains strong."

The company has updated its expectations for 2008 EPS as follows:

                                    Fourth Quarter 2008 Full Year 2008
----------------------------------------------------------------------
Previous guidance range midpoint                 $1.17          $4.35
----------------------------------------------------------------------
3Q08 realized investment losses:
----------------------------------------------------------------------
    Lehman Brothers and AIG
     securities(b)                                 n/a          (0.27)
----------------------------------------------------------------------
    Agency preferred shares
     including Fannie Mae and
     Freddie Mac(c)                                n/a          (0.01)
----------------------------------------------------------------------
    Other                                          n/a          (0.12)
----------------------------------------------------------------------
Lower net investment income                      (0.10)         (0.10)
----------------------------------------------------------------------
Revised guidance range midpoint                  $1.07          $3.85
----------------------------------------------------------------------
Current guidance range                   $1.00 to $1.10 $3.80 to $3.90
----------------------------------------------------------------------

Consolidated Highlights for 3Q08

Revenues - 3Q08 consolidated revenues rose 13 percent to $7.15 billion from $6.32 billion in 3Q07, with total premium and administrative services fees up 15 percent compared to the prior year's quarter, primarily driven by higher average membership in 3Q08 versus 3Q07 for the company's Medicare Advantage, Commercial medical and specialty products.

Consolidated revenues for 3Q08 include a net realized investment loss of $16.8 million in 3Q08 versus net realized investment income of $82.4 million in 3Q07. The year-over-year decline resulted from realized losses associated with other-than-temporary investment impairments and sales of distressed financial institution securities during 3Q08, as follows:

                 (In millions)
Government Segment       $51.9
Commercial Segment        56.4
                    ----------
Consolidated            $108.3
                    ==========

Benefit expenses - The 3Q08 consolidated benefits ratio (benefit expenses as a percent of premium revenues) was higher than that for the prior year's quarter, as expected. The 3Q08 consolidated benefits ratio of 83.1 percent compares to 81.3 percent in 3Q07. This year-over-year increase was primarily driven by a 270 basis point increase in the Government Segment benefits ratio associated with higher PDP claim expenses.

Selling, general, & administrative (SG&A) expenses - The 3Q08 consolidated SG&A expense ratio (SG&A expenses as a percent of premiums, administrative services fees and other revenue) of 13.7 percent for 3Q08 compares to 13.3 percent in 3Q07. The 40 basis-point year-over-year increase was driven by a higher SG&A expense ratio for the Commercial Segment associated with a higher mix of members in specialty and individual medical products than in the prior year.

Investment and Securities Lending Portfolios

At September 30, 2008, the company had cash, cash equivalents, and debt and equity securities in its investment portfolio of $6.46 billion, up 2 percent from $6.36 billion at June 30, 2008. Additionally, the company held securities as collateral in connection with the company's securities lending program of $488.4 million at September 30, 2008 compared to $800.3 million at June 30, 2008.

The company regularly evaluates its investment securities for impairment. For the purpose of determining gross realized gains and losses, the cost of investment securities is based upon specific identification. In analyzing individual securities for other-than-temporary impairments, the company considers factors affecting the issuer, factors affecting the industry the issuer operates within, and general debt and equity market trends. The company also considers the length of time an investment's fair value has been below its carrying value, the severity of the decline, the near-term prospects for recovery to cost, and the company's intent and ability to hold the investment until maturity or market recovery is realized.

As of September 30, 2008, approximately 1.3 percent of the assets in the company's investment portfolio and approximately 5.1 percent of the securities held as collateral in connection with its securities lending program were deemed to have been impaired on an other-than-temporary basis, with the related losses realized as a component of 3Q08 net income.

    Government Segment Results

    Pretax results:

    --  Government segment pretax income decreased to $271.7 million
        in 3Q08 from $416.3 million in 3Q07 as the improved operating
        performance in the company's Medicare Advantage business was
        more than offset by the combined effect of the previously
        announced lower 2008 PDP operating results and net realized
        investment losses during 3Q08.

    Enrollment:

    --  Medicare Advantage membership grew to 1,368,000 at September
        30, 2008, an increase of 230,000 members, or 20 percent from
        September 30, 2007, up 23,000, or 2 percent versus June 30,
        2008, and 225,000 members, or 20 percent year to date. The
        increased net Medicare Advantage membership includes 7,300
        members from acquisitions during 3Q08 and 48,000 such members
        acquired year to date.

    --  Membership in the company's stand-alone PDPs totaled 3,089,000
        at September 30, 2008 compared to 3,459,700 at September 30,
        2007 and 3,105,200 at June 30, 2008.

    --  Military services membership at September 30, 2008 of
        2,953,900 was up approximately 3 percent from September 30,
        2007 and essentially unchanged from June 30, 2008.

    Premiums and administrative services fees:

    --  Medicare Advantage premiums of $3.50 billion in 3Q08 increased
        24 percent compared to $2.83 billion in 3Q07, primarily the
        combined result of a 19 percent increase in average membership
        and higher per member premium revenues.

    --  Medicare stand-alone PDP premiums of $782.9 million in 3Q08
        decreased 12 percent compared to $890.4 million in 3Q07,
        primarily the result of a 10 percent decline in average
        membership versus that for 3Q07.

    --  Military services premiums and administrative services fees
        during 3Q08 increased $58.8 million to $790.6 million compared
        to $731.8 million in 3Q07.

    Benefit Expenses:

    --  The Government Segment benefits ratio increased 270 basis
        points to 84.1 percent in 3Q08 compared to 81.4 percent in the
        prior year's quarter. As previously noted, improved operating
        performance year over year in the company's Medicare Advantage
        business was more than offset by an increase in the
        stand-alone PDP benefits ratio.

    SG&A Expenses:

    --  The Government Segment's SG&A expense ratio for 3Q08 of 10.2
        percent was unchanged from that of 3Q07 and increased 70 basis
        points from the second quarter of 2008 as the company prepared
        for marketing of its 2009 Medicare plans on October 1, 2008.

    Commercial Segment Results

    Pretax results:

    --  Commercial Segment pretax earnings decreased 82 percent year
        over year, to $11.2 million in 3Q08 compared to $62.2 million
        in 3Q07. The net decline primarily reflects the effect of
        $56.4 million in net realized investment losses during 3Q08
        associated with other-than-temporary investment write-downs
        and sales of securities from distressed financial institutions
        which more than offset the impact of improved operating
        results.

    Enrollment:

    --  Commercial Segment medical membership grew 254,900 members to
        3,554,000 at September 30, 2008, an increase of 8 percent from
        the September 30, 2007 medical membership for the segment of
        3,299,100 and up 3 percent year to date. On an organic basis,
        Commercial Segment medical membership grew 191,800 members, or
        6 percent year-over-year and 39,300 members, or 1 percent year
        to date.

    --  Organic medical membership growth in strategic commercial
        lines of business for 3Q08 compared to 3Q07 were as follows:
        HumanaOne membership increased 42 percent, Smart plans and
        other consumer offerings membership grew 20 percent, Small
        Group business membership increased 4 percent and ASO
        membership grew 4 percent.

    --  Membership in Commercial Segment specialty products(d) at
        September 30, 2008 rose to 6,727,400 compared to 1,930,100 at
        September 30, 2007, primarily driven by the addition of
        membership from two specialty-product companies acquired
        during the fourth quarter of 2007. Specialty membership was
        essentially unchanged from December 31, 2007.

    Premiums and administrative services fees:

    --  Premiums and administrative services fees for the Commercial
        Segment increased 17 percent to $1.88 billion in 3Q08 compared
        to $1.61 billion in the prior year's quarter, primarily due to
        revenues associated with acquired companies and growth in
        strategic lines of business.

    --  Commercial Segment medical premiums for fully-insured groups
        increased approximately 3 percent on a per-member basis during
        3Q08 compared to 3Q07 reflecting a shift in the mix of
        fully-insured group business from the prior year's quarter to
        include fewer groups with higher-than-average premiums.

    Benefit Expenses:

    --  The Commercial Segment benefits ratio for 3Q08 of 80.2 percent
        was 80 basis points lower than the 3Q07 benefits ratio of 81.0
        percent, primarily due to a higher mix of individual and small
        group membership as a percent of the fully insured book and
        higher specialty product membership compared to the prior
        year's quarter, together with continued underwriting
        discipline.

    SG&A Expenses:

    --  The Commercial Segment SG&A expense ratio of 23.0 percent for
        3Q08 compares to 21.8 percent in 3Q07, primarily driven by the
        higher administrative costs per member associated with small
        group, individual, administrative services only and specialty
        membership.

    Cash Flows from Operations

Cash flows provided by operations for 3Q08 of $577.3 million compared to cash flows used in operations of $637.7 million in 3Q07 primarily reflecting changes in working capital accounts associated with the timing of the receipt of certain premiums from Medicare, impacting both premiums receivable and unearned revenues.

The company also evaluates operating cash flows on a non-GAAP basis(a)(f).

Cash flows from operations
($ in millions)                         3Q08    3Q07   YTD08   YTD07
----------------------------------------------------------------------
GAAP cash flows provided by operations $577.3 ($637.7) $685.7 $1,414.1
----------------------------------------------------------------------
Timing of premium payment from
 CMS(a)(f)                                 -- 1,175.3      --       --
----------------------------------------------------------------------
Non-GAAP cash flows provided by
 operations(a)(f)                      $577.3  $537.6  $685.7 $1,414.1
----------------------------------------------------------------------

Non-GAAP cash flows provided by operations increased to $577.3 million(a)(f) in 3Q08 from $537.6 million(a)(f) in 3Q07 also driven primarily by the changes in working capital accounts described above.

Capital and Liquidity

The company believes both the parent company (Humana Inc.) and its operating subsidiaries have ample capital and liquidity to meet all financial regulatory requirements and to satisfy their respective obligations.

Because premium revenues are generally collected in advance of medical claim payments by a period of up to several months, the company's business produces positive cash flows during periods of increasing enrollment. In addition, to support its liquidity needs the parent company has available a 5-year, $1.0 billion unsecured revolving credit agreement which expires in July 2011. As of September 30, 2008 there were no borrowings outstanding under this credit agreement. During the fourth quarter of 2008, the company expects to draw approximately $250 million under the revolving credit agreement in order to complete its pending acquisition of Cariten Healthcare (announced August 4, 2008).

The company has various issuances of senior notes. As of September 30, 2008, the senior notes outstanding aggregated approximately $1.55 billion, with the first senior notes due to mature in June 2016. Upon issuance of each of the senior notes, the company had entered into interest-rate swap agreements to exchange the fixed interest rate under these senior notes for variable interest rates based on LIBOR. Based primarily on conditions in the credit markets, on October 7, 2008, the company terminated each of the swap agreements outstanding associated with its senior notes, resulting in an anticipated weighted-average fixed coupon rate on the company's senior notes of 6.28 percent versus a weighted average fixed rate on the senior notes of 6.94 percent and the then-current floating rate of 6.59 percent. In exchange for terminating its rights under the various interest-rate swaps, the company received $108.3 million in cash from its counterparties, which resulted in an offsetting adjustment to the related debt obligations.

Certain of the company's subsidiaries operate in states that regulate the payment of dividends, loans, or other cash transfers to the parent company, and require minimum levels of equity as well as limit the investments to approved securities. The amount of dividends that may be paid to the parent company by these subsidiaries, without prior approval by state regulatory authorities, is limited based on the entity's level of statutory income and statutory capital and surplus. Although the minimum required levels of equity are largely based on premium volume, product mix, and the quality of the assets held, minimum requirements can vary significantly at the state level.

As of June 30, 2008, the company had aggregate statutory capital and surplus of $3.0 billion in its state-regulated subsidiaries, $1.1 billion above the aggregate $1.9 billion in applicable statutory requirements which would trigger any regulatory action by the respective states. The company anticipates at least maintaining the current excess subsidiary capital levels when statutory filings for 3Q08 are completed in November 2008, primarily driven by subsidiary operating earnings exceeding realized investment losses during 3Q08.

Acquisition Activity

During 3Q08, the company completed its acquisition of Metcare Health Plans, Inc. in Florida. On August 4, 2008, the company announced its intent to acquire PHP Companies, Inc. (d/b/a Cariten Healthcare), from Knoxville, Tennessee-based Covenant Health for cash consideration of approximately $245 million. The transaction has received all required regulatory approvals and is scheduled to close in the fourth quarter of 2008.

Share Repurchase Program

On July 28, 2008, the company's Board of Directors increased its share repurchase authorization for use of up to $250 million for this program, excluding the $92.8 million used year to date in connection with the Board of Director's prior authorization in February 2008. These discretionary repurchases may be made from time to time in the open market or in privately negotiated transactions. The program has an end date of December 31, 2009. The company has not yet repurchased shares under the July 2008 authorization.

Footnotes

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

(b) Investments were disclosed by the company in its Form 8-K filed with the Securities and Exchange Commission on September 15, 2008.

(c) Investments were disclosed by the company during its second quarter 2008 earnings conference call held August 4, 2008.

(d) The Commercial Segment provides a full range of insured specialty products including dental, vision and other supplemental products. Members included in these products may not be unique to each product since members have the ability to enroll in multiple products. Other supplemental benefits include life, disability, and fixed-benefit products including cancer and critical illness policies.

(e) Realized investment losses for the 2008 third quarter which are excluded for this non-GAAP measure result from portfolio valuations associated with current financial market conditions and primarily do not relate to the underwriting or servicing of the company's products.

(f) When reviewing and analyzing Humana's operating cash flows, company management applies the CMS premium payment in each month to match the corresponding disbursements. To do otherwise distorts meaningful analysis of the company's operating cash flow. Therefore, decisions such as management's forecasting and business plans regarding cash flow use this non-GAAP financial measure.

Conference Call & Virtual Slide Presentation

Humana will host a conference call, as well as a virtual slide presentation, at 7:00 a.m. eastern time today to discuss its financial results for the quarter and the company's expectations for future earnings. A live virtual presentation (audio with slides) may be accessed via Humana's Investor Relations page at www.humana.com. The company suggests web participants sign on approximately 15 minutes in advance of the call. The company also suggests web participants visit the site well in advance of the call to run a system test and to download any free software needed to view the presentation.

All parties interested in the audio-only portion of the conference call are invited to dial 888-625-7430. No password is required. The company suggests participants dial in approximately ten minutes in advance of the call. For those unable to participate in the live event, the virtual presentation archive may be accessed via the Historical Webcasts & Presentations section of the Investor Relations page at www.humana.com.

Cautionary Statement

This news release contains statements and earnings guidance points that are forward-looking. The forward-looking items herein are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking items may be significantly impacted by certain risks and uncertainties described in the following company documents, as filed with the Securities and Exchange Commission:

    --  Form 10-K for the year ended December 31, 2007;

    --  Form 10-Q for the quarters ended March 31, 2008 and June 30,
        2008;

    --  Form 8-Ks filed during 2008.

    About Humana

Humana Inc., headquartered in Louisville, Kentucky, is one of the nation's largest publicly traded health and supplemental benefits companies, with approximately 11.5 million medical members. Humana is a full-service benefits solutions company, offering a wide array of health and supplemental benefit plans for employer groups, government programs and individuals.

Over its 47-year history, Humana has consistently seized opportunities to meet changing customer needs. Today, the company is a leader in consumer engagement, providing guidance that leads to lower costs and a better health plan experience throughout its diversified customer portfolio.

More information regarding Humana is available to investors via the Investor Relations page of the company's web site at www.humana.com, including copies of:

    --  Annual reports to stockholders;

    --  Securities and Exchange Commission filings;

    --  Most recent investor conference presentations;

    --  Quarterly earnings news releases;

    --  Replays of most recent earnings release conference calls;

    --  Calendar of events (including upcoming earnings conference
        call dates and times, as well as planned interaction with
        research analysts and institutional investors);

    --  Corporate Governance information.

    Humana Inc. - Earnings Guidance Points as of October 27, 2008
(in accordance  For the year ending  For the year      Comments
 with Generally  December 31, 2008    ending December
 Accepted       (assumes a 4Q08       31, 2009
 Accounting      close for the       (assumes a 4Q08
 Principles)     pending acquisition  close for the
                 of Cariten           pending
                 Healthcare)          acquisition of
                                      Cariten
                                      Healthcare)
----------------------------------------------------------------------
Diluted         Full year 2008:      Full year 2009:   Excludes impact
 earnings per    $3.80 to $3.90       $5.90 to $6.10    of future
 common share                                           share
                Fourth quarter 2008:                    repurchases
                 $1.00 to $1.10
----------------------------------------------------------------------
Revenues        Consolidated         Consolidated
                 revenues:            revenues: $30
                 Approximately $29    billion to $32
                 billion              billion

                Premiums and ASO     Premiums and ASO
                 fees:                fees:
                   Medicare             Medicare
                    Advantage: $13.5     Advantage:
                    billion to $14       $15 billion
                    billion;             to $16
                                         billion;
                   Medicare stand-      Medicare
                    alone PDPs:          stand-alone
                    Approximately        PDPs: $2.6
                    $3.4 billion;        billion to
                                         $2.9 billion;
                   Military             Military
                    services: $3.2       services:
                    billion to $3.3      $3.5 billion
                    billion;             to $3.6
                                         billion;
                   Commercial           Commercial
                    Segment:             Segment:
                    Approximately        Approximately
                    $7.5 billion         $8.0 billion
                                         to $8.2
                                         billion

                Consolidated         Consolidated
                 investment income:   investment
                 $225 million to      income: $370
                 $235 million         million to $385
                                      million

                   Consolidated      Consolidated
                    other revenue:    other revenue:
                    Approximately     $240 million to
                    $200 million      $260 million
----------------------------------------------------------------------
Ending medical  Medicare Advantage:  Medicare          FY08 includes
 membership      Up approximately     Advantage: Up     94,700
 (fully-insured  300,000 from prior   25,000 to 75,000  Medicare
 and ASO         year                 from prior year   Advantage
 combined)                                              members from
                                                        2008
                                                        acquisitions

                Medicare stand-alone Medicare stand-
                 PDPs: Down           alone PDPs: Down
                 approximately        650,000 to
                 350,000 from prior   750,000 from
                 year                 prior year

                Military services:   Military
                 No material change   services: No
                 from prior year      material change
                                      from prior year

                Medicaid: Down       Medicaid: Down    Acquisition of
                 approximately        approximately     Cariten
                 87,000 from prior    93,000 from       Healthcare
                 year                 prior year        includes
                                                        approximately
                                                        93,000 members
                                                        from a
                                                        Medicaid
                                                        contract that
                                                        terminates on
                                                        December 31,
                                                        2008

                Commercial: Up       Commercial: No    FY08 includes
                 approximately        material change   136,600
                 190,000 from prior   from prior year   Commercial
                 year                                   members from
                                                        2008
                                                        acquisitions
----------------------------------------------------------------------
Benefit         Medicare Advantage & Medicare
 expenses        stand-alone PDP      Advantage &
                 combined: benefits   stand-alone PDP
                 ratio in the range   combined:
                 of 85.0% to 85.5%    benefits ratio
                                      in the range of
                                      83.5% to 84.5%

                Commercial fully-    Commercial fully-
                 insured groups:      insured groups:
                   Same-store net       Same-store net
                    benefit expense      benefit
                    trends and           expense
                    premium yields       trends and
                    of 6% to 7%          premium
                    (2.5% to 3.5%        yields: no
                    including the        significant
                    impact of            change from
                    changes in the       prior year
                    company's
                    business mix)

                   Secular              Secular        Secular trends
                    Commercial           Commercial     exclude the
                    benefit expense      benefit        impact of
                    trend components     expense trend  benefit buy-
                    as follows:          components:    downs
                    inpatient            no
                    hospital             significant
                    utilization -        change from
                    flat to 1            prior year
                    percent;
                    inpatient and
                    outpatient
                    hospital rates -
                    mid to upper
                    single digits;
                    outpatient
                    hospital
                    utilization -
                    low to mid
                    single digits;
                    physician - mid
                    single digits;
                    and pharmacy -
                    mid to upper
                    single digits.
----------------------------------------------------------------------
Selling,        13.5% to 14%         13% to 14%        SG&A expenses
 general &                                              as a percent
 administrative                                         of premiums,
 expense ratio                                          administrative
                                                        services fees,
                                                        and other
                                                        revenue
----------------------------------------------------------------------
Depreciation &  $215 million to $220 $240 million to
 amortization    million              $260 million
----------------------------------------------------------------------
Interest        $80 million to $85   $110 million to
 expense         million              $115 million
----------------------------------------------------------------------
Government      Medicare Advantage & Medicare          Line-of-
 Segment         stand-alone PDP      Advantage &       business-level
 operating       combined:            stand-alone PDP   results
 margins         Approximately 3.5%   combined:         exclude the
                                      Approximately 5%  impact of
                                                        investment
                                                        income and
                                                        interest
                                                        expense

                Military services:   Military
                 2.5% to 3.0%         services: 2.5%
                                      to 3.0%
----------------------------------------------------------------------
Commercial      $210 million to $215 $300 million to   Segment-level
 Segment pretax  million              $320 million      results
 earnings                                               include the
                                                        impact of
                                                        investment
                                                        income and
                                                        interest
                                                        expense

                                                       FY08 includes
                                                        $56.4 million
                                                        from realized
                                                        investment
                                                        losses
                                                        associated
                                                        with
                                                        distressed
                                                        financial
                                                        institutions
                                                        in 3Q08 and an
                                                        estimated $13
                                                        million impact
                                                        from lower net
                                                        investment
                                                        income in the
                                                        fourth quarter
                                                        of 2008 than
                                                        previously
                                                        anticipated
----------------------------------------------------------------------
Cash flows from $1.0 billion to $1.2 $1.2 billion to
 operations      billion              $1.4 billion
----------------------------------------------------------------------
Capital         Approximately $260   Approximately
 expenditures    million              $260 million
----------------------------------------------------------------------
Effective tax   35.0% to 35.5%       35% to 36%
 rate
----------------------------------------------------------------------
Shares used in  Approximately 169    Approximately 170 Excludes impact
 computing       million              million           of future
 full-year EPS                                          share
                                                        repurchases
----------------------------------------------------------------------
                             Humana Inc.
                        Statistical Schedules
                                 And
                      Supplementary Information
                        3Q08 Earnings Release


   Humana Inc.
   Statistical Schedules and Supplementary Information
   3Q08 Earnings Release

   Contents

   Page      Description
   --------- ---------------------------------------------------------

   S-3-4     Consolidated Statements of Income
   S-5       Consolidated Balance Sheets
   S-6-7     Consolidated Statements of Cash Flows
   S-8       Key Income Statement Ratios and Segment Operating Results
   S-9       Membership Detail
   S-10-11   Premiums and Administrative Services Fees Detail
             Percentage of Ending Membership under Capitation
   S-12       Arrangements
   S-13-15   Benefits Payable
   S-16      Investments
   S-17      Footnotes
Humana Inc.
Consolidated Statements of Income
In thousands, except per common share results


                           Three Months Ended
                               September 30,
                          ----------------------
                                                   Dollar   Percentage
                             2008        2007      Change     Change
                          ----------- ---------- ---------- ----------
Revenues:
   Premiums               $6,991,569  $6,092,841  $898,728       14.8%
   Administrative
    services fees            114,401     101,531    12,870       12.7%
   Investment (loss)
    income                   (16,773)     82,362   (99,135)    -120.4%
   Other revenue              58,973      42,850    16,123       37.6%
                          ----------- ---------- ----------
      Total revenues       7,148,170   6,319,584   828,586       13.1%
                          ----------- ---------- ----------
Operating expenses:
   Benefits                5,810,613   4,953,862   856,751       17.3%
   Selling, general and
    administrative           979,223     829,023   150,200       18.1%
   Depreciation               46,371      37,771     8,600       22.8%
   Other intangible
    amortization               9,755       4,479     5,276      117.8%
                          ----------- ---------- ----------
      Total operating
       expenses            6,845,962   5,825,135 1,020,827       17.5%
                          ----------- ---------- ----------
Income from operations       302,208     494,449  (192,241)     -38.9%
Interest expense              19,348      15,947     3,401       21.3%
                          ----------- ---------- ----------
Income before income
 taxes                       282,860     478,502  (195,642)     -40.9%
Provision for income
 taxes                        99,852     176,124   (76,272)     -43.3%
                          ----------- ---------- ----------
Net income                  $183,008    $302,378 ($119,370)     -39.5%
                          =========== ========== ==========

Basic earnings per common
 share                         $1.10       $1.81    ($0.71)     -39.2%
Diluted earnings per
 common share                  $1.09       $1.78    ($0.69)     -38.8%

Shares used in computing
 basic earnings per
 common share                166,647     167,188
Shares used in computing
 diluted earnings per
 common share                168,578     170,051
Humana Inc.
Consolidated Statements of Income
In thousands, except per common share results


                          Nine Months Ended
                             September 30,
                        -----------------------
                                                  Dollar    Percentage
                           2008        2007       Change      Change
                        ----------- ----------- ----------- ----------
Revenues:
   Premiums             $20,810,922 $18,320,654 $2,490,268       13.6%
   Administrative
    services fees           339,344     294,488     44,856       15.2%
   Investment income        154,007     227,941    (73,934)     -32.4%
   Other revenue            154,463     108,111     46,352       42.9%
                        ----------- ----------- -----------
      Total revenues     21,458,736  18,951,194  2,507,542       13.2%
                        ----------- ----------- -----------
Operating expenses:
   Benefits              17,667,129  15,358,280  2,308,849       15.0%
   Selling, general and
    administrative        2,845,709   2,476,092    369,617       14.9%
   Depreciation             133,469     122,100     11,369        9.3%
   Other intangible
    amortization             27,073      14,478     12,595       87.0%
                        ----------- ----------- -----------
      Total operating
       expenses          20,673,380  17,970,950  2,702,430       15.0%
                        ----------- ----------- -----------
Income from operations      785,356     980,244   (194,888)     -19.9%
Interest expense             53,554      49,931      3,623        7.3%
                        ----------- ----------- -----------
Income before income
 taxes                      731,802     930,313   (198,511)     -21.3%
Provision for income
 taxes                      258,728     339,848    (81,120)     -23.9%
                        ----------- ----------- -----------
Net income                 $473,074    $590,465  ($117,391)     -19.9%
                        =========== =========== ===========

Basic earnings per
 common share                 $2.83       $3.55     ($0.72)     -20.3%
Diluted earnings per
 common share                 $2.79       $3.48     ($0.69)     -19.8%

Shares used in
 computing basic
 earnings per common
 share                      167,328     166,538
Shares used in
 computing diluted
 earnings per common
 share                      169,392     169,535
Humana Inc.
Consolidated Balance Sheets
Dollars in thousands, except share amounts

                               September 30,   June 30,   December 31,
                                   2008          2008         2007
                               ---------------------------------------
Assets
Current assets:
   Cash and cash equivalents     $1,542,900   $1,174,642   $2,040,453
   Investment securities          3,982,564    4,195,562    3,635,317
   Receivables, net:
      Premiums                      697,497      987,074      592,761
      Administrative services
       fees                          12,156       12,644       12,780
   Securities lending
    collateral                      488,431      800,326    1,337,049
   Other                          1,476,439    1,290,295    1,114,486
                               ---------------------------------------
      Total current assets        8,199,987    8,460,543    8,732,846
Property and equipment, net         677,882      655,431      637,241
Other assets:
   Long-term investment
    securities                      930,450      989,253    1,015,050
   Goodwill                       1,823,280    1,817,460    1,663,939
   Other                            932,271    1,017,296      829,998
                               ---------------------------------------
      Total other assets          3,686,001    3,824,009    3,508,987
                               ---------------------------------------
Total assets                    $12,563,870  $12,939,983  $12,879,074
                               =======================================

Liabilities and Stockholders'
 Equity
Current liabilities:
   Benefits payable              $3,068,587   $3,105,691   $2,696,833
   Trade accounts payable and
    accrued expenses              1,240,631    1,350,924    1,268,963
   Book overdraft                   257,680      297,965      269,226
   Securities lending payable       535,531      800,326    1,337,049
   Unearned revenues                220,509      210,770      219,780
                               ---------------------------------------
      Total current
       liabilities                5,322,938    5,765,676    5,791,851
Long-term debt                    1,668,233    1,635,098    1,687,823
Future policy benefits payable      988,672      980,257      980,686
Other long-term liabilities         313,495      355,224      389,777
                               ---------------------------------------
      Total liabilities           8,293,338    8,736,255    8,850,137
                               ---------------------------------------
Commitments and contingencies
Stockholders' equity:
   Preferred stock, $1 par;
    10,000,000 shares
    authorized, none issued               -            -            -
   Common stock, $0.16 2/3
    par; 300,000,000 shares
    authorized;
      187,733,811 issued at
       September 30, 2008            31,289       31,275       31,123
   Capital in excess of par
    value                         1,558,625    1,542,378    1,497,998
   Retained earnings              3,215,856    3,032,848    2,742,782
   Accumulated other
    comprehensive (loss)
    income                         (172,484)     (51,125)      14,021
   Treasury stock, at cost,
    19,022,596 shares at
    September 30, 2008             (362,754)    (351,648)    (256,987)
                               ---------------------------------------
      Total stockholders'
       equity                     4,270,532    4,203,728    4,028,937
                               ---------------------------------------
Total liabilities and
 stockholders' equity           $12,563,870  $12,939,983  $12,879,074
                               =======================================

Debt-to-total capitalization
 ratio                                 28.1%        28.0%        29.5%

                                                    Sequential Change
                                                    ------------------
                                                      Dollar   Percent
                                                    ---------- -------
Assets
Current assets:
   Cash and cash equivalents
   Investment securities
   Receivables, net:
      Premiums
      Administrative services fees
   Securities lending collateral
   Other
      Total current assets                          ($260,556)   -3.1%
Property and equipment, net
Other assets:
   Long-term investment securities
   Goodwill
   Other
      Total other assets
Total assets                                        ($376,113)   -2.9%

Liabilities and Stockholders' Equity
Current liabilities:
   Benefits payable
   Trade accounts payable and accrued expenses
   Book overdraft
   Securities lending payable
   Unearned revenues
      Total current liabilities                     ($442,738)   -7.7%
Long-term debt
Future policy benefits payable
Other long-term liabilities
      Total liabilities                             ($442,917)   -5.1%
Commitments and contingencies
Stockholders' equity:
   Preferred stock, $1 par; 10,000,000 shares
    authorized, none issued
   Common stock, $0.16 2/3 par; 300,000,000 shares
    authorized;
      187,733,811 issued at September 30, 2008
   Capital in excess of par value
   Retained earnings
   Accumulated other comprehensive (loss) income
   Treasury stock, at cost, 19,022,596 shares at
    September 30, 2008
      Total stockholders' equity                      $66,804     1.6%
Total liabilities and stockholders' equity          ($376,113)   -2.9%

Debt-to-total capitalization ratio
Humana Inc.
Consolidated Statements of Cash Flows
Dollars in thousands
                          Three Months Ended
                             September 30,
                        -----------------------
                                                  Dollar    Percentage
                           2008        2007       Change      Change
                        ----------------------- ----------------------
Cash flows from
 operating activities
   Net income             $183,008    $302,378
   Adjustments to
    reconcile net
    income to net cash
    provided by (used
    in) operating
    activities:
      Depreciation and
       amortization         56,126      42,250
      Loss (gain) on
       sale of
       investment
       securities, net      92,285      (2,387)
      Stock-based
       compensation         14,670      10,604
      Benefit for
       deferred income
       taxes               (31,983)     (9,168)
      Changes in
       operating assets
       and liabilities
       excluding the
       effects of
       acquisitions:
         Receivables       290,065        (245)
         Other assets       28,280      69,395
         Benefits
          payable          (43,830)    (76,826)
         Other
          liabilities      (19,893)    204,741
         Unearned
          revenues           3,359  (1,177,937)
   Other                     5,188        (458)
                        -----------------------
Net cash provided by
 (used in) operating
 activities                577,275    (637,653) $1,214,928      190.5%
                        -----------------------

Cash flows from
 investing activities
   Acquisitions, net of
    cash acquired            3,746        (501)
   Purchases of
    property and
    equipment              (67,500)    (41,339)
   Proceeds from sales
    of property and
    equipment                    -      11,862
   Purchases of
    investment
    securities          (1,557,997)   (758,695)
   Proceeds from
    maturities of
    investment
    securities             144,216     321,304
   Proceeds from sales
    of investment
    securities           1,462,238     328,275
   Change in securities
    lending collateral     264,795     515,476
                        -----------------------
Net cash provided by
 investing activities      249,498     376,382   ($126,884)     -33.7%
                        -----------------------

Cash flows from
 financing activities
   Receipts from CMS
    contract deposits      585,551     464,703
   Withdrawals from CMS
    contract deposits     (728,707)   (885,541)
   Borrowings under
    credit agreement             -     475,000
   Repayments under
    credit agreement             -    (400,000)
   Debt issue costs         (1,182)          -
   Change in book
    overdraft              (40,285)    (36,290)
   Change in securities
    lending payable       (264,795)   (515,476)
   Common stock
    repurchases            (11,106)     (6,814)
   Excess tax benefit
    from stock-based
    compensation               450      12,272
   Proceeds from stock
    option exercises
    and other                1,559      18,318
                        -----------------------
Net cash used in
 financing activities     (458,515)   (873,828)   $415,313       47.5%
                        -----------------------

Increase/(decrease) in
 cash and cash
 equivalents               368,258  (1,135,099)
Cash and cash
 equivalents at
 beginning of period     1,174,642   3,720,769
                        -----------------------

Cash and cash
 equivalents at end of
 period                 $1,542,900  $2,585,670
                        =======================
Humana Inc.
Consolidated Statements of Cash Flows
Dollars in thousands
                         Nine Months Ended
                            September 30,
                       -----------------------
                                                  Dollar    Percentage
                          2008        2007        Change      Change
                       ----------------------- -----------------------
Cash flows from
 operating activities
   Net income            $473,074    $590,465
   Adjustments to
    reconcile net
    income to net cash
    provided by
    operating
    activities:
      Depreciation and
       amortization       160,542     136,578
      Loss (gain) on
       sale of
       investment
       securities, net     73,436      (2,472)
      Stock-based
       compensation        41,835      30,868
      Benefit for
       deferred income
       taxes              (21,411)    (33,179)
      Changes in
       operating
       assets and
       liabilities
       excluding the
       effects of
       acquisitions:
         Receivables      (93,320)    (16,857)
         Other assets    (166,931)    (57,072)
         Benefits
          payable         337,632     380,056
         Other
          liabilities    (124,368)    348,167
         Unearned
          revenues         (9,098)     21,782
   Other                   14,346      15,758
                       -----------------------
Net cash provided by
 operating activities     685,737   1,414,094    ($728,357)     -51.5%
                       -----------------------

Cash flows from
 investing activities
   Acquisitions, net
    of cash acquired     (262,347)    (27,506)
   Purchases of
    property and
    equipment            (179,547)   (156,056)
   Proceeds from sales
    of property and
    equipment                   2      15,934
   Purchases of
    investment
    securities         (5,082,141) (2,631,990)
   Proceeds from
    maturities of
    investment
    securities            418,563   1,091,260
   Proceeds from sales
    of investment
    securities          4,111,640   1,254,878
   Change in
    securities lending
    collateral            801,518    (202,599)
                       -----------------------
Net cash used in
 investing activities    (192,312)   (656,079)    $463,767       70.7%
                       -----------------------

Cash flows from
 financing activities
   Receipts from CMS
    contract deposits   1,774,381   1,948,062
   Withdrawals from
    CMS contract
    deposits           (1,807,952) (2,109,523)
   Borrowings under
    credit agreement      425,000   1,185,000
   Repayments under
    credit agreement   (1,225,000) (1,160,000)
   Proceeds from
    issuance of senior
    notes                 749,247           -
   Debt issue costs        (6,662)          -
   Change in book
    overdraft             (11,546)    (40,249)
   Change in
    securities lending
    payable              (801,518)    202,599
   Common stock
    repurchases          (105,767)    (14,017)
   Excess tax benefit
    from stock-based
    compensation            9,794      26,826
   Proceeds from stock
    option exercises
    and other               9,045      48,653
                       -----------------------
Net cash (used in)
 provided by financing
 activities              (990,978)     87,351  ($1,078,329)   -1234.5%
                       -----------------------

(Decrease)/increase in
 cash and cash
 equivalents             (497,553)    845,366
Cash and cash
 equivalents at
 beginning of period    2,040,453   1,740,304
                       -----------------------

Cash and cash
 equivalents at end of
 period                $1,542,900  $2,585,670
                       =======================
Humana Inc.
Key Income Statement Ratios and Segment Operating Results
Dollars in thousands


                              Three Months Ended
                                 September 30,
                              ------------------

                                                            Percentage
                                2008      2007   Difference   Change
                              ------------------ ---------------------
Benefits ratio
   Government Segment             84.1%    81.4%       2.7%
   Commercial Segment             80.2%    81.0%      -0.8%
   Consolidated                   83.1%    81.3%       1.8%

Selling, general, and
 administrative expense ratio
 (A)
   Government Segment             10.2%    10.2%       0.0%
   Commercial Segment             23.0%    21.8%       1.2%
   Consolidated                   13.7%    13.3%       0.4%


Detail of pretax income
   Government Segment          $271,701 $416,299 ($144,598)     -34.7%
   Commercial Segment            11,159   62,203   (51,044)     -82.1%
                              ------------------ ----------
   Consolidated                $282,860 $478,502 ($195,642)     -40.9%
                              ================== ==========

Detail of pretax margins
   Government Segment              5.2%     9.0%      -3.8%
   Commercial Segment              0.6%     3.7%      -3.1%
   Consolidated                    4.0%     7.6%      -3.6%

                               Nine Months Ended
                                 September 30,
                               -----------------

                                                            Percentage
                                 2008     2007   Difference   Change
                               ----------------- ---------------------
Benefits ratio
   Government Segment             86.8%    85.0%       1.8%
   Commercial Segment             79.4%    80.4%      -1.0%
   Consolidated                   84.9%    83.8%       1.1%

Selling, general, and
 administrative expense ratio
 (A)
   Government Segment             10.1%    10.3%      -0.2%
   Commercial Segment             22.3%    21.4%       0.9%
   Consolidated                   13.4%    13.2%       0.2%


Detail of pretax income
   Government Segment          $517,913 $722,954 ($205,041)     -28.4%
   Commercial Segment           213,889  207,359      6,530       3.1%
                               ----------------- ----------
   Consolidated                $731,802 $930,313 ($198,511)     -21.3%
                               ================= ==========

Detail of pretax margins
   Government Segment              3.3%     5.2%      -1.9%
   Commercial Segment              3.7%     4.2%      -0.5%
   Consolidated                    3.4%     4.9%      -1.5%
Humana Inc.
Membership Detail
In thousands

                                          Ending             Ending

                                         September Average  September
                                          30, 2008   3Q08    30, 2007
                                         -----------------------------
Medical Membership:
Government Segment:
   Medicare Advantage - HMO                  502.3    497.3     451.7
   Medicare Advantage - PPO                  171.0    168.7      71.1
   Medicare Advantage - PFFS                 694.7    692.6     615.2
                                         -----------------------------
      Total Medicare Advantage             1,368.0  1,358.6   1,138.0
                                         -----------------------------
   Medicare - PDP - Standard               1,495.7  1,507.3   2,148.9
   Medicare - PDP - Enhanced               1,433.8  1,425.8   1,085.1
   Medicare - PDP - Complete                 159.5    161.1     225.7
                                         -----------------------------
      Total Medicare stand-alone PDPs      3,089.0  3,094.2   3,459.7
                                         -----------------------------
         Total Medicare                    4,457.0  4,452.8   4,597.7
                                         -----------------------------
   Military services insured               1,734.4  1,732.6   1,720.4
   Military services ASO                   1,219.5  1,215.1   1,137.0
                                         -----------------------------
      Total military services              2,953.9  2,947.7   2,857.4
                                         -----------------------------
   Medicaid insured                          385.1    387.2     383.8
   Medicaid ASO                              177.3    178.8     182.8
                                         -----------------------------
      Total Medicaid                         562.4    566.0     566.6
                                         -----------------------------
   Total Government Segment                7,973.3  7,966.5   8,021.7
                                         -----------------------------
Commercial Segment:
   Fully-insured medical:
      Group                                1,596.0  1,601.9   1,530.2
      Individual                             316.8    311.1     223.7
      Medicare supplement                     18.4     17.6      11.3
                                         -----------------------------
   Total fully-insured medical             1,931.2  1,930.6   1,765.2
   ASO                                     1,622.8  1,622.3   1,533.9
                                         -----------------------------
   Total Commercial Segment                3,554.0  3,552.9   3,299.1
                                         -----------------------------

Total medical membership                  11,527.3 11,519.4  11,320.8
                                         =============================


Specialty Membership
   Dental - fully-insured                  2,578.6  2,587.5     974.7
   Dental - ASO                            1,062.7  1,069.7     499.3
                                         -----------------------------
      Total dental                         3,641.3  3,657.2   1,474.0
   Vision                                  2,188.9  2,181.9         -
   Other supplemental benefits (B)           897.2    900.1     456.1
                                         -----------------------------
Total specialty membership                 6,727.4  6,739.2   1,930.1
                                         =============================

                               Year-over-year            Sequential
                                    Change      Ending      Change
                               ---------------          --------------
                                               June 30,
                               Amount  Percent   2008   Amount Percent
                               --------------- -------- --------------
Medical Membership:
Government Segment:
   Medicare Advantage - HMO       50.6   11.2%    494.0    8.3    1.7%
   Medicare Advantage - PPO       99.9  140.5%    163.5    7.5    4.6%
   Medicare Advantage - PFFS      79.5   12.9%    687.5    7.2    1.0%
                               -------         -------- ------
      Total Medicare
       Advantage                 230.0   20.2%  1,345.0   23.0    1.7%
                               -------         -------- ------
   Medicare - PDP - Standard   (653.2)  -30.4%  1,531.6 (35.9)   -2.3%
   Medicare - PDP - Enhanced     348.7   32.1%  1,409.4   24.4    1.7%
   Medicare - PDP - Complete    (66.2)  -29.3%    164.2  (4.7)   -2.9%
                               -------         -------- ------
      Total Medicare stand-
       alone PDPs              (370.7)  -10.7%  3,105.2 (16.2)   -0.5%
                               -------         -------- ------
         Total Medicare        (140.7)   -3.1%  4,450.2    6.8    0.2%
                               -------         -------- ------
   Military services insured      14.0    0.8%  1,737.6  (3.2)   -0.2%
   Military services ASO          82.5    7.3%  1,206.2   13.3    1.1%
                               -------         -------- ------
      Total military services     96.5    3.4%  2,943.8   10.1    0.3%
                               -------         -------- ------
   Medicaid insured                1.3    0.3%    387.7  (2.6)   -0.7%
   Medicaid ASO                  (5.5)   -3.0%    173.8    3.5    2.0%
                               -------         -------- ------
      Total Medicaid             (4.2)   -0.7%    561.5    0.9    0.2%
                               -------         -------- ------
   Total Government Segment     (48.4)   -0.6%  7,955.5   17.8    0.2%
                               -------         -------- ------
Commercial Segment:
   Fully-insured medical:
      Group                       65.8    4.3%  1,623.3 (27.3)   -1.7%
      Individual                  93.1   41.6%    297.2   19.6    6.6%
      Medicare supplement          7.1   62.8%     16.1    2.3   14.3%
                               -------         -------- ------
   Total fully-insured
    medical                      166.0    9.4%  1,936.6  (5.4)   -0.3%
   ASO                            88.9    5.8%  1,621.9    0.9    0.1%
                               -------         -------- ------
   Total Commercial Segment      254.9    7.7%  3,558.5  (4.5)   -0.1%
                               -------         -------- ------

Total medical membership         206.5    1.8% 11,514.0   13.3    0.1%
                               =======         ======== ======


Specialty Membership
   Dental - fully-insured      1,603.9  164.6%  2,612.2 (33.6)   -1.3%
   Dental - ASO                  563.4  112.8%  1,074.0 (11.3)   -1.1%
                               -------         -------- ------
      Total dental             2,167.3  147.0%  3,686.2 (44.9)   -1.2%
   Vision                      2,188.9  100.0%  2,160.9   28.0    1.3%
   Other supplemental
    benefits (B)                 441.1   96.7%    897.3  (0.1)    0.0%
                               -------         -------- ------
Total specialty membership     4,797.3  248.6%  6,744.4 (17.0)   -0.3%
                               =======         ======== ======
Humana Inc.
Premiums and Administrative Services Fees Detail
Dollars in thousands, except per member per month

                                                            Per Member
                                                             per Month
                                                                (C)
                                                              Three
                                                              Months
                                                              Ended
                  Three Months Ended                         September
                     September 30,                              30,
                 ---------------------                      ----------
                                        Dollar   Percentage
                    2008       2007     Change     Change   2008  2007
                 --------------------- -------------------- ----------
Premium revenues
Government
 Segment:
   Medicare
    Advantage    $3,497,568 $2,825,587 $671,981       23.8%  $858 $827
   Medicare
    stand-alone
    PDPs            782,855    890,420 (107,565)     -12.1%   $84  $86
                 --------------------- ---------
      Total
       Medicare   4,280,423  3,716,007  564,416       15.2%
   Military
    services
    insured (D)     771,560    714,173   57,387        8.0%  $148 $138
   Medicaid
    insured         152,069    135,609   16,460       12.1%  $131 $118
                 --------------------- ---------
   Total
    Government
    Segment
    premiums      5,204,052  4,565,789  638,263       14.0%
                 --------------------- ---------
Commercial
 Segment:
   Fully-insured
    medical       1,559,120  1,418,884  140,236        9.9%  $269 $269
   Specialty        228,397    108,168  120,229      111.2%   $12  $22
                 --------------------- ---------
   Total
    Commercial
    Segment
    premiums      1,787,517  1,527,052  260,465       17.1%
                 --------------------- ---------
Total premium
 revenues        $6,991,569 $6,092,841 $898,728       14.8%
                 ===================== =========

Administrative
 services fees
   Military
    services ASO
    (D)             $19,066    $17,675   $1,391        7.9%    $5   $5
   Medicaid ASO       2,103      2,165      (62)      -2.9%    $4   $4
   Commercial
    Segment          93,232     81,691   11,541       14.1%   $12  $13
                 --------------------- ---------
Total
 administrative
 services fees     $114,401   $101,531  $12,870       12.7%
                 ===================== =========
Humana Inc.
Premiums and Administrative Services Fees Detail
Dollars in thousands, except per member per month



                          Nine Months Ended
                             September 30,
                        -----------------------
                                                  Dollar    Percentage
                           2008        2007       Change      Change
                        ----------------------- ----------------------
Premium revenues
Government Segment:
   Medicare Advantage   $10,157,109  $8,372,736 $1,784,373       21.3%
   Medicare stand-alone
    PDPs                  2,562,925   2,848,105   (285,180)     -10.0%
                        ----------------------- -----------
      Total Medicare     12,720,034  11,220,841  1,499,193       13.4%
   Military services
    insured (D)           2,389,195   2,166,428    222,767       10.3%
   Medicaid insured         437,725     397,420     40,305       10.1%
                        ----------------------- -----------
   Total Government
    Segment premiums     15,546,954  13,784,689  1,762,265       12.8%
                        ----------------------- -----------
Commercial Segment:
   Fully-insured
    medical               4,566,632   4,211,771    354,861        8.4%
   Specialty                697,336     324,194    373,142      115.1%
                        ----------------------- -----------
   Total Commercial
    Segment premiums      5,263,968   4,535,965    728,003       16.0%
                        ----------------------- -----------
Total premium revenues  $20,810,922 $18,320,654 $2,490,268       13.6%
                        ======================= ===========

Administrative services
 fees
   Military services
    ASO (D)                 $56,993     $47,504     $9,489       20.0%
   Medicaid ASO               6,338       6,397        (59)      -0.9%
   Commercial Segment       276,013     240,587     35,426       14.7%
                        ----------------------- -----------
Total administrative
 services fees             $339,344    $294,488    $44,856       15.2%
                        ======================= ===========

                                          Per Member per Month (C)
                                       Nine Months Ended September 30,
                                       -------------------------------
                                             2008            2007
                                       -------------------------------
Premium revenues
Government Segment:
   Medicare Advantage                              $860           $828
   Medicare stand-alone PDPs                        $91            $91
      Total Medicare
   Military services insured (D)                   $153           $140
   Medicaid insured                                $126           $115
   Total Government Segment premiums
Commercial Segment:
   Fully-insured medical                           $267           $269
   Specialty                                        $13            $22
   Total Commercial Segment premiums
Total premium revenues

Administrative services fees
   Military services ASO (D)                         $5             $5
   Medicaid ASO                                      $4             $4
   Commercial Segment                               $11            $13
Total administrative services fees
Humana Inc.
Percentage of Ending Membership under Capitation Arrangements


                                     Government Segment
                       -----------------------------------------------
                                  Medicare
                                   stand-                      Total
                       Medicare    alone   Military            Govt.
September 30, 2008      Advantage   PDPs    Services Medicaid  Segment
---------------------- -----------------------------------------------

Capitated HMO hospital
 system based (E)            1.9%        -         -        -     0.3%
Capitated HMO
 physician group based
 (E)                         3.5%        -         -    26.3%     2.5%
Risk-sharing (F)            20.0%        -         -    41.6%     6.4%
All other membership        74.6%   100.0%    100.0%    32.1%    90.8%
                       -----------------------------------------------
   Total medical
    membership             100.0%   100.0%    100.0%   100.0%   100.0%
                       ===============================================

September 30, 2007
----------------------

Capitated HMO hospital
 system based (E)            2.4%        -         -        -     0.3%
Capitated HMO
 physician group based
 (E)                         2.0%        -         -    26.5%     2.2%
Risk-sharing (F)            24.2%        -         -    40.8%     6.3%
All other membership        71.4%   100.0%    100.0%    32.7%    91.2%
                       -----------------------------------------------
   Total medical
    membership             100.0%   100.0%    100.0%   100.0%   100.0%
                       ===============================================

                                     Commercial Segment
                                  ------------------------
                                                   Total     Total
                                   Fully-          Comm.     Medical
September 30, 2008                 insured  ASO    Segment  Membership
----------------------------------------------------------------------

Capitated HMO hospital system
 based (E)                            1.3%      -     0.7%        0.4%
Capitated HMO physician group
 based (E)                            1.4%      -     0.8%        1.9%
Risk-sharing (F)                      1.3%      -     0.7%        4.7%
All other membership                 96.0% 100.0%    97.8%       93.0%
                                 -------------------------------------
   Total medical membership         100.0% 100.0%   100.0%      100.0%
                                 =====================================

September 30, 2007
---------------------------------

Capitated HMO hospital system
 based (E)                            1.4%      -     0.8%        0.5%
Capitated HMO physician group
 based (E)                            1.5%      -     0.8%        1.8%
Risk-sharing (F)                      1.5%      -     0.8%        4.7%
All other membership                 95.6% 100.0%    97.6%       93.0%
                                 -------------------------------------
   Total medical membership         100.0% 100.0%   100.0%      100.0%
                                 =====================================
Humana Inc.
Detail of Benefits Payable Balance and Year-to-Date Changes
Dollars in thousands

                              September 30,   June 30,    December 31,
                                  2008          2008          2007
                              ----------------------------------------
Detail of benefits payable
   IBNR and other benefits
    payable (G)                 $2,170,971    $2,196,494   $1,918,460
   Unprocessed claim
    inventories (H)                293,600       228,700      213,400
   Processed claim
    inventories (I)                 83,574       127,707       91,938
   Payable to pharmacy
    benefit administrator (J)      164,709       141,984      131,663
                              ----------------------------------------
   Benefits payable,
    excluding military
    services                     2,712,854     2,694,885    2,355,461

   Military services IBNR (K)      327,828       320,172      265,178
   Other military services
    benefits payable (L)            27,905        90,634       76,194
                              ----------------------------------------
      Military services
       benefits payable            355,733       410,806      341,372
                              ----------------------------------------
Total Benefits Payable          $3,068,587    $3,105,691   $2,696,833
                              ========================================


                              Nine Months   Nine Months
                                  Ended         Ended      Year Ended
                              September 30, September 30, December 31,
                                   2008          2007         2007
                              ----------------------------------------
Year-to-date changes in
 benefits payable, excluding
 military services (M)

   Balances at January 1        $2,355,461    $1,979,733   $1,979,733

   Acquisitions                     34,122             -       41,030

   Incurred related to:
      Current year              15,769,075    13,655,981   18,015,246
      Prior years (N)             (230,461)     (215,747)    (242,922)
                              ----------------------------------------
   Total incurred               15,538,614    13,440,234   17,772,324
                              ----------------------------------------

   Paid related to:
      Current year             (13,692,050)  (11,636,269) (16,012,828)
      Prior years               (1,523,293)   (1,406,350)  (1,424,798)
                              ----------------------------------------
   Total paid                  (15,215,343)  (13,042,619) (17,437,626)
                              ----------------------------------------

   Balances at end of period    $2,712,854    $2,377,348   $2,355,461
                              ========================================


                              Nine Months   Nine Months
                                  Ended         Ended      Year Ended
                              September 30, September 30, December 31,
                                   2008          2007         2007
                              ----------------------------------------
Summary of Consolidated
 Benefits Expense:
   Total benefits expense
    incurred, per above        $15,538,614   $13,440,234  $17,772,324
   Military services benefits    2,098,059     1,905,034    2,481,815
   Future policy benefit
    expense (O)                     30,456        13,012       16,392
                              ----------------------------------------
      Consolidated Benefits
       Expense                 $17,667,129   $15,358,280  $20,270,531
                              ========================================
Humana Inc.
Benefits Payable Statistics (P)


Receipt Cycle Time (Q)
                                                            Percentage
                         2008         2007       Change       Change
                     -------------------------------------------------
1st Quarter Average           15.1       15.6         (0.5)      -3.2%
2nd Quarter Average           15.0       15.6         (0.6)      -3.8%
3rd Quarter Average           15.2       15.9         (0.7)      -4.4%
4th Quarter Average              -       15.1          N/A         N/A
                     --------------------------------------
Full Year Average             15.1       15.6         (0.5)      -3.2%
                     ======================================


Unprocessed Claims Inventories

                      Estimated
                       Valuation   Claim Item  Number of
        Date            (000's)      Counts    Days on Hand
-----------------------------------------------------------
           9/30/2006      $187,900    623,900          5.4
          12/31/2006      $218,400    757,700          6.1
           3/31/2007      $222,300    747,200          5.5
           6/30/2007      $211,300    751,600          4.9
           9/30/2007      $224,000    819,100          6.1
          12/31/2007      $213,400    683,500          5.0
           3/31/2008      $212,000    673,000          4.4
           6/30/2008      $228,700    742,800          4.6
-----------------------------------------------------------
           9/30/2008      $293,600    946,500          6.0
-----------------------------------------------------------
Humana Inc.
Benefits Payable Statistics (Continued) (P)


Days in Claims Payable (R)

                  Days in Claims     Change Last 4      Percentage
 Quarter Ended     Payable (DCP)        Quarters           Change
----------------------------------------------------------------------
       9/30/2006              57.5              7.2             14.2%
      12/31/2006              56.3              6.0             11.9%
       3/31/2007              59.3              5.8             10.8%
       6/30/2007              60.0              4.2              7.5%
       9/30/2007              61.8              4.3              7.5%
      12/31/2007              60.2              3.9              6.9%
       3/31/2008              56.9             (2.4)            -4.0%
       6/30/2008              57.2             (2.8)            -4.7%
----------------------------------------------------------------------
       9/30/2008              58.1             (3.7)            -6.0%
----------------------------------------------------------------------


                          DCP Excluding    Change Last 4  Percentage
     Quarter Ended           Capitation       Quarters       Change
----------------------------------------------------------------------
              9/30/2006              64.3           5.5           9.4%
             12/31/2006              64.0           7.4          13.1%
              3/31/2007              66.0           5.5           9.1%
              6/30/2007              68.5           6.5          10.5%
              9/30/2007              70.2           5.9           9.2%
             12/31/2007              68.3           4.3           6.7%
              3/31/2008              63.3          (2.7)         -4.1%
              6/30/2008              63.3          (5.2)         -7.6%
----------------------------------------------------------------------
              9/30/2008              65.1          (5.1)         -7.3%
----------------------------------------------------------------------


Year-to-Date Change in Days in Claims Payable (S)
                                                       2008  2007
                                                       -----------
DCP - beginning of period                              60.2  56.3
   Components of change in DCP:
      Internal versus outsourced claims processing
       cycle times                                     (3.2) (0.2)
      Increase in the Part D component of MAPD expense (2.0) (0.5)
      Increase in Medicare PPO business                (0.7)  0.2
      Change in unprocessed claims inventories          1.5  (0.1)
      Change in processed claims inventories           (0.3) (0.1)
      Change in pharmacy payment cutoff                (0.2)  0.3
      Change in provider payables under risk
       arrangements                                     2.5   3.4
      All other                                         0.3   0.9
                                                       -----------
DCP - end of period                                    58.1  60.2
                                                       ===========
Humana Inc.
Investments
Dollars in thousands
                                                  Average    Average
                                                  Duration    Credit
                                Fair value           (T)      Rating
                           -------------------------------------------
                            9/30/2008 12/31/2007 9/30/2008  9/30/2008
                           -------------------------------------------
Investment Portfolio:
     Cash & cash
      equivalents          $1,542,900 $2,040,453
     Investment Securities  3,982,564  3,635,317
     Long-term investments    930,450  1,015,050
                           ---------------------
          Total investment
           portfolio       $6,455,914 $6,690,820 ~3.5 years    AA+
                           =====================

Securities Lending
 Collateral Portfolio:
     Cash & cash
      equivalents             $79,032   $686,096
     Certificates of
      deposit                 118,710    145,588
     Bank notes                67,650     98,789
     Corporate Floating
      Rate                     59,011    147,256
     Repurchase Agreements          -      4,563
     Asset-backed
      securities              164,028    254,757
                           ---------------------
                             $488,431 $1,337,049               AA+
                           =====================

                                                      Fair value
                                                 ---------------------
                                                 9/30/2008  12/31/2007
                                                 ---------------------
     Investment Portfolio Detail:
     Cash and cash equivalents                   $1,542,900 $2,040,453
                                                 ---------------------
     U.S. Government and agency obligations
          U.S. Treasury obligations                $171,889   $192,185
          Federal National Mortgage Association
           (Fannie Mae) bonds                       796,555    534,468
          Federal Home Loan Mortgage Corporation
           (Freddie Mac) bonds                      241,988    157,544
          Government National Mortgage
           Association (Ginnie Mae) bonds           274,834     29,695
          Other                                     156,909     70,111
                                                 ---------------------
               Total U.S. Government and agency
                obligations                       1,642,175    984,003
                                                 ---------------------
     Tax-exempt municipal securities
          Guaranteed by monoline insurers           907,052    745,995
          Other                                     656,830  1,118,996
                                                 ---------------------
               Total tax-exempt municipal
                securities                        1,563,882  1,864,991
                                                 ---------------------
     Mortgage and asset-backed securities
          Commercial mortgages                      306,280    495,301
          Prime residential mortgages               401,165    333,715
          Alt-A residential mortgages                 5,345     15,077
          Sub-prime residential mortgages             3,053      6,888
          Other Asset-backed                        154,965     59,681
                                                 ---------------------
               Total mortgage and asset-backed
                securities                          870,808    910,662
                                                 ---------------------
     Corporate Securities
          Financial services                        341,568    417,944
          Other                                     458,529    445,922
                                                 ---------------------
               Total commercial securities          800,097    863,866
     Redeemable preferred stocks                     19,207     15,558
     Non-redeemable preferred stocks                 12,384      7,208
     Common stocks                                    4,461      4,079
                                                 ---------------------
                    Total investment portfolio   $6,455,914 $6,690,820
                                                 =====================
Humana Inc.
Footnotes to Statistical Schedules and Supplementary Information
3Q08 Earnings Release

(A) The selling, general and administrative (SG&A) expense ratio is
     defined as SG&A expenses as a percent of premiums, administrative
     services fees and other revenue.
(B) Other supplemental benefits include life, disability, and fixed
     benefit products including cancer and critical illness policies.
(C) Computed based on average membership for the period (i.e., monthly
     ending membership during the period divided by the number of
     months in the period).
(D) Military services revenues are not contracted on a per-member
     basis.
(E) In a limited number of circumstances, the company contracts with
     hospitals and physicians to accept financial risk for a defined
     set of HMO membership. In transferring this risk, the company
     prepays these providers a monthly fixed-fee per member to
     coordinate substantially all of the medical care for their
     capitated HMO membership, including some health benefit
     administrative functions and claims processing. For these
     capitated HMO arrangements, the company generally agrees to
     reimbursement rates that target a benefit expense ratio.
     Providers participating in hospital-based capitated HMO
     arrangements generally receive a monthly payment for all of the
     services within their system for their HMO membership. Providers
     participating in physician-based capitated HMO arrangements
     generally have subcontracted specialist physicians and are
     responsible for reimbursing such physicians and hospitals for
     services rendered to their HMO membership.
(F) In some circumstances, the company contracts with physicians under
     risk-sharing arrangements whereby physicians have assumed some
     level of risk for all or a portion of the benefit expenses of
     their HMO membership. Although these arrangements do include
     capitation payments for services rendered, the company processes
     substantially all of the claims under these arrangements.
(G) IBNR represents an estimate of benefit expenses payable for claims
     incurred but not reported (IBNR) at the balance sheet date. The
     level of IBNR is primarily impacted by membership levels, benefit
     claim trends and the receipt cycle time, which represents the
     length of time between when a claim is initially incurred and
     when the claim form is received (i.e. a shorter time span results
     in lower reserves for claims IBNR). Other benefits payable
     includes amounts payable to providers under capitation
     arrangements.
(H) Unprocessed claim inventories represent the estimated valuation of
     claims received but not yet fully processed.
(I) Processed claim inventories represent the estimated valuation of
     processed claims that are in the post-claim-adjudication process,
     which consists of administrative functions such as audit and
     check batching and handling.
(J) The balance due to the company's pharmacy benefit administrator
     fluctuates as a result of the number of business days in the last
     payment cycle of the month. Payment cycles are every 10 days
     (10th & 20th of month) and the last day of the month.
(K) Military services IBNR primarily fluctuates due to benefit expense
     inflation and changes in the utilization of benefits. Amount
     includes unprocessed inventories as an independent third party
     administrator processes all military services benefit claims on
     the company's behalf.
(L) Other military benefits payable may include liabilities to
     subcontractors and/or risk share payables to the Department of
     Defense. The level of these balances may fluctuate from period to
     period due to the timing of payment (cutoff) and whether or not
     the balances are payables or receivables (receivables from the
     Department of Defense are classified as receivables in the
     company's balance sheet).
(M) The table excludes activity associated with military services
     benefits payable, because the federal government bears a
     substantial portion of the risk associated with financing the
     cost of health benefits. More specifically, the risk-sharing
     provisions of the military services contracts with the federal
     government and with subcontractors effectively limit profits and
     losses when actual claim experience varies from the targeted
     claim amount negotiated annually. As a result of these contract
     provisions, the impact of changes in estimates for prior year
     military services benefits payable are substantially offset by
     the associated changes in estimates of revenue from health care
     services reimbursements. As such, any impact on the company's
     results of operations is reduced substantially, whether positive
     or negative.
(N) Amounts incurred related to prior years vary from previously
     estimated liabilities as the claims ultimately are settled.
     Negative amounts reported for incurred related to prior years
     result from claims being ultimately settled for amounts less than
     originally estimated (favorable development). There were no
     changes in the approach used to determine the company's estimate
     of claim reserves during the quarter.
(O) Future policy benefit expense has a related liability classified
     as a long-term liability on the balance sheet.
(P) Benefits reserves statistics represents fully-insured medical
     claims data and excludes military services claims data and
     specialty benefits.
(Q) The receipt cycle time measures the average length of time between
     when a claim was initially incurred and when the claim form was
     received. Receipt cycle time data for the company's largest claim
     processing platforms represent 90% to 95% of the company's fully-
     insured claims volume. Pharmacy and specialty claims, including
     dental, vision and other supplemental benefits, are excluded from
     this measurement.
(R) A common metric for monitoring benefits payable levels relative to
     the benefit expense is days in claims payable, or DCP, which
     represents the benefits payable at the end of the period divided
     by average benefit expenses per day in the quarterly period.
     Since the company has some providers under capitation payment
     arrangements (which do not require a benefits payable IBNR
     reserve), the company has also summarized this metric excluding
     capitation expense. In addition, this calculation excludes the
     impact of the company's military services and stand-alone PDP
     business.
(S) DCP fluctuates due to a number of issues, the more significant of
     which are detailed in this rollforward. Growth in certain product
     lines can also impact DCP for the quarter since a provision for
     claims would not have been recorded for members that had not yet
     enrolled earlier in the quarter, yet those members would have a
     provision and corresponding reserve recorded upon enrollment
     later in the quarter. This analysis excludes the impact of
     military services and Medicare stand-alone PDPs upon DCP.
(T) Duration is the time-weighted average of the present value of the
     bond portfolio cash flow.

    CONTACT: Humana Inc.
             http://www.humana.com
             Regina Nethery, 502-580-3644
             Investor Relations
             Rnethery@humana.com
             or
             Tom Noland, 502-580-3674
             Corporate Communications
             Tnoland@humana.com

    SOURCE: Humana Inc.