Humana Inc.

In thousands

March 31,

Percent

Ending Medical Membership

2004

2003

Difference

Change

Commercial:

Fully insured

2,298.6

2,348.8

(50.2)

(2.1)

ASO

997.0

654.6

342.4

52.3

Total Commercial

3,295.6

3,003.4

292.2

9.7

Government: 

MedicareAdvantage

333.2

327.1

6.1

1.9

Medicaid

468.2

491.4

(23.2)

(4.7)

TRICARE

1,860.1

1,752.5

107.6

6.1

TRICARE ASO

1,057.9

1,050.8

7.1

0.7

Total Government

3,719.4

3,621.8

97.6

2.7

Total ending medical membership

7,015.0

6,625.2

389.8

5.9

March 31,

Percent

Ending Specialty Membership

2004

2003

Difference

Change

Commercial:

Dental-fully insured

781.6

741.7

39.9

5.4

Dental-ASO

408.2

367.9

40.3

11.0

Total Dental

1,189.8

1,109.6

80.2

7.2

Group life

495.7

519.0

(23.3)

(4.5)

Short-term disability

17.7

21.5

(3.8)

(17.7)

Total ending specialty membership

1,703.2

1,650.1

53.1

3.2

Three months ended

March 31,

Premiums

2004

2003

Commercial:

Fully insured medical

$1,617,120

$1,536,953

Specialty

85,971

78,603

Total Commercial

1,703,091

1,615,556

Government:

MedicareAdvantage

706,318

635,842

Medicaid

120,779

121,230

TRICARE

648,993

470,321

Total Government

1,476,090

1,227,393

Total premiums

$3,179,181

$2,842,949

Three months ended

March 31,

Administrative services fees

2004

2003

Commercial

$41,696

$29,590

Government

36,541

31,546

Total Administrative services fees

$78,237

$61,136

Humana Inc.

Dollars in thousands, except per share results

Three months ended

March 31,

Consolidated Statements of Income

2004

2003 (a)

Revenues:

Premiums

$3,179,181

$2,842,949

Administrative services fees

78,237

61,136

Investment income

27,454

25,817

Other income

2,077

1,814

Total revenues

3,286,949

2,931,716

Operating expenses:

Medical

2,683,516

2,371,434

Selling, general and administrative

469,629

464,278

Depreciation

23,923

40,736

Other intangible amortization

2,389

3,931

Total operating expenses

3,179,457

2,880,379

Income from operations

107,492

51,337

Interest expense

4,719

3,935

Income before income taxes

102,773

47,402

Provision for income taxes

34,943

16,172

Net income

$67,830

$31,230

Basic earnings per common share

$0.42

$0.20

Diluted earnings per common share

$0.41

$0.19

Shares used in computing basic earnings per common share (000's)

161,966

157,739

Shares used in computing diluted earnings per common share (000's)

164,357

161,406

Operating Results by Segment

Commercial pretax income

$39,086

$37,239

Government pretax income

63,687

10,163

Consolidated pretax income

$102,773

$47,402

Key Ratios

Medical expense ratio

Commercial

83.5%

81.3%

Government

85.4%

86.2%

Total

84.4%

83.4%

Selling, general, and administrative expense ratio

Commercial

16.4%

17.0%

Government

12.1%

14.6%

Total

14.4%

16.0%

(a) Refer to the Summary of Unusual Items and Charges of these statistical pages within this press release for

Detail of unusual items and charges included in these results of operations.

Humana Inc.

Dollars in thousands, except per share results

Summary of Unusual Items and Charges

For the three months ended March 31, 2003

Pretax Impact

After-tax

Diluted

Commercial

Government

Consolidated

Impact

EPS Impact

Selling, general, and administrative expense:

Write-down of building and equipment

($4,325)

($12,908)

($17,233)

($10,529)

($0.07)

Depreciation:

Software abandonment charges

(13,527)

-

(13,527)

(8,265)

(0.05)

Total 1Q03 unusual items and charges

($17,852)

($12,908)

($30,760)

($18,794)

($0.12)

Impact of unusual items and charges on the
SG&A expense ratio

0.26%

1.03%

0.59%

Humana Inc.

Dollars in thousands, except per share results

March 31,

December 31,

Consolidated Balance Sheets

2004

2003

Assets

Current assets:

Cash and cash equivalents

$417,647

$931,404

Investment securities

2,115,784

1,676,642

Receivables, net:

Premiums

511,931

452,404

Administrative services fees

16,627

13,583

Other

306,831

247,298

Total current assets

3,368,820

3,321,331

Property and equipment, net

397,212

416,472

Other assets:

Long-term investment securities

311,409

319,167

Goodwill

776,874

776,874

Other

421,430

459,479

Total other assets

1,509,713

1,555,520

Total assets

$5,275,745

$5,293,323

Liabilities and Stockholders' Equity

Current liabilities:

Medical and other expenses payable

$1,396,784

$1,272,156

Trade accounts payable and accrued expenses

422,568

440,340

Book overdraft

210,437

219,054

Unearned premium revenues

131,372

333,071

Total current liabilities

2,161,161

2,264,621

Long-term debt

646,897

642,638

Other long-term liabilities

558,741

550,115

Total liabilities

3,366,799

3,457,374

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;

174,559,254 shares issued at March 31, 2004

29,093

28,984

Capital in excess of par value

986,369

974,975

Retained earnings

1,017,641

949,811

Accumulated other comprehensive income

24,641

16,909

Unearned stock compensation

(78)

(754)

Treasury stock, at cost, 12,739,251 shares at March 31, 2004

(148,720)

(133,976)

Total stockholders' equity

1,908,946

1,835,949

Total liabilities and stockholders' equity

$5,275,745

$5,293,323

Debt to total capitalization ratio

25.3%

25.9%

Humana Inc.

Dollars in thousands

Three months ended

March 31,

Consolidated Statements of Cash Flows

2004

2003

Cash flows from operating activities

Net income

$67,830

$31,230

Adjustments to reconcile net income to net

Cash used in operating activities:

Building and equipment writedown

-

17,233

Depreciation and amortization

26,312

44,667

Provision for deferred income taxes

12,223

3,646

Changes in operating assets and liabilities:

Receivables

(20,546)

(25,349)

Other assets

(15,472)

20,008

Medical and other expenses payable

124,628

83,912

Other liabilities

(32,431)

(66,539)

Unearned revenues

(201,699)

(218,153)

Other

(900)

1,115

Net cash used in operating activities

(40,055)

(108,230)

Cash flows from investing activities

Purchases of property and equipment

(22,732)

(22,096)

Proceeds from sales of property and equipment

19,385

462

Purchases of investment securities

(1,491,272)

(1,545,241)

Proceeds from maturities of investment securities

246,845

196,923

Proceeds from sales of investment securities

786,868

1,320,246

Net cash used in investing activities

(460,906)

(49,706)

Cash flows from financing activities

Change in book overdraft

(8,617)

(10,303)

Common stock repurchases

(12,836)

(20,817)

Proceeds from stock option exercises and other

8,657

351

Net cash used in financing activities

(12,796)

(30,769)

Decrease in cash and cash equivalents

(513,757)

(188,705)

Cash and cash equivalents at beginning of period

931,404

721,357

Cash and cash equivalents at end of period

$417,647

$532,652

Humana Inc.

Percentage of Ending Membership Under Capitation Arrangements

Commercial Segment

Government Segment

Consol.

Fully

Total

Medicare

TRICARE

Total

Total

Insured

ASO

Segment

Advantage

Medicaid

TRICARE

ASO

Segment

Medical

March 31, 2004

Capitated HMO

hospital system based A

4.5%

-

3.2%

11.8%

3.3%

-

-

1.5%

2.3%

Capitated HMO

physician group based A

3.4%

-

2.4%

1.3%

43.9%

-

-

5.6%

4.1%

Risk-sharing B

2.1%

-

1.5%

53.9%

45.5%

-

-

10.6%

6.3%

All other membership

90.0%

100.0%

92.9%

33.0%

7.3%

100.0%

100.0%

82.3%

87.3%

Total

100.0%

100.0%

100.0%

100.0%

100.0%

100.0%

100.0%

100.0%

100.0%

March 31, 2003

Capitated HMO

hospital system based A

6.3%

-

4.9%

12.9%

2.5%

-

-

1.5%

3.0%

Capitated HMO

physician group based A

3.2%

-

2.5%

2.0%

56.2%

-

-

7.8%

5.4%

Risk-sharing B

3.1%

-

2.4%

47.8%

33.9%

-

-

8.9%

6.0%

All other membership

87.4%

100.0%

90.2%

37.3%

7.4%

100.0%

100.0%

81.8%

85.6%

Total

100.0%

100.0%

100.0%

100.0%

100.0%

100.0%

100.0%

100.0%

100.0%

A  -  In a limited number of circumstances, we contract with hospitals and physicians to accept financial risk for a defined set of HMO membership. In transferring this risk, we prepay 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, we generally agree to reimbursement rates that target a medical expense ratio ranging from 82% to 89%. 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 hospitals and physicians for services rendered to their HMO membership.

B  -  In some circumstances, we contract with physicians under risk-sharing arrangements whereby physicians have assumed some level of risk for all or a portion of the medical costs of their HMO membership. Although these arrangements do include capitation payments for services rendered, we process substantially all of the claims under these arrangements.

Humana Inc.

Dollars in thousands

Medical Claim Reserves - Details and Statistics 

Change in medical and other expenses payable:

The change in medical and other expenses payable is summarized as follows:

For the Three

For the Twelve

Months Ended

Months Ended

March 31, 2004

December 31, 2003

Balances at January 1

$1,272,156

$1,142,131

Incurred related to:

Current year

2,730,815

9,955,491

Prior years - non-TRICARE (1)

(48,988)

(33,432)

Prior years - TRICARE (2)

1,689

(42,638)

Total incurred

2,683,516

9,879,421

Paid related to:

Current year

(1,641,375)

(8,710,393)

Prior years

(917,513)

(1,039,003)

Total paid

(2,558,888)

(9,749,396)

Balances at end of period

$1,396,784

$1,272,156

The impact of any change in "incurred related to prior years" claims may be offset as we re-establish the "incurred related to current year". Our reserving practice is to consistently recognize the actuarial best estimate of our ultimate liability for our claims within a level of confidence required to meet actuarial standards. Thus, only when the release of a prior year reserve is not offset with the same level of conservatism in estimating the current year reserve will the redundancy reduce medical expense. We have consistently applied this methodology in determining our best estimate for unpaid claims liability in each period.

(1)  The $15.6 million increase in non-TRICARE favorable development from $33.4 million to $49.0 million related primarily to better than expected utilization in the latter half of 2003 for our Medicare line of business.

(2)  Changes in estimates of TRICARE incurred claims for prior years recognized during 2003 resulted primarily from utilization levels developing favorably from the levels originally estimated for the second half of 2002. As a result of substantial risk-sharing provisions with the Department of Defense and with subcontractors, any resulting impact on operations from the change in estimates of incurred related to prior years is substantially reduced, whether positive or negative.

Humana Inc.

Dollars in thousands

Medical Claim Reserves - Details and Statistics

Medical and Other Expenses Payable Detail:

March 31,

December 31,

2004

2003

A   IBNR and other medical expenses payable

$853,228

$767,712

B   TRICARE IBNR

290,579

267,146

C  TRICARE other medical expenses payable

16,502

37,849

D   Unprocessed claim inventories

94,800

109,700

E   Processed claim inventories

81,705

74,262

F   Payable to pharmacy benefit administrator

59,970

15,487

Total medical and other expenses payable

$1,396,784

$1,272,156

A   IBNR represents an estimate of medical expenses payable for claims incurred but not reported (IBNR) at the balance sheet date. The level of IBNR is primarily impacted by membership levels, medical 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).

B   TRICARE IBNR has increased primarily due to an increase in claim inventories at our third party claim administrator for claims not submitted electronically.

C   TRICARE other medical expense 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 our balance sheet).

D   Unprocessed claim inventories represent the estimated valuation of claims received but not yet fully processed. TRICARE claim inventories are not included in this amount as an independent third party administrator processes all TRICARE medical claims on our behalf. Reserves for TRICARE claims inventory are included in TRICARE IBNR.

E  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.

F   The balance due to our pharmacy benefit administrator fluctuates due to bi-weekly payments and the month-end cutoff.

Receipt Cycle Time:

Due to increasing electronic connectivity and other efficiencies gained by our providers with regards to the claim submission process, the average length of time between when a claim was initially incurred and when the claim form was received has generally shortened over the past several years. Below is a summary:

Average # of Days from Incurred Date to Receipt Date (1)

2004

2003

Change

% Change

1st Quarter Average

17.4

17.1

0.3

1.8%

2nd Quarter Average

-

16.7

N/A

N/A

3rd Quarter Average

-

16.6

N/A

N/A

4th Quarter Average

-

16.6

N/A

N/A

Full Year Average

17.4

16.7

0.7

4.2%

(1) Receipt cycle time data for our 3 largest claim processing platforms representing approximately 90% of our claims volume.