Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Results of Operations and Financial Condition.

Regulation FD Disclosure.

Financial Statements and Exhibits.

Exhibit No.

Description

3Q18 earnings per diluted common share (EPS) of $4.65 on a GAAP basis, $4.58 on an Adjusted basis

New full year 2018 GAAP EPS guidance of approximately $11.96; Adjusted EPS guidance raised $0.25 from the previous guidance to approximately $14.40

Strong continued Medicare Advantage performance resulting in improved full year 2018 Retail segment benefit ratio guidance

Industry leading percentage of Medicare Advantage members currently enrolled in 4-plus star contracts for 2019, including two 5-star contracts in Florida and Tennessee

Consolidated pretax income

In millions

Generally Accepted Accounting Principles (GAAP)

Loss (favorable adjustment) on sale of KMG America Corporation (KMG), a wholly-owned subsidiary

Put/call valuation adjustments associated with 40% minority interest in Kindred at Home

Amortization associated with identifiable intangibles

Segment earnings associated with the Individual Commercial segment

Net gain associated with the terminated merger agreement (for YTD 2017, primarily the break-up fee)

Charges associated with voluntary and involuntary workforce reduction programs

Guaranty fund assessment expense to support the policyholder obligations of Penn Treaty (an unaffiliated long-term care insurance company)

Adjusted (non-GAAP)

Diluted earnings per common share (EPS)

GAAP

Loss (favorable adjustment) on sale of KMG, a wholly-owned subsidiary

Put/call valuation adjustments associated with 40% minority interest in Kindred at Home

Amortization associated with identifiable intangibles

Segment earnings associated with the Individual Commercial segment

Adjustments to provisional estimates for the income tax effects related to the tax reform law enacted on December 22, 2017 (Tax Reform Law)

Net gain associated with the terminated merger agreement (for YTD 2017, primarily the break-up fee)

Beneficial effect of lower effective tax rate in light of pricing and benefit design assumptions associated with the 2017 temporary suspension of the non-deductible health insurance industry fee; excludes Individual Commercial segment impact

Charges associated with voluntary and involuntary workforce reduction programs

Guaranty fund assessment expense to support the policyholder obligations of Penn Treaty (an unaffiliated long-term care insurance company)

Adjusted (non-GAAP)

Diluted earnings per common share

GAAP

Loss on Sale of KMG, a wholly-owned subsidiary

Put/call valuation adjustments associated with 40% minority interest in Kindred at Home

Amortization of identifiable intangibles

Segment earnings associated with the Individual Commercial segment

Impact of Tax Reform Law, primarily re-measurement of deferred tax assets at lower corporate tax rates

Net gain associated with the terminated merger agreement (for FY17, primarily the break-up fee)

Beneficial effect of lower effective tax rate in light of pricing and benefit design assumptions associated with the 2017 temporary suspension of the non-deductible health insurance industry fee; excludes Individual Commercial segment impact

Charges associated with voluntary and involuntary workforce reduction programs

Guaranty fund assessment expense to support the policyholder obligations of Penn Treaty (an unaffiliated long-term care insurance company)

Costs associated with early retirement of debt in the fourth quarter of 2017

Adjusted (non-GAAP) – FY18 projected

3Q18 Adjusted results exclude the following:

Favorable adjustment to the previously recognized loss associated with the company’s sale of its wholly-owned subsidiary, KMG America Corporation (KMG) of approximately $4 million pretax, or $0.02 per diluted common share. GAAP measures affected in this release include consolidated pretax and EPS.

Put/call valuation adjustments of approximately $11 million, or $0.06 per diluted common share, associated with Humana’s 40% minority interest in Kindred at Home. GAAP measures affected in this release include consolidated pretax and EPS.

Amortization expense for identifiable intangibles of approximately $19 million pretax income, or $0.11 per diluted common share; GAAP measures affected in this release include consolidated pretax, EPS, and segment earnings (for respective amortization expense for the Retail and Group and Specialty segments).

Segment earnings of $5 million, or $0.03 per diluted common share, for the company’s Individual Commercial segment given the company’s exit on January 1, 2018, as previously disclosed. GAAP measures affected in this release include consolidated pretax income, EPS, consolidated revenues, consolidated benefit ratio and consolidated operating cost ratio.

Adjustment of $0.19 per diluted common share related to provisional estimates for the income tax effects related to the Tax Reform Law. The only GAAP measure affected in this release is EPS.

3Q17 Adjusted results exclude the following:

Amortization expense for identifiable intangibles of approximately $18 million pretax, or $0.07 per diluted common share; GAAP measures affected in this release include consolidated pretax, EPS, and segment earnings (for respective amortization expense for the Retail and Group and Specialty segments).

The one-year beneficial effect of a lower effective tax rate of approximately $0.55 per diluted common share in light of pricing and benefit design assumptions associated with the 2017 temporary suspension of the non-deductible health insurance industry fee; excludes Individual Commercial business impact. The only GAAP measure affected in this release is EPS.

Segment earnings of $26 million, or $0.11 per diluted common share, for the company’s Individual Commercial segment given the company’s planned exit on January 1, 2018, as previously disclosed. GAAP measures affected in this release include consolidated pretax income, EPS, consolidated revenues, consolidated benefit ratio and consolidated operating cost ratio.

Expense of approximately $124 million pretax, or $0.54 per diluted common share, associated with voluntary and involuntary workforce reduction programs; GAAP measures affected in this release include consolidated pretax, EPS, and consolidated operating cost ratio.

YTD 2018 Adjusted results exclude the following:

Loss of approximately $786 million pretax, or $2.57 per diluted common share, associated with the company’s sale of its wholly-owned subsidiary, KMG. GAAP measures affected in this release include consolidated pretax and EPS.

Put/call valuation adjustments of approximately $11 million, or $0.06 per diluted common share, associated with Humana’s 40% minority interest in Kindred at Home. GAAP measures affected in this release include consolidated pretax and EPS.

Amortization expense for identifiable intangibles of approximately $70 million pretax, or $0.39 per diluted common share; GAAP measures affected in this release include consolidated pretax income, EPS, and segment earnings (for respective amortization expense for the Retail and Group and Specialty segments).

Segment earnings of approximately $76 million, or $0.42 per diluted common share, for the company’s Individual Commercial segment given the company’s exit on January 1, 2018, as previously disclosed. GAAP measures affected in this release include consolidated pretax income, EPS, consolidated revenues, consolidated benefit ratio and consolidated operating cost ratio.

Adjustment of $0.28 per diluted common share related to provisional estimates for the income tax effects related to the Tax Reform Law. The only GAAP measure affected in this release is EPS.

YTD 2017 Adjusted results exclude the following:

Net gain from the termination of the merger agreement of approximately $947 million pretax, or $4.33 per diluted common share; includes the net break-up fee and transaction costs net of the tax benefit associated with certain expenses which were previously non-deductible; GAAP measures affected in this release include consolidated pretax income and EPS.

Amortization expense for identifiable intangibles of approximately $54 million pretax, or $0.23 per diluted common share; GAAP measures affected in this release include consolidated pretax, EPS, and segment earnings (for respective amortization expense for the Retail and Group and Specialty segments).

Segment earnings of approximately $207 million, or $0.89 per diluted common share, for the company’s Individual Commercial segment given the company’s planned exit on January 1, 2018, as previously disclosed. GAAP measures affected in this release include consolidated pretax income, EPS, consolidated revenues, consolidated benefit ratio and consolidated operating cost ratio.

Expense of approximately $124 million pretax, or $0.54 per diluted common share, associated with voluntary and involuntary workforce reduction programs; GAAP measures affected in this release include consolidated pretax, EPS, and consolidated operating cost ratio.

Guaranty fund assessment expense of approximately $54 million pretax, or $0.23 per diluted common share, to support the policy-holder obligations of Penn Treaty (an unaffiliated long-term care insurance company); GAAP measures affected in this release include consolidated pretax income, EPS, and consolidated operating costs ratio. Under state guaranty assessment laws, the company may be assessed (up to prescribed limits) for certain obligations to the policyholders and claimants of insolvent insurance companies that write the same line or lines of business as the company. On March 1, 2017, a court ordered the liquidation of Penn Treaty which triggered assessments from the state guaranty associations.

The one-year beneficial effect of a lower effective tax rate of approximately $1.60 per diluted common share in light of pricing and benefit design assumptions associated with the 2017 temporary suspension of the non-deductible health insurance industry fee; excludes Individual Commercial business impact. The only GAAP measure affected in this release is EPS.

FY18 Adjusted EPS projections exclude the following:

Loss of approximately $2.58 per diluted common share associated with the company’s sale of its wholly-owned subsidiary, KMG America Corporation (KMG).

Put/call valuation adjustments of approximately $0.06 per diluted common share, associated with Humana’s 40% minority interest in Kindred at Home. FY18 GAAP EPS guidance excludes the impact of future value changes of the Kindred at Home put/call option.

Amortization expense for identifiable intangibles of approximately $0.49 per diluted common share.

Segment earnings of approximately $0.41 per diluted common share, for the company’s Individual Commercial segment given the company’s exit on January 1, 2018, as previously disclosed.

Adjustment of $0.28 per diluted common share related to provisional estimates for the income tax effects related to the Tax Reform Law.

FY17 Adjusted results exclude the following:

Net gain from the termination of the merger agreement of approximately $936 million pretax, or $4.31 per diluted common share; includes the net break-up fee and transaction costs net of the tax benefit associated with certain expenses which were previously non-deductible.

The one-year beneficial effect of a lower effective tax rate of approximately $2.15 per diluted common share in light of pricing and benefit design assumptions associated with the 2017 temporary suspension of the non-deductible health insurance industry fee; excludes Individual Commercial segment impact.

The impact of approximately $0.92 per diluted common share associated with the re-measurement of deferred tax assets at lower corporate tax rates under the Tax Reform Law.

Expense of approximately $148 million pretax, or $0.64 per diluted common share, associated with voluntary and involuntary workforce reduction programs.

Guaranty fund assessment expense of approximately $54 million pretax, or $0.24 per diluted common share, to support the policyholder obligations of Penn Treaty (an unaffiliated long-term care insurance company). Under state guaranty assessment laws, the company may be assessed (up to prescribed limits) for certain obligations to the policyholders and claimants of insolvent insurance companies that write the same line or lines of business as the company. On March 1, 2017, a court ordered the liquidation of Penn Treaty which triggered assessments from the state guaranty associations.

Expense of approximately $17 million pretax, or $0.08 per diluted common share, associated with early retirement of debt in the fourth quarter of 2017.

Amortization expense for identifiable intangibles of approximately $75 million pretax, or $0.32 per diluted common share.

Segment earnings of approximately $193 million pretax, or $0.84 per diluted common share, for the company’s Individual Commercial segment given the company’s exit on January 1, 2018, as previously disclosed.

If Humana does not design and price its products properly and competitively, if the premiums Humana receives are insufficient to cover the cost of healthcare services delivered to its members, if the company is unable to implement clinical initiatives to provide a better healthcare experience for its members, lower costs and appropriately document the risk profile of its members, or if its estimates of benefits expense are inadequate, Humana’s profitability could be materially adversely affected. Humana estimates the costs of its benefit expense payments, and designs and prices its products accordingly, using actuarial methods and assumptions based upon, among other relevant factors, claim payment patterns, medical cost inflation, and historical developments such as claim inventory levels and claim receipt patterns. The company continually reviews estimates of future payments relating to benefit expenses for services incurred in the current and prior periods and makes necessary adjustments to its reserves, including premium deficiency reserves, where appropriate. These estimates, however, involve extensive judgment, and have considerable inherent variability because they are extremely sensitive to changes in claim payment patterns and medical cost trends, so any reserves the company may establish, including premium deficiency reserves, may be insufficient.

If Humana fails to effectively implement its operational and strategic initiatives, particularly its Medicare initiatives and state-based contract strategy, the company’s business may be materially adversely affected, which is of particular importance given the concentration of the company’s revenues in these products. In addition, there can be no assurances that the company will be successful in maintaining or improving its Star ratings in future years.

If Humana fails to properly maintain the integrity of its data, to strategically implement new information systems, to protect Humana’s proprietary rights to its systems, or to defend against cyber-security attacks, the company’s business may be materially adversely affected.

Humana is involved in various legal actions, or disputes that could lead to legal actions (such as, among other things, provider contract disputes relating to rate adjustments resulting from the Balanced Budget and Emergency Deficit Control Act of 1985, as amended, commonly referred to as “sequestration”; other provider contract disputes; and qui tam litigation brought by individuals on behalf of the government), governmental and internal investigations, and routine internal review of business processes any of which, if resolved unfavorably to the company, could result in substantial monetary damages or changes in its business practices. Increased litigation and negative publicity could also increase the company’s cost of doing business.

As a government contractor, Humana is exposed to risks that may materially adversely affect its business or its willingness or ability to participate in government healthcare programs including, among other things, loss of material government contracts, governmental audits and investigations, potential inadequacy of government determined payment rates, potential restrictions on profitability, including by comparison of profitability of the company’s Medicare Advantage business to non-Medicare Advantage business, or other changes in the governmental programs in which Humana participates. Changes to the risk-adjustment model utilized by CMS to adjust premiums paid to Medicare Advantage, or MA, plans according to the health status of covered members, including proposed changes to the methodology used by CMS for risk adjustment data validation audits that fail to address adequately the statutory requirement of actuarial equivalence, if implemented, could have a material adverse effect on our operating results, financial position and cash flows.

The Healthcare Reform Law, including The Patient Protection and Affordable Care Act and The Healthcare and Education Reconciliation Act of 2010, could have a material adverse effect on Humana’s results of operations, including restricting revenue, enrollment and premium growth in certain products and market segments, restricting the company’s ability to expand into new markets, increasing the company’s medical and operating costs by, among other things, requiring a minimum benefit ratio on insured products, lowering the company’s Medicare payment rates and increasing the company’s expenses associated with a non-deductible health insurance industry fee and other assessments; the company’s financial position, including the company’s ability to maintain the value of its goodwill; and the company’s cash flows. Additionally, potential legislative changes, including activities to repeal or replace, in whole or in part, the Health Care Reform Law, creates uncertainty for Humana’s business, and when, or in what form, such legislative changes may occur cannot be predicted with certainty.

Humana’s business activities are subject to substantial government regulation. New laws or regulations, or changes in existing laws or regulations or their manner of application could increase the company’s cost of doing business and may adversely affect the company’s business, profitability and cash flows.

Humana’s failure to manage acquisitions, divestitures and other significant transactions successfully may have a material adverse effect on the company’s results of operations, financial position, and cash flows.

If Humana fails to develop and maintain satisfactory relationships with the providers of care to its members, the company’s business may be adversely affected.

Humana’s pharmacy business is highly competitive and subjects it to regulations in addition to those the company faces with its core health benefits businesses.

Changes in the prescription drug industry pricing benchmarks may adversely affect Humana’s financial performance.

If Humana does not continue to earn and retain purchase discounts and volume rebates from pharmaceutical manufacturers at current levels, Humana’s gross margins may decline.

Humana’s ability to obtain funds from certain of its licensed subsidiaries is restricted by state insurance regulations.

Downgrades in Humana’s debt ratings, should they occur, may adversely affect its business, results of operations, and financial condition.

The securities and credit markets may experience volatility and disruption, which may adversely affect Humana’s business.

Form 10-K for the year ended December 31, 2017;

Form 10-Q for the quarter ended March 31, 2018; June 30, 2018; and

Form 8-Ks filed during 2018.

Annual reports to stockholders

Securities and Exchange Commission filings

Most recent investor conference presentations

Quarterly earnings news releases and conference calls

Calendar of events

Corporate Governance information

Humana Inc.

500 West Main Street

P.O. Box 1438

Louisville, KY 40202

http://www.humana.com

Amy Smith

Humana Investor Relations

(502) 580-2811

e-mail: Amysmith@humana.com

3Q18 earnings per diluted common share (EPS) of $4.65 on a GAAP basis, $4.58 on an Adjusted basis

New full year 2018 GAAP EPS guidance of approximately $11.96; Adjusted EPS guidance raised $0.25 from the previous guidance to approximately $14.40

Strong continued Medicare Advantage performance resulting in improved full year 2018 Retail segment benefit ratio guidance

Industry leading percentage of Medicare Advantage members currently enrolled in 4-plus star contracts for 2019, including two 5-star contracts in Florida and Tennessee

Consolidated pretax income

In millions

Generally Accepted Accounting Principles (GAAP)

Loss (favorable adjustment) on sale of KMG America Corporation (KMG), a wholly-owned subsidiary

Put/call valuation adjustments associated with 40% minority interest in Kindred at Home

Amortization associated with identifiable intangibles

Segment earnings associated with the Individual Commercial segment

Net gain associated with the terminated merger agreement (for YTD 2017, primarily the break-up fee)

Charges associated with voluntary and involuntary workforce reduction programs

Guaranty fund assessment expense to support the policyholder obligations of Penn Treaty (an unaffiliated long-term care insurance company)

Adjusted (non-GAAP)

Diluted earnings per common share (EPS)

GAAP

Loss (favorable adjustment) on sale of KMG, a wholly-owned subsidiary

Put/call valuation adjustments associated with 40% minority interest in Kindred at Home

Amortization associated with identifiable intangibles

Segment earnings associated with the Individual Commercial segment

Adjustments to provisional estimates for the income tax effects related to the tax reform law enacted on December 22, 2017 (Tax Reform Law)

Net gain associated with the terminated merger agreement (for YTD 2017, primarily the break-up fee)

Beneficial effect of lower effective tax rate in light of pricing and benefit design assumptions associated with the 2017 temporary suspension of the non-deductible health insurance industry fee; excludes Individual Commercial segment impact

Charges associated with voluntary and involuntary workforce reduction programs

Guaranty fund assessment expense to support the policyholder obligations of Penn Treaty (an unaffiliated long-term care insurance company)

Adjusted (non-GAAP)

Diluted earnings per common share

GAAP

Loss on Sale of KMG, a wholly-owned subsidiary

Put/call valuation adjustments associated with 40% minority interest in Kindred at Home

Amortization of identifiable intangibles

Segment earnings associated with the Individual Commercial segment

Impact of Tax Reform Law, primarily re-measurement of deferred tax assets at lower corporate tax rates

Net gain associated with the terminated merger agreement (for FY17, primarily the break-up fee)

Beneficial effect of lower effective tax rate in light of pricing and benefit design assumptions associated with the 2017 temporary suspension of the non-deductible health insurance industry fee; excludes Individual Commercial segment impact

Charges associated with voluntary and involuntary workforce reduction programs

Guaranty fund assessment expense to support the policyholder obligations of Penn Treaty (an unaffiliated long-term care insurance company)

Costs associated with early retirement of debt in the fourth quarter of 2017

Adjusted (non-GAAP) – FY18 projected

Consolidated revenues

(in millions)

GAAP

Revenues associated with the Individual Commercial segment

Adjusted (non-GAAP)

Consolidated benefit ratio

(benefits expense as a percent of premiums)

GAAP

Benefit ratio impact associated with the Individual Commercial segment

Adjusted (non-GAAP)

positive impact on 3Q18 from the reinstatement of the non-deductible health insurance industry fee in 2018 which was contemplated in the pricing and benefit design of the company’s products; and

higher favorable Prior Period Development in 3Q18.

enhanced 2018 Medicare Advantage member benefits resulting from the investment of the better than expected 2017 individual Medicare Advantage pretax earnings; and

a more severe flu season in YTD 2018.

Consolidated Prior Period Development (in millions)

Favorable (unfavorable)

Prior Period Development from prior years recognized in 3Q18

Prior Period Development from prior years recognized in 3Q17

Prior Period Development from prior years recognized in YTD 2018

Prior Period Development from prior years recognized in YTD 2017

Consolidated operating cost ratio

(operating costs as a percent of total revenues less investment income)

GAAP

Operating cost ratio impact associated with the Individual Commercial segment

Guaranty fund assessment expense to support the policyholder obligations of Penn Treaty (an unaffiliated long-term care insurance company)

Charges associated with voluntary and involuntary workforce reduction programs

Adjusted (non-GAAP)

the reinstatement of the non-deductible health insurance industry fee in 2018, which increased the consolidated GAAP operating cost ratio by approximately 180 basis points in 3Q18,

investments made in 3Q18 as a result of the Tax Reform Law; these include the continuation of investments in the company’s employees, primarily the establishment of an annual incentive compensation program for a broader range of employees, together with additional investments in the communities of the company’s members, technology and its integrated care delivery model to drive more affordable healthcare and better clinical outcomes, as previously disclosed,

an increase in incentive compensation costs under the expanded program noted above, resulting from the continued strong performance by the company, and

growth in the company’s military services business, which carries a higher operating cost ratio than other company products, due to the previously disclosed transition to the TRICARE East Region contract effective January 1, 2018.

significant operating costs efficiencies in 3Q18 driven by productivity initiatives implemented in 2017,

impact of the charges recorded in 3Q17 associated with the voluntary and involuntary workforce reduction program, and

the exit of the individual commercial business, which carried a higher operating cost ratio than the company’s other products, effective January 1, 2018.

At September 30, 2018, the company had cash, cash equivalents, and investment securities of $14.24 billion, down $3.65 billion, or 20 percent, from $17.90 billion at June 30, 2018, primarily reflecting the impact of the early receipt of the July 2018 Medicare premium remittance of $3.31 billion from CMS in the second quarter of 2018 because the payment date of July 1, 2018 fell on a weekend. Additional changes are outlined in the company’s consolidated statement of cash flows on pages S-6 and S-7 of the statistical supplement included in this release.

At September 30, 2018, cash and short-term investments held at the parent company of $1.00 billion decreased $814 million, or 45 percent, from $1.82 billion at June 30, 2018 primarily resulting from the completion of the Kindred at Home acquisition, the cash capital contribution related to the sale of KMG, open market share repurchases, capital expenditures, and cash dividends. These declines were partially offset by working capital timing benefits between the parent and the company’s subsidiaries.

Days in claims payable (DCP) of 41.1 at September 30, 2018, increased by 1 day from 40.1 at June 30, 2018, but declined 1.8 days from 42.9 at September 30, 2017. Changes are outlined in the DCP rollforward on page S-19 of the statistical supplement included in this release.

Debt-to-total capitalization at September 30, 2018 was 32.8 percent, down 80 basis points from 33.6 percent at June 30, 2018, primarily due to the net impact of 3Q18 earnings. The company’s long-term target debt-to-total capitalization range of 30 to 35 percent is expected to allow the company to maintain its investment grade credit rating while providing significant financial flexibility.

The company had $398 million associated with outstanding commercial paper at September 30, 2018 and at June 30, 2018.

Net cash from operating activities

(in millions)

(Used in) provided by

GAAP

Timing of premium payment from CMS (g)

Adjusted (non-GAAP)

GAAP cash flows used in operations of $1.06 billion in 3Q18 unfavorably compared to cash flows provided by operations of $2.86 billion in 3Q17. Year-over-year comparisons of GAAP cash flows were significantly impacted by the timing of the monthly Medicare premium remittance from CMS, with 3Q17 benefitting from the inclusion of the standard three monthly payments as compared to only two monthly payments in 3Q18 as a result of the July 2018 remittance of $3.31 billion being received during the second quarter of 2018, as previously discussed and noted in the table above. This negative impact coupled with the timing of working capital items, including the timing of Medicare risk adjustment payments, was partially offset by higher year-over-year earnings in 3Q18 compared to 3Q17.

For YTD 2018, GAAP cash flows provided by operations totaled $2.51 billion versus $6.96 billion of GAAP cash flows provided by operations during YTD 2017, a decrease of $4.46 billion year over year, primarily reflecting the impact of the early receipt of the October 2017 Medicare premium payment from CMS in 3Q17. YTD 2018 operating cash flows included the standard nine monthly Medicare premium payments from CMS compared to YTD 2017 including ten monthly remittances. The year-over-year negative comparison was further affected by the receipt of the merger termination fee, net of related expenses, in YTD 2017, the YTD 2018 funding of reinsurance transactions in connection with the sale of KMG, and the timing of working capital items, including the timing of Medicare risk adjustment payments.

Due to the September 30, 2018 payment date falling on a weekend, the company made its payment of $1.04 billion related to the health insurance industry fee on October 1; therefore, there was no impact to 3Q18 or YTD 2018 cash flows. Additionally, GAAP cash flows for 3Q17 and YTD 2017 were not impacted by the payment of the health insurance industry fee as it was temporarily suspended in 2017.

Excluding the impact of accelerated share purchase (ASR) programs described below, the company executed the following open-market repurchases during the respective periods:

Open-market share repurchases

Excludes impact of accelerated share repurchase programs

Shares repurchased

Value of shares repurchased (in millions)

Average price paid per share

In December 2017, Humana’s Board of Directors approved a $3.00 billion share repurchase authorization with an expiration date of December 31, 2020. The company subsequently entered into an agreement with a third-party financial institution on December 21, 2017 to effect a $1.00 billion accelerated share repurchase (ASR) program under the authorization. Under the terms of the program, which was completed in the first quarter of 2018, the company repurchased approximately 3,737,700 of its outstanding shares at an average price of $267.55 per share.

In 3Q17, the company completed a previously outstanding $1.50 billion ASR program. Under terms of this program, the company repurchased approximately 6,672,400 shares at an average price of $224.81 per share.

The company paid cash dividends to its stockholders of $69 million in 3Q18 versus $58 million in 3Q17. Cash dividends of $195 million were paid to the company’s stockholders during YTD 2018 compared to $162 million in YTD 2017. The increases primarily reflect an increase in the per share dividend to $0.50 for 2018 from $0.40 per share for 2017, as previously disclosed.

In November 2018, the company’s Board of Directors declared a cash dividend to stockholders of $0.50 per share, payable on January 25, 2019, to stockholders of record on December 31, 2018.

The 3Q18 revenues for the Retail segment were $12.07 billion, an increase of $1.03 billion, or 9 percent, from $11.05 billion in 3Q17 primarily reflecting individual and group Medicare Advantage membership growth in the previous Annual Election Period (AEP) as well as increased per-member premiums for certain of the segment’s products, partially offset by declines in state-based contracts and stand-alone PDP revenues resulting from membership declines discussed further below.

The YTD 2018 revenues for the Retail segment were $36.22 billion, up $2.44 billion, or 7 percent, from $33.78 billion in YTD 2017, primarily reflecting the same factors impacting the year-over-year third quarter comparison.

Individual Medicare Advantage membership was 3,043,800 as of September 30, 2018, a net increase of 194,400 or 7 percent, from 2,849,400 as of September 30, 2017, and up 183,000, or 6 percent, from 2,860,800 as of December 31, 2017, primarily due to membership additions associated with the previous AEP for Medicare beneficiaries.

Group Medicare Advantage membership was 496,800 as of September 30, 2018, a net increase of 58,400, or 13 percent, from 438,400 at September 30, 2017, and up 55,400, or 13 percent, from 441,400 as of December 31, 2017. The increases primarily resulted from increased sales to the company’s existing group accounts during the previous AEP for Medicare beneficiaries.

Membership in the company’s stand-alone PDP offerings was 5,015,900 as of September 30, 2018, a net decrease of 275,000, or 5 percent, from 5,290,900 as of September 30, 2017, and down 292,200, or 6 percent, from 5,308,100 as of December 31, 2017, reflecting net declines during the previous AEP for Medicare beneficiaries. These declines primarily resulted from the previously disclosed loss of auto assigned members in Florida and South Carolina due to pricing over the CMS low income benchmark and continued membership declines in the company’s Enhanced Plan. In addition, growth in the company’s co-branded Walmart plan was significantly lower than historical levels due to the introduction of additional low-priced competitor offerings in many regions.

State-based contracts membership (including dual-eligible demonstration members) was 323,800 as of September 30, 2018, a net decrease of 39,600, or 11 percent, from 363,400 at September 30, 2017, and down 36,300, or 10 percent, from 360,100 as of December 31, 2017. The decreases were primarily driven by the previously disclosed decision to not participate in Illinois’ Integrated Care Program Medicaid contract, along with lower membership associated with the company’s Florida Medicaid contract due to overall strengthening economic conditions.

The 3Q18 benefit ratio for the Retail segment of 83.2 percent decreased 110 basis points from 84.3 percent in 3Q17 primarily due to the reinstatement of the non-deductible health insurance industry fee in 2018 which was contemplated in the pricing and benefit design of the company’s products and higher favorable Prior Period Development in 3Q18. These improvements were partially offset by the unfavorable impact from enhanced 2018 Medicare Advantage member benefits resulting from the investment of the better than expected 2017 individual Medicare Advantage pretax earnings.

The YTD 2018 benefit ratio for the Retail segment of 85.4 percent was 70 basis points lower than the YTD 2017 ratio of 86.1 percent, primarily reflecting the same factors impacting the year-over-year comparison for the third quarter, excluding the impact of Prior Period Development. This decrease was partially offset by the impact of a more severe flu season in 2018.

Prior Period Development for the Retail segment, as noted in the table below, improved the segment benefit ratio by 100 basis points in 3Q18 and 50 basis points in 3Q17. Prior Period Development lowered both the YTD 2018 and YTD 2017 benefit ratios by 100 basis points.

Retail segment Prior Period Development (in millions)

Favorable (unfavorable)

Prior Period Development from prior years recognized in YTD 2018

Prior Period Development from prior years recognized in YTD 2017

The Retail segment’s operating cost ratio of 11.2 percent in 3Q18 increased 140 basis points from 9.8 percent in 3Q17. The year-over-year comparison was negatively impacted by the following:

the reinstatement of the non-deductible health insurance industry fee in 2018, which increased the Retail segment’s operating cost ratio by approximately 190 basis points in 3Q18,

strategic investments made in 3Q18 as a result of the Tax Reform Law as previously described, and

an increase in incentive compensation costs under the expanded program noted previously, resulting from the continued strong performance by the company.

The Retail segment’s YTD 2018 operating cost ratio of 10.5 percent increased 160 basis points from 8.9 percent in YTD 2017 primarily reflecting the same factors that impacted the year-over-year comparison for the third quarter. The reinstatement of the non-deductible health insurance fee impacted the segment’s YTD 2018 operating cost ratio by approximately 190 basis points.

Retail segment earnings

in millions

GAAP

Amortization associated with identifiable intangibles

Adjusted (non-GAAP)

The Retail segment’s GAAP segment earnings of $634 million in 3Q18 increased $24 million, or 4 percent, from GAAP segment earnings of $610 million in 3Q17. Adjusted segment earnings for the Retail segment of $638 million in 3Q18 increased $22 million, or 4 percent, from the 3Q17 Adjusted segment earnings. The favorable comparisons reflect the year-over-year improvement in the segment’s benefit ratio in 3Q18, partially offset by the segment’s higher operating cost ratio in 3Q18.

For YTD 2018, GAAP segment earnings for the Retail segment of $1.39 billion decreased $193 million, or 12 percent, from $1.59 billion in YTD 2017. Adjusted segment earnings of $1.41 billion in YTD 2018 declined $196 million, or 12 percent, from $1.61 billion of Adjusted segment earnings in YTD 2017. The year-over-year decreases primarily reflect a higher operating cost ratio in YTD 2018, partially offset by an improving benefit ratio.

The 3Q18 revenues for the Group and Specialty segment were $1.89 billion, up $41 million, or 2 percent, from $1.85 billion in 3Q17. The year-over-year increase was primarily due to the following factors:

greater services revenue in the company’s military services business as a result of the transition to the East Region TRICARE contract on January 1, 2018, along with the favorable impact of the timing of certain contractual incentives and adjustments,

higher stop-loss premiums related to the company’s level-funded ASO accounts resulting from membership growth in this product as more fully described below, and

higher per member premiums across the commercial fully-insured business.

The YTD 2018 revenues for the Group and Specialty segment were $5.77 billion, up $212 million, or 4 percent, from $5.56 billion in YTD 2017, primarily reflecting the same factors that impacted the year-over-year third quarter comparison.

Group fully-insured commercial medical membership was 1,029,100 at September 30, 2018, a decrease of 69,700, or 6 percent, from 1,098,800 at September 30, 2017, and down 68,600, or 6 percent, from 1,097,700 at December 31, 2017. These anticipated declines primarily reflect lower membership in small group accounts due in part to more small group accounts selecting level-funded ASO products in 2018. The portion of group fully-insured commercial medical membership in small group accounts (2-99 sized employer groups) was approximately 62 percent at September 30, 2018 and 64 percent at both September 30, 2017 and December 31, 2017.

Group ASO commercial medical membership was 449,900 at September 30, 2018, an increase of 4,200, or 1 percent, from 445,700 at September 30, 2017, but down 8,800, or 2 percent, from 458,700 at December 31, 2017. The year-over-year increase primarily reflects more small group accounts selecting level-funded ASO products in 2018, partially offset by the loss of certain large group accounts due to continued discipline in pricing of services for self-funded accounts amid a highly competitive environment. The year-to-date decline reflects the impact of the loss of these large group accounts. Small group membership comprised 21 percent of group ASO medical membership at September 30, 2018 versus 9 percent at September 30, 2017 and 12 percent at December 31, 2017.

Military services membership was 5,927,400 at September 30, 2018, an increase of 2,828,400, or 91 percent, from 3,099,000 at September 30, 2017, and up 2,845,600, or 92 percent, versus 3,081,800 at December 31, 2017 primarily due to the company’s transition to providing healthcare services to military service members, retirees, and their families under the TRICARE East Region contract from the South Region contract. The new contract, which covers 32 states, became effective on January 1, 2018.

Membership in specialty products ^(h) was 6,116,300 at September 30, 2018, a decrease of 817,700, or 12 percent, from 6,934,000, at September 30, 2017, and down 869,700, or 12 percent, from 6,986,000 at December 31, 2017. The decreases primarily resulted from the previously disclosed reinsuring of the company’s WVB and FPP membership to a third party, as well as the loss of some large group accounts offering stand-alone dental and vision products. These decreases were partially offset by an increase in individual dental and vision membership.

The 3Q18 benefit ratio for the Group and Specialty segment was 80.7 percent, an increase of 110 basis points from 79.6 percent for 3Q17. The year-over-year increase in the benefit ratio is primarily due to the impact of the following factors:

Retroactive contractual rate adjustments,

membership mix, including the continued migration of healthier groups to level-funded ASO products in 2018,

the unfavorable impact of seasonality on fully-insured group commercial medical claims, and

lower Prior Period Development.

The YTD 2018 benefit ratio for the segment of 78.0 percent was 10 basis points higher than the YTD 2017 ratio of 77.9 percent. The year-to-date comparison was impacted by the same factors affecting the third quarter comparison. The comparison was further impacted by the effect of lower premiums resulting from the second quarter 2018 adjustment to the company’s commercial risk adjustment accrual (CRA) related to its Affordable Care Act (ACA)-compliant business as a result of the release of the CMS’s final 2017 CRA data.

Prior Period Development for the Group and Specialty segment improved the 3Q18 segment benefit ratio by 40 basis points and improved the 3Q17 ratio by 80 basis points. Prior Period Development lowered the YTD 2018 segment benefit ratio by 80 basis points and by 90 basis points in YTD 2017.

Group and Specialty segment Prior Period Development (in millions)

Favorable (unfavorable)

Prior Period Development from prior years recognized in YTD 2018

Prior Period Development from prior years recognized in YTD 2017

The Group and Specialty segment’s operating cost ratio was 23.6 percent in 3Q18, an increase of 270 basis points from 20.9 percent in 3Q17. The year-over-year comparison was primarily impacted by the following factors:

reinstatement of the non-deductible health insurance industry fee in 2018, which increased the segment’s operating cost ratio by approximately 160 basis points in 3Q18,

growth in the company’s military services business which carries a higher operating cost ratio than other products within the segment, as a result of the transition to the TRICARE East Region contract,

investments made in 3Q18 as a result of the Tax Reform Law as previously described, and

an increase in incentive compensation costs under the expanded program noted previously, resulting from the continued strong performance by the company.

The Group and Specialty segment’s operating cost ratio of 23.6 percent for YTD 2018 was up 230 basis points compared to 21.3 percent for YTD 2017. The year-over-year increase was primarily impacted by the same factors influencing the third quarter comparison. The reinstatement of the non-deductible health insurance industry fee impacted the segment’s YTD 2018 operating cost ratio by approximately 160 basis points.

Group and Specialty segment earnings

In millions

GAAP

Amortization associated with identifiable intangibles

Adjusted (non-GAAP)

The Group and Specialty segment’s GAAP segment earnings of $81 million in 3Q18 compared to GAAP segment earnings of $93 million in 3Q17, a decrease of $12 million, or 13 percent. Adjusted segment earnings for the Group and Specialty segment of $82 million in 3Q18 decreased $11 million, or 12 percent, from $93 million of Adjusted segment earnings in 3Q17. The decreases primarily reflect the impact of the segment’s higher benefit ratio in 3Q18. The declines were partially offset by a favorable year-over-year earnings comparison for the company’s military services business, which was favorably impacted by the timing of certain contractual incentives and adjustments.

The Group and Specialty segment’s GAAP segment earnings of $372 million in YTD 2018 compared to GAAP segment earnings of $365 million in YTD 2017, an increase of $7 million, or 2 percent. Adjusted segment earnings of $376 million in YTD 2018 increased $9 million, or 2 percent, from $367 million of Adjusted segment earnings in YTD 2017. The year-over-year increases for both GAAP and Adjusted segment earnings primarily reflect a favorable earnings comparison from the company’s group ASO commercial medical business, as well as higher year-over-year earnings in the military services business, which was favorably impacted by the timing of certain contractual incentives and adjustments. These increases were partially offset by a slightly higher segment benefit ratio in YTD 2018.

Revenues of $5.97 billion in 3Q18 for the Healthcare Services segment slightly decreased by $34 million, or 1 percent, from $6.00 billion in 3Q17. The year-over-year comparison was negatively impacted by the following:

the loss of intersegment revenues associated with the company’s exit from the individual commercial business,

a decline in pharmacy solutions intersegment revenue year-over-year primarily due to lower stand-alone PDP membership as previously described,

the result of improving the effectiveness of the company’s chronic care management programs discussed below, and

the impact on the company’s provider services business of the lower Medicare rates year-over-year in geographies where the company’s provider assets are primarily located.

YTD 2018 revenues for the Healthcare Services segment were $17.62 billion, a decline of $320 million, or 2 percent, from $17.94 billion in YTD 2017 primarily reflecting the same factors affecting the year-over-year comparison for the third quarter.

The Healthcare Services segment’s operating cost ratio of 96.1 percent in 3Q18 increased 50 basis points from 95.6 percent in 3Q17 primarily due to the following factors:

the lag in operating cost reductions associated with improving the effectiveness of the company’s chronic care management programs, as compared to the timing of the reduction in revenues,

investments made in 3Q18 as a result of the Tax Reform Law as previously described, and

an increase in incentive compensation costs under the expanded program noted previously, resulting from the continued strong performance by the company.

The Healthcare Services segment’s operating cost ratio of 96.2 percent for YTD 2018 increased 80 basis points from 95.4 percent in YTD 2017 primarily due to the same factors that impacted the year-over-year third quarter comparison.

Primary care providers in value-based (shared risk and path to risk) relationships of 52,300 at September 30, 2018 increased 2 percent from 51,500 at September 30, 2017, but remained relatively stable from 52,200 at December 31, 2017. The percentage of the company’s individual Medicare Advantage members in value-based relationships has remained stable at 66 percent as of September 30, 2018, September 30, 2017, and December 31, 2017.

Medicare Advantage and dual demonstration program membership enrolled in a Humana chronic care management program was 713,300 ⁽ⁱ⁾ at September 30, 2018, down 14 percent from 825,200 at September 30, 2017 and down 10 percent from 794,900 at December 31, 2017. The company continues to align the effectiveness of its chronic care management programs to the needs of members, leveraging technology and data analytics. This includes graduating members into a monitoring program as their health improves thereby reducing the number of member and clinician interactions to the appropriate level, and transitioning them out of the care management program when they no longer benefit from the services. This improvement in the programs leads to reduced Healthcare Services segment earnings but improved Retail segment operating results.

Pharmacy script volume on an adjusted 30-day equivalent basis of 110 million for 3Q18 increased 2 percent compared to 108 million for 3Q17. Pharmacy script volume of 328 million for YTD 2018 increased 2 percent compared to 323 million for YTD 2017. These increases primarily were driven by higher individual Medicare Advantage membership, partially offset by the decline in stand-alone PDP and Individual Commercial membership.

Healthcare Services segment results

(in millions)

GAAP segment earnings

Depreciation and amortization expense

Interest and taxes

Adjusted earnings before interest, taxes, depreciation and amortization (Adjusted EBITDA)

The Healthcare Services segment’s GAAP segment earnings in 3Q18 decreased $25 million, or 10 percent, to $215 million compared to GAAP segment earnings of $240 million in 3Q17. The decrease resulted from the impact of the optimization process associated with the company’s chronic care management programs and investments made in 3Q18 as a result of the Tax Reform Law, partially offset by the impact of Kindred at Home.

The Healthcare Services segment’s GAAP segment earnings in YTD 2018 decreased $160 million, or 21 percent, to $594 million compared to GAAP segment earnings of $754 million in YTD 2017. The decrease resulted from the same factors impacting the third quarter GAAP segment earnings comparison.

Individual Commercial segment earnings of $5 million in 3Q18 compared to segment earnings of $26 million in 3Q17, a decline of $21 million. YTD 2018 segment earnings of $76 million were $131 million lower than YTD 2017 segment earnings of $207 million. The segment earnings in 3Q18 and YTD 2018 primarily reflect the impact of favorable Prior Period Development.

3Q18 Adjusted results exclude the following:

Favorable adjustment to the previously recognized loss associated with the company’s sale of its wholly-owned subsidiary, KMG America Corporation (KMG) of approximately $4 million pretax, or $0.02 per diluted common share. GAAP measures affected in this release include consolidated pretax and EPS.

Put/call valuation adjustments of approximately $11 million, or $0.06 per diluted common share, associated with Humana’s 40% minority interest in Kindred at Home. GAAP measures affected in this release include consolidated pretax and EPS.

Amortization expense for identifiable intangibles of approximately $19 million pretax income, or $0.11 per diluted common share; GAAP measures affected in this release include consolidated pretax, EPS, and segment earnings (for respective amortization expense for the Retail and Group and Specialty segments).

Segment earnings of $5 million, or $0.03 per diluted common share, for the company’s Individual Commercial segment given the company’s exit on January 1, 2018, as previously disclosed. GAAP measures affected in this release include consolidated pretax income, EPS, consolidated revenues, consolidated benefit ratio and consolidated operating cost ratio.

Adjustment of $0.19 per diluted common share related to provisional estimates for the income tax effects related to the Tax Reform Law. The only GAAP measure affected in this release is EPS.

3Q17 Adjusted results exclude the following:

Amortization expense for identifiable intangibles of approximately $18 million pretax, or $0.07 per diluted common share; GAAP measures affected in this release include consolidated pretax, EPS, and segment earnings (for respective amortization expense for the Retail and Group and Specialty segments).

The one-year beneficial effect of a lower effective tax rate of approximately $0.55 per diluted common share in light of pricing and benefit design assumptions associated with the 2017 temporary suspension of the non-deductible health insurance industry fee; excludes Individual Commercial business impact. The only GAAP measure affected in this release is EPS.

Segment earnings of $26 million, or $0.11 per diluted common share, for the company’s Individual Commercial segment given the company’s planned exit on January 1, 2018, as previously disclosed. GAAP measures affected in this release include consolidated pretax income, EPS, consolidated revenues, consolidated benefit ratio and consolidated operating cost ratio.

Expense of approximately $124 million pretax, or $0.54 per diluted common share, associated with voluntary and involuntary workforce reduction programs; GAAP measures affected in this release include consolidated pretax, EPS, and consolidated operating cost ratio.

YTD 2018 Adjusted results exclude the following:

Loss of approximately $786 million pretax, or $2.57 per diluted common share, associated with the company’s sale of its wholly-owned subsidiary, KMG. GAAP measures affected in this release include consolidated pretax and EPS.

Put/call valuation adjustments of approximately $11 million, or $0.06 per diluted common share, associated with Humana’s 40% minority interest in Kindred at Home. GAAP measures affected in this release include consolidated pretax and EPS.

Amortization expense for identifiable intangibles of approximately $70 million pretax, or $0.39 per diluted common share; GAAP measures affected in this release include consolidated pretax income, EPS, and segment earnings (for respective amortization expense for the Retail and Group and Specialty segments).

Segment earnings of approximately $76 million, or $0.42 per diluted common share, for the company’s Individual Commercial segment given the company’s exit on January 1, 2018, as previously disclosed. GAAP measures affected in this release include consolidated pretax income, EPS, consolidated revenues, consolidated benefit ratio and consolidated operating cost ratio.

Adjustment of $0.28 per diluted common share related to provisional estimates for the income tax effects related to the Tax Reform Law. The only GAAP measure affected in this release is EPS.

YTD 2017 Adjusted results exclude the following:

Net gain from the termination of the merger agreement of approximately $947 million pretax, or $4.33 per diluted common share; includes the net break-up fee and transaction costs net of the tax benefit associated with certain expenses which were previously non-deductible; GAAP measures affected in this release include consolidated pretax income and EPS.

Amortization expense for identifiable intangibles of approximately $54 million pretax, or $0.23 per diluted common share; GAAP measures affected in this release include consolidated pretax, EPS, and segment earnings (for respective amortization expense for the Retail and Group and Specialty segments).

Segment earnings of approximately $207 million, or $0.89 per diluted common share, for the company’s Individual Commercial segment given the company’s planned exit on January 1, 2018, as previously disclosed. GAAP measures affected in this release include consolidated pretax income, EPS, consolidated revenues, consolidated benefit ratio and consolidated operating cost ratio.

Expense of approximately $124 million pretax, or $0.54 per diluted common share, associated with voluntary and involuntary workforce reduction programs; GAAP measures affected in this release include consolidated pretax, EPS, and consolidated operating cost ratio.

Guaranty fund assessment expense of approximately $54 million pretax, or $0.23 per diluted common share, to support the policy-holder obligations of Penn Treaty (an unaffiliated long-term care insurance company); GAAP measures affected in this release include consolidated pretax income, EPS, and consolidated operating costs ratio. Under state guaranty assessment laws, the company may be assessed (up to prescribed limits) for certain obligations to the policyholders and claimants of insolvent insurance companies that write the same line or lines of business as the company. On March 1, 2017, a court ordered the liquidation of Penn Treaty which triggered assessments from the state guaranty associations.

The one-year beneficial effect of a lower effective tax rate of approximately $1.60 per diluted common share in light of pricing and benefit design assumptions associated with the 2017 temporary suspension of the non-deductible health insurance industry fee; excludes Individual Commercial business impact. The only GAAP measure affected in this release is EPS.

FY18 Adjusted EPS projections exclude the following:

Loss of approximately $2.58 per diluted common share associated with the company’s sale of its wholly-owned subsidiary, KMG America Corporation (KMG).

Put/call valuation adjustments of approximately $0.06 per diluted common share, associated with Humana’s 40% minority interest in Kindred at Home. FY18 GAAP EPS guidance excludes the impact of future value changes of the Kindred at Home put/call option.

Amortization expense for identifiable intangibles of approximately $0.49 per diluted common share.

Segment earnings of approximately $0.41 per diluted common share, for the company’s Individual Commercial segment given the company’s exit on January 1, 2018, as previously disclosed.

Adjustment of $0.28 per diluted common share related to provisional estimates for the income tax effects related to the Tax Reform Law.

FY17 Adjusted results exclude the following:

Net gain from the termination of the merger agreement of approximately $936 million pretax, or $4.31 per diluted common share; includes the net break-up fee and transaction costs net of the tax benefit associated with certain expenses which were previously non-deductible.

The one-year beneficial effect of a lower effective tax rate of approximately $2.15 per diluted common share in light of pricing and benefit design assumptions associated with the 2017 temporary suspension of the non-deductible health insurance industry fee; excludes Individual Commercial segment impact.

The impact of approximately $0.92 per diluted common share associated with the re-measurement of deferred tax assets at lower corporate tax rates under the Tax Reform Law.

Expense of approximately $148 million pretax, or $0.64 per diluted common share, associated with voluntary and involuntary workforce reduction programs.

Guaranty fund assessment expense of approximately $54 million pretax, or $0.24 per diluted common share, to support the policyholder obligations of Penn Treaty (an unaffiliated long-term care insurance company). Under state guaranty assessment laws, the company may be assessed (up to prescribed limits) for certain obligations to the policyholders and claimants of insolvent insurance companies that write the same line or lines of business as the company. On March 1, 2017, a court ordered the liquidation of Penn Treaty which triggered assessments from the state guaranty associations.

Expense of approximately $17 million pretax, or $0.08 per diluted common share, associated with early retirement of debt in the fourth quarter of 2017.

Amortization expense for identifiable intangibles of approximately $75 million pretax, or $0.32 per diluted common share.

Segment earnings of approximately $193 million pretax, or $0.84 per diluted common share, for the company’s Individual Commercial segment given the company’s exit on January 1, 2018, as previously disclosed.

Generally, when the first day of a month falls on a weekend or holiday, with the exception of January 1 (New Year’s Day), the company receives its monthly Medicare premium payment from CMS on the last business day of the previous month. On a GAAP basis, this can result in certain quarterly cash flows from operations including more or less than three monthly payments. Consequently, when this occurs, the company reports Adjusted cash flows from operations to reflect three payments in each quarter to match the related expenses.

The company provides a full range of insured specialty products including dental, vision, and other supplemental health benefits marketed to individuals and groups. 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.

Includes Medicare Advantage (including Special Needs Plans (SNP)) and dual-eligible demonstration program members enrolled in one of Humana’s chronic care programs. These members may be enrolled in Humana At Home Chronic Care Program (HCCP), Humana At Home Remote Monitoring, or an Advance Illness Support program.    Members included in these programs may not be unique to each program since members have the ability to enroll in multiple programs. In addition, the members in the HCCP program may receive varying levels of care management based on their health status and needs, ranging from active care management to ongoing monitoring.

The Healthcare Services segment Adjusted EBITDA includes GAAP segment earnings with adjustments to add back depreciation and amortization expense, interest expense, and income taxes. The Adjusted EBITDA includes results from the all lines of business within the segment, as well as in 2018, the impact of Humana’s 40% minority interest in Kindred at Home.

If Humana does not design and price its products properly and competitively, if the premiums Humana receives are insufficient to cover the cost of healthcare services delivered to its members, if the company is unable to implement clinical initiatives to provide a better healthcare experience for its members, lower costs and appropriately document the risk profile of its members, or if its estimates of benefits expense are inadequate, Humana’s profitability could be materially adversely affected. Humana estimates the costs of its benefit expense payments, and designs and prices its products accordingly, using actuarial methods and assumptions based upon, among other relevant factors, claim payment patterns, medical cost inflation, and historical developments such as claim inventory levels and claim receipt patterns. The company continually reviews estimates of future payments relating to benefit expenses for services incurred in the current and prior periods and makes necessary adjustments to its reserves, including premium deficiency reserves, where appropriate. These estimates, however, involve extensive judgment, and have considerable inherent variability because they are extremely sensitive to changes in claim payment patterns and medical cost trends, so any reserves the company may establish, including premium deficiency reserves, may be insufficient.

If Humana fails to effectively implement its operational and strategic initiatives, particularly its Medicare initiatives and state-based contract strategy, the company’s business may be materially adversely affected, which is of particular importance given the concentration of the company’s revenues in these products. In addition, there can be no assurances that the company will be successful in maintaining or improving its Star ratings in future years.

If Humana fails to properly maintain the integrity of its data, to strategically implement new information systems, to protect Humana’s proprietary rights to its systems, or to defend against cyber-security attacks, the company’s business may be materially adversely affected.

Humana is involved in various legal actions, or disputes that could lead to legal actions (such as, among other things, provider contract disputes relating to rate adjustments resulting from the Balanced Budget and Emergency Deficit Control Act of 1985, as amended, commonly referred to as “sequestration”; other provider contract disputes; and qui tam litigation brought by individuals on behalf of the government), governmental and internal investigations, and routine internal review of business processes any of which, if resolved unfavorably to the company, could result in substantial monetary damages or changes in its business practices. Increased litigation and negative publicity could also increase the company’s cost of doing business.

As a government contractor, Humana is exposed to risks that may materially adversely affect its business or its willingness or ability to participate in government healthcare programs including, among other things, loss of material government contracts, governmental audits and investigations, potential inadequacy of government determined payment rates, potential restrictions on profitability, including by comparison of profitability of the company’s Medicare Advantage business to non-Medicare Advantage business, or other changes in the governmental programs in which Humana participates. Changes to the risk-adjustment model utilized by CMS to adjust premiums paid to Medicare Advantage, or MA, plans according to the health status of covered members, including proposed changes to the methodology used by CMS for risk adjustment data validation audits that fail to address adequately the statutory requirement of actuarial equivalence, if implemented, could have a material adverse effect on our operating results, financial position and cash flows.

The Healthcare Reform Law, including The Patient Protection and Affordable Care Act and The Healthcare and Education Reconciliation Act of 2010, could have a material adverse effect on Humana’s results of operations, including restricting revenue, enrollment and premium growth in certain products and market segments, restricting the company’s ability to expand into new markets, increasing the company’s medical and operating costs by, among other things, requiring a minimum benefit ratio on insured products, lowering the company’s Medicare payment rates and increasing the company’s expenses associated with a non-deductible health insurance industry fee and other assessments; the company’s financial position, including the company’s ability to maintain the value of its goodwill; and the company’s cash flows. Additionally, potential legislative changes, including activities to repeal or replace, in whole or in part, the Health Care Reform Law, creates uncertainty for Humana’s business, and when, or in what form, such legislative changes may occur cannot be predicted with certainty.

Humana’s business activities are subject to substantial government regulation. New laws or regulations, or changes in existing laws or regulations or their manner of application could increase the company’s cost of doing business and may adversely affect the company’s business, profitability and cash flows.

Humana’s failure to manage acquisitions, divestitures and other significant transactions successfully may have a material adverse effect on the company’s results of operations, financial position, and cash flows.

If Humana fails to develop and maintain satisfactory relationships with the providers of care to its members, the company’s business may be adversely affected.

Humana’s pharmacy business is highly competitive and subjects it to regulations in addition to those the company faces with its core health benefits businesses.

Changes in the prescription drug industry pricing benchmarks may adversely affect Humana’s financial performance.

If Humana does not continue to earn and retain purchase discounts and volume rebates from pharmaceutical manufacturers at current levels, Humana’s gross margins may decline.

Humana’s ability to obtain funds from certain of its licensed subsidiaries is restricted by state insurance regulations.

Downgrades in Humana’s debt ratings, should they occur, may adversely affect its business, results of operations, and financial condition.

The securities and credit markets may experience volatility and disruption, which may adversely affect Humana’s business.

Form 10-K for the year ended December 31, 2017;

Form 10-Q for the quarter ended March 31, 2018; June 30, 2018; and

Form 8-Ks filed during 2018.

Annual reports to stockholders

Securities and Exchange Commission filings

Most recent investor conference presentations

Quarterly earnings news releases and conference calls

Calendar of events

Corporate Governance information

In accordance
with GAAP
unless
otherwise
noted

Humana Inc.
Full-Year 2018 Projections
As of November 7,  2018

Comments

Diluted earnings

per common

share (EPS)

~$11.96

(was ~$11.52)

•  GAAP EPS guidance excludes the impact of future fair value changes of the Kindred at Home put/call option

•  See footnote (e) for detail of non-GAAP adjustments

~$14.40

(was ~$14.15)

$56.3 billion to $56.7 billion

(was $55.9 billion to $56.5 billion)

•  Consolidated and segment-level revenue projections include expected investment income

•  Segment-level revenues include amounts that eliminate in consolidation

$47.8 billion to $48.1 billion

(was $47.5 billion to $48.0 billion)

$7.3 billion to $7.6 billion

(was $7.1 billion to $7.6 billion)

$23.5 billion to $23.9 billion

(was $23.25 billion to $23.75 billion)

Change in year-

end medical

membership

from prior

year end

•  Individual Medicare Advantage: Up 200,000 to 210,000 (was Up 180,000 to 200,000)

•  The change in Group commercial fully- insured membership guidance is offset by an increase in level-funded ASO membership

•  Group Medicare Advantage: Up ~60,000 (was Up 65,000 to 70,000)

•  Medicare stand-alone PDP: Down 290,000 to 310,000 (was Down 280,000 to 320,000)

•  Group commercial fully-insured: Down 80,000 to 90,000 (was Down 60,000 to 70,000)

85.0% to 85.4%

(was 85.1% to 86.0%)

•  Ratio calculation: benefits expense as a percent of premium revenues

•  No material impact anticipated from non-GAAP adjustments

79.1% to 79.5%

(was 78.3% to 78.8%)

•  Ratio calculation: operating costs excluding depreciation and amortization as a percent of revenues excluding investment income

In accordance
with GAAP
unless
otherwise
noted

Humana Inc.
Full-Year 2018 Projections
As of November 7,  2018

Comments

$1.625 billion to $1.725 billion

(was $1.525 billion to $1.675 billion)

•  No material impact to segment earnings anticipated from non-GAAP adjustments

$360 million to $400 million

(was $360 million to $410 million )

$990 million to $1,010 million

(was $1.025 billion to $1.075 billion)

21.3% to 22.1%

(was 22.5% to 23.5%)

•  Includes impact of the non-deductible health insurance industry fee

•  See footnote (e) for detail of non-GAAP adjustments

31.7% to 32.5%

(was 32.3% to 33.3%)

Weighted average share count for

diluted EPS

•  Includes impact of projected share repurchases

•  The change resulted from certain previously forecasted receipts for the fourth quarter that will be classified as financing versus operating cash inflows

•  No impact on parent or operating subsidiaries forecasted cash position

Humana Inc. – Rollforward of Initial FY18 Guidance to FY18 Guidance as of November 7,
2018

Diluted earnings per common share (EPS)

Initial FY18 guidance issued on February 7, 2018

Changes in projected operating performance:

Retail segment

Group and Specialty segment

Healthcare Services segment

Individual Commercial segment

Loss on sale of KMG, a wholly-owned subsidiary

Put/call valuation adjustments associated with 40% minority ownership in Kindred at Home

Adjustments to provisional estimates for the income tax effects related to Tax Reform Law

Other

Humana Inc. – Rollforward of Initial FY18 Guidance to Current FY18 Guidance as of
November 7, 2018

Diluted earnings per common share (EPS)

Initial FY18 guidance issued on February 7, 2018

Changes in projected operating performance:

Retail segment

Group and Specialty segment

Individual Commercial segment

Adjustments to provisional estimates for the income tax effects related to Tax Reform Law

Other

FY18 guidance issued on May 2, 2018

Changes in projected operating performance:

Retail segment

Healthcare Services segment

Individual Commercial segment

Loss on sale of KMG, a wholly-owned subsidiary

Adjustments to provisional estimates for the income tax effects related to Tax Reform Law

FY18 guidance issued on August 1, 2018

Changes in projected operating performance:

Retail segment

Group and Specialty segment

Healthcare Services segment

Individual Commercial segment

Loss on sale of KMG, a wholly-owned subsidiary

Put/call valuation adjustments associated with 40% minority ownership in Kindred at Home

Adjustments to provisional estimates for the income tax effects related to Tax Reform Law

Other

FY18 guidance issued on November 7, 2018

Consolidated Financial Statements

1.

Consolidated Statements of Income

3.

Consolidated Balance Sheets

4.

Consolidated Statements of Cash Flows

6.

Consolidating Statements of Income - Quarter

7.

Consolidating Statements of Income - YTD

8.

Ending Membership Detail

9.

Premiums and Services Revenue Detail

11.

Healthcare Services Segment Metrics

12.

Benefits Payable Detail and Statistics

Revenues:

Premiums

Services

Investment income

Total revenues

Operating expenses:

Benefits

Operating costs

Depreciation and amortization

Total operating expenses

Income from operations

Loss on sale of business

Interest expense

Other expense, net (A)

Income before income taxes

Provision for income taxes

Equity in net earnings of Kindred at Home (B)

Net income

Basic earnings per common share

Diluted earnings per common share

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

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

Revenues:

Premiums

Services

Investment income

Total revenues

Operating expenses:

Benefits

Operating costs

Merger termination fee and related costs, net