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Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
    SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2022
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
    SECURITIES EXCHANGE ACT OF 1934
For the transition period from                      to                     
Commission file number 1-5975
HUMANA INC.
(Exact name of registrant as specified in its charter)
Delaware61-0647538
(State or other jurisdiction of incorporation or organization)(I.R.S. Employer Identification No.)
500 West Main Street
Louisville, Kentucky 40202
(Address of principal executive offices, including zip code)
(502) 580-1000
(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading SymbolName of each exchange on which registered
Common stock, $0.16 2/3 par valueHUMNew York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes      No  
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes      No  
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filerAccelerated filer
Non-accelerated filerSmaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).    Yes      No  
Indicate the number of shares outstanding of each of the issuer’s classes of common stock as of the latest practicable date.
Class of Common Stock
Outstanding at March 31, 2022
$0.16 2/3 par value126,493,402 shares


Table of Contents
Humana Inc.
FORM 10-Q
MARCH 31, 2022
INDEX
 Page
Part I: Financial Information
Item 1.Financial Statements (Unaudited)
Item 2.
Item 3.
Item 4.
Item 1.
Item 1A.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.
Certifications



Humana Inc.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
March 31,
2022
December 31, 2021
(in millions, except share amounts)
ASSETS
Current assets:
Cash and cash equivalents$4,864 $3,394 
Investment securities13,092 13,192 
Receivables, less allowance for doubtful accounts of $69 in 2022
    and $83 in 2021
3,174 1,814 
Other current assets5,710 6,493 
Total current assets26,840 24,893 
Property and equipment, net3,189 3,073 
Long-term investment securities392 780 
Equity method investments138 141 
Goodwill11,139 11,092 
Other long-term assets4,610 4,379 
Total assets$46,308 $44,358 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Benefits payable$9,378 $8,289 
Trade accounts payable and accrued expenses5,859 4,509 
Book overdraft317 326 
Unearned revenues288 254 
Short-term debt1,690 1,953 
Total current liabilities17,532 15,331 
Long-term debt11,285 10,541 
Other long-term liabilities2,149 2,383 
Total liabilities30,966 28,255 
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;
  198,648,742 shares issued at March 31, 2022 and December 31, 2021
33 33 
Capital in excess of par value3,103 3,082 
Retained earnings23,915 23,086 
Accumulated other comprehensive (loss) income(572)42 
Treasury stock, at cost, 72,155,340 shares at March 31, 2022 and
    69,846,758 shares at December 31, 2021
(11,160)(10,163)
Noncontrolling interests23 23 
Total stockholders’ equity15,342 16,103 
Total liabilities and stockholders’ equity$46,308 $44,358 
See accompanying notes to condensed consolidated financial statements.
3


Humana Inc.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
 
Three months ended March 31,
 20222021
 (in millions, except per share results)
Revenues:
Premiums$22,703 $20,124 
Services1,264 466 
Investment income3 78 
Total revenues23,970 20,668 
Operating expenses:
Benefits19,625 17,296 
Operating costs2,886 2,007 
Depreciation and amortization170 142 
Total operating expenses22,681 19,445 
Income from operations1,289 1,223 
Interest expense90 68 
Other (income) expense, net(21)115 
Income before income taxes and equity in net earnings 1,220 1,040 
Provision for income taxes286 233 
Equity in net (losses) earnings(4)21 
Net income$930 $828 
Less: Net income attributable to noncontrolling interests  
Net income attributable to Humana$930 $828 
Basic earnings per common share$7.32 $6.42 
Diluted earnings per common share$7.29 $6.39 
See accompanying notes to condensed consolidated financial statements.
4


Humana Inc.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
Three months ended March 31,
 20222021
 (in millions)
Net income attributable to Humana$930 $828 
Other comprehensive income:
Change in gross unrealized investment (losses) gains(769)(320)
Effect of income taxes176 73 
Total change in unrealized investment (losses) gains, net of tax(593)(247)
Reclassification adjustment for net realized gains(27)(55)
Effect of income taxes6 13 
Total reclassification adjustment, net of tax(21)(42)
Other comprehensive loss, net of tax(614)(289)
Comprehensive (loss) income attributable to equity method investments 6 
Comprehensive income attributable to Humana$316 $545 
See accompanying notes to condensed consolidated financial statements.
5


Humana Inc.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(Unaudited)
 Common StockCapital In
Excess of
Par Value
Retained
Earnings
Accumulated
Other
Comprehensive
Income (loss)
Treasury
Stock
Noncontrolling InterestsTotal
Stockholders’
Equity
 Issued
Shares
Amount
(dollars in millions, share amounts in thousands)
Three months ended March 31, 2022
Balances, December 31, 2021198,649 $33 $3,082 $23,086 $42 $(10,163)$23 $16,103 
Net income930 — 930 
Other comprehensive loss(614)(614)
Common stock repurchases— — (1,024)(1,024)
Dividends and dividend
   equivalents
— (101)(101)
Stock-based compensation43 43 
Restricted stock unit vesting— — (24)24  
Stock option exercises— — 2 3 5 
Balances, March 31, 2022198,649 $33 $3,103 $23,915 $(572)$(11,160)$23 $15,342 
Three months ended March 31, 2021
Balances, December 31, 2020198,649 $33 $2,705 $20,517 $391 $(9,918)$ $13,728 
Net income828 — 828 
Other comprehensive loss(283)(283)
Common stock repurchases— — (30)(30)
Dividends and dividend
   equivalents
— (93)(93)
Stock-based compensation39 39 
Restricted stock unit vesting— — (33)33  
Stock option exercises— — 1  1 
Balances, March 31, 2021198,649 $33 $2,712 $21,252 $108 $(9,915)$ $14,190 
See accompanying notes to condensed consolidated financial statements.

6


Humana Inc.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
 For the three months ended March 31,
 20222021
 (in millions)
Cash flows from operating activities
Net income$930 $828 
Adjustments to reconcile net income to net cash provided by
    operating activities:
Losses (gains) on investment securities, net76 (10)
Equity in net losses (earnings)4 (21)
Stock-based compensation43 39 
Depreciation181 153 
Amortization24 15 
Changes in operating assets and liabilities, net of effect of
    businesses acquired:
Receivables(1,360)(1,049)
Other assets(628)(1,095)
Benefits payable1,089 466 
Other liabilities(103)(151)
Unearned revenues34 7 
Other12 (19)
Net cash provided by (used in) operating activities302 (837)
Cash flows from investing activities
Acquisitions, net of cash and cash equivalents acquired(74)(123)
Purchases of property and equipment, net(295)(290)
Purchases of investment securities(2,161)(3,720)
Proceeds from maturities of investment securities588 692 
Proceeds from sales of investment securities1,294 1,953 
Net cash used in investing activities(648)(1,488)
Cash flows from financing activities
Receipts from contract deposits, net2,475 1,015 
Proceeds from issuance of senior notes, net744  
(Repayments) proceeds from issuance of commercial paper, net(265)603 
Debt issue costs(1) 
Change in book overdraft(9)23 
Common stock repurchases(1,024)(30)
Dividends paid(91)(83)
Other(13)1 
Net cash provided by financing activities1,816 1,529 
Increase (decrease) in cash and cash equivalents1,470 (796)
Cash and cash equivalents at beginning of period3,394 4,673 
Cash and cash equivalents at end of period$4,864 $3,877 




7



Humana Inc.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS—(Continued)
(Unaudited)
For the three months ended March 31,
20222021
(in millions)
Supplemental cash flow disclosures:
Interest payments$67 $40 
Income tax payments, net$(20)$(1)
Details of businesses acquired in purchase transactions:
Fair value of assets acquired, net of cash and cash equivalents acquired$84 $264 
Less: Fair value of liabilities assumed(10)(141)
Cash paid for acquired businesses, net of cash and cash equivalents acquired$74 $123 
See accompanying notes to condensed consolidated financial statements.
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Humana Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

1. BASIS OF PRESENTATION AND SIGNIFICANT EVENTS
The accompanying condensed consolidated financial statements are presented in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the disclosures normally required by accounting principles generally accepted in the United States of America, or GAAP, or those normally made in an Annual Report on Form 10-K. The year-end condensed consolidated balance sheet data was derived from audited financial statements, but does not include all disclosures required by GAAP. For further information, the reader of this Form 10-Q should refer to our Form 10-K for the year ended December 31, 2021, that was filed with the Securities and Exchange Commission, or the SEC, on February 17, 2022. We refer to the Form 10-K as the “2021 Form 10-K” in this document. References throughout this document to “we,” “us,” “our,” “Company,” and “Humana” mean Humana Inc. and its subsidiaries.
The preparation of our condensed consolidated financial statements in accordance with GAAP requires us to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and accompanying notes. The areas involving the most significant use of estimates are the estimation of benefits payable, the impact of risk adjustment provisions related to our Medicare contracts, the valuation and related impairment recognition of investment securities, and the valuation and related impairment recognition of long-lived assets, including goodwill and indefinite-lived intangible assets. These estimates are based on knowledge of current events and anticipated future events, and accordingly, actual results may ultimately differ materially from those estimates. Refer to Note 2 to the consolidated financial statements included in our 2021 Form 10-K for information on accounting policies that we consider in preparing our consolidated financial statements.
The financial information has been prepared in accordance with our customary accounting practices and has not been audited. In our opinion, the information presented reflects all adjustments necessary for a fair statement of interim results. All such adjustments are of a normal and recurring nature.
COVID-19
The emergence and spread of the novel coronavirus, or COVID-19, beginning in the first quarter of 2020 has impacted our business. During periods of increased incidences of COVID-19, a reduction in non-COVID-19 hospital admissions for non-essential care have resulted in lower overall healthcare system utilization. At the same time, COVID-19 treatment and testing costs increased utilization. During the first quarter of 2022, we experienced lower overall utilization of the healthcare system than anticipated, as the reduction in COVID-19 utilization following the increased incidence associated with the Omicron variant outpaced the increase in non-COVID-19 utilization. The significant disruption in utilization during 2020 also impacted our ability to implement clinical initiatives to manage health care costs and chronic conditions of our members, and appropriately document their risk profiles, and, as such, significantly affected our 2021 revenue under the risk adjustment payment model for Medicare Advantage plans. Finally, changes in utilization patterns and actions taken in 2021 as a result of the COVID-19 pandemic, including the suspension of certain financial recovery programs for a period of time and shifting the timing of claim payments and provider capitation surplus payments, impacted our claim reserve development and operating cash flows for 2021.

Sale of Hospice and Personal Care Divisions

On April 21, 2022, we signed a definitive agreement with private investment firm Clayton, Dubilier & Rice, or CD&R, to divest a 60% interest in the Hospice and Personal Care divisions of Humana’s Kindred at Home subsidiary, or KAH Hospice, at an enterprise valuation of $3.4 billion. These divisions include patient-centered services for Hospice, Palliative, Community and Personal Care. Under the agreement, we will receive cash proceeds of approximately $2.8 billion, which includes a combination of debt repayments from KAH Hospice to Humana and equity proceeds from the 60% interest purchased by CD&R.

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Humana Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)
The transaction is expected to close in the third quarter of 2022 and is subject to customary state and federal regulatory approvals.

Revenue Recognition

Our revenues include premium and service revenues. Service revenues include administrative service fees that are recorded based upon established per member per month rates and the number of members for the month and are recognized as services are provided for the month. Additionally, service revenues include net patient service revenues that are recorded based upon established billing rates, less allowances for contractual adjustments, and are recognized as services are provided. For more information about our revenues, refer to Note 2 to the consolidated financial statements included in our 2021 Form 10-K for information on accounting policies that we consider in preparing our consolidated financial statements. See Note 14 for disaggregation of revenue by segment and type.
At March 31, 2022, accounts receivable related to services were $481 million. For the three months ended March 31, 2022, we had no material bad-debt expense and there were no material contract assets, contract liabilities or deferred contract costs recorded on the condensed consolidated balance sheet at March 31, 2022.
For the three months ended March 31, 2022, services revenue recognized from performance obligations related to prior periods (for example, due to changes in transaction price), was not material. Further, services revenue expected to be recognized in any future year related to remaining performance obligations was not material.

2. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In September 2018, the FASB issued new guidance related to accounting for long-duration contracts of insurers which revises key elements of the measurement models and disclosure requirements for long-duration contracts issued by insurers, including the amortization of deferred contract acquisition costs and the measurement of liabilities for future policy benefits using current, rather than locked-in, assumptions. The new guidance, limited to our Medicare supplement product which represent less than 1% of consolidated premiums and services revenue, is effective for us beginning with annual and interim periods in 2023 and, using a modified retrospective approach, is to be applied to contracts in force on the basis of their existing carrying value amounts at the beginning of the earliest period presented. We are currently evaluating the impact on our results of operations, financial position and cash flows.

There are no other recently issued accounting standards that apply to us or that are expected to have a material impact on our results of operations, financial condition, or cash flows.

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Humana Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)
3. ACQUISITIONS
On August 17, 2021, we acquired the remaining 60% interest in Kindred at Home, or KAH, the nation’s largest home health and hospice provider, from TPG Capital, or TPG, and Welsh, Carson, Anderson & Stowe, or WCAS, two private equity funds, or the Sponsors, for an enterprise value of $8.2 billion, which includes our equity value of $2.4 billion associated with our 40% minority ownership interest. We paid the approximate $5.8 billion transaction price (net of our existing equity stake) through a combination of debt financing, the assumption of existing KAH indebtedness and parent company cash.
During 2022 and 2021, we acquired various health and wellness related businesses which, individually or in the aggregate, have not had a material impact on our results of operations, financial condition, or cash flows. The results of operations and financial condition of these businesses acquired in 2022 and 2021 have been included in our condensed consolidated statements of income and condensed consolidated balance sheets from the respective acquisition dates. Acquisition-related costs recognized in 2022 and 2021 were not material to our results of operations. For asset acquisitions, the goodwill acquired is partially amortizable as deductible expenses for tax purposes. The pro forma financial information assuming the acquisitions had occurred as of the beginning of the calendar year prior to the year of acquisition, as well as the revenues and earnings generated during the year of acquisition, were not material for disclosure purposes.

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Humana Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)
4. INVESTMENT SECURITIES
Investment securities classified as current and long-term were as follows at March 31, 2022 and December 31, 2021, respectively:
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair
Value
 (in millions)
March 31, 2022
U.S. Treasury and other U.S. government
    corporations and agencies:
U.S. Treasury and agency obligations$621 $ $(33)$588 
Mortgage-backed securities3,326 2 (256)3,072 
Tax-exempt municipal securities796 3 (18)781 
Mortgage-backed securities:
Residential480  (30)450 
Commercial1,570 1 (58)1,513 
Asset-backed securities1,579 2 (18)1,563 
Corporate debt securities5,668 12 (347)5,333 
Total debt securities$14,040 $20 $(760)13,300 
Common stock184 
Total investment securities$13,484 
December 31, 2021
U.S. Treasury and other U.S. government
    corporations and agencies:
U.S. Treasury and agency obligations$611 $1 $(10)$602 
Mortgage-backed securities3,265 33 (69)3,229 
Tax-exempt municipal securities810 33 (2)841 
Mortgage-backed securities:
Residential373  (6)367 
Commercial1,394 27 (11)1,410 
Asset-backed securities1,346 6 (4)1,348 
Corporate debt securities5,641 118 (59)5,700 
Total debt securities$13,440 $218 $(161)13,497 
Common stock475 
Total investment securities$13,972 
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Humana Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)
Gross unrealized losses and fair values aggregated by investment category and length of time of individual debt securities that have been in a continuous unrealized loss position for which no allowances for credit loss has been recorded were as follows at March 31, 2022 and December 31, 2021, respectively:
 Less than 12 months12 months or moreTotal
 Fair
Value
Gross
Unrealized
Losses
Fair
Value
Gross
Unrealized
Losses
Fair
Value
Gross
Unrealized
Losses
 (in millions)
March 31, 2022
U.S. Treasury and other U.S.
    government corporations
    and agencies:
U.S. Treasury and agency
    obligations
$110 $(5)$453 $(28)$563 $(33)
Mortgage-backed
    securities
1,112 (75)1,915 (181)3,027 (256)
Tax-exempt municipal
    securities
36 (3)418 (15)454 (18)
Mortgage-backed securities:
Residential383 (22)67 (8)450 (30)
Commercial390 (20)1,060 (38)1,450 (58)
Asset-backed securities614 (12)615 (6)1,229 (18)
Corporate debt securities1,879 (132)2,413 (215)4,292 (347)
Total debt securities$4,524 $(269)$6,941 $(491)$11,465 $(760)
December 31, 2021
U.S. Treasury and other U.S.
    government corporations
    and agencies:
U.S. Treasury and agency
    obligations
$201 $(3)$355 $(7)$556 $(10)
Mortgage-backed
    securities
2,082 (49)556 (20)2,638 (69)
Tax-exempt municipal
    securities
68 (1)34 (1)102 (2)
Mortgage-backed securities:
Residential358 (6)8  366 (6)
Commercial295 (4)400 (7)695 (11)
Asset-backed securities530 (3)425 (1)955 (4)
Corporate debt securities1,456 (28)769 (31)2,225 (59)
Total debt securities$4,990 $(94)$2,547 $(67)$7,537 $(161)

Approximately 96% of our debt securities were investment-grade quality, with a weighted average credit rating of AA- by Standard & Poor's Rating Service, or S&P, at March 31, 2022. Most of the debt securities that were below investment-grade were rated BB, the higher end of the below investment-grade rating scale. Tax-exempt municipal securities were diversified among general obligation bonds of states and local municipalities in the United States as well as special revenue bonds issued by municipalities to finance specific public works projects such as utilities, water and sewer, transportation, or education. Our general obligation bonds are diversified across the
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Humana Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)
United States with no individual state exceeding 1% of our total debt securities. Our investment policy limits investments in a single issuer and requires diversification among various asset types.
Our unrealized losses from all debt securities were generated from approximately 1,215 positions out of a total of approximately 1,760 positions at March 31, 2022. All issuers of debt securities we own that were trading at an unrealized loss at March 31, 2022 remain current on all contractual payments. After taking into account these and other factors previously described, we believe these unrealized losses primarily were caused by an increase in market interest rates in the current markets since the time these debt securities were purchased. At March 31, 2022, we did not intend to sell any debt securities with an unrealized loss position in accumulated other comprehensive income, and it is not likely that we will be required to sell these debt securities before recovery of their amortized cost basis. Additionally, we did not record any material credit allowances for debt securities that were in an unrealized loss position for the three months ended March 31, 2022 and 2021.
The detail of (losses) gains related to investment securities and included within investment income was as follows for the three months ended March 31, 2022 and 2021:
 Three months ended March 31,
 20222021
 (in millions)
Gross gains on investment securities$33 $95 
Gross losses on investment securities(1) 
Gross gains on equity securities 2 
Gross losses on equity securities(108)(87)
Net recognized (losses) gains on investment securities$(76)$10 
The gains and losses related to equity securities for the three months ended March 31, 2022 and 2021 was as follows:
Three months ended March 31,
20222021
(in millions)
Net losses recognized on equity securities during the period$(108)$(85)
Less: Net losses recognized on equity securities sold during the period(59) 
Unrealized losses recognized on equity securities still held at the end of the period$(49)$(85)
The contractual maturities of debt securities available for sale at March 31, 2022, regardless of their balance sheet classification, are shown below. Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.
Amortized
Cost
Fair
Value
 (in millions)
Due within one year$437 $438 
Due after one year through five years2,297 2,240 
Due after five years through ten years3,077 2,849 
Due after ten years1,274 1,175 
Mortgage and asset-backed securities6,955 6,598 
Total debt securities$14,040 $13,300 
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Humana Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)
5. FAIR VALUE
Financial Assets
The following table summarizes our fair value measurements at March 31, 2022 and December 31, 2021, respectively, for financial assets measured at fair value on a recurring basis:
 Fair Value Measurements Using
 Fair
Value
Quoted Prices
in Active
Markets
(Level 1)
Other
Observable
Inputs
(Level 2)
Unobservable
Inputs
(Level 3)
 (in millions)
March 31, 2022
Cash equivalents$4,482 $4,482 $ $ 
Debt securities:
U.S. Treasury and other U.S. government
    corporations and agencies:
U.S. Treasury and agency obligations588  588  
Mortgage-backed securities3,072  3,072  
Tax-exempt municipal securities781  781  
Mortgage-backed securities:
Residential450  450  
Commercial1,513  1,513  
Asset-backed securities1,563  1,563  
Corporate debt securities5,333  5,253 80 
Total debt securities13,300  13,220 80 
Common stock184 184   
Total invested assets$17,966 $4,666 $13,220 $80 
December 31, 2021
Cash equivalents$3,322 $3,322 $ $ 
Debt securities:
U.S. Treasury and other U.S. government
    corporations and agencies:
U.S. Treasury and agency obligations602  602  
Mortgage-backed securities3,229  3,229  
Tax-exempt municipal securities841  841  
Mortgage-backed securities:
Residential367  367  
Commercial1,410  1,410  
Asset-backed securities1,348  1,348  
Corporate debt securities5,700  5,632 68 
Total debt securities13,497  13,429 68 
Common stock475 475   
Total invested assets$17,294 $3,797 $13,429 $68 
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Humana Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)
Our Level 3 assets had a fair value of $80 million at March 31, 2022 , or 0.4% of our total invested assets. During the year ended March 31, 2022, the changes in the fair value of the assets measured using significant unobservable inputs (Level 3) were comprised of the following:
For the three months ended March 31, 2022
Private
Placements
(in millions)
Beginning balance at January 1$68 
Total gains or losses:
Realized in earnings 
Unrealized in other comprehensive income(4)
Purchases17 
Sales(1)
Settlements 
Balance at March 31$80 
Financial Liabilities
Our debt is recorded at carrying value in our consolidated balance sheets. The carrying value of our senior notes debt outstanding, net of unamortized debt issuance costs, was $9.8 billion at March 31, 2022 and $9.0 billion at December 31, 2021. The fair value of our senior notes debt was $10.0 billion at March 31, 2022 and $10.0 billion at December 31, 2021. The fair value of our senior notes debt is determined based on Level 2 inputs, including quoted market prices for the same or similar debt, or if no quoted market prices are available, on the current prices estimated to be available to us for debt with similar terms and remaining maturities. Carrying value approximates fair value for our term loans and commercial paper borrowings. The term loan and commercial paper borrowings were $3.2 billion as of March 31, 2022 and $3.5 billion as of December 31, 2021.
Put and Call Options Measured at Fair Value
Our put and call options associated with our equity method investments are measured at fair value each period using a Monte Carlo simulation.
Effective April 27, 2021, with the signing of the definitive agreement to acquire the remaining 60% interest of KAH, the respective put and call options were terminated. As such, the $63 million put and $440 million call fair values as of March 31, 2021 were subsequently reduced to zero, resulting in $377 million in "Other (income) expense, net" in our consolidated statements of income for the year ended December 31, 2021. The change in fair value of the put and call options included within other long-term liabilities and other long-term assets, respectively, at March 31, 2021 was reflected as "Other (income) expense, net" in our consolidated statements of income for the three months ended March 31, 2021.

The put and call options fair values associated with our Primary Care Organization strategic partnership with WCAS, which are exercisable at a fixed revenue exit multiple and provide a minimum return on WCAS' investment if exercised, are measured at fair value each reporting period. The put and call options fair values were $182 million and $14 million, respectively, at March 31, 2022. The put and call options fair values, derived from the Monte Carlo simulation, were $202 million and $13 million, respectively, at December 31, 2021.
The significant unobservable inputs utilized in these Level 3 fair value measurements (and selected values) include the enterprise value, annualized volatility and credit spread. Enterprise value was derived from a discounted cash flow model, which utilized significant unobservable inputs for long-term revenue, to measure underlying cash flows, weighted average cost of capital and long term growth rate. The table below presents the assumptions used for each reporting period.
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)
March 31, 2022December 31, 2021
Annualized volatility22.9 %22.4 %
Credit spread1.4 %0.9 %
Revenue exit multiple
1.5x - 2.5x
1.5x - 2.5x
Weighted average cost of capital12.5 %12.5 %
Long term growth rate3.0 %3.0 %

Other Assets and Liabilities Measured at Fair Value

Certain assets and liabilities are measured at fair value on a non-recurring basis subject to fair value adjustment only in certain circumstances. As disclosed in Note 3, “Acquisitions”, we completed our acquisition of KAH during the third quarter of 2021. The net assets acquired and resulting goodwill and other intangible assets were recorded at fair value primarily using Level 3 inputs. The net tangible assets including receivables and accrued liabilities were recorded at their carrying value which approximated their fair value due to their short term nature. The fair value of goodwill and other intangible assets were internally estimated based primarily on the income approach. The income approach estimates fair value based on the present value of cash flow that the assets could be expected to generate in the future. We developed internal estimates for expected cash flows in the present value calculation using inputs and significant assumptions that include historical revenues and earnings, revenue growth rates, the amount and timing of future cash flows, discount rates, contributory asset charges and future tax rates, among others. The excess purchase price over the fair value of assets and liabilities acquired is recorded as goodwill.
Other than the assets acquired and liabilities assumed in the KAH and other acquisitions in Note 3, there were no other material assets or liabilities measured at fair value on a recurring or nonrecurring basis during 2022.
6. MEDICARE PART D
We cover prescription drug benefits in accordance with Medicare Part D under multiple contracts with the Centers for Medicare and Medicaid Services, or CMS, as described further in Note 2 to the consolidated financial statements included in our 2021 Form 10-K. The accompanying condensed consolidated balance sheets include the following amounts associated with Medicare Part D at March 31, 2022 and December 31, 2021. CMS subsidies/discounts in the table below include the reinsurance and low-income cost subsidies funded by CMS for which we assume no risk as well as brand name prescription drug discounts for Part D plan participants in the coverage gap funded by CMS and pharmaceutical manufacturers.
 March 31, 2022December 31, 2021
Risk
Corridor
Settlement
CMS
Subsidies/
Discounts
Risk
Corridor
Settlement
CMS
Subsidies/
Discounts
 (in millions)
Other current assets$139 $997 $363 $1,894 
Trade accounts payable and accrued expenses(52)(2,046)(68)(466)
Net current asset (liability)87 (1,049)295 1,428 
Other long-term assets310  5  
Other long-term liabilities(221) (194) 
Net long-term asset (liability)89  (189) 
Total net asset (liability)$176 $(1,049)$106 $1,428 

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(Unaudited)
7. GOODWILL AND OTHER INTANGIBLE ASSETS
Changes in the carrying amount of goodwill for our reportable segments for the three months ended March 31, 2022 were as follows:
RetailGroup and SpecialtyHealthcare
Services
Total
 (in millions)
Balance at January 1, 2022$1,933 $261 $8,898 $11,092 
Acquisitions10  37 47 
Balance at March 31, 2022$1,943 $261 $8,935 $11,139 
The following table presents details of our other intangible assets included in other long-term assets in the accompanying condensed consolidated balance sheets at March 31, 2022 and December 31, 2021.
 March 31, 2022December 31, 2021
Weighted
Average
Life
CostAccumulated
Amortization
NetCostAccumulated
Amortization
Net
 ($ in millions)
Other intangible assets:
Certificates of needIndefinite$1,771 $— $1,771 $1,771 $— $1,771 
Medicare licensesIndefinite522 — 522 522 — 522 
Customer contracts/
    relationships
9.4 years912 634 278 883 620 263 
Trade names and
    technology
7.0 years159 100 59 160 97 63 
Provider contracts11.6 years72 58 14 72 57 15 
Noncompetes and
    other
6.8 years37 30 7 35 30 5 
Total other intangible
    assets
9.2 years$3,473 $822 $2,651 $3,443 $804 $2,639 
    For the three months ended March 31, 2022 and 2021, amortization expense for other intangible assets was approximately $18 million and $15 million, respectively. The following table presents our estimate of amortization expense remaining for 2022 and each of the five next succeeding years:
 (in millions)
For the years ending December 31,
2022$52 
202355 
202448 
202546 
202634 
202725 
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8. BENEFITS PAYABLE
On a consolidated basis, activity in benefits payable was as follows for the three months ended March 31, 2022 and 2021:
For the three months ended March 31,
20222021
 (in millions)
Balances, beginning of period$8,289 $8,143 
Acquisitions 42 
Incurred related to:
Current year19,985 17,851 
Prior years(360)(555)
Total incurred19,625 17,296 
Paid related to:
Current year(12,284)(10,842)
Prior years(6,252)(5,988)
Total paid(18,536)(16,830)
Balances, end of period $9,378 $8,651 
Amounts incurred related to prior periods 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).
Our reserving practice is to consistently recognize the actuarial best estimate of our ultimate liability for claims. Actuarial standards require the use of assumptions based on moderately adverse experience, which generally results in favorable reserve development, or reserves that are considered redundant.
Incurred and Paid Claims Development
The following discussion provides information about incurred and paid claims development for our Retail and Group and Specialty segments as of March 31, 2022 and 2021, net of reinsurance, and the total estimate of benefits payable for claims incurred but not reported, or IBNR, included within the net incurred claims amounts.










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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)
Retail Segment
Activity in benefits payable for our Retail segment was as follows for the three months ended March 31, 2022 and 2021:
For the three months ended March 31,
20222021
 (in millions)
Balances, beginning of period$7,675 $7,428 
Acquisitions 42 
Incurred related to:
Current year19,078 16,762 
Prior years(328)(463)
Total incurred18,750 16,299 
Paid related to:
Current year(11,882)(10,330)
Prior years(5,741)(5,401)
Total paid(17,623)(15,731)
Balances, end of period$8,802 $8,038 
At March 31, 2022, benefits payable for our Retail segment included IBNR of approximately $5.3 billion, primarily associated with claims incurred in 2022.
Group and Specialty Segment
Activity in benefits payable for our Group and Specialty segment was as follows for the three months ended March 31, 2022 and 2021:
For the three months ended March 31,
20222021
 (in millions)
Balances, beginning of period$614 $715 
Incurred related to:
Current year1,078 1,237 
Prior years(32)(92)
Total incurred1,046 1,145 
Paid related to:
Current year(573)(660)
Prior years(511)(587)
Total paid(1,084)(1,247)
Balances, end of period$576 $613 
At March 31, 2022, benefits payable for our Group and Specialty segment included IBNR of approximately $492 million, primarily associated with claims incurred in 2022.

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(Unaudited)
9. EARNINGS PER COMMON SHARE COMPUTATION
Detail supporting the computation of basic and diluted earnings per common share was as follows for the three months ended March 31, 2022 and 2021:
Three months ended March 31,
20222021
(dollars in millions, except per common share results; number of shares in thousands)
Net income available for common stockholders$930 $828 
Weighted average outstanding shares of common stock
    used to compute basic earnings per common share
126,938 128,931 
Dilutive effect of:
Employee stock options40 52 
Restricted stock496 568 
Shares used to compute diluted earnings per common share127,474 129,551 
Basic earnings per common share$7.32 $6.42 
Diluted earnings per common share$7.29 $6.39 
Number of antidilutive stock options and restricted stock
    excluded from computation
626 531 

10. STOCKHOLDERS’ EQUITY
Dividends
The following table provides details of dividend payments, excluding dividend equivalent rights for unvested stock awards, in 2021 and 2022 under our Board approved quarterly cash dividend policy:
Record
Date
Payment
Date
Amount
per Share
Total
Amount
(in millions)
2021 payments
12/31/20201/29/2021$0.6250 $81 
3/31/20214/30/20210.7000 90 
6/30/20217/30/20210.7000 90 
9/30/202110/29/20210.7000 90 
2022 payments
12/31/20211/28/2022$0.7000 $90 
In February 2022, the Board declared a cash dividend of $0.7875 per share payable on April 29, 2022 to stockholders of record on March 31, 2022. In April 2022, the Board declared a cash dividend of $0.7875 per share payable on July 29, 2022 to stockholders of record on June 30, 2022. Declaration and payment of future quarterly dividends is at the discretion of our Board and may be adjusted as business needs or market conditions change.




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(Unaudited)
Stock Repurchases
Our Board of Directors may authorize the purchase of our common stock shares. Under the share repurchase authorization, shares may be purchased from time to time at prevailing prices in the open market, by block purchases, through plans designed to comply with Rule 10b5-1 under the Securities Exchange Act of 1934, as amended, or in privately-negotiated transactions, including pursuant to accelerated share repurchase agreements with investment banks, subject to certain regulatory restrictions on volume, pricing, and timing.
On February 18, 2021, the Board of Directors replaced the previous share repurchase authorization of up to $3 billion (of which approximately $250 million remained unused) with a new authorization for repurchases of up to $3 billion of our common shares exclusive of shares repurchased in connection with employee stock plans, expiring as of February 18, 2024.
On January 11, 2022, we entered into separate accelerated stock repurchase agreements, the January 2022 ASR Agreements, with Mizuho Markets Americas LLC, or Mizuho, and Wells Fargo Bank, or Wells Fargo, to repurchase $1 billion of our common stock as part of the $3 billion repurchase program authorized by the Board of Directors on February 18, 2021. On January 12, 2022, in accordance with the January 2022 ASR Agreements, we made a payment of $1 billion ($500 million to Mizuho and $500 million to Wells Fargo) and received an initial delivery of 2.2 million shares of our common stock (1.08 million shares each from Mizuho and Wells Fargo). In January 2022, we recorded the payments to Mizuho and Wells Fargo as a reduction to stockholders’ equity, consisting of an $850 million increase in treasury stock, which reflects the value of the initial 2.2 million shares received upon initial settlement, and a $150 million decrease in capital in excess of par value, which reflects the value of stock held back by Mizuho and Wells Fargo pending final settlement of the January 2022 ASR Agreements. Upon final settlement of the January 2022 ASR Agreements with Mizuho and Wells Fargo on March 29, 2022 and March 30, 2022, respectively, we received an additional 0.1 million shares and 0.1 million shares, respectively, as determined by the average daily volume weighted-averages share price of our common stock during the term of the agreement, less a discount, of $410.96 and $411.66, respectively, bringing the total shares received under the January 2022 ASR Agreements to 2.4 million. In addition, upon settlement we reclassified the $150 million value of stock initially held back by Mizuho and Wells Fargo from capital in excess of par value to treasury stock. Our remaining repurchase authorization was $2 billion as of April 26, 2022.
In connection with employee stock plans, we acquired 0.06 million common shares for $24 million and 0.08 million common shares for $30 million during the three months ended March 31, 2022 and 2021, respectively.

11. INCOME TAXES
The effective income tax rate was 23.5% and 22.0% for the three months ended March 31, 2022 and 2021, respectively. The increase is primarily due to the favorable tax treatment we incurred during the 2021 period related to our equity method investment activity that did not occur during the 2022 period.

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(Unaudited)
12.  DEBT
The carrying value of debt outstanding, net of unamortized debt issuance costs, was as follows at March 31, 2022 and December 31, 2021:
March 31, 2022December 31, 2021
(in millions)
Short-term debt:
Commercial paper$691 $955 
Senior notes:
$600 million, 3.150% due December 1, 2022
600 599 
$400 million, 2.900% due December 15, 2022
399 399 
Total senior notes999 998
Total short-term debt$1,690 $1,953 
Long-term debt:
Senior notes:
$1.5 billion, 0.650% due August 3, 2023
1,494 1,492 
$600 million, 3.850% due October 1, 2024
598 598 
$600 million, 4.500% due April 1, 2025
596 596 
$750 million, 1.350% due February 3, 2027
742 742 
$600 million, 3.950% due March 15, 2027
596 596 
$750 million, 3.700% due March 23, 2029
741  
$500 million, 3.125% due August 15, 2029
496 496 
$500 million, 4.875% due April 1, 2030
495 495 
$750 million, 2.150% due February 3, 2032
741 741 
$250 million, 8.150% due June 15, 2038
261 261 
$400 million, 4.625% due December 1, 2042
396 396 
$750 million, 4.950% due October 1, 2044
740 740 
$400 million, 4.800% due March 15, 2047
396 395 
$500 million, 3.950% due August 15, 2049
493 493 
Total senior notes8,785 8,041 
Term loans:
Term loan, due October 29, 20232,0002,000
Delayed draw term loan, due May 28, 2024500500
Total term loans2,5002,500
Total long-term debt$11,285 $10,541 
Senior Notes    
Our senior notes, which are unsecured, may be redeemed at our option at any time at 100% of the principal amount plus accrued interest and a specified make-whole amount. The 8.15% senior notes are subject to an interest rate adjustment if the debt ratings assigned to the notes are downgraded (or subsequently upgraded). In addition, our senior notes contain a change of control provision that may require us to purchase the notes under certain circumstances.
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(Unaudited)
In March 2022, we issued $750 million of 3.700% unsecured senior notes due March 23, 2029. Our net proceeds, reduced for the underwriters' discounts and commissions paid, were $744 million. We used the net proceeds for general corporate purposes, which included the repayment of existing indebtedness, including borrowings under our commercial paper program.
Delayed Draw Term Loan Credit Agreement
In May 2021, we entered into a $500 million unsecured delayed draw term loan credit agreement. Under the term loan credit agreement, loans bear interest at either LIBOR plus a spread or the base rate plus a spread. The loans under the term loan credit agreement mature on the third anniversary of the funding date. The LIBOR spread, currently 125 basis points, varies depending on our credit ratings ranging from 100.0 to 162.5 basis points. The term loan credit agreement provides for the transition from LIBOR and does not require amendment in connection with such transition.

In August 2021, we borrowed $500 million under the delayed draw term loan agreement, which was used, in combination with other debt financing, to fund the approximate $5.8 billion transaction price of Kindred at Home. The term loan credit agreement contains customary restrictive covenants and a financial covenant regarding maximum debt to capitalization of 60%, as well as customary events of default. We are in compliance with this financial covenant, with actual debt to capitalization of 45.8% as measured in accordance with the term loan credit agreement as of March 31, 2022.

We have other customary relationships, including financial advisory and banking, with some parties to the term loan agreement.

October 2021 Term Loan Agreement

On October 29, 2021, we entered into a $2.0 billion term loan credit agreement, which we refer to as the October 2021 Term Loan Agreement, with certain lending banks and other financial institutions. Proceeds of the October 2021 Term Loan Agreement were applied to finance the repayment in full of the outstanding KAH debt.

Loans under the October 2021 Term Loan Agreement bear interest at adjusted Term SOFR, as defined in the October 2021 Term Loan Agreement, or the base rate plus a spread. The applicable margin, currently 112.5 basis points, varies depending on our credit ratings ranging from 87.5 to 137.5 basis points. The loans under the October 2021 Term Loan Agreement will mature on October 29, 2023. The October 2021 Term Loan Agreement contains customary covenants, including a maximum debt to capitalization financial condition covenant regarding maximum debt to capitalization of 60%, as well as customary events of default. We are in compliance with this financial covenant, with actual debt to capitalization of 45.8% as measured in accordance with the term loan credit agreement as of March 31, 2022. We have other relationships, including financial advisory and banking, with some parties to the October 2021 Term Loan Agreement.

At the time of the repayment in full of the KAH debt, there was $1.9 billion of outstanding debt thereunder and no prepayment penalty was due.












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(Unaudited)
Revolving Credit Agreements

In June 2021, we entered into two separate revolving credit agreements: (i) a 5-year, $2.5 billion unsecured revolving credit agreement and (ii) a 364-day $1.5 billion unsecured revolving credit agreement. Under the revolving credit agreements, at our option, we can borrow on either a competitive advance basis or a revolving credit basis. The revolving credit portion bears interest at either LIBOR plus a spread or the base rate plus a spread. The competitive advance portion of any borrowings will bear interest at market rates prevailing at the time of borrowing on either a fixed rate or a floating rate based on LIBOR, at our option. The revolving credit agreements provide for the transition from LIBOR and do not require amendment in connection with such transition.

The LIBOR spread, currently 110.0 basis points under the 5-year revolving credit agreements and 115.0 basis points under the 364-day revolving credit agreement, varies depending on our credit ratings ranging from 91.0 to 140.0 basis points under the 5-year revolving credit agreement and from 93.0 to 145.0 basis points under the 364-day revolving credit agreement. We also pay an annual facility fee regardless of utilization. This facility fee, currently 15.0 basis points, under the 5-year revolving credit agreement and 10.0 basis points under the 364-day revolving agreement, varies depending on our credit ratings ranging from 9.0 to 22.5 basis points under the 5-year revolving credit agreement and from 7.0 to 17.5 basis points under the 364-day revolving credit agreement.
The terms of the revolving credit agreements include standard provisions related to conditions of borrowing which could limit our ability to borrow additional funds. In addition, the credit agreements contain customary restrictive covenants and a financial covenant regarding maximum debt to capitalization of 60%, as well as customary events of default. We are in compliance with this financial covenant, with actual debt to capitalization of 45.8% as measured in accordance with the revolving credit agreements as of March 31, 2022. Upon our agreement with one or more financial institutions, we may expand the aggregate commitments under the revolving credit agreements by up to $750 million in the aggregate, to a maximum of $4.75 billion, across the 5-year and 364-day revolving credit agreements.
At March 31, 2022, we had no borrowings and approximately $74 million of letters of credit outstanding under the revolving credit agreements, including those of KAH. Accordingly, as of March 31, 2022, we had $2.5 billion of remaining borrowing capacity under the 5-year revolving credit agreement and $1.5 billion of remaining borrowing capacity under the 364-day revolving credit agreement (which excludes the uncommitted $750 million of incremental loan facilities), none of which would be restricted by our financial covenant compliance requirement.
We have other customary relationships, including financial advisory and banking, with some parties to the revolving credit agreements.
Commercial Paper
Under our commercial paper program we may issue short-term, unsecured commercial paper notes privately placed on a discount basis through certain broker dealers at any time. On February 10, 2022, we increased the size of our commercial paper program to permit the issuance of commercial paper notes in an aggregate principal amount not to exceed $4 billion compared to the prior amount not to exceed $2 billion. Amounts available under the program may be borrowed, repaid and re-borrowed from time to time. The net proceeds of issuances have been and are expected to be used for general corporate purposes. The maximum principal amount outstanding at any one time during the three months ended March 31, 2022 was $1.5 billion, with $691 million outstanding at March 31, 2022 compared to $955 million outstanding at December 31, 2021. The outstanding commercial paper at March 31, 2022 had a weighted average annual interest rate of 0.89%.
Other Short-term Borrowings
We are a member, through one subsidiary, of the Federal Home Loan Bank of Cincinnati, or FHLB. As a member we have the ability to obtain short-term cash advances, subject to certain minimum collateral requirements. At March 31, 2022 we had no outstanding short-term FHLB borrowings.

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(Unaudited)

13. COMMITMENTS, GUARANTEES AND CONTINGENCIES
Government Contracts
Our Medicare products, which accounted for approximately 82% of our total premiums and services revenue for the three months ended March 31, 2022, primarily consisted of products covered under the Medicare Advantage and Medicare Part D Prescription Drug Plan contracts with the federal government. These contracts are renewed generally for a calendar year term unless CMS notifies us of its decision not to renew by May 1 of the calendar year in which the contract would end, or we notify CMS of our decision not to renew by the first Monday in June of the calendar year in which the contract would end. All material contracts between Humana and CMS relating to our Medicare products have been renewed for 2022 and all of our product offerings have been approved.
CMS uses a risk-adjustment model which adjusts premiums paid to Medicare Advantage, or MA, plans according to health status of covered members. The risk-adjustment model, which CMS implemented pursuant to the Balanced Budget Act of 1997, or BBA, and the Benefits Improvement and Protection Act of 2000, or BIPA, generally pays more where a plan's membership has higher expected costs. Under this model, rates paid to MA plans are based on actuarially determined bids, which include a process whereby our prospective payments are based on our estimated cost of providing standard Medicare-covered benefits to an enrollee with a "national average risk profile." That baseline payment amount is adjusted to reflect the health status of our enrolled membership. Under the risk-adjustment methodology, all MA plans must collect from providers and submit the necessary diagnosis code information to CMS within prescribed deadlines. The CMS risk-adjustment model uses the diagnosis data to calculate the risk-adjusted premium payment to MA plans, which CMS adjusts for coding pattern differences between the health plans and the government fee-for-service program. We generally rely on providers, including certain providers in our network who are our employees, to code their claim submissions with appropriate diagnoses, which we send to CMS as the basis for our payment received from CMS under the actuarial risk-adjustment model. We also rely on these providers to document appropriately all medical data, including the diagnosis data submitted with claims. In addition, we conduct medical record reviews as part of our data and payment accuracy compliance efforts, to more accurately reflect diagnosis conditions under the risk adjustment model. These compliance efforts include the internal contract level audits described in more detail below, as well as ordinary course reviews of our internal business processes.
CMS and the Office of the Inspector General of Health and Human Services, or HHS-OIG, are continuing to perform audits of various companies’ selected MA contracts related to this risk adjustment diagnosis data. We refer to these audits as Risk-Adjustment Data Validation Audits, or RADV audits. RADV audits review medical records in an attempt to validate provider medical record documentation and coding practices which influence the calculation of premium payments to MA plans.
In 2012, CMS released a “Notice of Final Payment Error Calculation Methodology for Part C Medicare Advantage Risk Adjustment Data Validation (RADV) Contract-Level Audits.” The payment error calculation methodology provided that, in calculating the economic impact of audit results for an MA contract, if any, the results of the RADV audit sample would be extrapolated to the entire MA contract after a comparison of the audit results to a similar audit of the government’s traditional fee-for-service Medicare program, or Medicare FFS. We refer to the process of accounting for errors in FFS claims as the "FFS Adjuster." This comparison of RADV audit results to the FFS error rate is necessary to determine the economic impact, if any, of RADV audit results because the government used the Medicare FFS program data set, including any attendant errors that are present in that data set, to estimate the costs of various health status conditions and to set the resulting adjustments to MA plans’ payment rates in order to establish actuarial equivalence in payment rates as required under the Medicare statute. CMS already makes other adjustments to payment rates based on a comparison of coding pattern differences between MA plans and Medicare FFS data (such as for frequency of coding for certain diagnoses in MA plan data versus the Medicare FFS program dataset).
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(Unaudited)
The final RADV extrapolation methodology, including the first application of extrapolated audit results to determine audit settlements, is expected to be applied to CMS RADV contract level audits conducted for contract year 2011 and subsequent years. CMS is currently conducting RADV contract level audits for certain of our Medicare Advantage plans.
Estimated audit settlements are recorded as a reduction of premiums revenue in our consolidated statements of income, based upon available information. We perform internal contract level audits based on the RADV audit methodology prescribed by CMS. Included in these internal contract level audits is an audit of our Private Fee-For Service business which we used to represent a proxy of the FFS Adjuster which has not yet been finalized. We based our accrual of estimated audit settlements for each contract year on the results of these internal contract level audits and update our estimates as each audit is completed. Estimates derived from these results were not material to our results of operations, financial position, or cash flows. We report the results of these internal contract level audits to CMS, including identified overpayments, if any.
On October 26, 2018, CMS issued a proposed rule and accompanying materials, which we refer to as the “Proposed Rule”, related to, among other things, the RADV audit methodology described above. If implemented, the Proposed Rule would use extrapolation in RADV audits applicable to payment year 2011 contract-level audits and all subsequent audits, without the application of a FFS Adjuster to audit findings. We believe that the Proposed Rule fails to address adequately the statutory requirement of actuarial equivalence, and have provided substantive comments to CMS on the Proposed Rule as part of the notice-and-comment rulemaking process. Whether, and to what extent, CMS finalizes the Proposed Rule, and any related regulatory, industry or company reactions, could have a material adverse effect on our results of operations, financial position, or cash flows.
In addition, as part of our internal compliance efforts, we routinely perform ordinary course reviews of our internal business processes related to, among other things, our risk coding and data submissions in connection with the risk adjustment model. These reviews may also result in the identification of errors and the submission of corrections to CMS, that may, either individually or in the aggregate, be material. As such, the result of these reviews may have a material adverse effect on our results of operations, financial position, or cash flows.

We will continue to work with CMS to ensure that MA plans are paid accurately and that payment model principles are in accordance with the requirements of the Social Security Act, which, if not implemented correctly could have a material adverse effect on our results of operations, financial position, or cash flows.
Our state-based Medicaid business, which accounted for approximately 6% of our total premiums and services revenue for the three months ended March 31, 2022 primarily consisted of serving members enrolled in Medicaid, and in certain circumstances members who qualify for both Medicaid and Medicare, under contracts with various states.
At March 31, 2022, our military services business, which accounted for approximately 1% of our total premiums and services revenue for the three months ended March 31, 2022, primarily consisted of the TRICARE T2017 East Region contract. The T2017 East Region contract comprising 32 states and approximately 6 million TRICARE beneficiaries, under which delivery of health care services commenced on January 1, 2018. The T2017 East Region contract is a 5-year contract set to expire on December 31, 2022 and is subject to renewals on January 1 of each year during its term at the government's option.
The loss of any of the contracts above or significant changes in these programs as a result of legislative or regulatory action, including reductions in premium payments to us, regulatory restrictions on profitability, including reviews by regulatory bodies that may compare our Medicare Advantage profitability to our non-Medicare Advantage business profitability, or compare the profitability of various products within our Medicare Advantage business, and require that they remain within certain ranges of each other, or increases in member benefits or member eligibility criteria without corresponding increases in premium payments to us, may have a material adverse effect on our results of operations, financial position, and cash flows.


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(Unaudited)
Legal Proceedings and Certain Regulatory Matters
As previously disclosed, the Civil Division of the United States Department of Justice provided us with an information request in December 2014, concerning our Medicare Part C risk adjustment practices. The request relates to our oversight and submission of risk adjustment data generated by providers in our Medicare Advantage network, as well as to our business and compliance practices related to risk adjustment data generated by our providers and by us, including medical record reviews conducted as part of our data and payment accuracy compliance efforts, the use of health and well-being assessments, and our fraud detection efforts. We believe that this request for information is in connection with a wider review of Medicare Risk Adjustment generally that includes a number of Medicare Advantage plans, providers and vendors. We continue to cooperate with the Department of Justice. These matters are expected to result in additional qui tam litigation.
As previously disclosed, on January 19, 2016, an individual filed a qui tam suit captioned United States of America ex rel. Steven Scott v. Humana, Inc., in United States District Court, Central District of California, Western Division. The complaint alleges certain civil violations by us in connection with the actuarial equivalence of the plan benefits under Humana’s Basic PDP plan, a prescription drug plan offered by us under Medicare Part D. The action seeks damages and penalties on behalf of the United States under the False Claims Act. The court ordered the qui tam action unsealed on September 13, 2017, so that the relator could proceed, following notice from the U.S. Government that it was not intervening at that time. On January 29, 2018, the suit was transferred to the United States District Court, Western District of Kentucky, Louisville Division. We have substantially completed discovery with the relator who has pursued the matter on behalf of the united States following unsealing. On March 31, 2022, the Court denied the parties' Motions for Summary Judgement. We take seriously our obligations to comply with applicable CMS requirements and actuarial standards of practice, and continue to vigorously defend against these allegations.
Other Lawsuits and Regulatory Matters
    Our current and past business practices are subject to review or other investigations by various state insurance and health care regulatory authorities and other state and federal regulatory authorities. These authorities regularly scrutinize the business practices of health insurance, health care delivery and benefits companies. These reviews focus on numerous facets of our business, including claims payment practices, statutory capital requirements, provider contracting, risk adjustment, competitive practices, commission payments, privacy issues, utilization management practices, pharmacy benefits, access to care, and sales practices, among others. Some of these reviews have historically resulted in fines imposed on us and some have required changes to some of our practices. We continue to be subject to these reviews, which could result in additional fines or other sanctions being imposed on us or additional changes in some of our practices.
We also are involved in various other lawsuits that arise, for the most part, in the ordinary course of our business operations, certain of which may be styled as class-action lawsuits. Among other matters, this litigation may include employment matters, claims of medical malpractice, bad faith, nonacceptance or termination of providers, anticompetitive practices, improper rate setting, provider contract rate and payment disputes, including disputes over reimbursement rates required by statute, disputes arising from competitive procurement process, general contractual matters, intellectual property matters, and challenges to subrogation practices. Under state guaranty assessment laws, including those related to state cooperative failures in the industry, we 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 we do.
As a government contractor, we may also be subject to false claims litigation, such as qui tam lawsuits brought by individuals who seek to sue on behalf of the government, alleging that the government contractor submitted false claims to the government or related overpayments from the government, including, among other allegations, those resulting from coding and review practices under the Medicare risk adjustment model. Qui tam litigation is filed under seal to allow the government an opportunity to investigate and to decide if it wishes to intervene and assume control of the litigation. If the government does not intervene, the individual may continue to prosecute the action on his or her own, on behalf of the government. We also are subject to other allegations of nonperformance of
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(Unaudited)
contractual obligations to providers, members, and others, including failure to properly pay claims, improper policy terminations, challenges to our implementation of the Medicare Part D prescription drug program and other litigation.

A limited number of the claims asserted against us are subject to insurance coverage. Personal injury claims, claims for extra contractual damages, care delivery malpractice, and claims arising from medical benefit denials are covered by insurance from our wholly owned captive insurance subsidiary and excess carriers, except to the extent that claimants seek punitive damages, which may not be covered by insurance in certain states in which insurance coverage for punitive damages is not permitted. In addition, insurance coverage for all or certain forms of liability has become increasingly costly and may become unavailable or prohibitively expensive in the future.
We record accruals for the contingencies discussed in the sections above to the extent that we conclude it is probable that a liability has been incurred and the amount of the loss can be reasonably estimated. No estimate of the possible loss or range of loss in excess of amounts accrued, if any, can be made at this time regarding the matters specifically described above because of the inherently unpredictable nature of legal proceedings, which also may be exacerbated by various factors, including: (i) the damages sought in the proceedings are unsubstantiated or indeterminate; (ii) discovery is not complete; (iii) the proceeding is in its early stages; (iv) the matters present legal uncertainties; (v) there are significant facts in dispute; (vi) there are a large number of parties (including where it is uncertain how liability, if any, will be shared among multiple defendants); or (vii) there is a wide range of potential outcomes.
The outcome of any current or future litigation or governmental or internal investigations, including the matters described above, cannot be accurately predicted, nor can we predict any resulting judgments, penalties, fines or other sanctions that may be imposed at the discretion of federal or state regulatory authorities or as a result of actions by third parties. Nevertheless, it is reasonably possible that any such outcome of litigation, judgments, penalties, fines or other sanctions could be substantial, and the outcome of these matters may have a material adverse effect on our results of operations, financial position, and cash flows, and may also affect our reputation.

14. SEGMENT INFORMATION
We manage our business with three reportable segments: Retail, Group and Specialty, and Healthcare Services. The reportable segments are based on a combination of the type of health plan customer and adjacent businesses centered on well-being solutions for our health plans and other customers, as described below. These segment groupings are consistent with information used by our Chief Executive Officer, the Chief Operating Decision Maker, to assess performance and allocate resources.
The Retail segment consists of Medicare benefits, marketed to individuals or directly via group Medicare accounts. In addition, the Retail segment also includes our contract with CMS to administer the Limited Income Newly Eligible Transition, or LI-NET, prescription drug plan program and contracts with various states to provide Medicaid, including Temporary Assistance for Needy Families, or TANF, dual eligible demonstration, and Long-Term Support Services benefits, which we refer to collectively as our state-based contracts. The Group and Specialty segment consists of employer group commercial fully-insured medical and specialty health insurance benefits marketed to individuals and employer groups, including dental, vision, and other supplemental health benefits, as well as administrative services only, or ASO products. In addition, our Group and Specialty segment includes our military services business, primarily our TRICARE T2017 East Region contract. The Healthcare Services segment includes pharmacy, provider, and home services, along with other services and capabilities to promote wellness and advance population health. The operations of the recently acquired full ownership of Kindred at Home, as well as the company's strategic partnership with WCAS to develop and operate senior-focused, payor-agnostic, primary care centers are also included in the Healthcare Services segment.
Our Healthcare Services intersegment revenues primarily relate to managing prescription drug coverage for members of our other segments through Humana Pharmacy Solutions®, or HPS, and includes the operations of Humana Pharmacy, Inc., our mail order pharmacy business. These revenues consist of the prescription price (ingredient cost plus dispensing fee), including the portion to be settled with the member (co-share) or with the government (subsidies), plus any associated administrative fees. Services revenues related to the distribution of
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Humana Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)
prescriptions by third party retail pharmacies in our networks are recognized when the claim is processed and product revenues from dispensing prescriptions from our mail order pharmacies are recorded when the prescription or product is shipped. Our pharmacy operations, which are responsible for designing pharmacy benefits, including defining member co-share responsibilities, determining formulary listings, contracting with retail pharmacies, confirming member eligibility, reviewing drug utilization, and processing claims, act as a principal in the arrangement on behalf of members in our other segments. As principal, our Healthcare Services segment reports revenues on a gross basis, including co-share amounts from members collected by third party retail pharmacies at the point of service.
In addition, our Healthcare Services intersegment revenues include revenues earned by certain owned providers derived from risk-based and non-risk-based managed care agreements with our health plans. Under risk based agreements, the provider receives a monthly capitated fee that varies depending on the demographics and health status of the member, for each member assigned to these owned providers by our health plans. The owned provider assumes the economic risk of funding the assigned members’ healthcare services. Under non risk-based agreements, our health plans retain the economic risk of funding the assigned members' healthcare services. Our Healthcare Services segment reports provider services revenues associated with risk-based agreements on a gross basis, whereby capitation fee revenue is recognized in the period in which the assigned members are entitled to receive healthcare services. Provider services revenues associated with non-risk-based agreements are presented net of associated healthcare costs.
We present our condensed consolidated results of operations from the perspective of the health plans. As a result, the cost of providing benefits to our members, whether provided via a third party provider or internally through a stand-alone subsidiary, is classified as benefits expense and excludes the portion of the cost for which the health plans do not bear responsibility, including member co-share amounts and government subsidies of $4.0 billion and $3.6 billion for the three months ended March 31, 2022 and 2021, respectively. In addition, depreciation and amortization expense associated with certain businesses in our Healthcare Services segment delivering benefits to our members, primarily associated with our provider services and pharmacy operations, are included with benefits expense. The amount of this expense was $30 million and $26 million for the three months ended March 31, 2022 and 2021, respectively.
Other than those described previously, the accounting policies of each segment are the same and are described in Note 2 to the consolidated financial statements included in our 2021 Form 10-K. Transactions between reportable segments primarily consist of sales of services rendered by our Healthcare Services segment, primarily pharmacy, provider, and home solutions services, to our Retail and Group and Specialty segment customers. Intersegment sales and expenses are recorded at fair value and eliminated in consolidation. Members served by our segments often use the same provider networks, enabling us in some instances to obtain more favorable contract terms with providers. Our segments also share indirect costs and assets. As a result, the profitability of each segment is interdependent. We allocate most operating expenses to our segments. Assets and certain corporate income and expenses are not allocated to the segments, including the portion of investment income not supporting segment operations, interest expense on corporate debt, and certain other corporate expenses. These items are managed at a corporate level. These corporate amounts are reported separately from our reportable segments and are included with intersegment eliminations in the tables presenting segment results below.
Our segment results were as follows for the three months ended March 31, 2022 and 2021:
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Humana Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)
RetailGroup and SpecialtyHealthcare
Services
Eliminations/
Corporate
Consolidated
Three months ended March 31, 2022(in millions)
External revenues
Premiums:
Individual Medicare Advantage$17,052 $ $ $ $17,052 
Group Medicare Advantage1,875    1,875 
Medicare stand-alone PDP639    639 
Total Medicare19,566    19,566 
Fully-insured182 972   1,154 
Specialty 429   429 
Medicaid and other1,554    1,554 
Total premiums21,302 1,401   22,703 
Services revenue:
Home solutions  726  726 
Provider services  113  113 
ASO and other6 195   201 
Pharmacy solutions  224  224 
Total services revenue6 195 1,063  1,264 
Total external revenues 21,308 1,596 1,063  23,967 
Intersegment revenues
Services 14 5,177 (5,191) 
Products  2,446 (2,446) 
Total intersegment revenues 14 7,623 (7,637) 
Investment income43 3 2 (45)3 
Total revenues21,351 1,613 8,688 (7,682)23,970 
Operating expenses:
Benefits18,750 1,046  (171)19,625 
Operating costs1,694 413 8,185 (7,406)2,886 
Depreciation and amortization123 22 53 (28)170 
Total operating expenses20,567 1,481 8,238 (7,605)22,681 
Income (loss) from operations784 132 450 (77)1,289 
Interest expense   90 90 
Other income, net   (21)(21)
Income before income taxes and equity in net earnings 784 132 450 (146)1,220 
Equity in net losses  (4) (4)
Segment earnings$784 $132 $446 $(146)$1,216 
Less: noncontrolling interests     
Segment earnings attributable to Humana$784 $132 $446 $(146)$1,216 

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Humana Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)
RetailGroup and SpecialtyHealthcare
Services
Eliminations/
Corporate
Consolidated
Three months ended March 31, 2021(in millions)
External Revenues
Premiums:
Individual Medicare Advantage$14,815 $ $ $ $14,815 
Group Medicare Advantage1,755    1,755 
Medicare stand-alone PDP664    664 
Total Medicare17,234    17,234 
Fully-insured178 1,099   1,277 
Specialty 434   434 
Medicaid and other1,179    1,179 
Total premiums18,591 1,533   20,124 
Services revenue:
Home solutions  24  24 
Provider services  91  91 
ASO and other5 190   195 
Pharmacy solutions  156  156 
Total services revenue5 190 271  466 
Total external revenues 18,596 1,723 271  20,590 
Intersegment revenues
Services 10 4,774 (4,784) 
Products  2,152 (2,152) 
Total intersegment revenues 10 6,926 (6,936) 
Investment income52 4 1 21 78 
Total revenues18,648 1,737 7,198 (6,915)20,668 
Operating expenses:
Benefits16,299 1,145  (148)17,296 
Operating costs1,451 397 6,910 (6,751)2,007 
Depreciation and amortization104 21 40 (23)142 
Total operating expenses17,854 1,563 6,950 (6,922)19,445 
Income from operations794 174 248 7 1,223 
Interest expense   68 68 
Other expense, net   115 115 
Income (loss) before income taxes and equity in net earnings794 174 248 (176)1,040 
Equity in net earnings  21  21 
Segment earnings (loss)$794 $174 $269 $(176)$1,061 

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Humana Inc.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The condensed consolidated financial statements of Humana Inc. in this document present the Company’s financial position, results of operations and cash flows, and should be read in conjunction with the following discussion and analysis. References to “we,” “us,” “our,” “Company,” and “Humana” mean Humana Inc. and its subsidiaries. This discussion includes forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. When used in filings with the Securities and Exchange Commission, or SEC, in our press releases, investor presentations, and in oral statements made by or with the approval of one of our executive officers, the words or phrases like “believes,” “expects,” “anticipates,” “intends,” “likely will result,” “estimates,” “projects” or variations of such words and similar expressions are intended to identify such forward–looking statements. These forward–looking statements are not guarantees of future performance and are subject to risks, uncertainties and assumptions, including, among other things, information set forth in Item 1A. – Risk Factors in our 2021 Form 10-K, as modified by any changes to those risk factors included in this document and in other reports we filed subsequent to February 17, 2022, in each case incorporated by reference herein. In making these statements, we are not undertaking to address or update such forward-looking statements in future filings or communications regarding our business or results. In light of these risks, uncertainties and assumptions, the forward–looking events discussed in this document might not occur. There may also be other risks that we are unable to predict at this time. Any of these risks and uncertainties may cause actual results to differ materially from the results discussed in the forward–looking statements.
Executive Overview
General
Humana Inc., headquartered in Louisville, Kentucky, is a leading health and well-being company committed to helping our millions of medical and specialty members achieve their best health. Our successful history in care delivery and health plan administration is helping us create a new kind of integrated care with the power to improve health and well being and lower costs. Our efforts are leading to a better quality of life for people with Medicare, families, individuals, military service personnel, and communities at large. To accomplish that, we support physicians and other health care professionals as they work to deliver the right care in the right place for their patients, our members. Our range of clinical capabilities, resources and tools, such as in home care, behavioral health, pharmacy services, data analytics and wellness solutions, combine to produce a simplified experience that makes health care easier to navigate and more effective.
Our industry relies on two key statistics to measure performance. The benefit ratio, which is computed by taking
total benefits expense as a percentage of premiums revenue, represents a statistic used to measure underwriting profitability. The operating cost ratio, which is computed by taking total operating costs, excluding depreciation and amortization, as a percentage of total revenue less investment income, represents a statistic used to measure administrative spending efficiency.
Kindred at Home Acquisition
On August 17, 2021, we acquired the remaining 60% interest in Kindred at Home, or KAH, the nation’s largest home health and hospice provider, from TPG Capital, or TPG, and Welsh, Carson, Anderson & Stowe, or WCAS, two private equity funds, or the Sponsors, for an enterprise value of $8.2 billion, which includes our equity value of $2.4 billion associated with our 40% minority ownership interest. We paid the approximate $5.8 billion transaction price (net of our existing equity stake) through a combination of debt financing, the assumption of existing KAH indebtedness and parent company cash.
Sale of Hospice and Personal Care Divisions

On April 21, 2022, we signed a definitive agreement with private investment firm Clayton, Dubilier & Rice, or CD&R, to divest a 60% interest in the Hospice and Personal Care divisions of Humana’s Kindred at Home subsidiary, or KAH Hospice, at an enterprise valuation of $3.4 billion. These divisions include patient-centered services for Hospice, Palliative, Community and Personal Care. Under the agreement, we will receive cash proceeds of approximately $2.8 billion, which includes a combination of debt repayments from KAH Hospice to Humana and equity proceeds from the 60% interest purchased by CD&R.
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The transaction is expected to close in the third quarter of 2022 and is subject to customary state and federal regulatory approvals.

COVID-19
The emergence and spread of the novel coronavirus, or COVID-19, beginning in the first quarter of 2020 has impacted our business. During periods of increased incidences of COVID-19, a reduction in non-COVID-19 hospital admissions for non-essential care have resulted in lower overall healthcare system utilization. At the same time, COVID-19 treatment and testing costs increased utilization. During the first quarter of 2022, we experienced lower overall utilization of the healthcare system than anticipated, as the reduction in COVID-19 utilization following the increased incidence associated with the Omicron variant outpaced the increase in non-COVID-19 utilization. The significant disruption in utilization during 2020 also impacted our ability to implement clinical initiatives to manage health care costs and chronic conditions of our members, and appropriately document their risk profiles, and, as such, significantly affected our 2021 revenue under the risk adjustment payment model for Medicare Advantage plans. Finally, changes in utilization patterns and actions taken in 2021 as a result of the COVID-19 pandemic, including the suspension of certain financial recovery programs for a period of time and shifting the timing of claim payments and provider capitation surplus payments, impacted our claim reserve development and operating cash flows for 2021.

Business Segments
We manage our business with three reportable segments: Retail, Group and Specialty, and Healthcare Services. The reportable segments are based on a combination of the type of health plan customer and adjacent businesses centered on well-being solutions for our health plans and other customers, as described below. These segment groupings are consistent with information used by our Chief Executive Officer, the Chief Operating Decision Maker, to assess performance and allocate resources.
The Retail segment consists of Medicare benefits, marketed to individuals or directly via group Medicare accounts. In addition, the Retail segment also includes our contract with CMS to administer the Limited Income Newly Eligible Transition, or LI-NET, prescription drug plan program and contracts with various states to provide Medicaid, including Temporary Assistance for Needy Families, or TANF, dual eligible demonstration, and Long-Term Support Services benefits, which we refer to collectively as our state-based contracts. The Group and Specialty segment consists of employer group commercial fully-insured medical and specialty health insurance benefits marketed to individuals and employer groups, including dental, vision, and other supplemental health benefits, as well as administrative services only, or ASO products. In addition, our Group and Specialty segment includes our military services business, primarily our TRICARE T2017 East Region contract. The Healthcare Services segment includes pharmacy, provider, and home services, along with other services and capabilities to promote wellness and advance population health. The operations of the recently acquired full ownership of Kindred at Home, as well as the company's strategic partnership with WCAS to develop and operate senior-focused, payor-agnostic, primary care centers are also included in the Healthcare Services segment.
The results of each segment are measured by segment earnings, and for our Healthcare Services Segment, also include equity in net earnings from our equity method investees. Transactions between reportable segments primarily consist of sales of services rendered by our Healthcare Services segment, primarily pharmacy, provider, and home solutions services, to our Retail and Group and Specialty segment customers. Intersegment sales and expenses are recorded at fair value and eliminated in consolidation. Members served by our segments often use the same provider networks, enabling us in some instances to obtain more favorable contract terms with providers. Our segments also share indirect costs and assets. As a result, the profitability of each segment is interdependent. We allocate most operating expenses to our segments. Assets and certain corporate income and expenses are not allocated to the segments, including the portion of investment income not supporting segment operations, interest expense on corporate debt, and certain other corporate expenses. These items are managed at a corporate level. These corporate amounts are reported separately from our reportable segments and are included with intersegment eliminations.
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Seasonality
COVID-19 disrupted the pattern of our quarterly earnings and operating cash flows largely due to the temporary deferral of non-essential care which resulted in reductions in non-COVID-19 hospital admissions and lower overall healthcare system utilization during higher levels of COVID-19 hospital admissions. Likewise, during periods of increased incidences of COVID-19, COVID-19 treatment and testing costs increase. Similar impacts and seasonal disruptions from either higher or lower utilization are expected to persist as we respond to and recover from the COVID-19 global health crisis.
One of the product offerings of our Retail segment is Medicare stand-alone prescription drug plans, or PDPs, under the Medicare Part D program. Our quarterly Retail segment earnings and operating cash flows are impacted by the Medicare Part D benefit design and changes in the composition of our membership. The Medicare Part D benefit design results in coverage that varies as a member’s cumulative out-of-pocket costs pass through successive stages of a member’s plan period, which begins annually on January 1 for renewals. These plan designs generally result in us sharing a greater portion of the responsibility for total prescription drug costs in the early stages and less in the latter stages. As a result, the PDP benefit ratio generally decreases as the year progresses. In addition, the number of low income senior members as well as year-over-year changes in the mix of membership in our standalone PDP products affects the quarterly benefit ratio pattern.
In addition, the Retail segment also experiences seasonality in the operating cost ratio as a result of costs incurred in the second half of the year associated with the Medicare marketing season.
Our Group and Specialty segment also experiences seasonality in the benefit ratio pattern. However, the effect is opposite of Medicare stand-alone PDP in the Retail segment, with the Group and Specialty segment’s benefit ratio increasing as fully-insured members progress through their annual deductible and maximum out-of-pocket expenses.
2022 Highlights
Our strategy offers our members affordable health care combined with a positive consumer experience in growing markets. At the core of this strategy is our integrated care delivery model, which unites quality care, high member engagement, and sophisticated data analytics. Our approach to primary, physician-directed care for our members aims to provide quality care that is consistent, integrated, cost-effective, and member-focused, provided by both employed physicians and physicians with network contract arrangements. The model is designed to improve health outcomes and affordability for individuals and for the health system as a whole, while offering our members a simple, seamless healthcare experience. We believe this strategy is positioning us for long-term growth in both membership and earnings. We offer providers a continuum of opportunities to increase the integration of care and offer assistance to providers in transitioning from a fee-for-service to a value-based arrangement. These include performance bonuses, shared savings and shared risk relationships. At March 31, 2022, approximately 3,053,600 members, or 67%, of our individual Medicare Advantage members were in value-based relationships under our integrated care delivery model, as compared to 2,810,700 members, or 65%, at March 31, 2021.
On April 4, 2022, Centers for Medicare & Medicaid Services (CMS) published its Announcement of Calendar Year 2023 Medicare Advantage Capitation Rates and Part C and Part D Payment Policies (the Final Rate Notice). The company expects the Final Rate Notice to result in a 4.6% rate increase for non-end stage renal disease, or ESRD, Medicare Advantage business, excluding the impact of Employer Group Waiver Plan funding changes. The company’s 4.6% rate increase compares to CMS’s estimate for the sector of 5.0% on a comparable basis, with the variance primarily driven by average Star ratings, as well as county rebasing and the company's geographic footprint. CMS also establishes separate rates of payment for ESRD beneficiaries enrolled in Medicare Advantage plans. The company expects the Final Rate Notice to result in a 6.8% rate increase in 2023 for ESRD beneficiaries, which reflects CMS’s United States Per Capita Cost trend of 9.6%, offset by 2.8% for ESRD risk model change impacts.

Net income was $930 million, or $7.29 per diluted common share, and $828 million, or $6.39, for the three months ended March 31, 2022, and 2021, respectively. This comparison was significantly impacted by put/
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call valuation adjustments associated with certain equity method investments, transaction and integration costs, as well as the change in the fair value of publicly-traded equity securities. The impact of these adjustments to our consolidated income before income taxes and equity in net earnings and diluted earnings per common share was as follows for the 2022 and 2021 quarter:

For the three months ended March 31,
20222021
Consolidated income before income taxes and equity in net earnings:
Put/call valuation adjustments associated with company's non consolidating minority interest investments$(21)$115 
Transaction and integration costs17 — 
Change in the fair value of publicly-traded equity securities10985
Total$105 $200 
For the three months ended March 31,
20222021
Diluted earnings per common share:
Put/call valuation adjustments associated with company's non consolidating minority interest investments$(0.12)$0.69 
Transaction and integration costs0.10 — 
Change in the fair value of publicly-traded equity securities0.66 0.51 
Total$0.64 $1.20 

Excluding these adjustments, our improved comparisons of our results of operations were primarily impacted by our Healthcare Services segment, including the consolidation of Kindred at Home operations.

Health Care Reform
The Health Care Reform Law enacted significant reforms to various aspects of the U.S. health insurance industry. Certain significant provisions of the Health Care Reform Law include, among others, mandated coverage requirements, mandated benefits and guarantee issuance associated with commercial medical insurance, rebates to policyholders based on minimum benefit ratios, adjustments to Medicare Advantage premiums, the establishment of federally facilitated or state-based exchanges coupled with programs designed to spread risk among insurers, and the introduction of plan designs based on set actuarial values. In addition, the Health Care Reform Law established insurance industry assessments, including an annual health insurance industry fee. The annual health insurance industry fee, which was not deductible for income tax purposes and significantly increased our effective tax rate, was in effect for 2020, but was permanently repealed beginning in calendar year 2021.
It is reasonably possible that the Health Care Reform Law and related regulations, as well as other current or future legislative, judicial or regulatory changes such as the Families First Coronavirus Response Act, or the Families First Act, the Coronavirus Aid, Relief, and Economic Security Act, or the CARES Act, and other legislative or regulatory action taken in response to COVID-19 including restrictions on our ability to manage our provider network or otherwise operate our business, or restrictions on profitability, including reviews by regulatory bodies that may compare our Medicare Advantage profitability to our non-Medicare Advantage business profitability, or compare the profitability of various products within our Medicare Advantage business, and require that they remain within certain ranges of each other, increases in member benefits or changes to member eligibility criteria without corresponding increases in premium payments to us, or increases in regulation of our prescription
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drug benefit businesses, in the aggregate may have a material adverse effect on our results of operations (including restricting revenue, enrollment and premium growth in certain products and market segments, restricting our ability to expand into new markets, increasing our medical and operating costs, further lowering our Medicare payment rates and increasing our expenses associated with assessments); our financial position (including our ability to maintain the value of our goodwill); and our cash flows.
We intend for the discussion of our financial condition and results of operations that follows to assist in the understanding of our financial statements and related changes in certain key items in those financial statements from year to year, including the primary factors that accounted for those changes. Transactions between reportable segments primarily consist of sales of services rendered by our Healthcare Services segment, primarily pharmacy, provider, and home solutions services, to our Retail and Group and Specialty segment customers and are described in Note 14 to the condensed consolidated financial statements included in this report.

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Comparison of Results of Operations for 2022 and 2021
The following discussion primarily deals with our results of operations for the three months ended March 31, 2022, or the 2022 quarter, and the three months ended March 31, 2021, or the 2021 quarter.
Consolidated
For the three months ended March 31,Change
20222021DollarsPercentage
(dollars in millions, except per common share results)
Revenues:
Premiums:
Retail$21,302 $18,591 $2,711 14.6 %
Group and Specialty1,401 1,533 (132)(8.6)%
Total premiums22,703 20,124 2,579 12.8 %
Services:
Retail20.0 %
Group and Specialty195 190 2.6 %
Healthcare Services1,063 271 792 292.3 %
Total services1,264 466 798 171.2 %
Investment income78 (75)(96.2)%
Total revenues23,970 20,668 3,302 16.0 %
Operating expenses:
Benefits19,625 17,296 2,329 13.5 %
Operating costs2,886 2,007 879 43.8 %
Depreciation and amortization170 142 28 19.7 %
Total operating expenses22,681 19,445 3,236 16.6 %
Income from operations1,289 1,223 66 5.4 %
Interest expense90 68 22 32.4 %
Other (income) expense, net(21)115 136 118.3 %
Income before income taxes and equity in net earnings1,220 1,040 180 17.3 %
Provision for income taxes286 233 53 22.7 %
Equity in net (losses) earnings (4)21 (25)(119.0)%
Net income$930 $828 $102 12.3 %
Diluted earnings per common share$7.29 $6.39 $0.90 14.1 %
Benefit ratio (a)
86.4 %85.9 %0.5 %
Operating cost ratio (b)
12.0 %9.7 %2.3 %
Effective tax rate23.5 %22.0 %1.5 %
(a)Represents benefits expense as a percentage of premiums revenue.
(b)Represents operating costs as a percentage of total revenues less investment income.



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Premiums Revenue
Consolidated premiums increased $2.6 billion, or 12.8%, from $20.1 billion in the 2021 quarter to $22.7 billion in the 2022 quarter primarily due to individual Medicare Advantage and state-based contracts membership growth and higher per member individual Medicare Advantage premiums, partially offset by declining year-over-year membership associated with the group commercial medical products.
Services Revenue
Consolidated services revenue increased $798 million, or 171.2%, from $466 million in the 2021 quarter to $1.3 billion in the 2022 quarter primarily due to the impact of Kindred at Home revenues from external customers.
Investment Income
Investment income decreased $75 million, or 96.2%, from $78 million in the 2021 quarter to $3 million in the 2022 quarter primarily due to the decrease in the fair value of our publicly traded equity securities investments.
Benefit Expense    
Consolidated benefits expense increased $2.3 billion, or 13.5%, from $17.3 billion in the 2021 quarter to $19.6 billion in the 2022 quarter. The consolidated benefit ratio increased 50 basis points from 85.9% for the 2021 quarter to 86.4% for the 2022 quarter primarily due to the lower favorable prior-period medical claims reserve development, partially offset by higher per member individual Medicare Advantage premiums and lower admissions per thousand, or APT, associated with the Medicare Advantage business.

Consolidated benefits expense included $360 million of favorable prior-period medical claims reserve development in the 2022 quarter and $555 million of favorable prior-period medical claims development in the 2021 quarter. Prior-period medical claims reserve development decreased the consolidated benefit ratio by approximately 160 basis points in the 2022 quarter and decreased the consolidated benefit ratio by approximately 280 basis points in the 2021 quarter.

Operating Costs
Our segments incur both direct and shared indirect operating costs. We allocate the indirect costs shared by the segments primarily as a function of revenues. As a result, the profitability of each segment is interdependent.
Consolidated operating costs increased $879 million, or 43.8%, from $2.0 billion in the 2021 quarter to $2.9 billion in the 2022 quarter. The consolidated operating cost ratio increased 230 basis points from 9.7% for the 2021 quarter to 12.0% for the 2022 quarter primarily due to the impact of the consolidation of Kindred at Home operations, which have a significantly higher operating cost ratio than our historical consolidated operating cost ratio, partially offset by scale efficiencies associated with growth in individual Medicare Advantage membership.
Depreciation and Amortization
Depreciation and amortization increased $28 million, or 19.7%, from $142 million in the 2021 quarter to $170 million in the 2022 quarter primarily due to capital expenditures.
Interest Expense
Interest expense increased $22 million, or 32.4%, from $68 million in the 2021 quarter to $90 million in the 2022 quarter from borrowings to finance the Kindred at Home acquisition.



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Income Taxes
The effective income tax rate was 23.5% and 22.0% for the three months ended March 31, 2022, and 2021, respectively. The increase was primarily due to the favorable tax treatment we incurred during the 2021 period related to our equity method investment activity that did not occur during the 2022 period.
Retail Segment
 March 31,Change
 20222021MembersPercentage
Membership:
Medical membership:
Individual Medicare Advantage4,538,200 4,291,300 246,900 5.8 %
Group Medicare Advantage562,200 556,700 5,500 1.0 %
Medicare stand-alone PDP3,607,000 3,666,200 (59,200)(1.6)%
Total Retail Medicare8,707,400 8,514,200 193,200 2.3 %
State-based Medicaid and other1,010,300 838,900 171,400 20.4 %
Medicare Supplement318,400 328,100 (9,700)(3.0)%
Total Retail medical members10,036,100 9,681,200 354,900 3.7 %
For the three months ended March 31,Change
20222021DollarsPercentage
(in millions)
Premiums and Services Revenue:
Premiums:
Individual Medicare Advantage$17,052 $14,815 $2,237 15.1 %
Group Medicare Advantage1,875 1,755 120 6.8 %
Medicare stand-alone PDP639 664 (25)(3.8)%
Total Retail Medicare19,566 17,234 2,332 13.5 %
State-based Medicaid and other1,554 1,179 375 31.8 %
Medicare Supplement 182 178 2.2 %
Total premiums21,302 18,591 2,711 14.6 %
Services20.0 %
Total premiums and services revenue$21,308 $18,596 $2,712 14.6 %
Segment earnings $784 $794 $(10)(1.3)%
Benefit ratio88.0 %87.7 %0.3 %
Operating cost ratio8.0 %7.8 %0.2 %

Segment Earnings
Retail segment earnings decreased $10 million, or 1.3%, from $794 million in the 2021 quarter to $784 million in the 2022 quarter primarily due to the same factors that led to the segment's higher benefit and operating cost ratio as more fully described below.
Enrollment
Individual Medicare Advantage membership increased 246,900 members, or 5.8%, from March 31, 2021 to March 31, 2022 primarily due to membership additions associated with the most recent Annual Election
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Period, or AEP. The membership growth was further impacted by continued enrollment resulting from special elections, age-ins, and Dual Eligible Special Need Plans, or D-SNP, members. Individual Medicare Advantage membership includes 640,600 D-SNP members as of March 31, 2022, a net increase of 139,500, or 27.8%, from 501,100 as of March 31, 2021.
Group Medicare Advantage membership increased 5,500, or 1.0%, from March 31, 2021 to March 31, 2022 reflecting growth in small group accounts.
Medicare stand-alone PDP membership decreased 59,200 members, or 1.6%, from March 31, 2021 to March 31, 2022 primarily due to continued intensified competition for Medicare stand-alone PDP offerings.
State-based Medicaid membership increased 171,400 members, or 20.4%, from March 31, 2021 to March 31, 2022 reflecting the suspension of state eligibility redetermination efforts due to the currently enacted public health emergency, or PHE.
Premiums Revenue
Retail segment premiums increased $2.7 billion, or 14.6%, from $18.6 billion in the 2021 quarter to $21.3 billion in the 2022 quarter primarily due to individual Medicare Advantage and state-based contracts membership growth and higher per member individual Medicare Advantage premiums.
Benefits Expense
The Retail segment benefit ratio increased 30 basis points from 87.7% for the 2021 quarter to 88.0% for the 2022 quarter primarily due to the lower favorable prior-period medical claims reserve development, partially offset by the impact of higher per member individual Medicare Advantage premiums and lower APT associated with the Medicare Advantage business.
The Retail segment's benefits expense included $328 million of favorable prior-period medical claims reserve development in the 2022 quarter and $463 million of favorable prior-period medical claims development in the 2021 quarter. Prior-period medical claims reserve development decreased the Retail segment's benefit ratio by approximately 150 basis points in the 2022 quarter and decreased the Retail segment's benefit ratio by approximately 250 basis points in the 2021 quarter.
Operating Costs
The Retail segment operating cost ratio increased 20 basis points from 7.8% for the 2021 quarter to 8.0% for the 2022 quarter primarily due to additional marketing costs in the 2022 quarter to support individual Medicare Advantage growth, as well as strategic technology investments to position us for long-term success. These factors were partially offset by scale efficiencies associated with growth in our individual Medicare Advantage membership.
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Group and Specialty Segment
March 31,Change
20222021MembersPercentage
Membership:
Medical membership:
Fully-insured commercial group624,400 721,300 (96,900)(13.4)%
ASO451,800 500,600 (48,800)(9.7)%
Military services6,027,500 6,047,400 (19,900)(0.3)%
Total group medical members7,103,700 7,269,300 (165,600)(2.3)%
Specialty membership (a)5,182,600 5,326,100 (143,500)(2.7)%
(a)Specialty products include dental, vision, and other supplemental health. Members included in these products may not be unique to each product since members have the ability to enroll in multiple products.
For the three months ended March 31,Change
20222021DollarsPercentage
(in millions) 
Premiums and Services Revenue:
Premiums:
Fully-insured commercial group$972 $1,099 $(127)(11.6)%
Group specialty429 434 (5)(1.2)%
Total premiums1,401 1,533 (132)(8.6)%
Services195 190 2.6 %
Total premiums and services revenue$1,596 $1,723 $(127)(7.4)%
Segment earnings $132 $174 $(42)(24.1)%
Benefit ratio74.7 %74.7 %— %
Operating cost ratio25.7 %22.9 %2.8 %

Segment Earnings
Group and Specialty segment earnings decreased $42 million, or 24.1%, from $174 million in the 2021 quarter to $132 million in the 2022 quarter primarily due to the same factors that led to the segment's higher operating ratio as more fully described below.
Enrollment
Fully-insured commercial group medical membership decreased 96,900 members, or 13.4%, from March 31, 2021 to March 31, 2022 reflecting the impact of pricing discipline to address COVID-19 and improve profitability.
Group ASO commercial medical membership decreased 48,800 members, or 9.7%, from March 31, 2021 to March 31, 2022 reflecting continued intensified competition for small group accounts, partially offset by strong retention among large group accounts.
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Military services membership decreased 19,900 members, or 0.3%, from March 31, 2021 to March 31, 2022. Membership includes military service members, retirees, and their families to whom we are providing healthcare services under the current TRICARE East Region contract.
Specialty membership decreased 143,500 members, or 2.7%, from March 31, 2021 to March 31, 2022 primarily due to the loss of dental and vision groups cross-sold with medical, as reflected in the loss of group fully-insured commercial medical membership above. In addition, current membership reflects the economic impact of the COVID-19 pandemic.
Premiums Revenue
Group and Specialty segment premiums decreased $132 million, or 8.6%, from $1.5 billion in the 2021 quarter to $1.4 billion in the 2022 quarter primarily due to the decline in our fully-insured commercial medical and ASO commercial membership partially offset by higher per member premiums across our fully-insured commercial business.
Services Revenue
Group and Specialty segment services revenue increased $5 million, or 2.6%, from $190 million in the 2021 quarter to $195 million in the 2022 quarter.
Benefits Expense
The Group and Specialty segment benefit ratio of 74.7% for the 2022 quarter was inline with the 2021 quarter reflecting the lower favorable prior-period medical claims reserve development, offset by pricing and benefit design efforts to address COVID-19 and increase profitability, less severe COVID-19 impact within the fully-insured commercial business due to the enrolled population's vaccination rate in the 2022 quarter compared to the 2021 quarter, as well as the impact of the specialty product's lower benefit ratio, as the segment results now reflect a higher mix of the specialty business.
The Group and Specialty segment's benefits expense included $32 million of favorable prior-period medical claims reserve development in the 2022 quarter and $92 million of favorable prior-period medical claims reserve development in the 2021 quarter. Prior-period medical claims reserve development decreased the Group and Specialty segment benefit ratio by approximately 230 basis points in the 2022 quarter and decreased the Group Specialty segment benefit ratio by approximately 600 basis points in the 2021 quarter.
Operating Costs
The Group and Specialty segment operating cost ratio increased 280 basis points from 22.9% for the 2021 quarter to 25.7% for the 2022 quarter primarily due to the impact of membership declining at a greater rate than the decline in absolute administrative expenses, as well as a greater proportion of membership associated with our ASO commercial and military services businesses, which have a higher operating cost ratio than the fully-insured commercial product. The increase further reflects investments in the Military services business across demonstration programs, partners service contracts and in preparation for the next generation of the United States Department of Defenses's TRICARE contracts, as well as investments in our specialty business to promote growth.
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Healthcare Services Segment
For the three months ended March 31,Change
20222021DollarsPercentage
(in millions)
Revenues:
Services:
Home solutions$726 $24 $702 2925.0 %
Pharmacy solutions224 156 68 43.6 %
Provider services113 91 22 24.2 %
Total services revenues1,063 271 792 292.3 %
Intersegment revenues:
Home solutions202 123 79 64.2 %
Pharmacy solutions6,673 6,217 456 7.3 %
Provider services748 586 162 27.6 %
Total intersegment revenues7,623 6,926 697 10.1 %
Total services and intersegment revenues$8,686 $7,197 $1,489 20.7 %
Segment earnings $446 $269 $177 65.8 %
Operating cost ratio94.2 %96.0 %(1.8)%
Segment Earnings
Healthcare Services segment earnings increased $177 million, or 65.8%, from $269 million in the 2021 quarter to $446 million in the 2022 quarter primarily due to consolidation of Kindred at Home earnings, individual Medicare Advantage and state-based contracts membership growth leading to higher pharmacy earnings as well as the same factors that led to the segment's lower operating cost ratio.
Script Volume
Humana Pharmacy Solutions script volumes on an adjusted 30-day equivalent basis increased to approximately 131 million in the 2022 quarter, up 4.3%, versus scripts of approximately 126 million in the 2021 quarter primarily due to individual Medicare Advantage membership growth, partially offset by the decline in stand-alone PDP, fully-insured commercial and ASO membership .
Services Revenues
Services revenues increased $792 million, or 292.3%, from $271 million in the 2021 quarter to $1.1 billion in the 2022 quarter primarily due to the impact of Kindred at Home revenues from external customers.
Intersegment Revenues
Intersegment revenues increased $697 million, or 10.1%, from $6.9 billion in the 2021 quarter to $7.6 billion in the 2022 quarter primarily due to strong individual Medicare Advantage and state-based contracts membership growth leading to higher pharmacy revenues, the impact of greater mail-order pharmacy penetration by retained members, as well as higher revenues associated with growth in our provider business.
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Operating Costs
The Healthcare Services segment operating cost ratio decreased 180 basis points from 96.0% for the 2021 quarter to 94.2% for the 2022 quarter primarily due to consolidation of Kindred at Home operations which have a lower operating cost ratio than other businesses within the segment, combined with a favorable impact to the ratio related to our pharmacy operations.

Liquidity
Historically, our primary sources of cash have included receipts of premiums, services revenue, and investment and other income, as well as proceeds from the sale or maturity of our investment securities, and borrowings. Our primary uses of cash historically have included disbursements for claims payments, operating costs, interest on borrowings, taxes, purchases of investment securities, acquisitions, capital expenditures, repayments on borrowings, dividends, and share repurchases. Because premiums generally are collected in advance of claim payments by a period of up to several months, our business normally should produce positive cash flows during periods of increasing premiums and enrollment. Conversely, cash flows would be negatively impacted during periods of decreasing premiums and enrollment. From period to period, our cash flows may also be affected by the timing of working capital items including premiums receivable, benefits payable, and other receivables and payables. Our cash flows are impacted by the timing of payments to and receipts from CMS associated with Medicare Part D subsidies for which we do not assume risk. The use of cash flows may be limited by regulatory requirements of state departments of insurance (or comparable state regulators) which require, among other items, that our regulated subsidiaries maintain minimum levels of capital and seek approval before paying dividends from the subsidiaries to the parent. Our use of cash flows derived from our non-insurance subsidiaries, such as in our Healthcare Services segment, is generally not restricted by state departments of insurance (or comparable state regulators).
For additional information on our liquidity risk, please refer to the section entitled “Risk Factors” in our 2021 Form 10-K and Item 1A of Part II of this document.     
Cash and cash equivalents increased to approximately $4.9 billion at March 31, 2022 from $3.4 billion at December 31, 2021. The change in cash and cash equivalents for the three months ended March 31, 2022 and 2021 is summarized as follows:
Three Months Ended
20222021
 (in millions)
Net cash provided by (used in) operating activities$302 $(837)
Net cash used in investing activities(648)(1,488)
Net cash provided by financing activities1,816 1,529 
Increase (decrease) in cash and cash equivalents$1,470 $(796)
Cash Flow from Operating Activities
Cash flows provided by operations of $302 million in the 2022 quarter increased $1.1 billion from cash flows used in operations of $837 million in the 2021 quarter primarily due to the pay down of claims inventory and capitation for provider surplus amounts earned in 2020 and additional provider support in the 2021 quarter, combined with other favorable working capital items and higher earnings in the 2022 quarter compared to the 2021 quarter.
The most significant drivers of changes in our working capital are typically the timing of payments of benefits expense and receipts for premiums. We illustrate these changes with the following summaries of benefits payable and receivables.
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The detail of benefits payable was as follows at March 31, 2022 and December 31, 2021:
March 31, 2022December 31, 20212022 Quarter Change2021 Quarter Change
 (in millions)
IBNR (1)$5,826 $5,695 $131 $226 
Reported claims in process (2)1,477 907 570 402 
Other benefits payable (3)2,075 1,687 388 (120)
Total benefits payable$9,378 $8,289 $1,089 $508 
Payables from acquisition— (42)
Change in benefits payable per cash flow
    statement resulting in cash from operations
$1,089 $466 
(1)IBNR represents an estimate of benefits payable for claims incurred but not reported, or IBNR, at the balance sheet date and includes unprocessed claim inventories. 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 and processed (i.e. a shorter time span results in a lower IBNR).
(2)Reported claims in process represents 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, as well as amounts owed to our pharmacy benefit administrator which fluctuate due to bi-weekly payments and the month-end cutoff.
(3)Other benefits payable primarily include amounts owed to providers under capitated and risk sharing arrangements.
The increase in benefits payable in the 2022 quarter was primarily due to an increase in reported claims in process, higher capitation accruals and higher IBNR. Higher reported claims in process was a function of month-end cut off. IBNR increased primarily as a result of increased individual Medicare Advantage and state-based contracts membership.

The detail of total net receivables was as follows at March 31, 2022 and December 31, 2021:
March 31, 2022December 31, 20212022 Quarter Change2021 Quarter Change
 (in millions)
Medicare$2,572 $1,214 $1,358 $1,014 
Commercial and other563 579 (16)37 
Military services108 104 
Allowance for doubtful accounts(69)(83)14 
Total net receivables$3,174 $1,814 $1,360 $1,058 
Reconciliation to cash flow statement:
Receivables from acquisition— (9)
Change in receivables per cash flow
    statement resulting in cash from operations
$1,360 $1,049 

The changes in Medicare receivables for both the 2022 quarter and the 2021 quarter reflect individual Medicare Advantage membership growth and the typical pattern caused by the timing of accruals and related collections associated with the CMS risk-adjustment model. Significant collections occur with the mid-year and final settlements with CMS in the second and third quarter.
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Cash Flow from Investing Activities
In the first quarter of 2022 and 2021, we acquired immaterial businesses of approximately $74 million and $123 million, net of cash and cash equivalents received, respectively.
Our ongoing capital expenditures primarily relate to our information technology initiatives, support of services in our provider services operations including medical and administrative facility improvements necessary for activities such as the provision of care to members, claims processing, billing and collections, wellness solutions, care coordination, regulatory compliance and customer service. Total capital expenditures, excluding acquisitions, were $295 million in the 2022 quarter and $290 million in the 2021 quarter.

Net purchases of investment securities were $279 million in the 2022 quarter and net purchases of investment securities were $1.1 billion in the 2021 quarter.
Cash Flow from Financing Activities
Receipts from CMS associated with Medicare Part D claim subsidies for which we do not assume risk were higher than claim payments by $2.48 billion and $1.02 billion in the 2022 and 2021 quarters, respectively.
Under our administrative services only TRICARE contracts, health care costs payments for which we do not assume risk exceeded reimbursements from the federal government by $2 million and $5 million in the 2022 and 2021 quarters, respectively.
Net repayments from the issuance of commercial paper were $265 million in the 2022 quarter and net proceeds from the issuance of commercial paper were $603 million in the 2021 quarter. The maximum principal amount outstanding at any one time during the 2022 quarter was $1.5 billion.
In March 2022, we issued $750 million of 3.700% unsecured senior notes due March 23, 2029. Our net proceeds, reduced for the underwriters' discounts and commissions paid, were $744 million.
On January 11, 2022, we entered into the January 2022 ASR Agreements with Mizuho and Wells Fargo to repurchase $1 billion of our common stock as part of the $3 billion repurchase program authorized by the Board of Directors on February 17, 2021. On January 12, 2022, we made a payment of $1 billion and received an initial delivery of 2.2 million shares of our common stock.
We acquired common shares in connection with employee stock plans for an aggregate cost of $24 million in the 2022 quarter and $30 million in the 2021 quarter.
We paid dividends to stockholders of $91 million during the 2022 quarter and $83 million during the 2021 quarter.
The remainder of the cash used in or provided by financing activities in 2022 and 2021 primarily resulted from the change in book overdraft.

Future Sources and Uses of Liquidity
Dividends
For a detailed discussion of dividends to stockholders, please refer to Note 10 to the condensed consolidated financial statements.
Stock Repurchases
For a detailed discussion of stock repurchases, please refer to Note 10 to the condensed consolidated financial statements.
Debt
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For a detailed discussion of our debt, including our senior notes, term loans, credit agreements, commercial paper program, and other short-term borrowings, please refer to Note 12 to the condensed consolidated financial statements.
Liquidity Requirements
We believe our cash balances, investment securities, operating cash flows, and funds available under our credit agreement and our commercial paper program or from other public or private financing sources, taken together, provide adequate resources to fund ongoing operating and regulatory requirements, acquisitions, future expansion opportunities, and capital expenditures for at least the next twelve months, as well as to refinance or repay debt, and repurchase shares.
Adverse changes in our credit rating may increase the rate of interest we pay and may impact the amount of credit available to us in the future. Our investment-grade credit rating at March 31, 2022 was BBB+ according to Standard & Poor’s Rating Services, or S&P, and Baa3 according to Moody’s Investors Services, Inc., or Moody’s. A downgrade by S&P to BB+ or by Moody’s to Ba1 triggers an interest rate increase of 25 basis points with respect to $250 million of our senior notes. Successive one notch downgrades increase the interest rate an additional 25 basis points, or annual interest expense by less than $1 million, up to a maximum 100 basis points, or annual interest expense by $3 million.
In addition, we operate as a holding company in a highly regulated industry. Humana Inc., our parent company, is dependent upon dividends and administrative expense reimbursements from our subsidiaries, most of which are subject to regulatory restrictions. We continue to maintain significant levels of aggregate excess statutory capital and surplus in our state-regulated operating subsidiaries. Cash, cash equivalents, and short-term investments at the parent company were $1.1 billion at March 31, 2022 compared to $1.3 billion at December 31, 2021. This decrease primarily was due to capital expenditures, repayment of borrowings under the commercial paper program, cash dividends to shareholders, capital contributions to certain subsidiaries and acquisitions partially offset by net proceeds from the senior notes, earnings in non-regulated Healthcare Services subsidiaries. Our use of operating cash derived from our non-insurance subsidiaries, such as our Healthcare Services segment, is generally not restricted by departments of insurance (or comparable state regulators).
Regulatory Requirements
Certain of our subsidiaries operate in states that regulate the payment of dividends, loans, or other cash transfers to Humana Inc., our parent company, and require minimum levels of equity as well as limit investments to approved securities. The amount of dividends that may be paid to Humana Inc. by these subsidiaries, without prior approval by state regulatory authorities, or ordinary dividends, is limited based on the entity’s level of statutory income and statutory capital and surplus. If the dividend, together with other dividends paid within the preceding twelve months, exceeds a specified statutory limit or is paid from sources other than earned surplus, it is generally considered an extraordinary dividend requiring prior regulatory approval. In most states, prior notification is provided before paying a dividend even if approval is not required.
Although minimum required levels of equity are largely based on premium volume, product mix, and the quality of assets held, minimum requirements vary significantly at the state level. Based on the most recently filed statutory financial statements as of December 31, 2021, our state regulated subsidiaries had aggregate statutory capital and surplus of approximately $9.6 billion, which exceeded aggregate minimum regulatory requirements of $7.6 billion. The amount of ordinary dividends that may be paid to our parent company in 2022 is approximately $1.5 billion in the aggregate. The amount, timing and mix of ordinary and extraordinary dividend payments will vary due to state regulatory requirements, the level of excess statutory capital and surplus and expected future surplus requirements related to, for example, premium volume and product mix. Actual dividends paid to our parent company were approximately $1.6 billion in 2021.
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Item 3.    Quantitative and Qualitative Disclosures about Market Risk
Our earnings and financial position are exposed to financial market risk, including those resulting from changes in interest rates.
Interest rate risk also represents a market risk factor affecting our consolidated financial position due to our significant investment portfolio, consisting primarily of fixed maturity securities of investment-grade quality with a weighted average S&P credit rating of AA- at March 31, 2022. Our net unrealized position decreased $797 million from a net unrealized gain position of $57 million at December 31, 2021 to a net unrealized loss position of $740 million at March 31, 2022. At March 31, 2022, we had gross unrealized losses of $760 million on our investment portfolio primarily due to an increase in market interest rates since the time the securities were purchased. There were no material credit allowances during the three months ended March 31, 2022. While we believe that these securities in an unrealized loss will recover in value over time and we currently do not have the intent to sell such securities, given the current market conditions and the significant judgments involved, there is a continuing risk that future declines in fair value may occur and material realized losses from sales or credit allowances may be recorded in future periods.
Duration is the time-weighted average of the present value of the bond portfolio’s cash flow. Duration is indicative of the relationship between changes in fair value and changes in interest rates, providing a general indication of the sensitivity of the fair values of our fixed maturity securities to changes in interest rates. However, actual fair values may differ significantly from estimates based on duration. The average duration of our investment portfolio, including cash and cash equivalents, was approximately 3.4 years as of March 31, 2022 and approximately 3.6 years as of December 31, 2021. The increase in the average duration is reflective of various portfolio management activities and the decreased holdings of cash and cash equivalents. Based on the duration, including cash equivalents, a 1% increase in interest rates would generally decrease the fair value of our securities by approximately $616 million at March 31, 2022.

Item 4.    Controls and Procedures
Under the supervision and with the participation of our Chief Executive Officer, or CEO, our Chief Financial Officer, or CFO, and our Principal Accounting Officer, we carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures for the quarter ended March 31, 2022.
Based on our evaluation, which excluded the impact of the acquisition of Kindred at Home, or KAH, discussed below, our CEO, CFO, and our Principal Accounting Officer concluded that our disclosure controls and procedures are effective to provide reasonable assurance that information the Company is required to disclose in its reports under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, including, without limitation, ensuring that such information is accumulated and communicated to the Company’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
On August 17, 2021, we acquired the remaining 60% interest in KAH. We currently exclude, and are in the process of working to incorporate, KAH in our evaluation of internal controls over financial reporting and related disclosure controls and procedures. Total KAH assets and revenues excluded from our evaluation represent 2% and 3%, respectively, of the related consolidated financial statement amounts as of and at March 31, 2022.
Other than the KAH acquisition mentioned above, there have been no changes in the Company’s internal control over financial reporting during the quarter ended March 31, 2022 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.


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Part II. Other Information

Item 1.     Legal Proceedings
For a description of the legal proceedings pending against us and certain other pending or threatened litigation, investigations, or other matters, see “Legal Proceedings and Certain Regulatory Matters” in Note 13 to the condensed consolidated financial statements of this Form 10-Q.

Item 1A. Risk Factors
There have been no changes to the risk factors included in our 2021 Form 10-K.

Item 2.     Unregistered Sales of Equity Securities and Use of Proceeds
(a)None.
(b)N/A
(c)The following table provides information about our purchases of equity securities that are registered by us pursuant to Section 12 of the Securities Exchange Act of 1934, as amended, during the three months ended March 31, 2022:
PeriodTotal Number
of Shares
Purchased (1)(2)
Average
Price Paid
per Share
Total Number of
Shares Purchased
as Part of Publicly
Announced Plans
or Programs (1)(2)
Dollar Value of
Shares that May
Yet Be Purchased
Under the Plans
or Programs (1)
January 20222,170,248 $411.32 2,170,248 $2,000,000,000 
February 2022— — — 2,000,000,000 
March 2022260,927 411.32 260,927 2,000,000,000 
Total2,431,175 $411.32 2,431,175 
(1)On February 18, 2021, the Board of Directors replaced the previous share repurchase authorization of up to $3 billion (of which approximately $250 million remained unused) with a new authorization for repurchases of up to $3 billion of our common shares exclusive of shares repurchased in connection with employee stock plans, expiring as of February 18, 2024. On January 11, 2022, we entered into separate accelerated stock repurchase agreements, the January 2022 ASR Agreements, with Mizuho Markets Americas LLC, or Mizuho, and Wells Fargo Bank, or Wells Fargo, to repurchase $1 billion of our common stock as part of the $3 billion repurchase program authorized by the Board of Directors on February 18, 2021. On January 12, 2022, in accordance with the January 2022 ASR Agreements, we made a payment of $1 billion ($500 million to Mizuho and $500 million to Wells Fargo) and received an initial delivery of 2.2 million shares of our common stock (1.08 million shares each from Mizuho and Wells Fargo). In January 2022, we recorded the payments to Mizuho and Wells Fargo as a reduction to stockholders’ equity, consisting of an $850 million increase in treasury stock, which reflects the value of the initial 2.2 million shares received upon initial settlement, and a $150 million decrease in capital in excess of par value, which reflects the value of stock held back by Mizuho and Wells Fargo pending final settlement of the January 2022 ASR Agreements. Upon final settlement of the January 2022 ASR Agreements with Mizuho and Wells Fargo on March 29, 2022 and March 30, 2022, respectively, we received an additional 0.1 million shares and 0.1 million shares, respectively, as determined by the average daily volume weighted-averages share price of our common stock during the term of the agreement, less a discount, of $410.96 and $411.66, respectively, bringing the total shares received under the January 2022 ASR Agreements to 2.4 million. In addition, upon settlement we reclassified the $150 million value of stock initially held back by Mizuho and Wells Fargo from capital in
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excess of par value to treasury stock. Our remaining repurchase authorization was $2 billion as of April 26, 2022.
(2)Excludes 55,870 shares repurchased in connection with employee stock plans.

Item 3.     Defaults Upon Senior Securities
None.

Item 4.     Mine Safety Disclosures
Not applicable.

Item 5.     Other Information
None.
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Item 6:     Exhibits
3(i)
Restated Certificate of Incorporation of Humana Inc. filed with the Secretary of State of Delaware on November 9, 1989, as restated to incorporate the amendment of January 9, 1992, and the correction of March 23, 1992 (incorporated herein by reference to Exhibit 4(i) to Humana Inc.’s Post-Effective Amendment No. 1 to the Registration Statement on Form S-8 (Reg. No. 33-49305) filed February 2, 1994).
By-Laws of Humana Inc., as amended on December 14, 2017 (incorporated herein by reference to Exhibit 3(b) to Humana Inc.’s Current Report on Form 8-K, filed December 14, 2017).
Twenty-First Supplemental Indenture, dated March 23, 2022, between the Company and The Bank of New York Mellon Trust Company, N.A., as trustee (incorporated herein by reference to Exhibit 4.2 to Humana Inc.’s Current Report on Form 8-K filed on March 23, 2022).
Agreement, dated February 21, 2022, by and among Humana Inc. and Starboard Value and Opportunity Master Fund Ltd, Starboard Value and Opportunity S LLC, Starboard Value and Opportunity C LP, Starboard Value and Opportunity Master Fund L LP, Starboard Value L LP, Starboard Value R LP, Starboard Value R GP LLC, Starboard Value LP, Starboard Value GP LLC, Starboard Principal Co LP, Starboard Principal Co GP LLC, Starboard X Master Fund Ltd, and Jeffrey C. Smith (incorporated herein by reference to Exhibit 10.1 to Humana Inc.’s Current Report on Form 8-K filed on February 22, 2022).
Principal Executive Officer certification pursuant to Section 302 of Sarbanes–Oxley Act of 2002.
Principal Financial Officer certification pursuant to Section 302 of Sarbanes–Oxley Act of 2002.
Principal Executive Officer and Principal Financial Officer certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101The following materials from Humana Inc.'s Quarterly Report on Form 10-Q formatted in iXBRL (Inline Extensible Business Reporting Language): (i) the Condensed Consolidated Balance Sheets at March 31, 2022 and December 31, 2021; (ii) the Condensed Consolidated Statements of Income for the three months ended March 31, 2022 and 2021; (iii) the Condensed Consolidated Statements of Comprehensive Income for the three months ended March 31, 2022 and 2021; (iv) the Consolidated Statements of Equity for the three months ended March 31, 2022 and 2021; (v) the Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2022 and 2021; and (vi) Notes to Condensed Consolidated Financial Statements. The instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
104Cover Page Interactive Data File formatted in Inline XBRL and contained in Exhibit 101.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
HUMANA INC.
(Registrant)
Date:April 27, 2022By:/s/ MICHAEL A. KOEBERLEIN
Michael A. Koeberlein
Senior Vice President, Chief Accounting Officer and Controller (Principal Accounting Officer)
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Exhibit 31.1
CERTIFICATION PURSUANT TO SECTION 302 OF SARBANES-OXLEY ACT OF 2002
I, Bruce D. Broussard, principal executive officer of Humana Inc., certify that:
1. I have reviewed this Report of Humana Inc. (the “Company”) on Form 10-Q for the period ending March 31, 2022;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of the annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date:April 27, 2022
Signature:/s/ Bruce D. Broussard
Bruce D. Broussard
Principal Executive Officer

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Exhibit 31.2
CERTIFICATION PURSUANT TO SECTION 302 OF SARBANES-OXLEY ACT OF 2002
I, Susan M. Diamond, principal financial officer of Humana Inc., certify that:
1. I have reviewed this Report of Humana Inc. (the “Company”) on Form 10-Q for the period ending March 31, 2022;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of the annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
 
Date: April 27, 2022
Signature: /s/ Susan M. Diamond
 Susan M. Diamond
Principal Financial Officer

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Exhibit 32
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED
PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Report of Humana Inc. (the “Company”) on Form 10-Q for the period ending March 31, 2022 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), each of the undersigned hereby certifies, pursuant to 18 U.S.C. Sec. 1350, as adopted pursuant to Sec. 906 of the Sarbanes-Oxley Act of 2002, in his capacity as an officer of Humana Inc., that:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.
/s/ Bruce D. Broussard
Bruce D. Broussard
Principal Executive Officer
April 27, 2022
/s/ Susan M. Diamond
Susan M. Diamond
Principal Financial Officer
April 27, 2022
A signed original of this written statement required by Section 906 has been provided to Humana Inc. and will be retained by Humana Inc. and furnished to the Securities and Exchange Commission or its staff upon request.