UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

 

FORM 8-K

CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Date of Report:   April 28, 2003

(Date of Earliest Event Reported)

 

HUMANA INC.
(Exact name of Registrant as specified in its Charter)

Delaware
(State of
Incorporation)	1-5975
    (Commission
    File Number)	61-0647538
  (I.R.S. Employer
Tax Identification No.)	

 

500 West Main Street
Louisville, KY 40202
(Address of principal executive offices, including zip code)

(502) 580-1000
(Registrant=s telephone number, including area code)

 

Item 7.   Financial Statements and Exhibits

(c)         Exhibits

Number                                         Description

   99                      Press Release, including Statistical Pages, dated April 28, 2003, issued by the Company

Item 9 and Item 12

          The following information is furnished pursuant to Item 9 - Regulation FD Disclosure and Item 12 - Disclosure of Results of Operations and Financial Condition.

           On April 28, 2003, Humana Inc. (the "Company" orARegistrant") issued a press release, including statistical pages, discussing first quarter results, a copy of which is attached hereto as Exhibit 99 and is incorporated herein by reference.

           To supplement our consolidated financial results as determined by generally accepted accounting principles (GAAP), the press release also discloses non-GAAP information which management believes provides useful information to investors. The press release also contains forward-looking statements regarding the Company.

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 hereunto duly authorized.
HUMANA INC.	
BY: /s/ Arthur P. Hipwell
        Arthur P. Hipwell
        Senior Vice President
        and General Counsel

Date:    April 28, 2003

 

INDEX TO EXHIBITS

Number                                         Description

   99                   Press Release, dated April 28, 2003, issued by the Company, including
                          Statistical Pages

500 West Main Street
P.O. Box 1438
Louisville, KY 40201-1438
-humana . com

news release

For More Information Contact:

Regina Nethery
Humana Investor Relations
(502) 580-3644
E-mail: -rnethery@humana . com

Tom Noland
Humana Corporate Communications
(502) 580-3674
E-mail: -Tnoland@humana . com

Humana Reports First Quarter 2003 Results

LOUISVILLE, KY (April 28, 2003) - Humana Inc. (NYSE: HUM) today reported results for the first quarter ended March 31, 2003 and comparative amounts for the quarter ended March 31, 2002 as follows:
 	1Q03
GAAP 1	1Q02
GAAP 1	1Q03
Adjusted 2	
Earnings per diluted share	$            .19	$            .28	$          .31	
Net income
(in thousands)	
$       31,230	
$        46,770	
$     50,024	
Pretax margin	           1.6%	          2.5%	        2.7%	
              (See "Footnote Definitions" section of this press release.)

     Driven by improved adjusted earnings in the company's Commercial segment, first quarter 2003 adjusted earnings per diluted share of $.31 increased 11 percent compared to the same period in the prior year. Adjusted net income for the first quarter improved 7 percent compared to that for the same period in the prior year. The adjusted pretax margin of 2.7 percent increased 20 basis points from the first quarter of 2002.

     "Our adjusted Commercial segment pretax earnings for the first quarter exceeded those for all of 2002. We believe this is a clear demonstration of our growing ability to improve Commercial profitability," said Michael B. McCallister, chief executive officer. "Humana's innovative products and rigorous operating discipline, supported by streamlining of administrative expenses, should result in a substantial improvement in our Commercial segment results for 2003. Our Government segment profitability complemented the Commercial segment improvement in the quarter."

     Restructuring Charge

     During the first quarter of 2003, the company recorded the following items that were not reflective of the run-rate operations of the company. These adjustments, which are reflected in the restructuring charge line in the Statement of Income, were described initially in the company's press release, dated December 5, 2002, and again in the company's Form 10-K for the year ended December 31, 2002. Management believes this restructuring charge should be excluded to properly reflect the run-rate operations of the company and to provide better comparability to prior year results.

(in thousands, except per share amounts)	

Pretax
Impact	

After-tax
Impact	Earnings per diluted share  Impact
	
Building and equipment writedown	
$  (17,233)	
$     (10,529)	
$       (.07)	
Software abandonment
	
  (13,527)	
      (8,265)	
       (.05)	
Total restructuring charge	
$  (30,760)	
$     (18,794)	
$       (.12)	
                        (See "Footnote Definitions" section of this press release.)

     Segment Results

     Pretax results and margins for the company's business segments for the quarters ended March 31, 2003 and 2002 were as follows:
Pretax income

(in thousands)	1Q03
GAAP 1	1Q02
GAAP 1	1Q03
Adjusted 2	
Commercial segment	$    37,239	$    26,095	$         55,091	
Government segment	$    10,163	$    42,684	$         23,071	
Consolidated	$    47,402	$    68,779	$         78,162	
                    (See "Footnote Definitions" section of this press release.)
Pretax margins

	1Q03
GAAP 1	1Q02
GAAP 1	1Q03
Adjusted 2	
Commercial segment	2.2%	1.8%	3.3%	
Government segment	0.8%	3.4%	1.8%	
Consolidated	1.6%	2.5%	2.7%	
                    (See "Footnote Definitions" section of this press release.)

     Revenues and Membership

     Consolidated revenues and membership for the quarters ended March 31, 2003 and 2002 were as follows:
Consolidated

(in thousands)	1Q03
GAAP 1	1Q02
GAAP 1	

First quarter - total revenues	
$    2,931,716	
$  2,732,582	

Ending medical membership	 

6,625.2	 

6,534.9	
                             (See "Footnote Definitions" section of this press release.)
     Commercial segment premiums and administrative services fees and membership for the quarters ended March 31, 2003 and 2002 were as follows:
Commercial Segment

(in thousands)	
1Q03
GAAP 1	
1Q02
GAAP 1	

Premiums	
$    1,615,556	
$  1,425,988	

Administrative services fees	
$       29,590	
$     25,147	
Total premiums and administrative services fees	
$    1,645,146	
$  1,451,135	

Ending medical membership	
3,003.4	
2,954.2	
                            (See "Footnote Definitions" section of this press release.)

     Commercial segment medical membership grew by 2 percent from March 31, 2002 to March 31, 2003. Commercial premium yields were within the 13 to 15 percent range for first quarter of 2003. These factors contributed to a year-over-year increase in total premiums and administrative services fees for the Commercial segment of 13 percent for the first quarter 2003.

     Government segment premiums and administrative services fees and membership for the first quarter ended March 31, 2003 were as follows:
Government Segment

(in thousands)
	
1Q03
GAAP 1	
1Q02
GAAP 1	
Premiums	$    1,227,393	$  1,215,824	
Administrative services fees	$       31,546	$     39,866	
Total premiums and administrative services fees	
$    1,258,939	
$  1,255,690	
Ending medical membership	 3,621.8	 3,580.7	
                              (See "Footnote Definitions" section of this press release.)

     Government segment premiums and administrative services fees were essentially unchanged year-over-year for the first quarter of 2003.

     Medicare+Choice membership totaled 327,100 at March 31, 2003, a decline of 36,600 members year over year. Medicare+Choice premium yields for the first quarter were within the 4 to 6 percent range.

     TRICARE's insured membership totaled 1,752,500 at March 31, 2003, approximately 1 percent higher than the March 31, 2002 level. TRICARE ASO membership was 1,050,800 at the end of the first quarter of 2003, up approximately 5 percent year over year. TRICARE premium revenues and administrative services fees increased year-over-year by 6 percent during the first quarter of 2003. These increases in TRICARE revenues primarily are attributable to Congressionally legislated benefit changes, an increase in eligible beneficiaries, and a decrease in the use of military treatment facilities.

     Medicaid membership of 491,400 at March 31, 2003 grew by approximately 3 percent from March 31, 2002. Approximately 85 percent of the company's Medicaid membership is in Puerto Rico.

     Medical and SG&A Expenses

     The company's medical expense ratio (medical expenses as a percent of premiums) and selling, general and administrative ("SG&A") expense ratio (SG&A expenses as a percent of premiums and administrative services fees) for the quarters ended March 31, 2003 and 2002 were as follows:
 	
1Q03	
1Q02	
Medical expense ratio - GAAP 1	
83.4%	
83.1%	
SG&A expense ratio - GAAP 1	
15.4%	
16.1%	
                                   (See "Footnote Definitions" section of this press release.)
     Cash flows from operations

     Cash flows provided by (used in) operations for the quarters ended March 31, 2003 and 2002 were as follows:

(in thousands)	
1Q03	
1Q02	

GAAP 1	
$    (108,230)	
$    (140,137)	

Normalized 3	
$      97,525	
$       76,491	
                                    (See "Footnote Definitions" section of this press release.)

     Share Repurchase Program

     In July 2002, the company announced a $100 million share repurchase program. As of March 31, 2003, 8.6 million shares had been repurchased for an aggregate purchase price of $94.9 million, an average price of $10.98 per share.

     Guidance

     The company offered the following earnings guidance points for the investor community:
For the Full Year 2003:	Projected	
Earnings per diluted share - GAAP1	$1.25 - $1.31	
Earnings per diluted share - Adjusted2	$1.37- $1.43	
Consolidated revenues - GAAP1	Over $12 billion	
Commercial segment pretax income - GAAP1	At least $102 million	
Commercial segment pretax income -   Adjusted 2	
At least $120 million	
Commercial segment medical membership (fully insured and ASO combined)	
Organic growth of 2 - 4%	
Commercial premium yields	13 - 15%	
Commercial medical cost trends	12 - 14%	
Commercial segment SG&A expense ratio - GAAP1	
16.3 - 16.5%	
Medicare+Choice membership	310,000 to 320,000 by year end	
Medicare+Choice premium yields	4 - 6%	
Medicare+Choice medical cost trends	4 - 6%	
Government segment SG&A expense ratio - GAAP1	
Flat year over year	
TRICARE pretax margin	2 - 3%	
Cash flows from operations - GAAP1 and Normalized3	$340 million to $360 million	
Capital expenditures	Approximately $105 million	
Effective tax rate	36%	

For the Second Quarter of 2003:	Projected	
Earnings per diluted share - GAAP1	$.28 - $.29	
(See "Footnote Definitions" section of this press release.)

     Footnote Definitions

     1 - Generally Accepted Accounting Principles ("GAAP")

     2 - Adjusted results exclude from GAAP results the impact of the restructuring charge recorded during the first quarter of 2003. The statistics pages at the end of this press release provide a reconciliation of GAAP to adjusted results for the first quarter of 2003. The detail of the adjustments also is described in the "Restructuring Charge" section of this press release.

     3 - Normalized cash flows from operations give effect to the usual adjustment for the timing of the receipt of the Medicare+Choice premium payment from the Centers for Medicare and Medicaid Services ("CMS"). The fixed monthly payment from CMS is payable to Humana on the first day of each month. However, if the first of the month falls on a weekend or a holiday, the company receives that payment early, often resulting in a significant impact on cash flows from operations. The statistics pages at the end of this press release provide a reconciliation of GAAP to normalized cash flows from operations.

     Conference Call

     Humana will host a conference call, as well as a virtual slide presentation, at 9:00 a.m. EDT today to discuss its financial results for the quarter and earnings guidance.

     All parties interested in the audio only portion of the conference call are invited to dial 888-625-7430. No password is required. The company suggests participants dial in approximately ten minutes in advance of the call.

     A live virtual presentation (audio with slides) will be available and may be accessed via Humana's Investor Relations page at -humana . com. The company suggests web participants sign on approximately 15 minutes in advance of the call. The company also suggests web participants visit the site well in advance of the call to run a system test and to download any free software needed to view the presentation.

     For those unable to participate in the live event, the virtual presentation archive will be available in the Presentations section of the Investor Relations page at -humana.com, approximately two hours following the live web cast. An audio recording of the conference call will also be available in the Audio Archives located on the Investor Relations page at www. humana . com approximately two hours after the live call.

***********

     This news release contains forward-looking statements. The forward-looking statements made in this news release are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements may be significantly impacted by certain risks and uncertainties described in Humana's Form 10-K for the year ended December 31, 2002, as filed with the Securities and Exchange Commission.

***********

     Humana Inc., headquartered in Louisville, Kentucky, is one of the nation's largest publicly traded health benefits companies, with approximately 6.6 million medical members located primarily in 18 states and Puerto Rico. Humana offers coordinated health insurance coverage and related services- through traditional and Internet based plans - to employer groups, government-sponsored plans, and individuals.

     More information regarding Humana is available via the Internet at

-humana . com, including on-line:
Copies of annual reports to stockholders;
Copies of Securities and Exchange Commission filings;
Copy of most recent investor presentation;
Copies of quarterly earnings press releases;
Audio archive of the most recent earnings release conference call;
Calendar of events (includes upcoming earnings conference call dates, related conference call access number, and planned participation in investor conferences).

Humana Inc.	 	 	 	 	Page 1 of 9	
In thousands	 	 	 	 	 	

 	 	 	 	 	 	 	 	
 	 	 	March 31,	Percent	
Ending Medical Membership	2003	 	2002	Difference	Change	
 	 	 	 	 	 	 	 	
Commercial:	 	 	 	 	 	
 	Fully insured	2,348.8	 	2,332.4	16.4	0.7	
 	ASO	654.6	 	621.8	32.8	5.3	
Total Commercial	3,003.4	 	2,954.2	49.2	1.7	
 	 	 	 	 	 	 	 	
Government:	 	 	 	 	 	
 	Medicare+Choice	327.1	 	363.7	(36.6)	(10.1)	
 	Medicaid	491.4	 	476.8	14.6	3.1	
 	TRICARE	1,752.5	 	1,742.3	10.2	0.6	
 	TRICARE ASO	1,050.8	 	997.9	52.9	5.3	
Total Government	3,621.8	 	3,580.7	41.1	1.1	
 	Total ending medical membership	6,625.2	 	6,534.9	90.3	1.4	

 	 	 	 	 	 	 	 	
 	 	 	March 31,	 	Percent	
Ending Specialty Membership	2003	 	2002	Difference	Change	
 	 	 	 	 	 	 	 	
Commercial:	 	 	 	 	 	
 	Dental-fully insured	741.7	 	786.8	(45.1)	(5.7)	
 	Dental-ASO	367.9	 	306.5	61.4	20.0	
 	 	Total Dental	1,109.6	 	1,093.3	16.3	1.5	
 	Group life	519.0	 	542.1	(23.1)	(4.3)	
 	Short-term disability	21.5	 	23.9	(2.4)	(10.0)	
 	Total ending specialty membership	1,650.1	 	1,659.3	(9.2)	(0.6)	

 	 	 	 	 	 	 	 	
 	 	 	 	 	 	Three months ended	
 	 	 	 	 	 	March 31,	
Premiums	 	 	 	2003	2002	
 	 	 	 	 	 	 	 	
Commercial:	 	 	 	 	 	
 	Fully insured medical	 	 	 	$1,536,953	$1,343,261	
 	Specialty	 	 	 	78,603	82,727	
Total Commercial	 	 	 	1,615,556	1,425,988	
 	 	 	 	 	 	 	 	
Government:	 	 	 	 	 	
 	Medicare+Choice	 	 	 	635,842	672,186	
 	Medicaid	 	 	 	121,230	111,253	
 	TRICARE	 	 	 	470,321	432,385	
Total Government	 	 	 	1,227,393	1,215,824	
Total premiums	 	 	 	$2,842,949	$ 2,641,812	

 	 	 	 	 	 	 	 	
 	 	 	 	 	 	Three months ended	
 	 	 	 	 	 	March 31,	
Administrative services fees	 	 	 	2003	2002	
 	 	 	 	 	 	 	 	
Commercial	 	 	 	$ 29,590	$ 25,147	
Government	 	 	 	31,546	39,866	
Total Administrative services fees	 	 	 	$ 61,136	$ 65,013	

 	 

 

Humana Inc.	 	 	 	 	 	 	Page 2 of 9	
 	Dollars in thousands, except per share results	 	 	 	 	 	 	
 	 	 	 	-----------------Three months ended----------------------	
 	 	 	 	 	 	 	 	 	
 	 	 	 	 	Adjusted	 	 	
 	 	 	 	March 31,	Restructuring	March 31,	 	March 31,	
Consolidated Statement of Income	 	 	2003	Charge	2003	 	2002	
Revenues:	 	 	 	 	 	 	 	
  Premiums	 	 	$ 2,842,949	$ -	$ 2,842,949	 	$ 2,641,812	
  Administrative services fees	 	 	61,136	-	61,136	 	65,013	
  Investment income	 	 	25,817	-	25,817	 	24,308	
  Other income	 	 	1,814	-	1,814	 	1,449	
 	  Total revenues	 	 	2,931,716	-	2,931,716	 	2,732,582	
Operating Expenses:	 	 	 	 	 	 	 	
  Medical	 	 	2,371,434	-	2,371,434	 	2,194,539	
  Selling, general and    administrative	 	 	447,045	-	447,045	 	435,064	
  Depreciation	 	 	27,209	-	27,209	 	25,865	
  Other intangible amortization	 	 	3,931	-	3,931	 	3,931	
  Restructuring charge	 	 	30,760	(30,760)	-	 	-	
 	  Total operating expenses	 	 	2,880,379	(30,760)	2,849,619	 	2,659,399	
Income from operations	 	 	51,337	30,760	82,097	 	73,183	
  Interest expense	 	 	3,935	-	3,935	 	4,404	
Income before income taxes	 	 	47,402	30,760	78,162	 	68,779	
  Provision for income taxes	 	 	16,172	11,966	28,138	 	22,009	
Net Income	 	 	$ 31,230	$ 18,794	$ 50,024	 	$ 46,770	

Basic earnings per common share	 	$ 0.20	$ 0.12	$ 0.32	 	$ 0.28	
Diluted earnings per common share	 	$ 0.19	$ 0.12	$ 0.31	 	$ 0.28	
 	 	 	 	 	 	 	 	 	
Shares used in basic earnings per common share computation (000)	 	157,739	157,739	157,739	 	164,255	
Shares used in diluted earnings per common share computation (000)	 	161,406	161,406	161,406	 	167,704	
 	 	 	 	 	 	 	 	 	
Key Ratios	 	 	 	 	 	 	 	
Medical expense ratio	 	 	 	 	 	 	 	
  Commercial	 	 	81.3%	-	81.3%	 	81.9%	
  Government	 	 	86.2%	-	86.2%	 	84.5%	
 	  Total	 	 	83.4%	-	83.4%	 	83.1%	
 	 	 	 	 	 	 	 	 	
Selling, general, and administrative expense ratio	 	 	 	 	 	
  Commercial	 	 	16.8%	-	16.8%	 	17.6%	
  Government	 	 	13.6%	-	13.6%	 	14.3%	
 	  Total	 	 	15.4%	-	15.4%	 	16.1%	
 
Humana Inc.	 	 	 	 	 	 	Page 3 of 9	
Dollars in thousands, except per share results	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	----------------Three months ended----------------	
 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	Adjusted	 	 	
 	 	 	 	 	March 31,	Restructuring	March 31,	 	March 31,	
Operating Results by Segment	 	 	2003	Charge	2003	 	2002	
Commercial:	 	 	 	 	 	 	 	
 	Income before income taxes	 	 	$ 37,239	$ 17,852	$ 55,091	 	$ 26,095	
 	Interest expense	 	 	3,063	-	3,063	 	3,059	
 	Depreciation and amortization	 	 	19,228	-	19,228	 	17,167	
 	 	Commercial EBITDA*	 	 	59,530	17,852	77,382	 	46,321	
Government:	 	 	 	 	 	 	 	
 	Income before income taxes	 	 	10,163	12,908	23,071	 	42,684	
 	Interest expense	 	 	872	-	872	 	1,345	
 	Depreciation and amortization	 	 	11,912	-	11,912	 	12,629	
 	 	Government EBITDA*	 	 	22,947	12,908	35,855	 	56,658	
Consolidated:	 	 	 	 	 	 	 	
 	Income before income taxes	 	 	47,402	30,760	78,162	 	68,779	
 	Interest expense	 	 	3,935	-	3,935	 	4,404	
 	Depreciation and amortization	 	 	31,140	-	31,140	 	29,796	
 	 	Consolidated EBITDA*	 	 	$ 82,477	$ 30,760	$ 113,237	 	$ 102,979	

*	EBITDA represents earnings (including investment and other income) before interest expense, income taxes, depreciation and amortization. EBITDA is not a measure under accounting principles generally accepted in the United States and may not be similar to EBITDA measures of other companies. EBITDA also is a measure commonly used by analysts, investors and other interested parties in the health care industry. We believe EBITDA is an important indicator of the cash content of the Company's operating income, and as such the quality of net income.	

 
Humana Inc.	 	 	 	Page 4 of 9	 	
Dollars in thousands, except per share results	 	

 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	March 31,	 	December 31,	 	 	 	 	 	 	 	 	
Consolidated Balance Sheets	 	2003	 	2002	 	 	 	 	 	 	 	 	
Assets	 	 	 	 	 	 	 	 	 	
Current assets:	 	 	 	 	 	 	 	 	 	
 	Cash and cash equivalents	 	$ 532,652	 	$ 721,357	 	 	 	 	 	 	 	 	
 	Investment securities	 	1,411,356	 	1,405,833	 	 	 	 	 	 	 	 	 	 	 	
 	Receivables, net:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	Premiums	 	472,972	 	348,562	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	Administrative services fees	 	55,726	 	68,316	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	Other	 	258,481	 	250,857	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	Total current assets	 	2,731,187	 	2,794,925	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Property and equipment, net	 	423,465	 	459,842	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Other assets:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	Long-term investment securities	 	312,517	 	288,724	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	Goodwill	 	776,874	 	776,874	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	Other	 	185,144	 	279,665	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	Total other assets	 	1,274,535	 	1,345,263	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	Total assets	 	$ 4,429,187	 	$ 4,600,030	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Liabilities and Stockholders' Equity	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Current liabilities:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	Medical and other expenses payable	 	$ 1,226,043	 	$ 1,142,131	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	Trade accounts payable and accrued expenses	 	512,723	 	552,689	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	Book overdraft	 	 	84,579	 	94,882	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	Unearned premium revenues	 	 	117,604	 	335,757	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	Short-term debt	 	 	265,000	 	265,000	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	Total current liabilities	 	 	2,205,949	 	2,390,459	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	Long-term debt	 	 	334,328	 	339,913	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	Other long-term liabilities	 	 	268,131	 	263,184	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	Total liabilities	 	 	2,808,408	 	2,993,556	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Commitments and contingencies	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Stockholders' equity:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	Preferred stock, $1 par; 10,000,000 shares authorized; none issued	 	 	 	-	 	-	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	Common stock, $0.16 2/3 par; 300,000,000 shares authorized;	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	171,371,759 shares issued at March 31, 2003 and 171,334,893shares issued at December 31, 2002	 	 	 	 	28,562	 	28,556	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	Capital in excess of par value	 	 	 	931,460	 	931,089	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	Retained earnings	 	 	 	752,107	 	720,877	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	Accumulated other comprehensive income	 	 	23,257	 	22,455	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	Unearned restricted stock compensation	 	 	(3,961)	 	(6,516)	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	Treasury stock, at cost, 10,584,719 shares at March 31, 2003 and 8,362,537 shares at December 31, 2002	 	(110,646)	 	(89,987)	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	Total stockholders' equity	 	 	 	 	 	1,620,779	 	1,606,474	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	Total liabilities and stockholders' equity	 	 	 	 	$ 4,429,187	 	$ 4,600,030	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	

Debt to total capitalization ratio	 	 	 	 	 	27.0%	 	27.4%	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	

 
Humana Inc.	 	 	Page 5 of 9	 	
Dollars in thousands	 	 	 	 	 	

 	 	 	 	 	Three months ended	 	
 	 	 	 	 	March 31,	 	
Consolidated Statements of Cash Flows	 	 	2003	2002	 	
Cash flows from operating activities	 	 	 	 	 	
 	Net income	 	 	$ 31,230	$ 46,770	 	
   Adjustments to reconcile net income to net cash provided      by operating activities:	 	 	 	 	 	
 	 	 	 	 	 	 	 	
 	 	Non-cash restructuring charge	 	 	30,760	-	 	 	 	
 	 	Depreciation and amortization	 	 	31,140	29,796	 	 	 	
 	 	Provision for deferred income taxes	 	 	3,646	12,880	 	 	 	
 	 	Changes in operating assets and liabilities excluding effects of acquisitions and divestitures:	 	 	 	 	 	 	 	
 	 	Receivables	 	 	(48,553)	(45,810)	 	 	 	
 	 	Other assets	 	 	5,685	(2,398)	 	 	 	
 	 	Medical and other expenses payable	 	 	83,912	63,977	 	 	 	
 	 	Other liabilities	 	 	(29,012)	(10,804)	 	 	 	
 	 	Unearned premium revenues	 	 	(218,153)	(237,758)	 	 	 	
 	 	Other	 	 	1,115	3,210	 	 	 	
 	 	Net cash used in operating activities	 	 	(108,230)	(140,137)	 	 	 	
 	 	Timing of Medicare+Choice premium payment from CMS	 	 	205,755	216,628	 	 	 	
 	 	Normalized net cash provided by operating activities	 	 	97,525	76,491	 	 	 	
 	 	 	 	 	 	 	 	 	 	
Cash flows from investing activities	 	 	 	 	 	 	 	
 	 	Purchases of property and equipment, net	 	 	(21,634)	(31,256)	 	 	 	
 	 	Purchases of marketable securities	 	 	(1,545,241)	(425,135)	 	 	 	
 	 	Proceeds from maturities of marketable securities	 	 	196,923	115,954	 	 	 	
 	 	Proceeds from sales of marketable securities	 	 	1,320,246	303,896	 	 	 	
 	 	Net cash used in investing activities	 	 	(49,706)	(36,541)	 	 	 	
 	 	 	 	 	 	 	 	 	 	
Cash flows from financing activities	 	 	 	 	 	 	 	
 	 	Debt issue costs	 	 	(153)	(559)	 	 	 	
 	 	Change in book overdraft	 	 	(10,303)	10,673	 	 	 	
 	 	Common stock repurchases	 	 	(20,817)	-	 	 	 	
 	 	Other	 	 	504	1,026	 	 	 	
 	 	Net cash (used in) provided by financing activities	 	 	(30,769)	11,140	 	 	 	
 	 	 	 	 	 	 	 	 	 	
 	 	Decrease in cash and cash equivalents	 	 	(188,705)	(165,538)	 	 	 	
 	 	Cash and cash equivalents at beginning of period	 	 	721,357	651,420	 	 	 	
 	 	Cash and cash equivalents at end of period	 	 	$ 532,652	$ 485,882	 	 	 	

 
Humana Inc.	 	 	 	 	 	 	 	 	 	 	 	 	Page 6 of 9	

 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Percentage of Ending Membership Under Capitation Arrangements	 	 	 	 	 	 	

 	 	 	 	Commercial Segment	 	Government Segment	 	 	 	Consol.	 	
 	 	 	 	Fully	 	Total	 	Medicare+	 	TRICARE	Total	 	Total	 	
 	 	 	 	Insured	ASO	Segment	Choice	Medicaid	TRICARE	ASO	Segment	 	Medical	 	
March 31, 2003	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	Capitated HMO hospital system based A	6.3%	-	4.9%	 	12.9%	2.5%	-	-	1.5%	 	3.0%	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	Capitated HMO physician group based A	3.2%	-	2.5%	 	2.0%	56.2%	-	-	7.8%	 	5.4%	 	
Risk-sharing B	 	3.1%	-	2.4%	 	47.8%	33.9%	-	-	8.9%	 	6.0%	 	
All other membership	87.4%	100.0%	90.2%	 	37.3%	7.4%	100.0%	100.0%	81.8%	 	85.6%	 	
 	Total	 	 	100.0%	100.0%	100.0%	 	100.0%	100.0%	100.0%	100.0%	100.0%	 	100.0%	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
March 31, 2002	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	Capitated HMO hospital system based A	6.7%	-	5.3%	 	13.3%	2.2%	-	-	1.6%	 	3.3%	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	Capitated HMO physician group based A	4.1%	-	3.2%	 	4.1%	57.6%	-	-	8.1%	 	5.9%	 	
Risk-sharing B	 	3.2%	-	2.5%	 	45.7%	34.3%	-	-	9.2%	 	6.2%	 	
All other membership	86.0%	100.0%	89.0%	 	36.9%	5.9%	100.0%	100.0%	81.1%	 	84.6%	 	
 	Total	 	 	100.0%	100.0%	100.0%	 	100.0%	100.0%	100.0%	100.0%	100.0%	 	100.0%	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
A	In a limited number of circumstances, we contract with hospitals and physicians to accept financial risk for a defined set of HMO membership. In transferring this risk, we prepay these providers a monthly fixed-fee per member to coordinate substantially all of the medical care for their capitated HMO membership, including some health benefit administrative functions and claims processing. For these capitated HMO arrangements, we generally agree to reimbursement rates that target a medical expense ratio ranging from 82% to 89%. Providers participating in hospital-based capitated HMO arrangements generally receive a monthly payment for all of the services within their system for their HMO membership. Providers participating in physician-based capitated HMO arrangements generally have subcontracted directly with hospitals and specialist physicians, and are responsible for reimbursing such hospitals and physicians for services rendered to their HMO membership.	

 	 	

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

Humana Inc.	 	 	 	 	 	 	 	Page 7 of 9	

 	 	 	 	 	 	 	 	 	 	 	 	
Medical Claim Reserves - Details and Statistics	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	
 	Change in medical and other expenses payable:	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	
 	The change in medical and other expenses payable is summarized as follows:	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	For the Three	 	For the Twelve	 	 	 	
 	 	 	 	 	 	Months Ended	 	Months Ended	 	 	 	
 	 	 	 	 	 	March 31, 2003	 	December 31, 2002	 	 	 	
 	Balances at January 1	 	 	$ 1,142,131	 	$ 1,086,386	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	
 	Incurred related to:	 	 	 	 	 	 	 	 	 	
 	Current year	 	 	 	2,425,464	 	9,125,915	 	 	 	
 	Prior years - TRICARE	 	(18,890)	 	25,685	(1)	 	 	
 	Prior years - non-TRICARE (2)	(35,140)	 	(13,404)	 	 	 	
 	Total incurred	 	 	 	2,371,434	 	9,138,196	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	
 	Paid related to:	 	 	 	 	 	 	 	 	 	
 	Current year	 	 	 	(1,403,792)	 	(8,002,610)	 	 	 	
 	Prior years	 	 	 	(883,730)	 	(1,079,841)	 	 	 	
 	Total paid	 	 	 	 	(2,287,522)	 	(9,082,451)	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	
 	Balances at end of period	 	$ 1,226,043	 	$ 1,142,131	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	
(1)	Changes in estimates of medical expenses payable for TRICARE may result from issues that entitle us to additional revenues derived from change orders or the bid price adjustment process, which was the case with substantially all of the unfavorable development for prior periods recognized during 2002.	 	
(2)	Changes in estimates of non-TRICARE incurred claims for prior years recognized during 2003 and 2002 related primarily to our commercial lines of business. The impact of any reduction of "incurred related to prior years" claims may be offset as we re-establish the "incurred related to current year". Our reserving practice is to consistently recognize the actuarial best estimate of our ultimate liability for our claims within a level of confidence required to meet actuarial standards. Thus, only when the release of a prior year reserve is not offset with the same level of conservatism in estimating the current year reserve will the redundancy reduce medical expense. We believe we have consistently applied this methodology in determining our best estimate for unpaid claims liability in each period.	 	

 
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Dollars in thousands	 	 	 	 	 	 	 	 	

Medical Claim Reserves - Details and Statistics	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	
Medical and Other Expenses Payable Detail:	 	 	 	 	 	 	 	
 	 	 	 	 	 	March 31,	 	December 31,	 	 	
 	 	 	 	 	 	2003	 	2002	 	 	
A	IBNR and other medical expenses payable	 	$ 703,910	 	$ 650,606	 	 	
B	TRICARE IBNR	 	 	 	232,249	 	212,826	 	 	
C	TRICARE other medical expenses payable	 	30,055	 	37,793	 	 	
D	Unprocessed claim inventories	 	 	99,000	 	92,300	 	 	
E	Processed claim inventories	 	 	118,300	 	105,422	 	 	
F	Payable to pharmacy benefit administrator	 	42,529	 	43,184	 	 	
 	 	Total medical and other expenses payable	$ 1,226,043	 	$ 1,142,131	 	 	
 	 	 	 	 	 	 	 	 	 	 	
A	IBNR represents an estimate of medical expenses payable for claims incurred but not reported (IBNR) at the balance sheet date. The level of IBNR is primarily impacted by membership levels, medical claim trends and the receipt cycle time which represents the length of time between when a claim is initially incurred and when the claim form is received (i.e. a shorter time span results in lower reserves for claims IBNR).	
 	 	
B	TRICARE IBNR has increased primarily due to an increase in claim inventories at our third party claim administrator for claims not submitted electronically.	
C	TRICARE other medical expense payable may include liabilities to subcontractors and/or risk share payables to the Department of Defense. The level of these balances may fluctuate from period to period due to the timing of payment (cutoff) and whether or not the balances are payables or receivables (receivables from the Department of Defense are classified as "receivables" in our balance sheet).	
 	 	
D	Unprocessed claim inventories represent the estimated valuation of claims received but not yet fully processed. TRICARE claim inventories are not included in this amount as an independent third party administrator processes all TRICARE medical claims on our behalf. Reserves for TRICARE claims inventory are included in TRICARE IBNR.	
E	Processed claim inventories represent the estimated valuation of processed claims that are in the post claim adjudication process, which consists of administrative functions such as audit and check batching and handling.	
F	The balance due to our pharmacy benefit administrator fluctuates due to bi-weekly payments and the month-end cutoff.	
 	 	 	 	 	 	 	 	 	 	 	
Receipt Cycle Time:	 	 	 	 	 	 	 	 	
 	Due to increasing electronic connectivity and other efficiencies gained by our providers with regards to the claim submission process, the average length of time between when a claim was initially incurred and when the claim form was received has generally shortened over the past several years. Below is a summary:	
 	 	 	 	 	 	 	 	 	 	 	
 	 	 	Average # of Days from Incurred Date to Receipt Date (1)	 	 	 	 	
 	 	 	2003	2002	Change	% Change	 	 	 	 	
 	1st Quarter Average	17.1	19.0	(1.9)	-10.0%	 	 	 	 	
 	2nd Quarter Average	-	18.1	n/a	n/a	 	 	 	 	
 	3rd Quarter Average	-	17.3	n/a	n/a	 	 	 	 	
 	4th Quarter Average	-	16.9	n/a	n/a	 	 	 	 	
 	Full Year Average	17.1	17.8	(0.7)	-3.9%	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	
 	(1) Receipt cycle time data for our 2 largest claim processing platforms representing approximately 90% of our claims volume.	
 
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Medical Claim Reserves - Details and Statistics	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	
Unprocessed Claim Inventories:	 	 	 	 	 	 	 	
The estimated valuation and number of claims on hand that are yet to be processed are as follows:	 	
 	 	 	 	 	 	 	 	 	 	
 	 	Estimated	 	Number	 	 	 	 	 	
 	 	Valuation	Claim Item	of Days	 	 	 	 	 	
Date	 	(000)	Counts	On Hand	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	
12/31/2001	 	$ 125,400	518,100	5.0	 	 	 	 	 	
03/31/2002	 	$ 121,000	559,600	5.2	 	 	 	 	 	
06/30/2002	 	$ 110,300	513,100	4.8	 	 	 	 	 	
09/30/2002	 	$ 108,800	496,200	4.8	 	 	 	 	 	
12/31/2002	 	$ 92,300	424,200	4.1	 	 	 	 	 	
03/31/2003	 	$ 99,000	421,700	4.0	 	 	 	 	 	

Days in Claims Payable (Quarterly):	 	 	 	 	 	 	 	
A common metric for monitoring medical claim reserve levels relative to the medical claim expenses is days in claims payable, or DCP, which represents the medical claim liabilities at the end of the period divided by average medical expenses per day in the quarterly period. Since we have some providers under capitation payment arrangements (which do not require a medical claim IBNR reserve), we have also summarized this metric excluding capitation expenses.	
 	 	 	 	 	 	 	 	 	 	
 	 	Days	 	 	DCP	 	 	 	 	
 	 	in Claims	Annual	 	Excluding	Annual	 	 	 	
Quarter Ended	 	Payable (DCP)	Change	% Change	Capitation	Change	% Change	 	 	
12/31/2001	 	47.4	(3.9)	-7.6%	57.1	(4.4)	-7.2%	 	 	
03/31/2002	 	47.2	(2.3)	-4.6%	56.2	(3.4)	-5.7%	 	 	
06/30/2002	 	46.8	(3.1)	-6.2%	55.3	(4.7)	-7.8%	 	 	
09/30/2002	 	46.6	(2.5)	-5.1%	55.3	(3.9)	-6.6%	 	 	
12/31/2002	 	45.2	(2.2)	-4.6%	53.3	(3.8)	-6.7%	 	 	
03/31/2003	 	46.5	(0.7)	-1.5%	54.7	(1.5)	-2.7%	 	 	
 	 	 	 	 	 	 	 	 	 	
This metric fluctuates due to all of the issues reviewed above, including the change in the receipt cycle time, the change in medical claim inventories, the change in TRICARE liability balances, and the timing of our bi-weekly payment to our pharmacy benefits administrator. An annual recap follows:	
 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	2003	2002	 	 	 	
4th quarter-prior year	 	 	45.2	47.4	 	 	 	
Impact of change in claim receipt cycle time	 	0.3	(2.6)	 	 	 	
Impact of change in unprocessed claim inventories	0.3	(1.3)	 	 	 	
Impact of changing TRICARE reserve balances	 	0.7	0.3	 	 	 	
Impact of change in pharmacy payment cutoff	 	-	0.7	 	 	 	
All other	 	 	 	 	-	0.7	 	 	 	
Year to date-current year	 	 	46.5	45.2