UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

~~FORM 10-Q~~



ý☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, ~~2017~~2022



¨☐			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)



Delaware						61-0647538
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification ~~Number)~~ 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 class	Trading Symbol	Name of each exchange on which registered
Common stock, $0.16 2/3 par value	HUM	New 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 ý☒ No ¨☐

Indicate by check mark whether the registrant has submitted electronically ~~and posted on its corporate Web site, if any,~~ every Interactive Data File required to be submitted ~~and posted~~ 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 ~~and post~~ such files). Yes ý☒ No ¨☐

Indicate by ~~checkmark~~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. ~~(Check one):~~

Large accelerated filer

☒

Accelerated filer

☐

~~Large accelerated filer~~

~~Accelerated filer~~

Non-accelerated filer

¨☐

Smaller 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 ý☒

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 September 30, ~~2017~~2022
$0.16 2/3 par value			~~142,860,096~~126,600,318 shares

Table of Contents

Humana Inc.

FORM 10-Q

SEPTEMBER 30, ~~2017~~2022

INDEX


				Page
Part I: Financial Information
Item 1.		Financial Statements

			~~Page~~
~~Part I: Financial Information~~
~~Item 1.~~	~~Financial Statements (Unaudited)~~

	Condensed Consolidated Balance Sheets (Unaudited) at September 30, ~~2017~~2022 and December 31, ~~2016~~2021		3

		Condensed Consolidated Statements of Income (Unaudited ) for the three and nine months ended September 30, ~~2017~~2022 and ~~2016~~2021		4

		Condensed Consolidated Statements of Comprehensive Income (Unaudited) for the three and nine months ended September 30, ~~2017~~2022 and ~~2016~~2021		5

		Condensed Consolidated Statements of Stockholders' Equity (Unaudited) for the three and nine months ended September 30, 2022		6

		Condensed Consolidated Statements of Cash Flows (Unaudited) for the nine months ended September 30, ~~2017~~2022 and ~~2016~~2021		68

		Notes to Condensed Consolidated Financial Statements (Unaudited)		710

Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations		3735

Item 3.		Quantitative and Qualitative Disclosures about Market Risk		6254

Item 4.		Controls and Procedures		6254

Part II: Other Information

Item 1.		Legal Proceedings		6355

Item 1A.		Risk Factors		6355

Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds		6355

Item 3.		Defaults Upon Senior Securities		6456

Item 4.		Mine Safety Disclosures		6456

Item 5.		Other Information		6456

Item 6.		Exhibits		6457

		Signatures		6558

		Certifications

Humana Inc.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

September 30,
2017 December 31,
2016
(in millions, except share amounts)
ASSETS

Current assets:
Cash and cash equivalents $ 9,865
$ 3,877
Investment securities 8,622
7,595
Receivables, less allowance for doubtful accounts of $89 in 2017
and $118 in 2016 922
1,280
Other current assets 3,776
3,438
Total current assets 23,185
16,190
Property and equipment, net 1,560
1,505
Long-term investment securities 2,716
2,203
Goodwill 3,281
3,272
Other long-term assets 2,214
2,226
Total assets $ 32,956
$ 25,396
LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities:
Benefits payable $ 4,959
$ 4,563
Trade accounts payable and accrued expenses 4,888
2,467
Book overdraft 171
212
Unearned revenues 3,447
280
Short-term debt 953
300
Total current liabilities 14,418
7,822
Long-term debt 3,977
3,792
Future policy benefits payable 2,893
2,834
Other long-term liabilities 457
263
Total liabilities 21,745
14,711
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;
198,572,158 shares issued at September 30, 2017 and 198,495,007 shares
issued at December 31, 2016 33
33
Capital in excess of par value 2,641
2,562
Retained earnings 13,542
11,454
Accumulated other comprehensive income (loss) 12
(66 )
Treasury stock, at cost, 55,712,062 shares at September 30, 2017 and
49,189,811 shares at December 31, 2016 (5,017 ) (3,298 )
Total stockholders’ equity 11,211
10,685
Total liabilities and stockholders’ equity $ 32,956
$ 25,396


	September 30, 2022		December 31, 2021
	(in millions, except share amounts)
ASSETS
Current assets:
Cash and cash equivalents	$	13,558	$	3,394
Investment securities	13,124		13,192
Receivables, net of allowances of $71 in 2022 and $83 in 2021	1,609		1,814
Other current assets	5,420		6,493

Total current assets	33,711		24,893
Property and equipment, net	3,218		3,073
Long-term investment securities	375		780
Equity method investments	738		141
Goodwill	9,096		11,092
Other long-term assets	3,627		4,379

Total assets	$	50,765	$	44,358
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Benefits payable	$	9,237	$	8,289
Trade accounts payable and accrued expenses	6,766		4,509
Book overdraft	237		326
Unearned revenues	6,012		254
Short-term debt	2,799		1,953

Total current liabilities	25,051		15,331
Long-term debt	7,798		10,541
Other long-term liabilities	1,599		2,383

Total liabilities	34,448		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; 198,666,598 shares issued at September 30, 2022 and 198,648,742 shares at December 31, 2021	33		33
Capital in excess of par value	3,234		3,082
Retained earnings	25,606		23,086
Accumulated other comprehensive (loss) income	(1,467)		42
Treasury stock, at cost, 72,066,280 shares at September 30, 2022 and 69,846,758 shares at December 31, 2021	(11,152)		(10,163)
Noncontrolling interests	63		23
Total stockholders’ equity	16,317		16,103
Total liabilities and stockholders’ equity	$	50,765	$	44,358

See accompanying notes to condensed consolidated financial statements.

Humana Inc.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)


	Three months ended September 30,				Nine months ended September 30,						Three months ended September 30,				Nine months ended September 30,
	2017		2016		2017			2016			2022		2021		2022		2021
	(in millions, except per share results)										(in millions, except per share results)
Revenues:										Revenues:
Premiums	$	12,955	$	13,371	$	39,556		$	40,461	Premiums	$	21,468	$	19,885	$	66,437	$	59,987
Services	223		227		706			749		Services	1,159		845		3,772		1,802
Investment income	104		96		316			291
Investment income (loss)										Investment income (loss)	172		(33)		222		221
Total revenues	13,282		13,694		40,578			41,501		Total revenues	22,799		20,697		70,431		62,010
Operating expenses:										Operating expenses:
Benefits	10,642		10,900		32,857			33,806		Benefits	18,384		17,316		57,108		51,761
Operating costs	1,688		1,739		4,694			5,172		Operating costs	3,061		2,603		9,120		6,726
Merger termination fee and related costs, net	—		20		(947		)	81
Depreciation and amortization	94		86		278			263		Depreciation and amortization	182		150		527		436
Total operating expenses	12,424		12,745		36,882			39,322		Total operating expenses	21,627		20,069		66,755		58,923
Income from operations	858		949		3,696			2,179		Income from operations	1,172		628		3,676		3,087
Gain on sale of KAH Hospice										Gain on sale of KAH Hospice	(240)		—		(240)		—
Interest expense	59		47		166			141		Interest expense	102		88		293		235
Income before income taxes	799		902		3,530			2,038
Other expense (income), net										Other expense (income), net	13		(1,096)		(16)		(562)
Income before income taxes and equity in net earnings										Income before income taxes and equity in net earnings	1,297		1,636		3,639		3,414
Provision for income taxes	300		452		1,266			1,023		Provision for income taxes	107		120		820		536
Equity in net earnings										Equity in net earnings	3		15		1		69
Net income	$	499	$	450	$	2,264		$	1,015	Net income	$	1,193	$	1,531	$	2,820	$	2,947
Net loss attributable to noncontrolling interests										Net loss attributable to noncontrolling interests	2		—		1		—
Net income attributable to Humana										Net income attributable to Humana	$	1,195	$	1,531	$	2,821	$	2,947
Basic earnings per common share	$	3.46	$	3.01	$	15.56		$	6.80	Basic earnings per common share	$	9.45	$	11.91	$	22.27	$	22.90
Diluted earnings per common share	$	3.44	$	2.98	$	15.44		$	6.73	Diluted earnings per common share	$	9.39	$	11.84	$	22.16	$	22.77
Dividends declared per common share	$	0.40	$	0.29	$	1.20		$	0.87

See accompanying notes to condensed consolidated financial statements.

Humana Inc.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

Three months ended
September 30, Nine months ended
September 30,
2017 2016 2017 2016
(in millions)
Net income $ 499
$ 450
$ 2,264
$ 1,015
Other comprehensive income:
Change in gross unrealized investment
gains/losses 26
(9 ) 152
150
Effect of income taxes (9 ) 3
(56 ) (55 )
Total change in unrealized
investment gains/losses, net of tax 17
(6 ) 96
95
Reclassification adjustment for net
realized gains included in
investment income —
(26 ) (28 ) (65 )
Effect of income taxes —
10
10
24
Total reclassification adjustment, net
of tax —
(16 ) (18 ) (41 )
Other comprehensive income (loss), net
of tax 17
(22 ) 78
54
Comprehensive income $ 516
$ 428
$ 2,342
$ 1,069


	Three months ended September 30,				Nine months ended September 30,
	2022		2021		2022		2021
	(in millions)
Net income attributable to Humana	$	1,195	$	1,531	$	2,821	$	2,947
Other comprehensive income:
Change in gross unrealized investment losses	(590)		(63)		(1,982)		(247)
Effect of income taxes	135		14		455		56
Total change in unrealized investment losses, net of tax	(455)		(49)		(1,527)		(191)
Reclassification adjustment for net realized gains (losses)	50		(16)		23		(80)
Effect of income taxes	(11)		4		(5)		19
Total reclassification adjustment, net of tax	39		(12)		18		(61)
Other comprehensive loss, net of tax	(416)		(61)		(1,509)		(252)
Comprehensive income attributable to equity method investments	—		(10)		—		6

Comprehensive income attributable to Humana	$	779	$	1,460	$	1,312	$	2,701

See accompanying notes to condensed consolidated financial statements.

Humana Inc.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(Unaudited)


	Common Stock			Capital In Excess of Par Value		Retained Earnings		Accumulated Other Comprehensive Income (loss)		Treasury Stock		Noncontrolling Interests		Total Stockholders’ Equity
	Issued Shares	Amount
	(dollars in millions, share amounts in thousands)
Three months ended September 30, 2022
Balances, June 30, 2022	198,667	$	33	$	3,153	$	24,511	$	(1,051)	$	(11,156)	$	20	$	15,510
Net income						1,195						(2)		1,193
Distribution from noncontrolling interest holders, net												3		3
Sale of KAH Hospice												(11)		(11)
Acquisition												53		53
Other comprehensive loss								(416)						(416)
Common stock repurchases				—						(4)				(4)
Dividends and dividend equivalents				—		(100)								(100)
Stock-based compensation				80										80
Restricted stock unit vesting	—	—		(3)						3				—
Stock option exercises	—	—		4						5				9
Balances, September 30, 2022	198,667	$	33	$	3,234	$	25,606	$	(1,467)	$	(11,152)	$	63	$	16,317

Three months ended September 30, 2021
Balances, June 30, 2021	198,649	$	33	$	3,018	$	21,751	$	216	$	(10,175)	$	—	$	14,843
Net income						1,531						—		1,531


Acquisition												22		22
Other comprehensive loss								(71)						(71)
Common stock repurchases				—						(3)				(3)
Dividends and dividend equivalents				—		(91)								(91)
Stock-based compensation				48										48
Restricted stock unit vesting	—	—		(3)						3				—
Stock option exercises	—	—		1						2				3
Balances, September 30, 2021	198,649	$	33	$	3,064	$	23,191	$	145	$	(10,173)	$	22	$	16,282

See accompanying notes to condensed consolidated financial statements.



	Common Stock			Capital In Excess of Par Value		Retained Earnings		Accumulated Other Comprehensive Income (loss)		Treasury Stock		Noncontrolling Interests		Total Stockholders’ Equity
	Issued Shares	Amount
	(dollars in millions, share amounts in thousands)
Nine months ended September 30, 2022
Balances, December 31, 2021	198,649	$	33	$	3,082	$	23,086	$	42	$	(10,163)	$	23	$	16,103
Net income						2,821						(1)		2,820
Distribution to noncontrolling interest holders, net												(1)		(1)
Sale of KAH Hospice												(11)		(11)
Acquisition												53		53
Other comprehensive loss								(1,509)						(1,509)
Common stock repurchases				—						(1,032)				(1,032)
Dividends and dividend equivalents				—		(301)								(301)
Stock-based compensation				173										173
Restricted stock unit vesting	18	—		(31)						31				—
Stock option exercises	—	—		10						12				22
Balances, September 30, 2022	198,667	$	33	$	3,234	$	25,606	$	(1,467)	$	(11,152)	$	63	$	16,317

Nine months ended September 30, 2021
Balances, December 31, 2020	198,649	$	33	$	2,705	$	20,517	$	391	$	(9,918)	$	—	$	13,728
Net income						2,947						—		2,947


Acquisition												22		22
Other comprehensive loss								(246)						(246)
Common stock repurchases				263						(299)				(36)
Dividends and dividend equivalents				—		(273)								(273)
Stock-based compensation				132										132
Restricted stock unit vesting	—	—		(40)						40				—
Stock option exercises	—	—		4						4				8
Balances, September 30, 2021	198,649	$	33	$	3,064	$	23,191	$	145	$	(10,173)	$	22	$	16,282

Humana Inc.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)


	For the nine months ended September 30,
	2022		2021
	(in millions)
Cash flows from operating activities
Net income	$	2,820	$	2,947
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Gain on sale of KAH Hospice	(240)		—
Loss on investment securities, net	136		18
Gain on Kindred at Home equity method investment	—		(1,129)
Equity in net earnings	(1)		(69)
Stock-based compensation	173		132
Depreciation	555		468
Amortization	73		51
Impairment on property and equipment	144		—
Deferred income taxes	(33)		—
Changes in operating assets and liabilities, net of effect of businesses acquired and disposed:
Receivables	11		(294)
Other assets	(465)		(476)
Benefits payable	948		573
Other liabilities	(195)		207
Unearned revenues	5,758		(84)
Other	30		14
Net cash provided by operating activities	9,714		2,358
Cash flows from investing activities
Proceeds from sale of KAH Hospice, net	2,708		—
Acquisitions, net of cash and cash equivalents acquired	(293)		(3,959)
Purchases of property and equipment, net	(862)		(945)
Purchases of investment securities	(4,740)		(6,573)
Proceeds from maturities of investment securities	1,214		2,103
Proceeds from sales of investment securities	1,979		2,920
Net cash provided by (used in) investing activities	6		(6,454)
Cash flows from financing activities
Receipts from contract deposits, net	3,787		605
Proceeds from issuance of senior notes, net	744		2,984
(Repayments) proceeds from issuance of commercial paper, net	(660)		193
Proceeds from term loan	—		500
Repayment of term loan	(2,000)		(150)
Debt issue costs	(2)		(29)
Change in book overdraft	(89)		(80)
Common stock repurchases	(1,032)		(36)
Dividends paid	(291)		(263)
Other	(13)		3
Net cash provided by financing activities	444		3,727
Increase (decrease) in cash and cash equivalents	10,164		(369)
Cash and cash equivalents at beginning of period	3,394		4,673
Cash and cash equivalents at end of period	$	13,558	$	4,304

For the nine months ended
September 30,
2017 2016
(in millions)
Cash flows from operating activities
Net income $ 2,264
$ 1,015
Adjustments to reconcile net income to net cash provided by
operating activities:
Net realized capital gains (28 ) (65 )
Stock-based compensation 116
76
Depreciation 303
289
Other intangible amortization 54
59
(Benefit) provision for deferred income taxes (54 ) 54
Changes in operating assets and liabilities, net of effect of
businesses acquired and dispositions:
Receivables 358
396
Other assets (369 ) (419 )
Benefits payable 396
73
Other liabilities 641
127
Unearned revenues 3,167
2,987
Other, net 114
117
Net cash provided by operating activities 6,962
4,709
Cash flows from investing activities
Acquisitions, net of cash acquired (10 ) (7 )
Purchases of property and equipment (376 ) (395 )
Purchases of investment securities (4,337 ) (4,533 )
Maturities of investment securities 919
1,082
Proceeds from sales of investment securities 2,028
3,319
Net cash used in investing activities (1,776 ) (534 )
Cash flows from financing activities
Receipts from contract deposits, net 1,931
350
Proceeds from issuance of senior notes, net 985
—
Repayment of commercial paper, net (153 ) (1 )
Change in book overdraft (41 ) (118 )
Common stock repurchases (1,819 ) (75 )
Dividends paid (162 ) (133 )
Proceeds from stock option exercises and other 61
—
Net cash provided by financing activities 802
23
Increase in cash and cash equivalents 5,988
4,198
Cash and cash equivalents at beginning of period 3,877
2,571
Cash and cash equivalents at end of period $ 9,865
$ 6,769
Supplemental cash flow disclosures:
Interest payments $ 124
$ 102
Income tax payments, net $ 1,206
$ 851

Humana Inc.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS—(Continued)

(Unaudited)


	For the nine months ended September 30,
	2022		2021
	(in millions)
Supplemental cash flow disclosures:
Interest payments	$	256	$	183
Income tax payments, net	$	751	$	219
Details of businesses acquired in purchase transactions:
Fair value of assets acquired, net of cash and cash equivalents acquired	$	411	$	9,572
Less: Fair value of liabilities assumed	(65)		(3,231)
Less: Noncontrolling interests acquired	(53)		(22)
Less: Remeasured existing Kindred at Home equity method investment	—		(2,360)
Cash paid for acquired businesses, net of cash and cash equivalents acquired	$	293	$	3,959

See accompanying notes to condensed consolidated financial statements.

Table of Contents

Humana Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. BASIS OF PRESENTATION AND SIGNIFICANT EVENTS

The accompanying unaudited 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, ~~2016,~~2021, that was filed with the Securities and Exchange Commission, or the SEC, on February 17, ~~2017.~~2022. We refer to ~~the~~this Form 10-K as the ~~“2016~~“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 unaudited condensed consolidated financial statements and accompanying notes. The areas involving the most significant use of estimates are the estimation of ~~benefits payable, future policy~~ 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.~~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~~For additional information regarding accounting policies considered in preparing our consolidated financial statements, refer to Note 2 to the ~~consolidated financial statements~~audited Consolidated Financial Statements included in Part II, Item 8, "Financial Statements and Supplementary Data" in our ~~2016~~2021 Form ~~10-K for information on accounting policies that we consider in preparing our consolidated financial statements.~~10-K.

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.

~~Sale of Closed Block of Commercial Long-Term Care Insurance Business~~Value Creation Initiatives

~~On November 6, 2017, we entered into a definitive agreement~~During 2022, in order to ~~sell the stock~~create capacity to fund growth and investment in our Medicare Advantage business and further expansion of our ~~wholly-owned subsidiary, KMG America Corporation, or KMG,~~Healthcare Services capabilities in 2023, we committed to Continental General Insurance Company, or CGIC, a Texas-based insurance company wholly owned by HC2 Holdings, Inc., a diversified holding company. KMG’s subsidiary, Kanawha Insurance Company, or KIC, includes our closed block of non-strategic commercial long-term care insurance policies. Based ondrive additional value for the terms of the definitive agreement we expect to record a net loss associated with the sale of KMG of approximately $400 million. The estimated loss includes a pretax loss of approximately $900 million, offset by the expected tax benefit of approximately $500 million. We will fund the transaction with approximately $203 million of parent company cash contributed into KMG, subject to customary adjustments, in addition to the transfer of approximately$150 million of statutory capital with the sale, which together should be more than offset by the estimated $500 million cash savings associated with the expected tax treatment of the sale. The KMG transaction is anticipated to close by the third quarter of 2018 subject to customary closing conditions, including South Carolina Department of Insurance approval. There can be no assurance we will obtain regulatory approvals needed to sell the business or do so under terms acceptable to us.

~~Workforce Optimization~~

~~During the third quarter of 2017, we initiated a voluntary early retirement program~~enterprise through cost saving, productivity initiatives, and ~~an involuntary workforce reduction program. These programs are expected to impact approximately 2,700 associates, or 5.7%, of our workforce.~~value acceleration from previous investments. As a result of these initiatives, during the three and nine months ended September 30, 2022, we recorded ~~estimated~~ charges of ~~$124~~$82 million ~~or $0.54 per diluted common share. At October 31, 2017, we had approximately 47,200 employees. The estimated charges were recorded at the corporate level~~ and ~~not allocated~~$285 million, respectively, primarily related to ~~the segments. This charge is included with operating costs~~asset and software impairment and abandonment in the ~~condensed consolidated statements~~amount of ~~income~~$4 million and $144 million for the three and nine ~~month periods~~months ended September 30, ~~2017. Payments under these programs are made upon termination during~~2022, respectively. Also included in this charge was $44 million and $65 million for the ~~early retirement or~~three and nine months ended September 30, 2022, respectively, in future severance ~~pay period, primarily starting~~payments in connection with the optimization of our workforce to increase speed, agility, and the pace at which Humana must work as ~~of the beginning of the first quarter of 2018.~~a large, integrated healthcare organization. We expect this liability to be primarily paid within the next 12 months and classified it as a current liability, included in trade accounts payable and accrued expenses. These charges are included within operating costs in the condensed consolidated statements of income for the three and nine months ended September 30, 2022, and were recorded at the corporate level and not allocated to the segments.

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-emergent and elective medical care have resulted in lower overall healthcare system utilization. At the same time, COVID-19 treatment and testing costs increased utilization. During 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

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Humana Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

~~Aetna Merger~~

On July 2, 2015, we entered into an Agreement and Plan of Merger, which we refer to in this report as the Merger Agreement, with Aetna Inc. and certain wholly owned subsidiaries of Aetna Inc., which we refer to collectively as Aetna, which set forth the terms and conditions under which we agreed to merge with, and become a wholly owned subsidiary of Aetna, a transaction we refer to in this report as the Merger.

~~The Merger was subject to customary closing conditions, including, among other things, (i) the expiration or termination of the applicable waiting period~~such, significantly affected our 2021 revenue under the ~~Hart-Scott-Rodino Antitrust Improvements Act of 1976,~~risk adjustment payment model for Medicare Advantage plans. Finally, changes in utilization patterns and actions taken in 2021 as amended, and the receipt of necessary approvals under state insurance and healthcare laws and regulations and pursuant to certain licenses of certain of Humana’s subsidiaries, and (ii) the absence of legal restraints and prohibitions on the consummation of the Merger.

On July 21, 2016, the U.S. Department of Justice and the attorneys general of certain U.S. jurisdictions filed a civil antitrust complaint in the U.S. District Court for the District of Columbia against us and Aetna, alleging that the Merger would violate Section 7 of the Clayton Antitrust Act and seeking a permanent injunction to prevent the Merger from being completed. On January 23, 2017, the Court ruled in favor of the DOJ and granted a permanent injunction of the proposed transaction. On February 14, 2017, we and Aetna agreed to mutually terminate the Merger Agreement, as our Board determined that an appeal of the Court's ruling would not be in the best interest of our stockholders. On February 16, 2017, under the terms of the Merger Agreement, we received a breakup fee of $1 billion from Aetna, which is included in our condensed consolidated statement of income in the line captioned Merger termination fee and related costs, net. Prior period Merger related transaction costs, previously included in operating costs, have been reclassified to conform to the 2017 presentation.

~~Business Segment Reclassifications~~

During the three months ended March 31, 2017, we realigned certain of our businesses among our reportable segments to correspond with internal management reporting changes and our previously announced planned exit from the Individual Commercial medical business on January 1, 2018. Additionally, we renamed our Group segment to the Group and Specialty segment, and began presenting the Individual Commercial business results as a separate segment rather than as part of the Retail segment. Specialty health insurance benefits, including dental, vision, other supplement health, and financial protection products, marketed to individuals are now included in the Group and Specialty segment. Specialty health insurance benefits marketed to employer groups continue to be included in the Group and Specialty segment. As a result of ~~this realignment,~~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 ~~reportable segments now~~claim reserve development and operating cash flows for 2021.

Revenue Recognition

Our revenues include ~~Retail, Group~~premiums and ~~Specialty, Healthcare~~services revenue. Services revenue includes administrative service fees that are recorded based upon established per member per month rates and ~~Individual Commercial. Prior period segment financial~~the number of members for the month and are recognized as services are provided for the month. Additionally, services revenue includes net patient services revenue that are recorded based upon established billing rates, less allowances for contractual adjustments, and are recognized as services are provided. For additional information ~~has been recast~~regarding our revenues, refer to ~~conform~~Note 2 to the ~~2017 presentation. See~~audited Consolidated Financial Statements included in Part II, Item 8, "Financial Statements and Supplementary Data" in our 2021 Form 10-K. For additional information regarding disaggregation of revenue by segment and type, refer to Note ~~15 for segment financial information.~~14 to the unaudited Condensed Consolidated Financial Statements included in Part I, Item 1, "Financial Statements" of this Form 10-Q.

At September 30, 2022, accounts receivable related to services were $311 million. For the three and nine months ended September 30, 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 September 30, 2022.

For the three and nine months ended September 30, 2022, services revenue recognized from performance obligations related to prior periods, such as 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 ~~May 2014,~~November 2020, the ~~Financial~~FASB issued Accounting Standards ~~Board, or FASB,~~Update No. 2020-11, Financial Services—Insurance (Topic 944): Effective Date and Early Application (“ASU 2020-11”). The amendments in ASU 2020-11 make changes to the effective date and early application of Accounting Standards Update No. 2018-12, Financial Services—Insurance (Topic 944): Targeted Improvements to the Accounting for Long-Duration Contracts (“ASU 2018-12”), which was issued in November 2018. The amendments in ASU 2020-11 have extended the original effective date by one year, and now the amendments are required for our interim and annual reporting periods beginning after December 15, 2022. The new guidance ~~that amends the~~relates to accounting for ~~revenue recognition. The amendments are intended to provide a more robust framework for addressing revenue issues, improve comparability~~long-duration contracts of revenue recognition practices, and improve disclosure requirements. Insurance contracts are not included in the scope of this new guidance. Accordingly, our premiums revenue and investment income, collectively representing approximately 98% of our consolidated external revenues for 2016, are not included in the scopeinsurers which revises key elements of the ~~new guidance. We will adopt~~measurement models and disclosure requirements for long-duration contracts issued by insurers, including the ~~guidance~~amortization of deferred contract acquisition costs and the measurement of liabilities for future policy benefits using ~~the modified retrospective approach with a cumulative effect adjustment, if any, to retained earnings. We are analyzing how we may recognize revenue under the~~current, rather than locked-in, assumptions. The new guidance, ~~by reviewing selected sample contracts presently in place. While we expect revenue related~~limited to our ~~Pharmacy, Provider Services, ASO~~Medicare supplement product which represent less than 1% of consolidated premiums and ~~other~~ services businesses to remain primarily unchanged, we are still reviewing the impact of the new guidance on the customer arrangements for these businesses. Accordingly, we continue to evaluate the impact of the new standard on our results of operations, financial condition, cash flows, and disclosures. The new guidancerevenue, is effective for us beginning with annual and interim periods in ~~2018.~~

~~In February 2016, the FASB issued new guidance related to accounting for leases which requires lessees to record~~

~~assets~~2023 and, ~~liabilities reflecting the leased assets and lease obligations, respectively, while following the dual model for recognition in statements of income requiring leases~~using a modified retrospective approach, is to be ~~classified as either operating or finance. Operating leases~~

~~Humana Inc.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)~~

~~(Unaudited)~~

~~will result~~applied to contracts in ~~straight-line expense (similar to current operating leases) while finance leases will result in a front-loaded expense pattern (similar to current capital leases). The new guidance is effective for us~~force on the basis of their existing carrying value amounts at the beginning ~~with annual and interim periods in 2019, with earlier adoption permitted, and requires retrospective application to previously issued annual and interim financial statements.~~of the earliest period presented. We have begun the process of identifying the population of lease agreements and other arrangements that may contain embedded leases for purposes of adopting the new standard. While we expect to record significant leased assets and corresponding lease obligations based on our existing population of individual leases, we continue to evaluateare currently evaluating the impact on our results of operations, financial position and cash flows.

In June 2016, the FASB issued guidance introducing a new model for recognizing credit losses on financial instruments based on an estimate of current expected credit losses. The guidance is effective for us beginning January 1, 2020. The new current expected credit losses (CECL) model generally calls for the immediate recognition of all expected credit losses and applies to loans, accounts and trade receivables as well as other financial assets measured at amortized cost, loan commitments and off-balance sheet credit exposures, debt securities and other financial assets measured at fair value through other comprehensive income, and beneficial interests in securitized financial assets. The

~~new guidance replaces the current incurred loss model for measuring expected credit losses, requires expected losses~~

~~on available-for-sale debt securities to be recognized through an allowance for credit losses rather than as reductions~~

in the amortized cost of the securities, and provides for additional disclosure requirements. Our investment portfolio consists of available-for-sale debt securities. We are currently evaluating the impact on our results of operations, financial condition, or cash flows.

In January 2017, the FASB issued guidance which simplifies the accounting for goodwill impairment. The new guidance eliminates the requirement to calculate the implied fair value of goodwill to measure a goodwill impairment charge. A goodwill impairment charge would be recognized if the carrying amount of a reporting unit exceeds the estimated fair value of the reporting unit. The new guidance is effective for us beginning with annual and interim periods in 2020, with early adoption permitted, and is to be applied prospectively. The adoption of this new guidance is not expected to have a material impact on our financial position or operating results.

In March 2017, the FASB issued new guidance that amends the accounting for premium amortization on purchased callable debt securities by shortening the amortization period. This amended guidance requires the premium to be amortized to the earliest call date instead of maturity date. The new guidance is effective for us beginning with annual and interim periods in 2019. We do not expect adoption of this guidance will have a material impact on our results of operations, financial condition 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 AND DIVESTITURES

~~During 2017~~On August 11, 2022, we completed the sale of a 60% interest of Humana’s Kindred at Home Hospice subsidiary, or KAH Hospice, to Clayton, Dubilier & Rice, or CD&R, for cash proceeds of approximately $2.7 billion, net of cash disposed, including debt repayments from KAH Hospice to Humana of $1.9 billion. In connection with the sale we recognized a pre-tax gain, net of transaction costs, of $240 million which is reported as a gain on sale of KAH Hospice in the accompanying condensed consolidated statements of income for the three and ~~2016,~~nine months ended September 30, 2022.

In June 2022, we classified KAH Hospice as held-for-sale and aggregated KAH Hospice’s assets and liabilities separately on the balance sheet. The assets, liabilities and noncontrolling interest disposed of on August 11, 2022 were as follows:


	August 11, 2022
	(in millions)
Assets
Cash and cash equivalents	$	66
Receivables, net of allowances	194
Other current assets	20
Property and equipment, net	44
Goodwill	2,331
Other assets	960
Total assets	$	3,615
Liabilities
Trade accounts payable and accrued expenses	$	245
Other long-term liabilities	281
Total liabilities	$	526
Noncontrolling interest	$	11

Other assets included $866 million identifiable intangibles consisting of Medicare licenses and certificates of need.

Prior to the KAH Hospice disposition on August 11, 2022, as discussed above, KAH Hospice revenues for the three and nine months ended September 30, 2022 were $177 million and $958 million, respectively. Prior to the KAH Hospice disposition on August 11, 2022, KAH Hospice pretax earnings for the three and nine months ended September 30, 2022 were $24 million and $150 million, respectively.

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 for an enterprise value of $8.2 billion, which included 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 ~~2017~~2022 and ~~2016~~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

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Humana Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

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.

~~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 September 30, ~~2017~~2022 and December 31, ~~2016,~~2021, respectively:


	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
	(in millions)
September 30, 2022
U.S. Treasury and other U.S. government corporations and agencies:
U.S. Treasury and agency obligations	$	657	$	—	$	(58)	$	599
Mortgage-backed securities	3,589		1		(550)		3,040
Tax-exempt municipal securities	769		—		(54)		715
Mortgage-backed securities:
Residential	482		—		(78)		404
Commercial	1,562		—		(154)		1,408
Asset-backed securities	1,915		—		(81)		1,834
Corporate debt securities	6,418		—		(931)		5,487
Total debt securities	$	15,392	$	1	$	(1,906)	13,487
Common stock							12
Total investment securities							$	13,499

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 securities	3,265		33		(69)		3,229
Tax-exempt municipal securities	810		33		(2)		841
Mortgage-backed securities:
Residential	373		—		(6)		367
Commercial	1,394		27		(11)		1,410
Asset-backed securities	1,346		6		(4)		1,348
Corporate debt securities	5,641		118		(59)		5,700
Total debt securities	$	13,440	$	218	$	(161)	13,497
Common stock							475
Total investment securities							$	13,972

Amortized
Cost

Gross
Unrealized
Gains

Gross
Unrealized
Losses

Fair
Value
(in millions)
September 30, 2017
U.S. Treasury and other U.S. government
corporations and agencies:
U.S. Treasury and agency obligations $ 821
$ 1
$ (8 ) $ 814
Mortgage-backed securities 1,423
5
(19 ) 1,409
Tax-exempt municipal securities 3,457
28
(16 ) 3,469
Mortgage-backed securities:
Residential 7
—
—
7
Commercial 399
3
(2 ) 400
Asset-backed securities 140
—
—
140
Corporate debt securities 4,921
215
(37 ) 5,099
Total debt securities $ 11,168
$ 252
$ (82 ) $ 11,338

December 31, 2016
U.S. Treasury and other U.S. government
corporations and agencies:
U.S. Treasury and agency obligations $ 800
$ 1
$ (15 ) $ 786
Mortgage-backed securities 1,662
6
(31 ) 1,637
Tax-exempt municipal securities 3,358
15
(68 ) 3,305
Mortgage-backed securities:
Residential 9
—
—
9
Commercial 307
1
(4 ) 304
Asset-backed securities 160
—
—
160
Corporate debt securities 3,530
145
(78 ) 3,597
Total debt securities $ 9,826
$ 168
$ (196 ) $ 9,798

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Humana Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

In August 2022, we purchased certain corporate debt securities of KAH Hospice subsequent to the sale. The book value and fair value are $279 million and $274 million, respectively, at September 30, 2022.

Gross unrealized losses and fair values aggregated by investment category and length of time ~~that~~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 September 30, ~~2017~~2022 and December 31, ~~2016,~~2021, respectively:


	Less than 12 months				12 months or more				Total
	Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses
	(in millions)
September 30, 2022
U.S. Treasury and other U.S. government corporations and agencies:
U.S. Treasury and agency obligations	$	146	$	(6)	$	380	$	(52)	$	526	$	(58)
Mortgage-backed securities	1,114		(131)		1,802		(419)		2,916		(550)
Tax-exempt municipal securities	79		(3)		625		(51)		704		(54)
Mortgage-backed securities:
Residential	127		(15)		277		(63)		404		(78)
Commercial	252		(13)		1,156		(141)		1,408		(154)
Asset-backed securities	598		(30)		1,226		(51)		1,824		(81)
Corporate debt securities	1,909		(191)		3,484		(740)		5,393		(931)
Total debt securities	$	4,225	$	(389)	$	8,950	$	(1,517)	$	13,175	$	(1,906)

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:
Residential	358		(6)		8		—		366		(6)
Commercial	295		(4)		400		(7)		695		(11)
Asset-backed securities	530		(3)		425		(1)		955		(4)
Corporate debt securities	1,456		(28)		769		(31)		2,225		(59)
Total debt securities	$	4,990	$	(94)	$	2,547	$	(67)	$	7,537	$	(161)

Less than 12 months 12 months or more Total
Fair
Value Gross
Unrealized
Losses Fair
Value Gross
Unrealized
Losses Fair
Value Gross
Unrealized
Losses
(in millions)
September 30, 2017
U.S. Treasury and other U.S.
government corporations
and agencies:
U.S. Treasury and agency
obligations $ 522
$ (5 ) $ 137
$ (3 ) $ 659
$ (8 )
Mortgage-backed
securities 986
(17 ) 82
(2 ) 1,068
(19 )
Tax-exempt municipal
securities 1,320
(9 ) 460
(7 ) 1,780
(16 )
Mortgage-backed securities:
Residential —
—
4
—
4
—
Commercial 115
(2 ) —
—
115
(2 )
Asset-backed securities 64
—
—
—
64
—
Corporate debt securities 999
(15 ) 469
(22 ) 1,468
(37 )
Total debt securities $ 4,006
$ (48 ) $ 1,152
$ (34 ) $ 5,158
$ (82 )

December 31, 2016
U.S. Treasury and other U.S.
government corporations
and agencies:
U.S. Treasury and agency
obligations $ 697
$ (15 ) $ 3
$ —
$ 700
$ (15 )
Mortgage-backed
securities 1,528
(31 ) 3
—
1,531
(31 )
Tax-exempt municipal
securities 2,756
(67 ) 43
(1 ) 2,799
(68 )
Mortgage-backed securities:
Residential —
—
4
—
4
—
Commercial 182
(3 ) 24
(1 ) 206
(4 )
Asset-backed securities 51
—
63
—
114
—
Corporate debt securities 1,544
(71 ) 69
(7 ) 1,613
(78 )
Total debt securities $ 6,758
$ (187 ) $ 209
$ (9 ) $ 6,967
$ (196 )

Approximately ~~98%~~95% 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 September 30, ~~2017.~~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 United States with no individual state exceeding ~~9%. In addition, 2%~~1% of our ~~tax-exempt securities were insured by bond insurers and had an~~

~~Humana Inc.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)~~

~~(Unaudited)~~

~~equivalent weighted average S&P credit rating of AA exclusive of the bond insurers’ guarantee.~~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 ~~680~~1,655 positions out of a total of approximately ~~2,320~~1,905 positions at September 30, ~~2017.~~2022. All issuers of debt securities we own that were trading at an unrealized loss at September 30, ~~2017~~2022 remain current on all contractual payments. After taking into account these

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Humana Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

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 ~~the~~these debt securities were purchased. At September 30, ~~2017,~~2022, we did not intend to sell ~~the~~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. As ~~a result,~~such, we ~~believe~~did not record any material credit allowances for debt securities that ~~the securities with~~were in an unrealized loss ~~were not other-than-temporarily impaired at~~position for the three and nine months ended September 30, ~~2017.~~2022 and 2021.

The detail of ~~realized~~(losses) gains ~~(losses)~~ related to investment securities and included within investment income was as follows for the three and nine months ended September 30, ~~2017~~2022 and ~~2016:~~2021:


	Three months ended September 30,				Nine months ended September 30,
	2022		2021		2022		2021
	(in millions)				(in millions)
Gross gains on investment securities	$	2	$	71	$	41	$	180
Gross losses on investment securities	(52)		(1)		(58)		(1)
Gross gains on equity securities	51		40		51		104
Gross losses on equity securities	—		(214)		(170)		(301)
Net recognized gains (losses) on investment securities	$	1	$	(104)	$	(136)	$	(18)

Three months ended
September 30, Nine months ended
September 30,
2017 2016 2017 2016
(in millions)
Gross realized gains $ 3
$ 37
$ 34
$ 88
Gross realized losses (3 ) (11 ) (6 ) (23 )
Net realized capital gains $ —
$ 26

$ 28

$ 65

~~There were no material other-than-temporary impairments~~The gains and losses related to equity securities for the three and nine months ended September 30, ~~2017 or 2016.~~2022 and 2021 was as follows:


	Three months ended September 30,				Nine months ended September 30,
	2022		2021		2022		2021
	(in millions)				(in millions)
Net gains (losses) recognized on equity securities during the period	$	51	$	(174)	$	(119)	$	(197)
Less: Net gains (losses) recognized on equity securities sold during the period	47		—		(105)		—
Unrealized gains (losses) recognized on equity securities still held at the end of the period	$	4	$	(174)	$	(14)	$	(197)

The contractual maturities of debt securities available for sale at September 30, ~~2017,~~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	$	442	$	438
Due after one year through five years	2,895		2,682
Due after five years through ten years	3,227		2,687
Due after ten years	1,280		994
Mortgage and asset-backed securities	7,548		6,686
Total debt securities	$	15,392	$	13,487

For additional information regarding our investment securities, refer to Note 2 to the audited Consolidated Financial Statements included in Part II, Item 8, "Financial Statements and Supplementary Data" in our 2021 Form 10-K.

Amortized
Cost Fair
Value
(in millions)
Due within one year $ 501
$ 502
Due after one year through five years 2,999
3,014
Due after five years through ten years 2,555
2,561
Due after ten years 3,144
3,305
Mortgage and asset-backed securities 1,969
1,956
Total debt securities $ 11,168
$ 11,338

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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 September 30, ~~2017~~2022 and December 31, ~~2016,~~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)
September 30, 2022
Cash equivalents	$	13,357	$	13,357	$	—	$	—
Debt securities:
U.S. Treasury and other U.S. government corporations and agencies:
U.S. Treasury and agency obligations	599		—		599		—
Mortgage-backed securities	3,040		—		3,040		—
Tax-exempt municipal securities	715		—		715		—
Mortgage-backed securities:
Residential	404		—		404		—
Commercial	1,408		—		1,408		—
Asset-backed securities	1,834		—		1,834		—
Corporate debt securities	5,487		—		5,387		100
Total debt securities	13,487		—		13,387		100
Common stock	12		12		—		—
Total invested assets	$	26,856	$	13,369	$	13,387	$	100

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 obligations	602		—		602		—
Mortgage-backed securities	3,229		—		3,229		—
Tax-exempt municipal securities	841		—		841		—
Mortgage-backed securities:
Residential	367		—		367		—
Commercial	1,410		—		1,410		—
Asset-backed securities	1,348		—		1,348		—
Corporate debt securities	5,700		—		5,632		68
Total debt securities	13,497		—		13,429		68
Common stock	475		475		—		—
Total invested assets	$	17,294	$	3,797	$	13,429	$	68

Fair Value Measurements Using
Fair
Value Quoted Prices
in Active
Markets
(Level 1) Other
Observable
Inputs
(Level 2) Unobservable
Inputs
(Level 3)
(in millions)
September 30, 2017
Cash equivalents $ 9,368
$ 9,368
$ —
$ —
Debt securities:
U.S. Treasury and other U.S. government
corporations and agencies:
U.S. Treasury and agency obligations 814
—
814
—
Mortgage-backed securities 1,409
—
1,409
—
Tax-exempt municipal securities 3,469
—
3,469
—
Mortgage-backed securities:
Residential 7
—
7
—
Commercial 400
—
400
—
Asset-backed securities 140
—
140
—
Corporate debt securities 5,099
—
5,098
1
Total debt securities 11,338
—
11,337
1
Total invested assets $ 20,706
$ 9,368
$ 11,337
$ 1

December 31, 2016
Cash equivalents $ 3,654
$ 3,654
$ —
$ —
Debt securities:
U.S. Treasury and other U.S. government
corporations and agencies:
U.S. Treasury and agency obligations 786
—
786
—
Mortgage-backed securities 1,637
—
1,637
—
Tax-exempt municipal securities 3,305
—
3,302
3
Mortgage-backed securities:
Residential 9
—
9
—
Commercial 304
—
304
—
Asset-backed securities 160
—
160
—
Corporate debt securities 3,597
—
3,593
4
Total debt securities 9,798
—
9,791
7
Total invested assets $ 13,452
$ 3,654
$ 9,791
$ 7

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Humana Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

~~There were no material transfers between Level 1 and Level 2 during the three and nine months ended September 30, 2017 or 2016.~~

Our Level 3 assets had a fair value of $1$100 million at September 30, ~~2017, less than 0.01%~~2022 , or 0.4% of our total invested assets. During the ~~three and nine months~~year ended September 30, ~~2017 and 2016,~~2022, the changes in the fair value of the assets measured using significant unobservable inputs (Level 3) were comprised of the following:


	For the nine months ended September 30, 2022
	Private Placements
	(in millions)
Beginning balance at January 1	$	68
Total gains or losses:
Realized in earnings	—
Unrealized in other comprehensive income	(12)
Purchases	44
Sales	—
Settlements	—
Balance at September 30	$	100

For the three months ended September 30,
2017 2016
Private
Placements Auction
Rate
Securities Total Private
Placements Auction
Rate
Securities Total
(in millions)
Beginning balance at July 1 $ 4
$ —
$ 4
$ 6
$ 3
$ 9
Sales (3 ) —
(3 ) —
—
—
Balance at September 30 $ 1
$ —
$ 1
$ 6
$ 3
$ 9

For the nine months ended September 30,
2017 2016
Private
Placements Auction
Rate
Securities Total Private
Placements Auction
Rate
Securities Total
(in millions)
Beginning balance at January 1 $ 4
$ 3
$ 7
$ 6
$ 5
$ 11
Sales (3 ) —
(3 ) —
—
—
Settlements —
(3 ) (3 ) —
(2 ) (2 )
Balance at September 30 $ 1
$ —
$ 1
$ 6
$ 3
$ 9
There were no Level 3 assets for the nine months ended September 30, 2021.

Financial Liabilities

Our debt is recorded at carrying value in our consolidated balance sheets. The carrying value of our senior notes debt outstanding, ~~including the current portion,~~ net of unamortized debt issuance costs, was ~~$4,780 million~~$9.8 billion at September 30, ~~2017~~2022 and ~~$3,792 million~~$9.0 billion at December 31, ~~2016.~~2021. The fair value of our senior notes debt ~~including the current portion,~~ was ~~$5,185 million~~$9.0 billion at September 30, ~~2017~~2022 and ~~$4,004 million~~$10.0 billion at December 31, ~~2016.~~2021. The fair value of our ~~long-term~~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.

~~Due to the short-term nature, carrying~~ Carrying value approximates fair value for our term loans and commercial paper borrowings. ~~There were outstanding~~The term loans and commercial paper borrowings ~~of $150~~were $803 million ~~as of~~at September 30, ~~2017~~2022 and ~~$300 million as of~~$3.5 billion at December 31, ~~2016.~~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.

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 $190 million and $17 million, respectively, at September 30, 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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Humana Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)


	September 30, 2022		December 31, 2021
Annualized volatility	23.4% - 23.5%		22.4	%
Credit spread	1.2% - 1.4%		0.9	%
Revenue exit multiple	1.5x - 2.5x		1.5x - 2.5x
Weighted average cost of capital	13.0	%	12.5	%
Long term growth rate	3.0	%	3.0	%

Other Assets and Liabilities Measured at Fair Value

Certain assets and liabilities are measured at fair value on a ~~Nonrecurring Basis~~

non-recurring basis subject to fair value adjustment only in certain circumstances. As disclosed in Note 3, we ~~completed the acquisition of certain~~acquired various health and wellness related businesses during ~~2017 and 2016.~~2022. The ~~values of~~ net ~~tangible~~ assets acquired and ~~the~~ resulting goodwill and other intangible assets were recorded at fair value primarily using Level 3 inputs. The ~~majority of the~~net tangible assets ~~acquired~~including receivables and accrued liabilities ~~assumed~~ were recorded at their carrying ~~values as of the respective dates of acquisition, as their carrying values~~value which approximated their fair ~~values~~value due to their ~~short-term~~short term nature. The fair ~~values~~value of goodwill and other intangible assets ~~acquired in these acquisitions~~ were internally estimated based primarily ~~based~~ on the income approach. The income approach estimates fair value based on the present value of ~~the~~ cash ~~flows~~flow that the assets ~~are~~could be expected to generate in the future. We developed internal estimates for ~~the~~ expected cash flows ~~and discount rates used~~ in the present value ~~calculations.~~ 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.

As disclosed in Note 3, we completed the sale of KAH Hospice on August 11, 2022. The carrying value of the assets and liabilities of KAH Hospice disposed approximates fair value. The amount of goodwill included in the carrying value is based on the relative fair value of the Home Solutions reporting unit included within the Healthcare Services segment.

Other than the assets and liabilities acquired and ~~liabilities assumed in these acquisitions,~~disposed during 2022, there were no other material assets or liabilities measured at fair value on a recurring or nonrecurring basis during ~~2017 or 2016.~~2022.

For additional information regarding our fair value measurements, refer to Note 2 to the audited Consolidated Financial Statements included in Part II, Item 8, "Financial Statements and Supplementary Data" in our 2021 Form 10-K.

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Humana Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

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 2016 Form 10-K.~~CMS. The accompanying condensed consolidated balance sheets include the following amounts associated with Medicare Part D at September 30, ~~2017~~2022 and December 31, ~~2016.~~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.

September 30, 2017 December 31, 2016
Risk
Corridor
Settlement CMS
Subsidies/
Discounts Risk
Corridor
Settlement CMS
Subsidies/
Discounts
(in millions)
Other current assets $ 9
$ 1,058
$ 8
$ 1,001
Trade accounts payable and accrued expenses (118 ) (2,134 ) (158 ) (128 )
Net current (liability) asset (109 ) (1,076 ) (150 ) 873
Other long-term assets 3
—
—
—
Other long-term liabilities (180 ) —
—
—
Net long-term liability (177 ) —
—
—
Total net (liability) asset $ (286 ) $ (1,076 ) $ (150 ) $ 873

~~7. HEALTH CARE REFORM~~

~~The Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act of 2010 (which we collectively~~ For additional information regarding our prescription drug benefits coverage in accordance with Medicare Part D, refer to as the Health Care Reform Law) established risk spreading premium stabilization programs effective January 1, 2014, including a permanent risk adjustment program and temporary risk corridor and reinsurance programs, which we collectively refer to as the 3Rs. The 3Rs are applicable to certain of our commercial medical insurance products as further discussed in Note 2 to the audited Consolidated Financial Statements included in Part II, Item 8, "Financial Statements and Supplementary Data" in our ~~2016~~2021 Form 10-K. Operating results for our Individual Commercial medical business compliant with the Health Care Reform Law have been challenged primarily due to unanticipated modifications in the program subsequent to the passing of the Health Care Reform Law, resulting in higher covered population morbidity and the ensuing enrollment and claims issues causing volatility in claims experience. We took a number of actions in 2015 to improve the profitability of our Individual Commercial medical business in 2016. These actions were subject to regulatory restrictions in certain geographies and included premium increases for the 2016 coverage year related generally to the first half of 2015 claims experience, the discontinuation of certain products as well as exit of certain markets for 2016, network improvements, enhancements to claims and clinical processes and administrative cost control. Despite these actions, the deterioration in the second half of 2015 claims experience together with 2016 open enrollment results indicating the retention of many high-utilizing members

~~Humana Inc.~~


	September 30, 2022				December 31, 2021
	Risk Corridor Settlement		CMS Subsidies/ Discounts		Risk Corridor Settlement		CMS Subsidies/ Discounts
	(in millions)
Other current assets	$	157	$	775	$	363	$	1,894
Trade accounts payable and accrued expenses	(94)		(3,074)		(68)		(466)
Net current asset (liability)	63		(2,299)		295		1,428
Other long-term assets	234		—		5		—
Other long-term liabilities	(188)		—		(194)		—
Net long-term asset (liability)	46		—		(189)		—
Total net asset (liability)	$	109	$	(2,299)	$	106	$	1,428

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)~~

~~(Unaudited)~~

for 2016 resulted in a probable future loss. As a result of our then assessment of the profitability of our individual medical policies compliant with the Health Care Reform Law, in the fourth quarter of 2015, we recorded a provision for probable future losses (premium deficiency reserve, or PDR) for the 2016 coverage year of $176 million in benefits payable in our consolidated balance sheet with a corresponding increase in benefits expense in our consolidated statement of income. During the second quarter of 2016 we increased the premium deficiency reserve for the 2016 coverage year and recorded a change in estimate of $208 million with a corresponding increase in benefits expense in our condensed consolidated statement of income for the three months ended June 30, 2016.

On November 10, 2016, the U.S. Court of Federal Claims ruled in favor of the government in one of a series of cases filed by insurers, unrelated to us, against the U.S. Department of Health and Human Services, or HHS, to collect risk corridor payments, rejecting all of the insurer’s statutory, contract and Constitutional claims for payment. On November 18, 2016, HHS issued a memorandum indicating a significant funding shortfall for the 2015 coverage year, the second consecutive year of significant shortfalls. Given the successful challenge of the risk corridor provisions in court, Congressional inquiries into the funding of the risk corridor program, and significant funding shortfalls under the first two years of the program, during the fourth quarter of 2016 we wrote-off $583 million in risk corridor receivables outstanding as of September 30, 2016, including $415 million associated with the 2014 and 2015 coverage years. From inception of the risk corridor program through September 30, 2017, we collected approximately $39 million from CMS for risk corridor receivables associated with the 2014 coverage year funded by HHS in accordance with previous guidance, utilizing funds HHS collected from us and other carriers under the risk corridor program. On November 2, 2017, we filed suit against the United States of America in the United States Court of Federal Claims, on behalf of our health plans seeking recovery from the federal government of approximately $611 million in payments under the risk corridor premium stabilization program established under Health Care Reform, for years 2014, 2015 and 2016.

On February 14, 2017, we announced we are exiting our Individual Commercial medical business commencing January 1, 2018. As discussed previously, we have worked over the past several years to address market and programmatic challenges in order to keep coverage options available wherever we could offer a viable product. This has included pursuing business changes, such as modifying networks, restructuring product offerings, reducing the company’s geographic footprint and increasing premiums. All of these actions were taken with the expectation that our Individual Commercial medical business would stabilize to the point where we could continue to participate in the program. However, based on our analysis of data associated with our healthcare exchange membership following the 2017 open enrollment period, we saw further signs of an unbalanced risk pool. Therefore, we decided that we cannot continue to offer this coverage and will exit this business commencing January 1, 2018.

~~Humana Inc.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)~~

~~(Unaudited)~~

~~The accompanying condensed consolidated balance sheets include the following amounts associated with the 3Rs at September 30, 2017 and December 31, 2016.~~

September 30, 2017 December 31, 2016
Risk Adjustment
Settlement Reinsurance
Recoverables Risk Adjustment
Settlement Reinsurance
Recoverables
(in millions)
Prior Coverage Years
Premiums receivable $ 127 $ —
$ 307 $ —
Other current assets — 44
— 260
Trade accounts payable and
accrued expenses — —
(117 ) —
Net current asset 127 44
190 260
Other long-term assets — —
6 —
Total prior coverage years' net
asset 127 44
196 260
Current Coverage Year
Premiums receivable 30 —
— —
Trade accounts payable and
accrued expenses (57 ) —
— —
Net current liability (27 ) —
— —
Other long-term assets 29 —
— —
Other long-term liabilities — —
— —
Net long-term asset 29 —
— —
Total 2017 coverage year net
asset 2 —
— —
Total net asset $ 129 $ 44
$ 196 $ 260

During the nine months ended September 30, 2017, we received $283 million for reinsurance recoverables and $176 million for risk adjustment and risk corridor settlements, and paid $152 million in risk adjustment charges, in each case associated with prior coverage years. During the nine months ended September 30, 2016, we received $471 million for reinsurance recoverables as well as $88 million for risk adjustment and risk corridor settlements, and paid $240 million in risk adjustment charges, in each case associated with prior coverage years.

To the extent certain provisions of the Health Care Reform Law are successfully challenged in court or there are changes in legislation or the application of legislation, there can be no guarantee that receivables established under the reinsurance or risk adjustment provisions of the Health Care Reform Law will ultimately be collected. Potential legislative changes, including activities to repeal or replace the Health Care Reform Law, creates uncertainty for our business, and we cannot predict when, or in what form, such legislative changes may occur.

The annual health insurance industry fee has been suspended for calendar year 2017, but is scheduled to resume in calendar year 2018. In September 2016, we paid the federal government $916 million for our portion of the annual health insurance industry fee attributed to calendar year 2016 in accordance with the Health Care Reform Law. This fee, fixed in amount by law and apportioned to insurance carriers based on market share, is not deductible for tax purposes. Each year on January 1, except for 2017, we record a liability for this fee in trade accounts payable and accrued expenses which we carry until the fee is paid. We record a corresponding deferred cost in other current assets in our condensed consolidated financial statements which is amortized ratably to expense over the calendar year. Amortization of the deferred cost was recorded in operating cost expense of approximately $231 million and $687 million for the three and nine months ended September 30, 2016, respectively, resulting from the amortization of the 2016 annual health insurance industry fee.

~~Humana Inc.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)~~

~~(Unaudited)~~

8.7. GOODWILL AND OTHER INTANGIBLE ASSETS

~~The carrying amount of goodwill for our reportable segments has been retrospectively adjusted to conform to the 2017 business segment reclassifications as discussed in Note 1. There was no impairment.~~ Changes in the carrying amount of goodwill for our reportable segments for the nine months ended September 30, ~~2017~~2022 were as follows:


	Retail		Group and Specialty		Healthcare Services		Total
	(in millions)
Balance at January 1, 2022	$	1,933	$	261	$	8,898	$	11,092
Acquisitions	183		—		152		335
Dispositions	—		—		(2,331)		(2,331)

Balance at September 30, 2022	$	2,116	$	261	$	6,719	$	9,096

Retail Group and Specialty Healthcare
Services Total
(in millions)
Balance at January 1, 2017 $ 1,059
$ 261
$ 1,952
$ 3,272
Acquisitions —
—
9
9
Balance at September 30, 2017 $ 1,059
$ 261
$ 1,961
$ 3,281

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Humana Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

The following table presents details of our other intangible assets included in other long-term assets in the accompanying condensed consolidated balance sheets at September 30, ~~2017~~2022 and December 31, ~~2016.~~2021:


		September 30, 2022						December 31, 2021
	Weighted Average Life	Cost		Accumulated Amortization		Net		Cost		Accumulated Amortization		Net
		($ in millions)
Other intangible assets:
Certificates of need	Indefinite	$	1,138	$	—	$	1,138	$	1,771	$	—	$	1,771
Medicare licenses	Indefinite	292		—		292		522		—		522
Customer contracts/ relationships	9.4 years	929		659		270		883		620		263
Trade names and technology	6.7 years	142		104		38		160		97		63
Provider contracts	11.6 years	73		61		12		72		57		15
Noncompetes and other	8.4 years	85		38		47		35		30		5

Total other intangible assets	9.1 years	$	2,659	$	862	$	1,797	$	3,443	$	804	$	2,639

September 30, 2017 December 31, 2016
Weighted
Average
Life Cost Accumulated
Amortization Net Cost Accumulated
Amortization Net
($ in millions)
Other intangible assets:
Customer contracts/
relationships 9.8 years $ 566
$ 388
$ 178
$ 566
$ 347
$ 219
Trade names and
technology 8.2 years 104
77
27
104
69
35
Provider contracts 14.1 years 51
33
18
51
29
22
Noncompetes and
other 8.1 years 33
29
4
32
28
4
Total other intangible
assets 9.8 years $ 754
$ 527
$ 227
$ 753
$ 473
$ 280

~~Amortization expense for other intangible assets was approximately $18 million for~~ For the three months ended September 30, ~~2017~~2022 and ~~2016. For the nine months ended September 30, 2017 and 2016,~~2021, amortization expense for other intangible assets was approximately ~~$54~~$25 million and ~~$59~~$17 million, respectively. For the nine months ended September 30, 2022 and 2021, amortization expense for other intangible assets was approximately $61 million and $47 million, respectively. The following table presents our estimate of amortization expense remaining for ~~2017~~2022 and each of the five next succeeding ~~years:~~years at September 30, 2022:


	(in millions)
For the years ending December 31,
2022	$	19
2023	63
2024	55
2025	53
2026	40
2027	31

For additional information regarding our goodwill and intangible assets, refer to Note 2 to the audited Consolidated Financial Statements included in Part II, Item 8, "Financial Statements and Supplementary Data" in our 2021 Form 10-K.

(in millions)
For the years ending December 31,
2017 $ 71
2018 63
2019 52
2020 48
2021 14
2022 11

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Humana Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

9.8. BENEFITS PAYABLE

On a consolidated and segment basis, activity in benefits payable ~~excluding military services,~~ was as follows for the nine months ended September 30, ~~2017~~2022 and ~~2016:~~2021:


	For the nine months ended September 30, 2022
	Consolidated		Retail		Group & Specialty
	(in millions)
Balances, beginning of period	$	8,289	$	7,675	$	614
Acquisitions	—		—		—
Incurred related to:
Current year	57,512		54,731		3,168
Prior years	(404)		(379)		(25)
Total incurred	57,108		54,352		3,143
Paid related to:
Current year	(48,835)		(46,608)		(2,614)
Prior years	(7,325)		(6,757)		(568)
Total paid	(56,160)		(53,365)		(3,182)
Balances, end of period	$	9,237	$	8,662	$	575


	For the nine months ended September 30,							For the nine months ended September 30, 2021
	2017			2016				Consolidated		Retail		Group & Specialty
	(in millions)							(in millions)
Balances, beginning of period	$	4,563		$	4,976		Balances, beginning of period	$	8,143	$	7,428	$	715
Less: Premium deficiency reserve	—			(176		)
Less: Reinsurance recoverables	(76		)	(85		)
Balances, beginning of period, net	4,487			4,715
Acquisitions							Acquisitions	42		42		—
Incurred related to:							Incurred related to:
Current year	33,318			34,340			Current year	52,529		49,247		3,769
Prior years	(430		)	(525		)	Prior years	(768)		(673)		(95)
Total incurred	32,888			33,815			Total incurred	51,761		48,574		3,674
Paid related to:							Paid related to:
Current year	(28,741		)	(29,768		)	Current year	(44,370)		(41,721)		(3,136)
Prior years	(3,745		)	(3,996		)	Prior years	(6,818)		(6,216)		(602)
Total paid	(32,486		)	(33,764		)	Total paid	(51,188)		(47,937)		(3,738)
Premium deficiency reserve	—			206
Reinsurance recoverable	70			77
Balances, end of period	$	4,959		$	5,049		Balances, end of period	$	8,758	$	8,107	$	651

The total estimate of benefits payable for claims incurred but not reported, or IBNR, is included within the net incurred claims amounts. At September 30, 2022, benefits payable for our Retail segment included IBNR of approximately $5.2 billion, primarily associated with claims incurred in 2022. At September 30, 2022, benefits payable for our Group & Specialty segment included IBNR of approximately $484 million, primarily associated with claims incurred in 2022.

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.

~~Benefits~~ For additional information regarding our benefits payable and benefits expense ~~excluded from~~recognition, refer to Note 2 to the ~~previous table was as follows for the nine months ended September 30, 2017~~audited Consolidated Financial Statements included in Part II, Item 8, "Financial Statements and ~~2016.~~Supplementary Data" in our 2021 Form 10-K.

For the nine months ended September 30,
2017 2016
(in millions)
Premium deficiency reserve - Individual Commercial $ —
$ 30
Military services —
7
Future policy benefits:
Individual Commercial (67 ) (82 )
Other Businesses 36
36
Total future policy benefits (31 ) (46 )
Total $ (31 ) $ (9 )

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Humana Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

~~Military services benefits expense in the tables above reflect expenses associated with our contracts with the Veterans Administration.~~

~~Incurred and Paid Claims Development~~

The following discussion provides information about incurred and paid claims development for our Retail, Group and Specialty, and Individual Commercial segments as of September 30, 2017 and 2016, net of reinsurance and the total of IBNR included within the net incurred claims amounts.

~~Retail Segment~~

~~Activity in benefits payable for our Retail segment was as follows for the nine months ended September 30, 2017 and 2016:~~

For the nine months ended September 30,
2017 2016
(in millions)
Balances, beginning of period $ 3,507
$ 3,600
Less: Reinsurance recoverables (76 ) (85 )
Balances, beginning of period, net 3,431
3,515
Incurred related to:
Current year 29,356
28,369
Prior years (339 ) (378 )
Total incurred 29,017
27,991
Paid related to:
Current year (25,460 ) (24,822 )
Prior years (2,822 ) (2,990 )
Total paid (28,282 ) (27,812 )
Reinsurance recoverable 70
77
Balances, end of period $ 4,236
$ 3,771

~~At September 30, 2017, benefits payable for our Retail segment included IBNR of approximately $2.7 billion, primarily associated with claims incurred in 2017.~~

~~Humana Inc.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)~~

~~(Unaudited)~~

~~Group and Specialty Segment~~

~~Activity in benefits payable for our Group and Specialty segment, excluding military services, was as follows for the nine months ended September 30, 2017 and 2016:~~

For the nine months ended September 30,
2017 2016
(in millions)
Balances, beginning of period $ 578
$ 616
Incurred related to:
Current year 3,996
3,918
Prior years (44 ) (42 )
Total incurred 3,952
3,876
Paid related to:
Current year (3,452 ) (3,337 )
Prior years (517 ) (557 )
Total paid (3,969 ) (3,894 )
Balances, end of period $ 561
$ 598

~~At September 30, 2017, benefits payable for our Group and Specialty segment included IBNR of approximately $490 million, primarily associated with claims incurred in 2017.~~

~~Individual Commercial Segment~~

~~Activity in benefits payable for our Individual Commercial segment was as follows for the nine months ended September 30, 2017 and 2016:~~

For the nine months ended September 30,
2017 2016
(in millions)
Balances, beginning of period $ 454
$ 740
Less: Premium deficiency reserve —
(176 )
Balances, beginning of period, net 454
564
Incurred related to:
Current year 502
2,694
Prior years (46 ) (104 )
Total incurred 456
2,590
Paid related to:
Current year (393 ) (2,273 )
Prior years (383 ) (430 )
Total paid (776 ) (2,703 )
Premium deficiency reserve —
206
Balance, end of period $ 134
$ 657

~~At September 30, 2017, benefits payable for our Individual Commercial segment included IBNR of approximately $120 million, primarily associated with claims incurred in 2017.~~

~~Humana Inc.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)~~

~~(Unaudited)~~

~~Reconciliation to Consolidated~~

~~The reconciliation of the net incurred and paid claims development tables to benefits payable in the consolidated~~

~~statement of financial position is as follows:~~

Reconciliation of the Disclosure of Incurred and Paid Claims Development to Benefits Payable, net of reinsurance

September 30,
2017
Net outstanding liabilities
Retail $ 4,166
Group and Specialty 561
Individual Commercial 134
Other Businesses 28
    Benefits payable, net of reinsurance 4,889

Reinsurance recoverable on unpaid claims
Retail 70
     Total reinsurance recoverable on unpaid claims 70

     Total benefits payable, gross $ 4,959

~~10.~~9. EARNINGS PER COMMON SHARE COMPUTATION

Detail supporting the computation of basic and diluted earnings per common share was as follows for the three and nine months ended September 30, ~~2017~~2022 and ~~2016:~~2021:


	Three months ended September 30,				Nine months ended September 30,
	2022		2021		2022		2021
	(dollars in millions, except per common share results; number of shares in thousands)
Net income available for common stockholders	$	1,195	$	1,531	$	2,821	$	2,947
Weighted average outstanding shares of common stock used to compute basic earnings per common share	126,572		128,518		126,678		128,714
Dilutive effect of:
Employee stock options	61		68		50		65
Restricted stock	723		669		577		619
Shares used to compute diluted earnings per common share	127,356		129,255		127,305		129,398
Basic earnings per common share	$	9.45	$	11.91	$	22.27	$	22.90
Diluted earnings per common share	$	9.39	$	11.84	$	22.16	$	22.77
Number of antidilutive stock options and restricted stock excluded from computation	78		136		267		256

For additional information regarding earnings per common share, refer to Note 2 to the audited Consolidated Financial Statements included in Part II, Item 8, "Financial Statements and Supplementary Data" in our 2021 Form 10-K.

Three months ended September 30, Nine months ended September 30,
2017 2016 2017 2016
(dollars in millions, except per common share results; number of shares in thousands)
Net income available for common stockholders $ 499
$ 450
$ 2,264
$ 1,015
Weighted average outstanding shares of common stock
used to compute basic earnings per common share 144,215
149,417
145,546
149,321
Dilutive effect of:
Employee stock options 165
210
174
216
Restricted stock 980
1,277
902
1,332
Shares used to compute diluted earnings per common share 145,360
150,904
146,622
150,869
Basic earnings per common share $ 3.46
$ 3.01
$ 15.56
$ 6.80
Diluted earnings per common share $ 3.44
$ 2.98
$ 15.44
$ 6.73
Number of antidilutive stock options and restricted stock
excluded from computation 399
658
595
873

~~Humana Inc.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)~~

~~(Unaudited)~~

~~11.~~10. STOCKHOLDERS’ EQUITY

Dividends

The following table provides details of dividend payments, excluding dividend equivalent rights for unvested stock awards, ~~in 2016 and 2017~~during 2022 under our Board approved quarterly cash dividend policy:


Record Date	Payment Date	Amount per Share		Total Amount
				(in millions)






12/31/2021	1/28/2022	$	0.7000	$	90
3/31/2022	4/29/2022	$	0.7875	$	100
6/30/2022	7/29/2022	$	0.7875	$	100
9/30/2022	10/28/2022	$	0.7875	$	100

Record
Date Payment
Date Amount
per Share Total
Amount
(in millions)
2016 payments
12/30/2015 1/29/2016 $ 0.29
$ 43
3/31/2016 4/29/2016 $ 0.29
$ 43
6/30/2016 7/29/2016 $ 0.29
$ 43
10/13/2016 10/28/2016 $ 0.29
$ 43
2017 payments
1/12/2017 1/27/2017 $ 0.29
$ 43
3/31/2017 4/28/2017 $ 0.40
$ 58
6/30/2017 7/31/2017 $ 0.40
$ 58
9/29/2017 10/27/2017 $ 0.40
$ 57

~~On November 2, 2017,~~In October 2022, the Board declared a cash dividend of ~~$0.40~~$0.7875 per share payable on January ~~26, 2018,~~27, 2023 to stockholders of record as of the close of business on December ~~29, 2017.~~30, 2022. Declaration and payment of future quarterly dividends are at the discretion of our Board and may be adjusted as business needs or market conditions change.

Stock Repurchases

~~On February 14, 2017, our~~Our Board of Directors ~~replaced a previous share repurchase authorization of up to $2 billion, of which $1.04 billion remained unused, with a new authorization for repurchases of up to $2.25 billion~~may authorize the purchase of our common ~~shares expiring on December 31, 2017, exclusive of shares repurchased in connection with employee~~ stock ~~plans.~~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

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(Unaudited)

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 16, 2017,~~January 11, 2022, we entered into anseparate accelerated ~~share~~stock repurchase ~~agreement, or~~agreements, the January 2022 ASR ~~Agreement,~~Agreements, with ~~Goldman, Sachs & Co.~~Mizuho Markets Americas LLC, or ~~Goldman Sachs,~~Mizuho, and Wells Fargo Bank, or Wells Fargo, to repurchase ~~$1.5~~$1 billion of our common stock as part of the ~~$2.25~~$3 billion ~~share~~ repurchase program ~~referred to above. Under~~authorized by the ~~ASR Agreement,~~Board of Directors on February ~~22, 2017,~~18, 2021. On January 12, 2022, in accordance with the January 2022 ASR Agreements, we made a payment of ~~$1.5~~$1 billion ($500 million to ~~Goldman Sachs from available cash on hand~~Mizuho and $500 million to Wells Fargo) and received an initial delivery of ~~5.83~~2.2 million shares of our common stock (1.08 million shares each from ~~Goldman Sachs based on~~Mizuho and Wells Fargo). In January 2022, we recorded the ~~then current market price of Humana common stock. The payment~~payments to ~~Goldman Sachs was recorded~~Mizuho and Wells Fargo as a reduction to stockholders’ equity, consisting of ~~a $1.2 billion~~an $850 million increase in treasury stock, which ~~reflected~~reflects the value of the initial ~~5.83~~2.2 million shares received upon initial settlement, and a ~~$300~~$150 million decrease in capital in excess of par value, which ~~reflected~~reflects the value of stock held back by ~~Goldman Sachs~~Mizuho and Wells Fargo pending final settlement of the January 2022 ASR ~~Agreement.~~Agreements. Upon final settlement of the January 2022 ASR Agreements with Mizuho and Wells Fargo on ~~August 28, 2017,~~March 29, 2022 and March 30, 2022, respectively, we received an additional ~~0.84~~0.1 million shares and 0.1 million shares, respectively, as determined by the average daily volume ~~weighted-average~~weighted-averages share price of our common stock during the term of the ~~ASR Agreement~~agreement, less a discount, of ~~$224.81,~~$410.96 and $411.66, respectively, bringing the total shares received under ~~this program~~the January 2022 ASR Agreements to ~~6.67~~2.4 million. In addition, upon settlement we reclassified the ~~$300~~$150 million value of stock initially held back by ~~Goldman Sachs~~Mizuho and Wells Fargo from capital in excess of par value to treasury stock.

Our remaining repurchase authorization was ~~approximately $239 million~~$2 billion as of November ~~3, 2017.~~1, 2022.

In connection with employee stock plans, we acquired ~~0.37~~0.07 million common shares for ~~$79~~$32 million and ~~0.45~~0.09 million common shares for ~~$75~~$36 million during the nine months ended September 30, ~~2017~~2022 and ~~2016,~~2021, respectively.

For additional information regarding our stockholders' equity, refer to Note 16 to the audited Consolidated Financial Statements included in Part II, Item 8, "Financial Statements and Supplementary Data" in our 2021 Form 10-K.

11. INCOME TAXES

The effective income tax rate was 8.2% and 22.5% for the three and nine months ended September 30, 2022, respectively, and 7.2% and 15.4% for the three and nine months ended September 30, 2021, respectively. The year-over-year increase in the effective income tax rates is primarily due to the impact of the August 2021 acquisition of the remaining 60% interest in KAH. In that period, we recognized a $1.1 billion mark-to-market gain related to our previously held 40% investment in KAH. This unrealized gain was not taxable, thereby reducing the effective income tax rate for the three and nine months ended September 30, 2021. The increase is partially offset by the August 2022 disposition of our 60% interest in KAH Hospice, which resulted in an increase to our tax basis in both the shares sold and the shares retained, thereby reducing the effective income tax rate for the three and nine months ended September 30, 2022.

On August 16, 2022, the Inflation Reduction Act was signed into law. The Inflation Reduction Act includes various tax provisions, which are effective for the tax years beginning on or after January 1, 2023. We do not expect these tax changes to have a material impact on our consolidated financial statements.

For additional information regarding income taxes, refer to Note 2 to the audited Consolidated Financial Statements included in Part II, Item 8, "Financial Statements and Supplementary Data" in our 2021 Form 10-K.

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(Unaudited)

~~Treasury Stock Reissuance~~

~~We reissued 1.40 million shares of treasury stock during the nine months ended September 30, 2017 at a cost of $99 million associated with restricted stock unit vestings and option exercises.~~

~~Accumulated Other Comprehensive Income~~

Accumulated other comprehensive income included net unrealized gains, net of tax, on our investment securities of $107 million at September 30, 2017 and net unrealized losses, net of tax, of $17 million at December 31, 2016. In addition, accumulated other comprehensive income included $95 million, net of tax, at September 30, 2017 and $49 million, net of tax, at December 31, 2016 for an additional liability that would exist on our closed block of long-term care insurance policies if unrealized gains on the sale of the investments backing such products had been realized and the proceeds reinvested at then current yields. Refer to Note 18 to the consolidated financial statements in our 2016 Form 10-K for further discussion of our long-term care insurance policies.

12. ~~INCOME TAXES~~

The effective income tax rate was 37.5% for the three months ended September 30, 2017, compared to 50.1% for the three months ended September 30, 2016 and was 35.9% for the nine months ended September 30, 2017, compared to 50.2% for the nine months ended September 30, 2016, primarily due to the 2017 temporary suspension of the non-deductible health insurance industry fee as well as previously non-deductible transaction costs that, as a result of termination of the Merger Agreement, became deductible for tax purposes and were recorded as such in the three months ended March 31, 2017.

~~Humana Inc.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)~~

~~(Unaudited)~~

~~13.~~ DEBT

The carrying value of debt outstanding, net of unamortized debt issuance costs, was as follows at September 30, ~~2017~~2022 and December 31, ~~2016~~:2021:


	September 30, 2022		December 31, 2021
	(in millions)
Short-term debt:
Commercial paper	$	303	$	955

Senior notes:
$1.5 billion, 0.650% due August 3, 2023	1,496		—
$600 million, 3.150% due December 1, 2022	600		599
$400 million, 2.900% due December 15, 2022	400		399
Total senior notes	2,496		998
Total short-term debt	$	2,799	$	1,953
Long-term debt:
Senior notes:
$1.5 billion, 0.650% due August 3, 2023	$	—	$	1,492
$600 million, 3.850% due October 1, 2024	599		598
$600 million, 4.500% due April 1, 2025	597		596
$750 million, 1.350% due February 3, 2027	744		742
$600 million, 3.950% due March 15, 2027	597		596
$750 million, 3.700% due March 23, 2029	742		—
$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	742		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 notes	7,298		8,041
Term loans:
Term loan, due October 29, 2023	—		2,000
Delayed draw term loan, due May 28, 2024	500		500
Total term loans	500		2,500
Total long-term debt	$	7,798	$	10,541

September 30, 2017 December 31, 2016
(in millions)
Short-term:
Commercial paper $ 150
$ 300
$500 million, 7.20% Senior notes due June 15, 2018 501
—
  $300 million, 6.30% Senior notes due August 1, 2018 302
—
Total short-term debt 953
300

Long-term:
Senior notes:
  $500 million, 7.20% due June 15, 2018 —
501
  $300 million, 6.30% due August 1, 2018 —
304
  $400 million, 2.625% due October 1, 2019 399
398
  $600 million, 3.15% due December 1, 2022 596
595
  $600 million, 3.85% due October 1, 2024 595
595
  $600 million, 3.95% due March 15, 2027 594
—
  $250 million, 8.15% due June 15, 2038 263
264
  $400 million, 4.625% due December 1, 2042 396
396
  $750 million, 4.95% due October 1, 2044 739
739
  $400 million, 4.80% due March 15, 2047 395
—
     Total long-term debt 3,977
3,792

Total debt $ 4,930
$ 4,092

Senior Notes

In March ~~2017,~~2022, we issued ~~$600~~$750 million of ~~3.95%~~3.700% unsecured senior notes due March ~~15, 2027 and $400 million of 4.80% senior notes due March 15, 2047.~~23, 2029. Our net proceeds, reduced for the underwriters' ~~discount~~discounts and ~~commission and offering expenses~~commissions paid, ~~as of March 31, 2017,~~ were ~~$991~~$744 million. We ~~intend to use~~used the net proceeds ~~from these issuances~~ for general corporate ~~purposes.~~purposes, which included the repayment of existing indebtedness, including borrowings under our commercial paper program.

~~Our senior notes, which are unsecured, may be redeemed at~~For additional information regarding our ~~option at any time at 100% of the principal amount plus accrued interest and a specified make-whole amount. The 7.20% and 8.15% senior notes are subject~~Senior Notes, refer to ~~an interest rate adjustment if the debt ratings assigned~~Note 13 to the ~~notes are downgraded (or subsequently upgraded). In addition, each series~~audited Consolidated Financial Statements included in Part II, Item 8, "Financial Statements and Supplementary Data" in our 2021 Form 10-K.

Table of ~~our senior notes (other than the 6.30% senior notes) contain a change of control provision that may require us to purchase the notes under certain circumstances.~~Contents

Prior to 2009, we were parties to interest-rate swap agreements that exchanged the fixed interest rate under our senior notes for a variable interest rate based on LIBOR. As a result, the carrying value of the senior notes was adjusted to reflect changes in value caused by an increase or decrease in interest rates. During 2008, we terminated all of our swap agreements. The cumulative adjustment to the carrying value of our senior notes was $103 million as of the termination date which is being amortized as a reduction to interest expense over the remaining term of the senior notes. The unamortized carrying value adjustment was $19 million as of ~~September 30, 2017~~ ~~and $23 million as of~~ ~~December 31, 2016~~.

Humana Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

~~Credit~~October 2021 Term Loan Agreement

On August 16, 2022, we repaid the $2.0 billion October 2021 Term Loan Agreement without a prepayment penalty due.

For additional information regarding our October 2021 Term Loan Agreement, refer to Note 3 to the unaudited Consolidated Financial Statements included in Part I, Item 1, "Financial Statements" of this Form 10-Q and Note 13 to the audited Consolidated Financial Statements included in Part II, Item 8, "Financial Statements and Supplementary Data" in our 2021 Form 10-K.

Revolving Credit Agreements

In ~~May 2017~~June 2022, we ~~amended and restated our previous 5-year $1.0~~entered into a 364-day $1.5 billion unsecured revolving credit agreement ~~expiring July 2018 with a 5-year $2.0~~(replacing the 364-day $1.5 billion unsecured revolving credit agreement entered into in June 2021, which ~~expires May 2022.~~expired in accordance with its terms). Under the 364-day revolving credit agreement, 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~~Term SOFR or the base rate plus a spread. ~~The LIBOR spread, currently~~ ~~110.0~~ ~~basis points, varies depending on our credit ratings ranging from 91.0 to 150.0 basis points. We also pay an annual facility fee regardless of utilization. This facility fee, currently~~ ~~15.0~~ ~~basis points, may fluctuate between 9.0 and 25.0 basis points, depending upon our credit ratings.~~ 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,~~Term SOFR, at our option.

~~The terms of the~~

Our credit agreement include standard provisions related to conditions of borrowing, including a customary material adverse effect clause which could limit our ability to borrow additional funds. In addition, the credit agreement containsagreements contain customary restrictive covenants and a financial ~~covenants~~covenant regarding maximum debt to capitalization of 60%, as well as customary events of ~~default, including financial covenants regarding the maintenance of a minimum level of net worth of~~ ~~$9.1 billion~~ at ~~September 30, 2017~~ ~~and a maximum leverage ratio of 3.0:1.~~default. We are in compliance with ~~the~~this financial ~~covenants,~~covenant, with actual ~~net worth~~debt to capitalization of ~~$11.2 billion and an actual leverage ratio of 1.1:1~~39.4% as measured in accordance with the revolving credit ~~agreement~~agreements as of September 30, ~~2017~~. Upon our agreement with one or more financial institutions, we may expand the aggregate commitments under the credit agreement to a maximum of $2.5 billion, through a $500.0 million incremental loan facility.2022.

At September 30, ~~2017~~,2022, we had no borrowings and noapproximately $59 million of letters of credit outstanding under the revolving credit ~~agreement.~~agreements, including those of KAH. Accordingly, as of September 30, ~~2017~~,2022, we had ~~$2.0~~$2.4 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 ~~$500~~$750 million of incremental loan ~~facility under the credit agreement)~~facilities), none of which would be restricted by our financial covenant compliance requirement. ~~We have other customary, arms-length relationships, including financial advisory and banking, with some parties~~

For additional information regarding our Revolving Credit Agreements, refer to Note 13 to the ~~credit agreement.~~audited Consolidated Financial Statements included in Part II, Item 8, "Financial Statements and Supplementary Data" in our 2021 Form 10-K.

Commercial Paper

~~We previously entered into a~~Under our commercial paper program ~~pursuant to which~~ we may issue short-term, unsecured commercial paper notes privately placed on a discount basis through certain broker ~~dealers.~~dealers at any time. On ~~June 15, 2017,~~February 10, 2022, we increased the size of ~~the~~our commercial paper program to permit the issuance of ~~the~~ commercial paper notes ~~with the~~in an aggregate ~~face or~~ principal amount ~~outstanding under~~not to exceed $4 billion compared to the ~~program at any time~~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 nine months ended September 30, ~~2017~~2022 was ~~$500 million. There were~~$1.5 billion, with $303 million outstanding ~~borrowings of $150 million~~ at September 30, ~~2017 and $300~~2022 compared to $955 million outstanding at December 31, ~~2016.~~ 2021. The outstanding commercial paper at September 30, 2022 had a weighted average annual interest rate of 3.23%.

Other Short-term Borrowings

~~14.~~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 September 30, 2022 we had no outstanding short-term FHLB borrowings.

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13. COMMITMENTS, GUARANTEES AND CONTINGENCIES

Government Contracts

Our Medicare products, which accounted for approximately ~~78%~~81% of our total premiums and services revenue for the nine months ended September 30, ~~2017,~~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 ~~2018,~~2023 and all of our product offerings ~~filed with CMS for 2018~~ 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, ~~(BBA)~~or BBA, and the Benefits Improvement and Protection Act of 2000, ~~(BIPA),~~or BIPA, generally pays more

~~Humana Inc.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)~~

~~(Unaudited)~~

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 ~~from hospital inpatient, hospital outpatient, and physician providers~~ 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.~~below, as well as ordinary course reviews of our internal business processes.

CMS ~~is phasing-in~~and the process of calculating risk scores using diagnoses data from the Risk Adjustment Processing System, or RAPS, to diagnoses data from the Encounter Data System, or EDS. The RAPS process requires MA plans to apply a filter logic based on CMS guidelines and only submit claims that satisfy those guidelines. For submissions through EDS, CMS requires MA plans to submit all the encounter data and CMS will apply the risk adjustment filtering logic to determine the risk scores. For 2016, 10%Office of the ~~risk score was calculated from claims data submitted through EDS, increasing to 25%~~Inspector General of the risk score calculated from claims data through EDS for 2017. In April 2017, CMS revised the pace of the phase-in. For 2018, 15% of the risk score will be calculated from claims data submitted through EDS. The phase-in from RAPS to EDS could result in different risk scores from each dataset as a result of plan processing issues, CMS processing issues,Health and Human Services, or ~~filtering logic differences between RAPS and EDS, and could have a material adverse effect on our results of operations, financial position, or cash flows.~~

~~CMS is~~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 ~~provides~~provided that, in calculating the economic impact of audit results for an MA contract, if any, the results of the RADV audit sample ~~will~~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 ~~FFS (we~~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.~~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).

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

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year 2011 and subsequent years. CMS is currently conducting RADV contract level audits for ~~contract years 2011, 2012, and 2013 in which two, five and five~~certain of our Medicare Advantage plans are being audited, respectively. Per CMS guidance, selected MA contracts will be notified of an audit at some point after the close of the final reconciliation for the payment year being audited.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-~~

~~Humana Inc.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)~~

~~(Unaudited)~~

Fee-For Service business which we used to represent a proxy of the FFS Adjuster which has not yet been ~~released.~~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. ~~However,~~

On October 26, 2018, CMS issued a proposed rule and accompanying materials, which we refer to as ~~indicated, we are awaiting additional guidance from CMS regarding~~ the ~~FFS Adjuster. Accordingly, we cannot determine whether such~~“Proposed Rule”, related to, among other things, the RADV audit methodology described above. If implemented, the Proposed Rule would use extrapolation in RADV audits ~~will~~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, ~~CMS' comments~~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 ~~formalized guidance regarding “overpayments” to MA plans appear to be inconsistent~~connection with ~~CMS' prior RADV audit guidance.~~the risk adjustment model. These ~~statements, contained~~reviews may also result in the ~~preamble~~identification of errors and the submission of corrections to CMS’ final rule release regarding Medicare Advantage and Part D prescription drug benefit program regulations for Contract Year 2015, appear to equate each Medicare Advantage risk adjustment data error with an “overpayment” without reconciliation toCMS, that may, either individually or in the ~~principles underlying~~aggregate, be material. As such, the ~~FFS Adjuster referenced above.~~ 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.

~~At September 30, 2017, our military services~~Our state-based Medicaid business, which accounted for approximately ~~0.7%~~6% of our total premiums and services revenue for the nine months ended September 30, ~~2017,~~2022 primarily consisted of ~~the TRICARE South Region contract. The current 5-year South Region contract,~~serving members enrolled in Medicaid, and in certain circumstances members who qualify for both Medicaid and Medicare, under contracts with various states.

At September 30, 2022, our military services business, which was set to expire on March 31, 2017, is subject to annual renewals on April 1 of each year during its term at the government’s option, including an option to extend for a sixth year through March 31, 2018. On March 2, 2017, we received notice that the Defense Health Agency, or DHA, had exercised its option to extend the TRICARE South Region contract for that sixth year. On July 21, 2016, we were notified by the DHA that we were awarded the contract for the new TRICARE East Region, which is a consolidation of the former North and South Regions, with delivery of health care services expected to commence on October 1, 2017. On March 30, 2017, we received notice that the DHA is moving the date upon which delivery of health care services is expected to commence under the new TRICARE East Region contract from October 1, 2017 to January 1, 2018. We expect the sixth option period under the current TRICARE South Region contract would be terminated in the event that delivery of health care services under the new TRICARE East Region contract commences prior to March 31, 2018.

~~Our state-based Medicaid business~~ accounted for approximately 5%1% of our total premiums and services revenue for the nine months ended September 30, ~~2017. In addition~~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 our state-based Temporary Assistance for Needy Families, or TANF, Medicaid contracts in Florida and Kentucky, we have contracts in Florida for Long Term Support Services (LTSS), in Illinois and Virginia for stand-alone dual eligible demonstration programs serving individuals dually eligible for both the federal Medicare program and the applicable state-based Medicaid program, as well as an Integrated Care Program, or ICP, Medicaid contract in Illinois. Our Integrated Care Program Medicaid contract in Illinois, and the Virginia stand-alone dual eligible demonstration program both will terminate atexpire on December 31, ~~2017.~~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 ~~comparison of~~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 ~~a requirement~~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

On January 6, 2012, the Civil Division of the United States Attorney’s Office for the Southern District of Florida advised us that it is seeking documents and information from us and several of our affiliates relating to several matters including the coding of medical claims by one or more South Florida medical providers, and loans to physician practices. On May 1, 2014, the U.S. Attorney's Office filed a Notice of Non-Intervention in connection with a civil qui tam suit related to one of these matters captioned ~~United States of America ex rel. Olivia Graves v. Plaza Medical Centers, et al.~~, and the Court ordered the complaint unsealed. Subsequently, the individual plaintiff amended the complaint and served the Company, opting to continue to pursue the action. As of November 7, 2017, all parties to the lawsuit and the United States have executed a settlement agreement to settle the plaintiff’s claims for damages and penalties, with Humana paying an amount that is not material to our results of operations. The parties are awaiting the court’s dismissal of the case.

As previously disclosed, the Civil Division of the United States Department of Justice ~~had~~ provided us with an information request ~~separate from but related to the Plaza Medical matter,~~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, ~~including the providers identified in the Plaza Medical matter,~~ 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 ~~and voluntarily respond to the information requests from~~ the Department of ~~Justice and the U.S. Attorney’s Office.~~Justice. These matters are expected to result in additional qui tam litigation.

OnAs 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, as compared to required benefit levels under applicable bid rules.~~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 ~~can~~could proceed, following notice from the U.S. Government that it iswas not intervening at ~~this~~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 ~~best principles,~~standards of practice, and ~~we intend~~continue to vigorously defend against these allegations.

On November 2, 2017, we filed suit against the United States of America in the United States Court of Federal Claims, on behalf of our health plans seeking recovery from the federal government of approximately $611 million in payments under the risk corridor premium stabilization program established under Health Care Reform, for years 2014, 2015 and 2016. We have not recognized revenue, nor have we recorded a receivable, for any amount due from the federal government for unpaid risk corridor payments as of September 30, 2017. We have fully recognized all liabilities due to the federal government that we have incurred under the risk corridor program, and have paid all amounts due to the federal government as required. There is no assurance that we will prevail in the lawsuit.

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

~~Humana Inc.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)~~

~~(Unaudited)~~

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. For example, a number of hospitals and other providers have asserted that, under their network provider contracts, we are not entitled to reduce Medicare Advantage payments to these providers in connection with changes in Medicare payment systems and in accordance with the Balanced Budget and Emergency Deficit Control Act of 1985, as amended (commonly referred to as “sequestration”). Those challenges have led and could lead to arbitration demands or other litigation. Also, underUnder 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. Penn Treaty is a financially distressed unaffiliated long-term care insurance company. On March 1, 2017, a court ordered the liquidation of Penn Treaty which triggered assessments from state guaranty associations that resulted in our recording a $54 million estimate in operating costs in the three months ended March 31, 2017.

As a government contractor, we may also be subject to false claims litigation, such as qui tam ~~litigation~~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 ~~lawsuit is unsealed, and 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 ~~non-performance~~nonperformance of

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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.

~~15.~~

14. SEGMENT INFORMATION

~~Humana Inc.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)~~

~~(Unaudited)~~

segment. As a result of this realignment, our reportable segments now include Retail, Group and Specialty, Healthcare Services, and Individual Commercial. Prior period segment financial information has been recast to conform to the 2017 presentation.

We manage our business with ~~four~~three reportable segments: Retail, Group and Specialty, and Healthcare ~~Services and Individual Commercial. In addition, the Other Businesses category includes businesses that are not individually~~Services. The reportable ~~because they do not meet the quantitative thresholds required by generally accepted accounting principles. These~~ 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 ~~and voluntary insurance~~ benefits, ~~and financial protection products,~~ as well as administrative services only, or ASO products. In addition, our Group and Specialty segment includes our military services business, primarily our TRICARE ~~South~~T2017 East Region contract. The Healthcare Services segment includes pharmacy, provider, and home services, ~~offered to our health plan members as well as to third parties, including pharmacy solutions, provider services, and clinical care service, as well as~~along with other services and capabilities to promote wellness and advance population health. The ~~Individual Commercial~~ segment ~~consists of our individual commercial fully-insured medical~~also includes the company's strategic partnerships with WCAS to develop and operate senior-focused, payor-agnostic, primary care centers. Services offered by this segment are designed to enhance the overall healthcare experience. These services may lead to lower utilization associated with improved member health insurance benefits. We report under the category of Other Businesses those businesses that do not align with the reportable segments described above, primarily our closed-block long-term care insurance policies.and/or lower drug costs.

Our Healthcare Services intersegment revenues primarily relate to managing prescription drug coverage for members of our other segments through Humana Pharmacy ~~Solutions~~^®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

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government (subsidies), plus any associated administrative fees. Services ~~revenues~~revenue related to the distribution of 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~~revenue 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~~revenue 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 ~~$3.6~~$5.4 billion and $5.0 billion for the three months ended September 30, ~~2017~~2022 and ~~2016.~~2021, respectively. For the nine months ended September 30, ~~2017~~2022 and ~~2016~~2021 these amounts were ~~$9.8~~$14.2 billion and ~~$9.7~~$12.9 billion, 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

~~Humana Inc.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)~~

~~(Unaudited)~~

provider services and pharmacy operations, are included with benefits expense. The amount of this expense was ~~$26~~$30 million and ~~$31~~$28 million for the three months ended September 30, ~~2017~~2022 and ~~2016,~~2021, respectively. For the nine months ended September 30, ~~2017~~2022 and ~~2016,~~2021, the amount of this expense was ~~$79~~$89 million and ~~$85~~$80 million, respectively.

Other than those described previously, the accounting policies of each segment are the ~~same and are described in~~same. For additional information regarding our accounting policies refer to Note 2 to the ~~consolidated financial statements~~audited Consolidated Financial Statements included in Part II, Item 8, "Financial Statements and Supplementary Data" in our ~~2016~~2021 Form 10-K. Transactions between reportable segments primarily consist of sales of services rendered by our Healthcare Services segment, primarily pharmacy, provider, and ~~clinical care~~home solutions services, to our Retail and Group and Specialty ~~and Individual Commercial~~ 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.

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(Unaudited)

Our segment results were as follows for the three and nine months ended September 30, ~~2017~~2022 and ~~2016:~~2021:



	Retail		Group and Specialty		Healthcare Services		Eliminations/ Corporate		Consolidated
Three months ended September 30, 2022	(in millions)
External revenues
Premiums:
Individual Medicare Advantage	$	16,007	$	—	$	—	$	—	$	16,007
Group Medicare Advantage	1,792		—		—		—		1,792
Medicare stand-alone PDP	534		—		—		—		534
Total Medicare	18,333		—		—		—		18,333
Fully-insured	188		912		—		—		1,100
Specialty	—		425		—		—		425
Medicaid and other	1,610		—		—		—		1,610
Total premiums	20,131		1,337		—		—		21,468
Services revenue:


Home solutions	—		—		519		—		519
Provider	—		—		159		—		159
ASO and other	10		197		—		—		207
Pharmacy	—		—		274		—		274
Total services revenue	10		197		952		—		1,159
Total external revenues	20,141		1,534		952		—		22,627
Intersegment revenues
Services	—		14		5,466		(5,480)		—
Products	—		—		2,459		(2,459)		—
Total intersegment revenues	—		14		7,925		(7,939)		—
Investment income	48		3		3		118		172
Total revenues	20,189		1,551		8,880		(7,821)		22,799
Operating expenses:
Benefits	17,420		1,052		—		(88)		18,384
Operating costs	1,903		427		8,435		(7,704)		3,061

Depreciation and amortization	137		23		50		(28)		182
Total operating expenses	19,460		1,502		8,485		(7,820)		21,627
Income (loss) from operations	729		49		395		(1)		1,172
Gain on sale of KAH Hospice	—		—		(240)		—		(240)
Interest expense	—		—		—		102		102
Other expense, net	—		—		—		13		13
Income (loss) before income taxes and equity in net earnings	729		49		635		(116)		1,297
Equity in net earnings (losses)	8		—		(5)		—		3
Segment earnings (loss)	$	737	$	49	$	630	$	(116)	$	1,300
Net loss attributable to noncontrolling interests	2		—		—		—		2
Segment earnings (loss) attributable to Humana	$	739	$	49	$	630	$	(116)	$	1,302

Retail Group and Specialty Healthcare
Services Individual Commercial Other
Businesses Eliminations/
Corporate Consolidated
(in millions)
Three months ended September 30, 2017
Revenues - external customers
Premiums:
Individual Medicare Advantage $ 8,077
$ —
$ —
$ —
$ —
$ —
$ 8,077
Group Medicare Advantage 1,272
—
—
—
—
—
1,272
Medicare stand-alone PDP 921
—
—
—
—
—
921
Total Medicare 10,270
—
—
—
—
—
10,270
Fully-insured 121
1,370
—
224
—
—
1,715
Specialty —
331
—
—
—
—
331
Medicaid and other 630
—
—
—
9
—
639
Total premiums 11,021
1,701
—
224
9
—
12,955
Services revenue:
Provider —
—
60
—
—
—
60
ASO and other 2
140
—
—
1
—
143
Pharmacy —
—
20
—
—
—
20
Total services revenue 2
140
80
—
1
—
223
Total revenues - external customers 11,023
1,841
80
224
10
—
13,178
Intersegment revenues
Services —
5
4,339
—
—
(4,344 ) —
Products —
—
1,572
—
—
(1,572 ) —
Total intersegment revenues —
5
5,911
—
—
(5,916 ) —
Investment income 23
7
9
1
22
42
104
Total revenues 11,046
1,853
6,000
225
32
(5,874 ) 13,282
Operating expenses:
Benefits 9,294
1,354
—
147
34
(187 ) 10,642
Operating costs 1,081
385
5,726
49
3
(5,556 ) 1,688
Depreciation and amortization 61
21
34
3
—
(25 ) 94
Total operating expenses 10,436
1,760
5,760
199
37
(5,768 ) 12,424
Income (loss) from operations 610
93
240
26
(5 ) (106 ) 858
Interest expense —
—
—
—
—
59
59
Income (loss) before income taxes $ 610
$ 93
$ 240
$ 26
$ (5 ) $ (165 ) $ 799

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(Unaudited)



	Retail		Group and Specialty		Healthcare Services		Eliminations/ Corporate		Consolidated
Three months ended September 30, 2021	(in millions)
External revenues
Premiums:
Individual Medicare Advantage	$	14,642	$	—	$	—	$	—	$	14,642
Group Medicare Advantage	1,737		—		—		—		1,737
Medicare stand-alone PDP	541		—		—		—		541
Total Medicare	16,920		—		—		—		16,920
Fully-insured	185		1,052		—		—		1,237
Specialty	—		432		—		—		432
Medicaid and other	1,296		—		—		—		1,296
Total premiums	18,401		1,484		—		—		19,885
Services revenue:


Home solutions	—		—		374		—		374
Provider	—		—		110		—		110
ASO and other	—		198		—		—		198
Pharmacy	—		—		163		—		163
Total services revenue	—		198		647		—		845
Total external revenues	18,401		1,682		647		—		20,730
Intersegment revenues
Services	1		10		5,087		(5,098)		—
Products	—		—		2,303		(2,303)		—
Total intersegment revenues	1		10		7,390		(7,401)		—
Investment income (loss)	38		3		1		(75)		(33)
Total revenues	18,440		1,695		8,038		(7,476)		20,697
Operating expenses:
Benefits	16,207		1,282		—		(173)		17,316
Operating costs	1,669		421		7,634		(7,121)		2,603

Depreciation and amortization	108		20		46		(24)		150
Total operating expenses	17,984		1,723		7,680		(7,318)		20,069
Income (loss) from operations	456		(28)		358		(158)		628

Interest expense	—		—		—		88		88
Other income, net	—		—		—		(1,096)		(1,096)
Income (loss) before income taxes and equity in net earnings	456		(28)		358		850		1,636
Equity in net earnings	—		—		15		—		15
Segment earnings (loss)	$	456	$	(28)	$	373	$	850	$	1,651

Retail Group and Specialty Healthcare
Services Individual Commercial Other
Businesses Eliminations/
Corporate Consolidated
(in millions)
Three months ended September 30, 2016
Revenues - external customers
Premiums:
Individual Medicare Advantage $ 7,977
$ —
$ —
$ —
$ —
$ —
$ 7,977
Group Medicare Advantage 1,067
—
—
—
—
—
1,067
Medicare stand-alone PDP 1,004
—
—
—
—
—
1,004
Total Medicare 10,048
—
—
—
—
—
10,048
Fully-insured 109
1,350
—
882
—
—
2,341
Specialty —
318
—
—
—
—
318
Medicaid and other 652
2
—
—
10
—
664
Total premiums 10,809
1,670
—
882
10
—
13,371
Services revenue:
Provider —
—
69
—
—
—
69
ASO and other 2
147
—
—
1
—
150
Pharmacy —
—
8
—
—
—
8
Total services revenue 2
147
77
—
1
—
227
Total revenues - external customers 10,811
1,817
77
882
11
—
13,598
Intersegment revenues
Services —
5
4,741
—
—
(4,746 ) —
Products —
—
1,580
—
—
(1,580 ) —
Total intersegment revenues —
5
6,321
—
—
(6,326 ) —
Investment income 22
7
8
—
17
42
96
Total revenues 10,833
1,829
6,406
882
28
(6,284 ) 13,694
Operating expenses:
Benefits 9,031
1,352
—
727
26
(236 ) 10,900
Operating costs 1,143
421
6,073
144
4
(6,046 ) 1,739
Merger termination fee and related costs, net —
—
—
—
—
20
20
Depreciation and amortization 51
19
36
9
—
(29 ) 86
Total operating expenses 10,225
1,792
6,109
880
30
(6,291 ) 12,745
Income (loss) from operations 608
37
297
2
(2 ) 7
949
Interest expense —
—
—
—
—
47
47
Income (loss) before income taxes $ 608
$ 37
$ 297
$ 2
$ (2 ) $ (40 ) $ 902

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Humana Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)



	Retail		Group and Specialty		Healthcare Services		Eliminations/ Corporate		Consolidated
Nine months ended September 30, 2022	(in millions)
External revenues
Premiums:
Individual Medicare Advantage	$	49,751	$	—	$	—	$	—	$	49,751
Group Medicare Advantage	5,524		—		—		—		5,524
Medicare stand-alone PDP	1,779		—		—		—		1,779
Total Medicare	57,054		—		—		—		57,054
Fully-insured	555		2,827		—		—		3,382
Specialty	—		1,281		—		—		1,281
Medicaid and other	4,720		—		—		—		4,720
Total premiums	62,329		4,108		—		—		66,437
Services revenue:


Home solutions	—		—		1,997		—		1,997
Provider services	—		—		409		—		409
ASO and other	24		588		—		—		612
Pharmacy solutions	—		—		754		—		754
Total services revenue	24		588		3,160		—		3,772
Total external revenues	62,353		4,696		3,160		—		70,209
Intersegment revenues
Services	—		42		15,970		(16,012)		—
Products	—		—		7,394		(7,394)		—
Total intersegment revenues	—		42		23,364		(23,406)		—
Investment income	133		10		6		73		222
Total revenues	62,486		4,748		26,530		(23,333)		70,431
Operating expenses:
Benefits	54,352		3,143		—		(387)		57,108
Operating costs	5,309		1,255		25,089		(22,533)		9,120

Depreciation and amortization	391		68		153		(85)		527
Total operating expenses	60,052		4,466		25,242		(23,005)		66,755
Income (loss) from operations	2,434		282		1,288		(328)		3,676
Gain on sale of KAH Hospice	—		—		(240)		—		(240)
Interest expense	—		—		—		293		293
Other income, net	—		—		—		(16)		(16)
Income (loss) before income taxes and equity in net earnings	2,434		282		1,528		(605)		3,639
Equity in net earnings (losses)	16		—		(15)		—		1
Segment earnings (loss)	$	2,450	$	282	$	1,513	$	(605)	$	3,640
Net loss (income) attributable to noncontrolling interests	2		—		(1)		—		1
Segment earnings (loss) attributable to Humana	$	2,452	$	282	$	1,512	$	(605)	$	3,641

Retail Group and Specialty Healthcare
Services Individual Commercial Other
Businesses Eliminations/
Corporate Consolidated
(in millions)
Nine months ended September 30, 2017
Revenues - external customers
Premiums:
Individual Medicare Advantage $ 24,735
$ —
$ —
$ —
$ —
$ —
$ 24,735
Group Medicare Advantage 3,867
—
—
—
—
—
3,867
Medicare stand-alone PDP 2,787
—
—
—
—
—
2,787
Total Medicare 31,389
—
—
—
—
—
31,389
Fully-insured 357
4,098
—
754
—
—
5,209
Specialty —
976
—
—
—
—
976
Medicaid and other 1,954
—
—
—
28
—
1,982
Total premiums 33,700
5,074
—
754
28
—
39,556
Services revenue:
Provider —
—
193
—
—
—
193
ASO and other 6
444
—
—
5
—
455
Pharmacy —
—
58
—
—
—
58
Total services revenue 6
444
251
—
5
—
706
Total revenues - external customers 33,706
5,518
251
754
33
—
40,262
Intersegment revenues
Services —
15
12,958
—
—
(12,973 ) —
Products —
—
4,706
—
—
(4,706 ) —
Total intersegment revenues —
15
17,664
—
—
(17,679 ) —
Investment income 72
25
25
3
64
127
316
Total revenues 33,778
5,558
17,940
757
97
(17,552 ) 40,578
Operating expenses:
Benefits 29,017
3,952
—
389
95
(596 ) 32,857
Operating costs 2,998
1,178
17,083
151
9
(16,725 ) 4,694
Merger termination fee and related costs, net —
—
—
—
—
(947 ) (947 )
Depreciation and amortization 176
63
103
10
—
(74 ) 278
Total operating expenses 32,191
5,193
17,186
550
104
(18,342 ) 36,882
Income (loss) from operations 1,587
365
754
207
(7 ) 790
3,696
Interest expense —
—
—
—
—
166
166
Income (loss) before income taxes $ 1,587
$ 365
$ 754
$ 207
$ (7 ) $ 624
$ 3,530

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Humana Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)



	Retail		Group and Specialty		Healthcare Services		Eliminations/ Corporate		Consolidated
Nine months ended September 30, 2021	(in millions)
External Revenues
Premiums:
Individual Medicare Advantage	$	44,042	$	—	$	—	$	—	$	44,042
Group Medicare Advantage	5,267		—		—		—		5,267
Medicare stand-alone PDP	1,867		—		—		—		1,867
Total Medicare	51,176		—		—		—		51,176
Fully-insured	545		3,229		—		—		3,774
Specialty	—		1,298		—		—		1,298
Medicaid and other	3,739		—		—		—		3,739
Total premiums	55,460		4,527		—		—		59,987
Services revenue:


Home solutions	—		—		423		—		423
Provider services	—		—		298		—		298
ASO and other	17		582		—		—		599
Pharmacy solutions	—		—		482		—		482
Total services revenue	17		582		1,203		—		1,802
Total external revenues	55,477		5,109		1,203		—		61,789
Intersegment revenues
Services	1		30		14,838		(14,869)		—
Products	—		—		6,716		(6,716)		—
Total intersegment revenues	1		30		21,554		(21,585)		—
Investment income	155		11		3		52		221
Total revenues	55,633		5,150		22,760		(21,533)		62,010
Operating expenses:
Benefits	48,574		3,674		—		(487)		51,761
Operating costs	4,653		1,227		21,749		(20,903)		6,726

Depreciation and amortization	320		63		127		(74)		436
Total operating expenses	53,547		4,964		21,876		(21,464)		58,923
Income (loss) from operations	2,086		186		884		(69)		3,087

Interest expense	—		—		—		235		235
Other income, net	—		—		—		(562)		(562)
Income before income taxes and equity in net earnings	2,086		186		884		258		3,414
Equity in net earnings	—		—		69		—		69
Segment earnings	$	2,086	$	186	$	953	$	258	$	3,483

Retail Group and Specialty Healthcare
Services Individual Commercial Other
Businesses Eliminations/
Corporate Consolidated
(in millions)
Nine months ended September 30, 2016
Revenues - external customers
Premiums:
Individual Medicare Advantage $ 24,054
$ —
$ —
$ —
$ —
$ —
$ 24,054
Group Medicare Advantage 3,229
—
—
—
—
—
3,229
Medicare stand-alone PDP 3,058
—
—
—
—
—
3,058
Total Medicare 30,341
—
—
—
—
—
30,341
Fully-insured 319
4,044
—
2,799
—
—
7,162
Specialty —
957
—
—
—
—
957
Medicaid and other 1,960
12
—
—
29
—
2,001
Total premiums 32,620
5,013
—
2,799
29
—
40,461
Services revenue:
Provider —
—
214
—
—
—
214
ASO and other 5
500
1
—
7
—
513
Pharmacy —
—
22
—
—
—
22
Total services revenue 5
500
237
—
7
—
749
Total revenues - external customers 32,625
5,513
237
2,799
36
—
41,210
Intersegment revenues
Services —
17
14,292
—
—
(14,309 ) —
Products —
—
4,373
—
—
(4,373 ) —
Total intersegment revenues —
17
18,665
—
—
(18,682 ) —
Investment income 68
19
22
3
48
131
291
Total revenues 32,693
5,549
18,924
2,802
84
(18,551 ) 41,501
Operating expenses:
Benefits 27,991
3,876
—
2,545
82
(688 ) 33,806
Operating costs 3,294
1,278
17,989
465
12
(17,866 ) 5,172
Merger termination fee and related costs, net —
—
—
—
—
81
81
Depreciation and amortization 145
62
107
27
—
(78 ) 263
Total operating expenses 31,430
5,216
18,096
3,037
94
(18,551 ) 39,322
Income (loss) from operations 1,263
333
828
(235 ) (10 ) —
2,179
Interest expense —
—
—
—
—
141
141
Income (loss) before income taxes $ 1,263
$ 333
$ 828
$ (235 ) $ (10 ) $ (141 ) $ 2,038

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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 ~~2016~~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, ~~2017,~~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~~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~~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 ~~Merger termination fee and related costs, net, and~~ 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

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Sale of ~~Closed Block~~Hospice and Personal Care Divisions

On August 11, 2022, we completed the sale of ~~Commercial Long-Term Care Insurance Business~~

~~On November 6, 2017, we entered into~~ a ~~definitive agreement~~60% interest of Humana’s Kindred at Home Hospice subsidiary, or KAH Hospice, to ~~sell the stock~~Clayton, Dubilier & Rice, or CD&R, for cash proceeds of ~~our wholly-owned subsidiary, KMG America Corporation, or KMG,~~approximately $2.7 billion, net of cash disposed, including debt repayments from KAH Hospice to Continental General Insurance Company, or CGIC, a Texas-based insurance company wholly owned by HC2 Holdings, Inc., a diversified holding company. KMG’s subsidiary, Kanawha Insurance Company, or KIC, includes our closed blockHumana of ~~non-strategic commercial long-term care insurance policies that serves approximately 30,100 policyholders. Based on the terms of the definitive agreement we expect to record a net loss associated~~$1.9 billion. In connection with the sale we recognized a pre-tax gain, net of ~~KMG~~transaction costs, of ~~approximately $400~~$240 million ~~or $2.75 per diluted common share. The estimated loss includes~~which is reported as a ~~pretax loss~~gain on sale of approximately $900 million, offset by the expected tax benefit of approximately $500 million. We will fund the transaction with approximately $203 million of parent company cash contributed into KMG, subject to customary adjustments, in addition to the transfer of approximately $150 million of statutory capital with the sale, which together should be more than offset by the estimated $500 million cash savings associated with the expected tax treatment of the sale. The KMG transaction is anticipated to close by the third quarter of 2018 subject to customary closing conditions, including South Carolina Department of Insurance approval. There can be no assurance we will obtain regulatory approvals needed to sell the business or do so under terms acceptable to us.

~~Workforce Optimization~~

We have been committed to productivity initiatives designed to promote operational excellence, accelerate our strategy, fund critical initiatives and advance our growth objectives. During the third quarter of 2017, we initiated a voluntary early retirement program and an involuntary workforce reduction program that will allow us to achieve these objectives and position us for the future. These programs are expected to impact approximately 2,700 associates, or 5.7%, of our workforce. As a result, we recorded estimated charges of $124 million, or $0.54 per diluted common share. At October 31, 2017, we had approximately 47,200 employees. The estimated charges were recorded at the corporate level and not allocated to the segments. This charge is included with operating costsKAH Hospice in the accompanying condensed consolidated statements of income for the three and nine ~~month periods~~months ended September 30, ~~2017. Payments under these programs are made upon termination during the early retirement or severance pay period, primarily starting as~~2022.

COVID-19

The emergence and spread of the novel coronavirus, or COVID-19, beginning ofin the first quarter of ~~2018.~~2020 has impacted our business. During periods of increased incidences of COVID-19, a reduction in non-COVID-19 hospital admissions for non-emergent and elective medical care have resulted in lower overall healthcare system utilization. At the same time, COVID-19 treatment and testing costs increased utilization. During 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.

Value Creation Initiatives

During 2022, in order to create capacity to fund growth and investment in our Medicare Advantage business and further expansion of our Healthcare Services capabilities in 2023, we committed to drive additional value for the enterprise through cost saving, productivity initiatives, and value acceleration from previous investments. As a result of these initiatives, during the three and nine months ended September 30, 2022, we recorded charges of $82 million and $285 million, respectively, primarily related to asset and software impairment and abandonment in the amount of $4 million and $144 million for the three and nine months ended September 30, 2022, respectively. Also included in this charge was $44 million and $65 million for the three and nine months ended September 30, 2022, respectively, in future severance payments in connection with the optimization of our workforce to increase speed, agility, and the pace at which Humana must work as a large, integrated healthcare organization. We expect this liability to be primarily paid within the next 12 months and classified it as a current liability, included in trade accounts payable and accrued expenses.

~~Aetna Merger~~

~~On July 2, 2015, we entered into an Agreement~~ These charges are included within operating costs in the condensed consolidated statements of income for the three and ~~Plan of Merger, which we refer~~nine months ended September 30, 2022, and were recorded at the corporate level and not allocated to the segments. We anticipate additional charges in ~~this report as~~ the Merger Agreement, with Aetna Inc. and certain wholly owned subsidiaries of Aetna Inc., which we refer to collectively as Aetna, which set forth the terms and conditions under which we agreed to merge with, and become a wholly owned subsidiary of Aetna, a transaction we refer to in this report as the Merger.

~~The Merger was subject to customary closing conditions, including, among other things, (i) the expiration or termination~~remainder of the ~~applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976,~~year across these same categories as ~~amended,~~additional cost saving, productivity initiatives, and the receipt of necessary approvals under state insurance and healthcare laws and regulations and pursuant to certain licenses of certain of Humana’s subsidiaries, and (ii) the absence of legal restraints and prohibitions on the consummation of the Merger.

Business Segments

During the three months ended March 31, 2017, we realigned certain of our businesses among our reportable segments to correspond with internal management reporting changes and our previously announced planned exit from the Individual Commercial medical business on January 1, 2018. Additionally, we renamed our Group segment to the Group and Specialty segment, and began presenting the Individual Commercial business results as a separate segment rather than as part of the Retail segment. Specialty health insurance benefits, including dental, vision, other supplement health, and financial protection products, marketed to individuals are now included in the Group and Specialty segment. Specialty health insurance benefits marketed to employer groups continue to be included in the Group and Specialty segment. As a result of this realignment, our reportable segments now include Retail, Group and Specialty, Healthcare Services, and Individual Commercial. Prior period segment financial information has been recast to conform to the 2017 presentation. See Note 15 to the condensed consolidated financial statements included in this report for segment financial information.

~~These~~ 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.

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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 ~~and voluntary insurance~~ benefits, ~~and financial protection products,~~ as well as administrative services only, or ASO products. In addition, our Group and Specialty segment includes our military services business, primarily our TRICARE ~~South~~T2017 East Region contract. The Healthcare Services segment includes pharmacy, provider, and home services, ~~offered to our health plan members as well as to third parties, including pharmacy solutions, provider services, and clinical care service, as well as~~along with other services and capabilities to promote wellness and advance population health. The ~~Individual Commercial~~ segment ~~consists of our individual commercial fully-insured medical~~also includes the company's strategic partnerships with WCAS to develop and operate senior-focused, payor-agnostic, primary care centers. Services offered by this segment are designed to enhance the overall healthcare experience. These services may lead to lower utilization associated with improved member health insurance benefits. We report under the category of Other Businesses those businesses that do not align with the reportable segments described above, primarily our closed-block long-term care insurance policies.and/or lower drug costs.

The results of each segment are measured by ~~income before income taxes.~~segment earnings, and for our Retail and Healthcare Services segments, 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 ~~clinical care~~home solutions services, to our Retail and Group and Specialty ~~and Individual Commercial~~ 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.

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~~low income senior members as well as year-over-year changes in the mix of membership in our stand-alone 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.

Certain of our fully-insured individual commercial medical products in our Individual Commercial segment experience seasonality in the benefit ratio akin to the Group and Specialty segment, including the effect of existing previously underwritten members transitioning to policies compliant with the Health Care Reform Law with us and other carriers. As previously underwritten members transition, it results in policy lapses and the release of reserves for future policy benefits partially offset by the recognition of previously deferred acquisition costs. The recognition of a

premium deficiency reserve for our Individual Commercial medical business compliant with the Health Care Reform Law in the fourth quarter of 2015, and subsequent changes in estimate, also impacted the quarterly benefit ratio pattern for this business in 2016.

~~2017~~2022 Highlights

~~Consolidated~~

•Our consolidated pretax results for the three months ended September 30, 2017 as compared to the three months ended September 30, 2016, were primarily impacted by the estimated charges associated with voluntary and involuntary workforce reduction programs and lower pretax earnings in the Healthcare Services segment, partially offset by year-over-year improvement in earnings for our Group and Specialty segment as well as Medicare Advantage and Individual Commercial businesses. Our consolidated pretax results for the nine months ended September 30, 2017 as compared to the nine months ended September 30, 2016, primarily reflects the net gain associated with the terminated Merger Agreement, mainly the break-up fee, along with the year-over year improvement in earnings for our Group and Specialty segment as well as Medicare Advantage and Individual Commercial businesses. These were partially offset by lower pretax earnings in the Healthcare Services segment and the recording of estimated charges associated with voluntary and involuntary workforce reduction programs during the three months ended September 30, 2017.

Year-over-year comparisons of diluted earnings per common share reflect the same factors impacting our consolidated pretax income comparisons year-over-year as well as the beneficial effect of the lower effective tax rate in light of pricing and benefit design assumptions associated with the 2017 temporary suspension of the health insurance industry fee. In addition the year-over-year comparisons were favorably impacted by lower number of shares, primarily reflecting share repurchases.

~~Our 2017 results through September 30, 2017 reflect the continued implementation of our~~ strategy ~~to offer~~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~~physician-

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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 September 30, ~~2017,~~2022, approximately ~~1,877,800~~3,145,200 members, or ~~65.9%~~69%, of our individual Medicare Advantage members were in value-based relationships under our integrated care delivery model, as compared to ~~1,816,300~~2,979,800 members, or ~~64.0%, at December 31, 2016 and 1,786,100 members, or 63.1%~~68%, at September 30, ~~2016.~~2021.

•In October 2022, the Centers for Medicare and Medicaid Services, or CMS, published its updated Medicare Star Ratings for bonus year 2024 (plan year 2023). We ~~recorded~~have 4.9 million members, or 96%, of our existing Medicare Advantage membership, in contracts rated 4-stars or higher, with more than 3.0 million members in plans rated 4.5 stars or higher. Three of our contracts received a ~~net gain associated with the terminated Merger Agreement, consisting primarily~~5-star rating on CMS's 5-star rating system, including HMO plans in Louisiana, Tennessee, and Kentucky, covering approximately 356,000 members. More than 99% of ~~the break-up fee, of approximately $947 million,~~retirees in our group Medicare Advantage rated plans remain in 4-star or ~~$4.33~~above contracts for 2023.

•Net income was $1.2 billion, or $9.39 per diluted common share, ~~during~~and $1.5 billion, or $11.84 per diluted common share, for the three months ended September 30, 2022, and 2021, respectively. Net income was $2.8 billion, or $22.16 per diluted common share, and $2.9 billion, or $22.77 per diluted common share, for the nine months ended September 30, ~~2017. We recorded~~2022, and 2021, respectively. These comparisons were significantly impacted by the gain on KAH equity method investment recognized in August 2021, put/call valuation adjustments associated with non-consolidating minority interest investments, transaction and integration costs, the change in ~~connection~~the fair value of publicly-traded equity securities, charges associated with productivity initiatives related to previously disclosed $1 billion value creation plan and the ~~Merger~~net gain on the sale of ~~approximately $20 million, or $0.12~~KAH Hospice. 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 2022and 2021 quarter and period:

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	For the three months ended September 30,				For the nine months ended September 30,
	2022		2021		2022		2021
Consolidated income before income taxes and equity in net earnings:
Gain on Kindred at Home equity method investment	$	—	$	(1,129)	$	—	$	(1,129)
Put/call valuation adjustments associated with our non consolidating minority interest investments	13		33		(16)		567
Transaction and integration costs	17		71		70		93
Change in the fair value of publicly-traded equity securities	(51)		174		119		197
Charges associated with productivity initiatives related to the previously disclosed $1 billion value creation plan	82		—		285		—
Gain on sale of KAH Hospice	(240)		—		(240)		—
Total	$	(179)	$	(851)	$	218	$	(272)

	For the three months ended September 30,				For the nine months ended September 30,
	2022 (1)		2021 (2)		2022 (1)		2021 (2)
Diluted earnings per common share:
Gain on Kindred at Home equity method investment	$	—	$	(8.74)	$	—	$	(8.73)
Put/call valuation adjustments associated with our non consolidating minority interest investments	0.08		0.20		(0.10)		3.38
Transaction and integration costs	0.10		0.39		0.42		0.52
Change in the fair value of publicly-traded equity securities	(0.31)		1.04		0.72		1.18
Charges associated with productivity initiatives related to the previously disclosed $1 billion value creation plan	0.50		—		1.73		—
Net gain on sale of KAH Hospice	(3.03)		—		(1.72)		—
Total	$	(2.66)	$	(7.11)	$	1.05	$	(3.65)

(1) The net gain on sale of KAH Hospice impact of $3.03 per diluted common share and ~~$81 million, or $0.49~~$1.72 per diluted common share ~~during~~for the three and nine months ended September 30, ~~2016, respectively. Certain costs associated with~~2022, respectively, include the ~~Merger were previously not deductible for~~$240 million pretax gain recorded on sale of KAH Hospice in August 2022 and the related income tax ~~purposes, but became deductible, and were recorded as such in the three months ended March 31, 2017 as a result~~effects of the ~~termination~~transaction. The 2022 period income tax impact was $0.17 per diluted common share, reflective of the ~~Merger Agreement.~~

~~Year-over-year comparisons of results are also impacted by~~$1.31 per diluted common share related to the recognition of a ~~premium deficiency reserve for our Individual Commercial segment related to certain of our 2016 policies as discussed~~deferred tax liability in the ~~Individual Commercial segment highlights that follow. During~~second quarter of 2022 in connection with the ~~nine months ended September 30, 2016, we increased~~held-for-sale classification resulting from the ~~premium deficiency reserve~~pending transaction, partially offset by ~~$208 million, or $0.86~~the $1.14 per diluted common ~~share.~~

~~The annual health insurance industry fee has been suspended for calendar year 2017 but is scheduled to resume~~share benefit recognized in ~~calendar year 2018. Operating cost~~the third quarter of 2022 associated with the ~~health insurer fee attributable~~increase to our tax basis in both the shares sold and the shares retained at the time of the completion of the sale in August 2022. The remaining significant adjustments for the three and nine months ended September 30, ~~2016 was $231 million~~2022 include a total cumulative net tax benefit of approximately $0.11 per diluted common share and ~~$687 million,~~$0.83 per diluted common share, respectively. ~~This fee is not deductible~~

(2) The significant adjustments for tax purposes, which significantly increased our effective income tax rate. The one-year suspension in 2017 of the health insurer fee has significantly reduced our operating costs and effective tax rate during the three and nine months ended September 30, ~~2017.~~

On February 14, 2017, we announced we are exiting our Individual Commercial medical business commencing January 1, 2018. As discussed previously, we have worked over the past several years to address market and programmatic challenges in order to keep coverage options available wherever we could offer2021 include a ~~viable product. This has included pursuing business changes, such as modifying networks, restructuring product offerings, reducing the company’s geographic footprint and increasing premiums. All~~total cumulative net tax benefit of these actions were taken with the expectation that our Individual Commercial medical business would stabilize to the point where we could continue to participate in the program. However, based on our analysis of data associated with our healthcare exchange membership following the 2017 open enrollment period, we saw further signs of an unbalanced risk pool. Therefore, we decided that we cannot continue to offer this coverage and will exit this business commencing January 1, 2018. The three and nine months ended September 30, 2017 includes pretax income from our Individual Commercial business of $26 million, or $0.11approximately $0.53 per diluted common share and ~~$207 million, or $0.89~~$1.55 per diluted common share, respectively.

~~On March 1, 2017, a court ordered the liquidation~~

Table of Penn Treaty (an unaffiliated long-term care insurance company), which triggered assessments from state guaranty associations that resulted in our recording a $54 million, or $0.23 per diluted common share, estimate in operating costs in the three months ended March 31, 2017.Contents

During the third quarter of 2017 we recorded estimated charges of $124 million, or $0.54 per diluted common share associated with both voluntary and involuntary workforce reduction programs that are expected to impact approximately 2,700 associates, or 5.7%, of our workforce. This charge is included with operating costs in the condensed consolidated statement of income for the three and nine month periods ended September 30, 2017.

During the nine months ended September 30, 2017, cash flow provided by operations was $7.0 billion as compared to $4.7 billion for the nine months ended September 30, 2016. Our operating cash flows for the nine months ended September 30, 2017 were significantly impacted by the receipt of the $1 billion Merger termination fee, net of related expenses and the portion of taxes paid to date. Our operating cash flows were also significantly impacted in both periods by the early receipt of the Medicare premium remittance for October 2017 of $3.1 billion in September 2017 and the receipt of the Medicare premium remittance for October 2016 of $3.0 billion in September 2016 because the payment dates of October 2017 and October 2016 fell on a weekend. Excluding the Merger termination fee and the timing of the Medicare premium remittances, our operating cash flows were positively impacted by higher earnings and the timing of working capital items. See further discussion under the section titled "Liquidity" in this report.

~~Retail~~

On April 3, 2017, CMS issued its announcement of 2018 Medicare Advantage Capitation Rates and Medicare Advantage and Part D payment policies and Final Call Letter, which we refer to collectively as the Final Rate Notice. We expect the Final Rate Notice to result in a 0.45% rate increase for Humana versus CMS’ estimate for the sector of 0.85% increase on a comparable basis. The rate increase excludes the impact of Star quality bonus ratings, the impact of encounter data weighting in risk score calculations and estimates of changes in revenue associated with increased accuracy of risk coding. The primary difference between the estimates is the impact of fee-for-service county rebasing/re-pricing by CMS.

~~Group and Specialty Segment~~

On March 2, 2017, we received notice that the Defense Health Agency, or DHA, had exercised its option to extend the TRICARE South Region contract through March 31, 2018. On July 21, 2016, we were notified by the DHA that we were awarded the contract for the new TRICARE East Region, which is a consolidation of the former North and South Regions, with delivery of health care services expected to commence on October 1, 2017. On March 30, 2017, we received notice that the DHA is moving the date upon which delivery of health care services is expected to commence under the new TRICARE East Region contract from October 1, 2017 to January 1, 2018.

~~Healthcare Services Segment~~

At September 30, 2017, approximately 51,500 primary care providers were in value-based relationships, an increase of 3.8% from 49,600 at September 30, 2016 and an increase of 2.2% from 50,400 at December 31, 2016. At September 30, 2017, 65.9% of our individual Medicare Advantage members were in value-based relationships compared to 63.1% at September 30, 2016 and 64.0% at December 31, 2016.

Medicare Advantage and dual demonstration program membership enrolled in a Humana chronic care management program was 825,200 at September 30, 2017, a decrease of 21.0% from 1,044,700 at September 30, 2016, and 24.9% from 1,099,200 at December 31, 2016. We have undergone an optimization process that ensures the appropriate level of member interaction with clinicians to drive quality outcomes, which has resulted in reduced segment earnings but higher returns on investment.

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~~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 and a three-year $25 billion industry wide commercial reinsurance fee, which ends in 2017.~~fee. The annual health insurance industry fee, which iswas not deductible for income tax purposes ~~has been suspended~~and significantly increased our effective tax rate, was in effect for ~~calendar year 2017,~~2020, but ~~is scheduled to resume~~was permanently repealed beginning in calendar year ~~2018.~~2021.

~~In addition,~~It is reasonably possible that the Health Care Reform Law ~~expands federal oversight of health plan premium rates. Financing for these reforms comes, in part, from material additional fees~~ and ~~taxes on us (as discussed above) and other health plans and individuals which began in 2014,~~related regulations, as well as ~~reductions in certain levels of payments to us~~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 ~~health plans under Medicare as described~~legislative or regulatory action taken in ~~our 2016 Form 10-K.~~

~~As noted above, the Health Care Reform Law required the establishment of health insurance exchanges for individuals and small employers~~response to purchase health insurance that became effective January 1, 2014, with an annual open enrollment period. Insurers participating on the health insurance exchanges must offer a minimum level of benefits and are subject to guidelines on setting premium rates and coverage limitations. We may be adversely selected by individuals who have a higher acuity level than the anticipated pool of participants in this market. In addition, the risk corridor, reinsurance, and risk adjustment provisions of the Health Care Reform Law, established to apportion risk for insurers, may not be effective in appropriately mitigating the financial risks related to our products. In addition, regulatory changes to the implementation of the Health Care Reform Law that allowed individuals to remain in plans that are not compliant with the Health Care Reform Law or to enroll outside of the annual enrollment period may have an adverse effect on our pool of participants in the health insurance exchange. In addition, states may imposeCOVID-19 including restrictions on our ability to ~~increase rates. All~~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 ~~these factors~~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 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 ~~or cash flows if~~(including our ~~premiums are not adequate or do not appropriately reflect~~ability to maintain the acuity of these individuals. Any variation from our expectations regarding acuity, enrollment levels, adverse selection, or other assumptions used in setting premium rates could have a material adverse effect on our results of operations, financial position, and cash flows and could impact our decision to participate or continue in the program in certain states. For 2017, we are offering

on-exchange individual commercial medical plans in 11 states, a reduction from the 15 states in which we offered on-exchange coverage in 2016. In addition, we discontinued substantially all Health Care Reform Law compliant off-exchange individual commercial medical plans effective January 1, 2017. As previously discussed, on February 14, 2017, we announced we are exiting our Individual Commercial medical business January 1, 2018.

If we fail to effectively implement our operational and strategic initiatives with respect to the implementation of the Health Care Reform Law, our business may be materially adversely affected. Additionally, potential legislative changes, including the Trump Administration's October 12, 2017 announcement to end cost-sharing reduction benefits effective for October 2017 and beyond in all states as well as activities to repeal or replace the Health Care Reform Law, creates uncertainty for our business, and we cannot predict when, or in what form, such legislative changes may occur. We may be unable to adjust our product offerings, geographic footprint, or pricing during any given year such legislative changes occur in sufficient time to mitigate any adverse effects.

On November 10, 2016, the U.S. Court of Federal Claims ruled in favor of the government in one of a series of cases filed by insurers, unrelated to us, against HHS to collect risk corridor payments, rejecting all of the insurers statutory, contract and Constitutional claims for payment. On November 18, 2016, HHS issued a memorandum indicating a significant funding shortfall for the 2015 coverage year, the second consecutive year of significant shortfalls. Given the successful challenge of the risk corridor provisions in court, Congressional inquiries into the funding of the risk corridor program, and significant funding shortfalls under the first two years of the program, during the fourth quarter of 2016 we wrote-off $583 million in risk corridor receivables outstanding as of September 30, 2016, including $415 million associated with the 2014 and 2015 coverage years. From inception of the risk corridor program through September 30, 2017, we collected approximately $39 million from CMS for risk corridor receivables associated with the 2014 coverage year funded by HHS in accordance with previous guidance, utilizing funds HHS collected from us and other carriers under the risk corridor program. At September 30, 2017, we estimate that we are entitled to collect a total of $611 million from HHS under the commercial risk corridor program for the 2014 through 2016 program years. On November 2, 2017, we filed suit against the United States of America in the United States Court of Federal Claims, on behalfvalue of our health plans seeking recovery from the federal government of approximately $611 million in payments under the risk corridor premium stabilization program established under Health Care Reform, for years 2014, 2015goodwill); and ~~2016.~~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 ~~clinical care~~home solutions services, to our Retail and Group and Specialty ~~and Individual Commercial~~ segment customers and are described in Note 1514 to the condensed consolidated financial statements included in this report.

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Comparison of Results of Operations for ~~2017~~2022 and ~~2016~~2021

The following discussion primarily deals with our results of operations for the three months ended September 30, ~~2017,~~2022, or the ~~2017~~2022 quarter, the three months ended September 30, ~~2016,~~2021, or the ~~2016~~2021 quarter, the nine months ended September 30, ~~2017,~~2022, or the ~~2017~~2022 period, and the nine months ended September 30, ~~2016,~~2021, or the ~~2016~~2021 period.

Consolidated



													Change
	Three months ended September 30,						Nine months ended September 30,						Three months ended September 30, 2022 vs 2021				Nine months ended September 30, 2022 vs 2021
	2022			2021			2022			2021			$		%		$		%
	($ in millions, except per common share results)
Revenues:
Premiums:
Retail	$	20,131		$	18,401		$	62,329		$	55,460		$	1,730	9.4	%	$	6,869	12.4	%
Group and Specialty	1,337			1,484			4,108			4,527			(147)		(9.9)	%	(419)		(9.3)	%

Total premiums	21,468			19,885			66,437			59,987			1,583		8.0	%	6,450		10.8	%
Services:
Retail	10			—			24			17			10		100.0	%	7		41.2	%
Group and Specialty	197			198			588			582			(1)		(0.5)	%	6		1.0	%
Healthcare Services	952			647			3,160			1,203			305		47.1	%	1,957		162.7	%
Total services	1,159			845			3,772			1,802			314		37.2	%	1,970		109.3	%
Investment income (loss)	172			(33)			222			221			205		621.2	%	1		0.5	%
Total revenues	22,799			20,697			70,431			62,010			2,102		10.2	%	8,421		13.6	%
Operating expenses:
Benefits	18,384			17,316			57,108			51,761			1,068		6.2	%	5,347		10.3	%
Operating costs	3,061			2,603			9,120			6,726			458		17.6	%	2,394		35.6	%
Depreciation and amortization	182			150			527			436			32		21.3	%	91		20.9	%
Total operating expenses	21,627			20,069			66,755			58,923			1,558		7.8	%	7,832		13.3	%
Income from operations	1,172			628			3,676			3,087			544		86.6	%	589		19.1	%
Gain on sale of KAH Hospice	(240)			—			(240)			—			240		100.0	%	240		100.0	%
Interest expense	102			88			293			235			14		15.9	%	58		24.7	%
Other expense (income), net	13			(1,096)			(16)			(562)			(1,109)		(101.2)	%	(546)		(97.2)	%
Income before income taxes and equity in net earnings	1,297			1,636			3,639			3,414			(339)		(20.7)	%	225		6.6	%
Provision for income taxes	107			120			820			536			(13)		(10.8)	%	284		53.0	%
Equity in net earnings	3			15			1			69			(12)		(80.0)	%	(68)		(98.6)	%
Net income	$	1,193		$	1,531		$	2,820		$	2,947		$	(338)	(22.1)	%	$	(127)	(4.3)	%
Diluted earnings per common share	$	9.39		$	11.84		$	22.16		$	22.77		$	(2.45)	(20.7)	%	$	(0.61)	(2.7)	%
Benefit ratio (a)	85.6		%	87.1		%	86.0		%	86.3		%			(1.5)	%			(0.3)	%
Operating cost ratio (b)	13.5		%	12.6		%	13.0		%	10.9		%			0.9	%			2.1	%
Effective tax rate	8.2		%	7.2		%	22.5		%	15.4		%			1.0	%			7.1	%

For the three months ended September 30, Change
2017 2016 Dollars Percentage
(dollars in millions, except per common share results)
Revenues:
Premiums:
Retail $ 11,021
$ 10,809
$ 212
2.0 %
Group and Specialty 1,701
1,670
31
1.9 %
Individual Commercial 224
882
(658 ) (74.6 )%
Other Businesses 9
10
(1 ) (10.0 )%
Total premiums 12,955
13,371
(416 ) (3.1 )%
Services:
Retail 2
2
—
— %
Group and Specialty 140
147
(7 ) (4.8 )%
Healthcare Services 80
77
3
3.9 %
Other Businesses 1
1
—
— %
Total services 223
227
(4 ) (1.8 )%
Investment income 104
96
8
8.3 %
Total revenues 13,282
13,694
(412 ) (3.0 )%
Operating expenses:
Benefits 10,642
10,900
(258 ) (2.4 )%
Operating costs 1,688
1,739
(51 ) (2.9 )%
Merger termination fee and related costs, net —
20
(20 ) (100.0 )%
Depreciation and amortization 94
86
8
9.3 %
Total operating expenses 12,424
12,745
(321 ) (2.5 )%
Income from operations 858
949
(91 ) (9.6 )%
Interest expense 59
47
12
25.5 %
Income before income taxes 799
902
(103 ) (11.4 )%
Provision for income taxes 300
452
(152 ) (33.6 )%
Net income $ 499
$ 450
$ 49
10.9 %
Diluted earnings per common share $ 3.44
$ 2.98
$ 0.46
15.4 %
Benefit ratio(a)
82.1 % 81.5 % 0.6 %
Operating cost ratio(b)
12.8 % 12.8 % — %
Effective tax rate 37.5 % 50.1 % (12.6 )%

(a)Represents ~~total~~ benefits expense as a percentage of premiums revenue.

(b)Represents ~~total~~ operating costs ~~excluding Merger termination fee and related costs, net, and depreciation and amortization,~~ as a percentage of total revenues less investment income.

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For the nine months ended
September 30, Change
2017 2016 Dollars Percentage
(dollars in millions, except per common share results)
Revenues:
Premiums:
Retail $ 33,700
$ 32,620
$ 1,080
3.3 %
Group and Specialty 5,074
5,013
61
1.2 %
Individual Commercial 754
2,799
(2,045 ) (73.1 )%
Other Businesses 28
29
(1 ) (3.4 )%
Total premiums 39,556
40,461
(905 ) (2.2 )%
Services:
Retail 6
5
1
20.0 %
Group and Specialty 444
500
(56 ) (11.2 )%
Healthcare Services 251
237
14
5.9 %
Other Businesses 5
7
(2 ) (28.6 )%
Total services 706
749
(43 ) (5.7 )%
Investment income 316
291
25
8.6 %
Total revenues 40,578
41,501
(923 ) (2.2 )%
Operating expenses:
Benefits 32,857
33,806
(949 ) (2.8 )%
Operating costs 4,694
5,172
(478 ) (9.2 )%
Merger termination fee and related costs, net (947 ) 81
(1,028 ) (1,269.1 )%
Depreciation and amortization 278
263
15
5.7 %
Total operating expenses 36,882
39,322
(2,440 ) (6.2 )%
Income from operations 3,696
2,179
1,517
69.6 %
Interest expense 166
141
25
17.7 %
Income before income taxes 3,530
2,038
1,492
73.2 %
Provision for income taxes 1,266
1,023
243
23.8 %
Net income $ 2,264
$ 1,015
$ 1,249
123.1 %
Diluted earnings per common share $ 15.44
$ 6.73
$ 8.71
129.4 %
Benefit ratio (a)
83.1 % 83.6 % (0.5 )%
Operating cost ratio (b)
11.7 % 12.6 % (0.9 )%
Effective tax rate 35.9 % 50.2 % (14.3 )%


~~(a)~~	~~Represents total benefits expense as a percentage of premiums revenue.~~


~~(b)~~	~~Represents total operating costs, excluding Merger termination fee and related costs, net, and depreciation and amortization, as a percentage of total revenues less investment income.~~

Premiums Revenue

~~Summary~~

~~Net income was $499 million,~~Consolidated premiums revenue increased $1.6 billion, or ~~$3.44 per diluted common share,~~8.0%, from $19.9 billion in the ~~2017~~2021 quarter ~~compared~~ to ~~$450 million, or $2.98 per diluted common share,~~$21.5 billion in the ~~2016 quarter. The 2017~~2022 quarter ~~includes net income~~and increased $6.5 billion, or 10.8%, from ~~our Individual Commercial segment of $0.11~~$60.0 billion in the 2021 period to $66.4 billion in the 2022 period primarily due to individual Medicare Advantage and state-based contracts membership growth and higher per ~~diluted common share, as well as $0.55 per diluted common share beneficial effect of the lower tax rate in light of pricing and benefit design assumptions~~member individual Medicare Advantage premiums, partially offset by declining year-over-year membership associated with the ~~2017 temporary suspension~~group commercial medical products and the phase-out of the health insurance industry fee, excluding the Individual Commercial business impact. These were offset by $0.54 per diluted common share in estimated charges associated with both voluntary and involuntary workforce reduction programs. Net income was $2.3 billion, or $15.44 per diluted common share,COVID-19 sequestration relief in the ~~2017 period compared to $1.0 billion, or $6.73 per diluted common share, in the 2016~~2022 period. The 2017 period includes a net gain associated with the terminated Merger Agreement consisting primarily of the break-up fee representing $4.33 per diluted common share. In addition, the 2017 period includes net income from our Individual Commercial segment of $0.89 per diluted common share, as well as $1.60 per diluted common share beneficial effect of the lower tax rate in light of pricing and benefit design assumptions associated with the 2017 temporary suspension of the health insurance industry fee, excluding the Individual Commercial business impact. These were offset by $0.54 per diluted common share in estimated charges associated with both voluntary and involuntary workforce reduction programs, as well as the estimated guaranty fund assessment expense to support the policyholder obligations of Penn Treaty (an unaffiliated long-term care insurance company) of $0.23 per diluted common share. Excluding the impact of the items above, the increase in the 2017 quarter and the 2017 period primarily was due to year-over-year improvement in our Retail segment pretax results as discussed in the detailed segment results discussion that follows.

~~Premiums Revenue~~

Consolidated premiums decreased $416 million, or 3.1%, from the 2016 quarter to $13.0 billion for the 2017 quarter and decreased $905 million, or 2.2%, from the 2016 period to $39.6 billion for the 2017 period. These decreases are primarily due to lower premiums in the Individual Commercial segment, partially offset by higher premiums in the Retail segment resulting from our Medicare Advantage business, as discussed in the detailed segment results discussion that follows.

Services Revenue

Consolidated services revenue ~~decreased $4~~increased $314 million, or ~~1.8%~~37.2%, from $845 million in the ~~2016~~2021 quarter to ~~$223 million for~~$1.2 billion in the ~~2017~~2022 quarter and ~~decreased $43 million,~~increased $2.0 billion, or ~~5.7%~~109.3%, from $1.8 billion in the ~~2016~~2021 period to ~~$706 million for~~$3.8 billion in the ~~2017 period. These decreases are~~2022 period primarily due to ~~a decrease~~the impact of home solutions revenues which reflects the acquisition of the remaining 60% interest in ~~services revenue in~~KAH during August 2021 partially offset by the ~~Group and Specialty segment as discussed in~~divestiture of the ~~detailed segment results discussion that follows.~~60% ownership of KAH Hospice during August 2022.

Investment Income

Investment income ~~totaled $104 million for the 2017 quarter, increasing $8~~increased $205 million, or ~~8.3%~~621.2%, from ~~$96~~a $33 million ~~for~~loss in the ~~2016 quarter. For~~2021 quarter to $172 million of income in the ~~2017 period, investment~~2022 quarter primarily due to lower mark to market losses on our publicly traded equity securities during the 2022 quarter compared to the 2021 quarter and higher interest income ~~totaled $316 million, increasing $25~~on our debt securities. Investment income increased $1 million, or ~~8.6%~~ 0.5%, from ~~$291~~$221 million in the ~~2016~~2021 period to $222 million in the 2022 period.

Benefit Expense

Consolidated benefits expense increased $1.1 billion, or 6.2%, from $17.3 billion in the 2021 quarter to $18.4 billion in the 2022 quarter and increased $5.3 billion, or 10.3%, from $51.8 billion in the 2021 period to $57.1 billion in the 2022 period. The consolidated benefit ratio decreased 150 basis points from 87.1% for the 2021 quarter to 85.6% for the 2022 quarter and decreased 30 basis points from 86.3% for the 2021 period to 86.0% for the 2022 periodprimarily due to higher per member individual Medicare Advantage premiums and lower inpatient utilization associated with the individual Medicare Advantage business. These ~~increases primarily reflect higher average invested balances and interest rates,~~factors were partially offset by lower ~~realized capital gains.~~favorable prior-period medical claims reserve development. Further, the 2022 quarter and period ratios reflect a shift in line of business mix, with continued growth in certain government programs, which carry a higher benefits expense ratio, combined with a decline in Medicare stand-alone PDP, which has a lower benefits expense ratio.

~~Benefits Expense~~

Consolidated benefits expense ~~was $10.6 billion for the 2017 quarter, a decrease~~included $7 million of $258 million from the 2016 quarter. For the 2017 period, benefits expense was $32.9 billion, a decrease of $949 million from the 2016 period. These decreases are primarily due to a decrease in the Individual Commercial segment benefits expense, partially offset by an increase in the Retail and Group and Specialty segments benefits expense. We experienced favorable prior-period medical claims reserve development ~~related to prior fiscal years of $85 million~~ in the ~~2017~~2022 quarter ~~as compared to $90~~and $49 million of favorable prior-period medical claims development in the ~~2016~~2021 quarter. ~~In the 2017 period, we experienced~~Consolidated benefits expense included $404 million of favorable prior-period medical claims reserve development ~~related to prior fiscal years of $430 million as compared to $525 million~~ in the ~~2016~~2022 period ~~as discussed~~and $768 million of favorable prior-period medical claims reserve development in the ~~detailed segment results discussion that follows.~~

~~The~~2021 period. Prior-period medical claims reserve development did not impact the consolidated benefit ratio ~~increased 60 basis points to 82.1% for the 2017 quarter compared to 81.5% for the 2016 quarter primarily due to the increase~~ in the ~~Retail segment benefit ratio, partially offset by decreases in~~2022 quarter and decreased the ~~Group~~

~~and Specialty and Individual Commercial segment benefit ratios as discussed in the segment results of operation discussion that follows. The~~ consolidated benefit ratio ~~for the 2017 period was 83.1%, a 50~~by approximately 20 basis ~~point decrease from 83.6% for the 2016 period, primarily due to the decrease~~points in the Individual Commercial segment benefit ratio, partially offset by the increase in the Retail and Group and Specialty segment benefit ratio as discussed in the segment results of operation discussion that follows. Favorable prior-period2021 quarter. Prior-period medical claims reserve development decreased the consolidated benefit ratio by approximately 7060 basis points in ~~each of~~ the ~~2017 quarter~~2022 period and ~~the 2016 quarter. Favorable prior-period medical claims reserve development~~ decreased the consolidated benefit ratio by approximately ~~110 basis points in the 2017 period versus approximately~~ 130 basis points in the ~~2016~~2021 period.

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 ~~decreased $51~~increased $458 million, or ~~2.9%~~17.6%, ~~during~~from $2.6 billion in the ~~2017~~2021 quarter ~~compared~~ to $3.1 billion in the ~~2016~~2022 quarter ~~primarily due~~and increased $2.4 billion, or 35.6%, from $6.7 billion in the 2021 period to $9.1 billion in the temporary suspension of the health insurance industry fee for the calendar year 2017, and lower Individual Commercial membership, partially offset by the estimated charges associated with both voluntary and involuntary workforce reduction programs recorded during the 2017 quarter. Consolidated operating costs decreased $478 million, or 9.2%, during the 2017 period compared to the 2016 period primarily due to the temporary suspension of the health insurance industry fee for the calendar year 2017, and lower Individual Commercial membership, partially offset by the estimated charges associated with both voluntary and involuntary workforce reduction programs as well as the estimated guaranty fund assessment expense recorded to support the policyholder obligations of Penn Treaty (an unaffiliated long-term care insurance company).

2022 period. The consolidated operating cost ratio increased 90 basis points from 12.6% for the ~~2017~~2021 quarter

Table of ~~12.8% was unchanged~~Contents

to 13.5% for the 2022 quarter and increased 210 basis points from 10.9% for the ~~2016 quarter. The year-over-year comparison was favorably impacted by~~2021 period to 13.0% for the ~~temporary suspension~~2022 periodprimarily due to the impact of the ~~health insurance industry fee for the calendar year 2017, offset by the loss~~consolidation of scale efficiency from market exits in the 2017 period associated with the Individual Commercial product, the estimated charges associated with both voluntary and involuntary workforce reduction programs recorded in the 2017 quarter, and the increase in employee compensation costs resulting from the continued strong performance. TheKAH operations, which have a significantly higher operating cost ratio than our historical consolidated operating cost ratio, for the 2017 period decreased 90 basis points to 11.7% from 12.6% in the 2016 period primarily due to the temporary suspension of the health insurance industry fee for the calendar year 2017 as well as operating cost efficiencies, partially offset by the loss of scale efficiency from market exits in the 2017 period associated with the Individual Commercial product, the estimated charges associated with both voluntary and involuntary workforce reduction programs recorded in the 2017 quarter, as well as the ~~impact of~~$285 million in charges related to productivity initiatives in the ~~estimated guaranty fund assessment expense recorded~~2022 period, primarily related to ~~support the policyholder obligations of Penn Treaty (an unaffiliated long-term care insurance company). The non-deductible health insurance industry fee impacted the operating cost ratio~~asset and software impairment and abandonment and severance. These increases were partially offset by ~~170 basis points~~scale efficiencies associated with growth in ~~both the 2016 quarter and 2016 period.~~individual Medicare Advantage membership.

Depreciation and Amortization

Depreciation and amortization ~~for~~increased $32 million, or 21.3%, from $150 million in the ~~2017~~2021 quarter ~~totaled $94~~to $182 million ~~compared~~in the 2022 quarter and increased $91 million, or 20.9%, from $436 million in the 2021 period to ~~$86~~$527 million ~~for~~in the ~~2016 quarter. For the 2017~~2022 period ~~depreciation and amortization totaled $278 million compared~~primarily due to ~~$263 million for the 2016 period.~~capital expenditures.

Interest Expense

Interest expense ~~for~~increased $14 million, or 15.9%, from $88 million in the ~~2017~~2021 quarter ~~totaled $59~~to $102 million ~~compared to $47 million for~~in the ~~2016~~2022 quarter and ~~totaled $166~~increased $58 million, ~~for~~or 24.7%, from $235 million in the ~~2017~~2021 period ~~compared~~ to ~~$141~~$293 million ~~for~~in the ~~2016 period. The increase was due~~2022 period from borrowings to finance the ~~issuance of $1 billion of senior notes in March 2017.~~KAH acquisition.

Income Taxes

~~Our~~The effective ~~tax rate during the 2017 quarter was 37.5% compared to the effective tax rate of 50.1% in the 2016 quarter. For the 2017 period our effective~~income tax rate was ~~35.9% compared to~~8.2% and 7.2% for the three months ended September 30, 2022, and 2021, respectively, and 22.5% and 15.4% for the nine months ended September 30, 2022 and 2021, respectively. The year-over-year increase in the effective income tax ~~rate of 50.2% for the 2016 period. These decreases are~~rates is primarily due to the ~~2017 temporary suspension~~impact of the ~~non-deductible health insurance~~

~~industry fee as well as previously non-deductible transaction costs that, as a result of termination~~August 2021 acquisition of the ~~Merger Agreement, became deductible~~remaining 60% interest in KAH. In that period, we recognized a $1.1 billion mark-to-market gain related to our previously held 40% investment in KAH. This unrealized gain was not taxable, thereby reducing the effective income tax rate for ~~tax purposes and were recorded as such in~~ the three and nine months ended ~~March 31, 2017.~~September 30, 2021. The increase is partially offset by the August 2022 disposition of our 60% interest in KAH Hospice, which resulted in an increase to our tax basis in both the shares sold and the shares retained, thereby reducing the effective income tax rate for the three and nine months ended September 30, 2022.

Table of Contents

Retail Segment


	September 30,		Change
	2022	2021	Members	%
Membership:
Medical membership:
Individual Medicare Advantage	4,564,200	4,397,300	166,900	3.8	%
Group Medicare Advantage	564,600	559,800	4,800	0.9	%
Medicare stand-alone PDP	3,569,100	3,638,400	(69,300)	(1.9)	%
Total Retail Medicare	8,697,900	8,595,500	102,400	1.2	%

State-based Medicaid and other	1,098,900	909,100	189,800	20.9	%
Medicare Supplement	316,500	332,000	(15,500)	(4.7)	%
Total Retail medical members	10,113,300	9,836,600	276,700	2.8	%



													Change
	Three months ended September 30,						Nine months ended September 30,						Three months ended September 30, 2022 vs 2021				Nine months ended September 30, 2022 vs 2021
	2022			2021			2022			2021			$		%		$		%
	($ in millions)
Premiums and Services Revenue:
Premiums:
Individual Medicare Advantage	$	16,007		$	14,642		$	49,751		$	44,042		$	1,365	9.3	%	$	5,709	13.0	%
Group Medicare Advantage	1,792			1,737			5,524			5,267			55		3.2	%	257		4.9	%
Medicare stand-alone PDP	534			541			1,779			1,867			(7)		(1.3)	%	(88)		(4.7)	%
Total Retail Medicare	18,333			16,920			57,054			51,176			1,413		8.4	%	5,878		11.5	%
State-based Medicaid and other	1,610			1,296			4,720			3,739			314		24.2	%	981		26.2	%
Medicare Supplement	188			185			555			545			3		1.6	%	10		1.8	%
Total premiums	20,131			18,401			62,329			55,460			1,730		9.4	%	6,869		12.4	%
Services	10			—			24			17			10		100.0	%	7		41.2	%
Total premiums and services revenue	$	20,141		$	18,401		$	62,353		$	55,477		$	1,740	9.5	%	$	6,876	12.4	%
Segment earnings	$	737		$	456		$	2,450		$	2,086		$	281	61.6	%	$	364	17.4	%
Benefit ratio	86.5		%	88.1		%	87.2		%	87.6		%			(1.6)	%			(0.4)	%
Operating cost ratio	9.4		%	9.1		%	8.5		%	8.4		%			0.3	%			0.1	%

September 30, Change
2017 2016 Members Percentage
Membership:
Medical membership:
Individual Medicare Advantage 2,849,400
2,831,700
17,700
0.6 %
Group Medicare Advantage 438,400
353,900
84,500
23.9 %
Medicare stand-alone PDP 5,290,900
4,913,400
377,500
7.7 %
Total Retail Medicare 8,578,700
8,099,000
479,700
5.9 %
State-based Medicaid 363,400
390,100
(26,700 ) (6.8 )%
Medicare Supplement 234,900
217,100
17,800
8.2 %
Total Retail medical members 9,177,000
8,706,200
470,800
5.4 %

For the three months ended September 30, Change
2017 2016 Dollars Percentage
(in millions)
Premiums and Services Revenue:
Premiums:
Individual Medicare Advantage $ 8,077
$ 7,977
$ 100
1.3 %
Group Medicare Advantage 1,272
1,067
205
19.2 %
Medicare stand-alone PDP 921
1,004
(83 ) (8.3 )%
Total Retail Medicare 10,270
10,048
222
2.2 %
State-based Medicaid 630
652
(22 ) (3.4 )%
Medicare Supplement 121
109
12
11.0 %
Total premiums 11,021
10,809
212
2.0 %
Services 2
2
—
— %
Total premiums and services revenue $ 11,023
$ 10,811
$ 212
2.0 %
Income before income taxes $ 610
$ 608
$ 2
0.3 %
Benefit ratio 84.3 % 83.6 % 0.7 %
Operating cost ratio 9.8 % 10.6 % (0.8 )%

For the nine months ended
September 30, Change
2017 2016 Dollars Percentage
(in millions)
Premiums and Services Revenue:
Premiums:
Individual Medicare Advantage $ 24,735
$ 24,054
$ 681
2.8 %
Group Medicare Advantage 3,867
3,229
638
19.8 %
Medicare stand-alone PDP 2,787
3,058
(271 ) (8.9 )%
Total Retail Medicare 31,389
30,341
1,048
3.5 %
State-based Medicaid 1,954
1,960
(6 ) (0.3 )%
Medicare Supplement 357
319
38
11.9 %
Total premiums 33,700
32,620
1,080
3.3 %
Services 6
5
1
20.0 %
Total premiums and services revenue $ 33,706
$ 32,625
$ 1,081
3.3 %
Income before income taxes $ 1,587
$ 1,263
$ 324
25.7 %
Benefit ratio 86.1 % 85.8 % 0.3 %
Operating cost ratio 8.9 % 10.1 % (1.2 )%

~~Pretax Results~~Segment Earnings

Retail segment ~~pretax income of $610~~earnings increased $281 million, or 61.6%, from $456 million in the ~~2017~~2021 quarter ~~was relatively unchanged from $608~~to $737 million in the ~~2016~~2022 quarter ~~reflecting the year-over-year improvement in the operating cost ratio being substantially offset by the increase in the benefit ratio. Retail segment pretax income~~and increased ~~$324~~$364 million, or ~~25.7%~~17.4%, ~~to $1.6~~from $2.1 billion in the ~~2017~~2021 period ~~from $1.3~~to $2.5 billion in the ~~2016~~2022 period primarily due to the ~~year-over-year improvement in earnings for our Medicare Advantage business.~~same factors impacting the segment's lower benefit ratio offset by the same factors impacting the segment's higher operating cost ratio as more fully described below.

Enrollment

Individual Medicare Advantage membership increased ~~17,700~~166,900 members, or ~~0.6%~~3.8%, from September 30, ~~2016~~2021 to September 30, ~~2017 reflecting net~~2022 primarily due to membership additions for Medicare beneficiaries including the effect of market and product exits in 2017. We decided certain markets and/or products were not meeting long term strategic and financial objectives. Additionally, membership growth was muted due to competitive actions including the uncertainty associated with the ~~then-pending Merger transaction during last year's~~previous Annual Election ~~Period.~~Period, or AEP. The year-over-year growth was further impacted by continued enrollment resulting from special elections, age-ins, and Dual Eligible Special Need Plans, or D-SNP, membership. Individual Medicare Advantage membership

Table of Contents

includes 667,000 D-SNP members as of September 30, 2022, a net increase of 105,700, or 18.8%, from 561,300 as of September 30, 2021.

Group Medicare Advantage membership increased ~~84,500,~~4,800 members, or ~~23.9%~~0.9%, from September 30, ~~2016~~2021 to September 30, ~~2017~~2022 reflecting smaller account sales and organic growth in concurrent accounts with no large accounts won or lost for the ~~addition of a large account in January 2017.~~period.

Medicare stand-alone PDP membership ~~increased 377,500~~decreased 69,300 members, or ~~7.7%~~1.9%, from September 30, ~~2016~~2021 to September 30, ~~2017 reflecting net membership additions,~~2022 primarily due to continued intensified competition for ~~our Humana-Walmart plan offering, for the 2017 plan year.~~Medicare stand-alone PDP offerings.

State-based Medicaid membership ~~decreased 26,700~~increased 189,800 members, or ~~6.8%~~20.9%, from September 30, ~~2016~~2021 to September 30, ~~2017, primarily driven by lower membership associated with our Florida contracts resulting from network realignments.~~2022 reflecting the suspension of state eligibility redetermination efforts due to the currently enacted public health emergency, or PHE.

Premiums Revenue

Retail segment premiums revenue increased ~~$212 million,~~$1.7 billion, or ~~2.0%~~9.4%, from $18.4 billion in the ~~2016~~2021 quarter to $20.1 billion in the ~~2017~~2022 quarter and increased ~~$1.1~~$6.9 billion, or ~~3.3%~~12.4%, from $55.5 billion in the ~~2016~~2021 period to $62.3 billion in the ~~2017 period. These increases~~2022 period primarily ~~were~~ due to individual Medicare Advantage and state-based contracts membership growth and ~~increased per-member premiums for certain businesses within the segment. Average group and~~higher per member individual Medicare Advantage ~~membership increased 3.2% for the 2017~~

~~quarter and 3.5% for the 2017 period. Average membership is calculated by summing the ending membership for each month in a period and dividing the result~~premiums partially offset by the ~~number~~phase-out of ~~months in a period. Premiums revenue reflects changes in membership and average per-member premiums. Items impacting average per-member premiums include changes in premium rates as well as changes~~COVID-19 sequestration relief in the ~~geographic mix of membership, the mix of product offerings, and the mix of benefit plans selected by our membership.~~2022 period.

Benefits Expense

The Retail segment benefit ratio ~~increased 70~~decreased 160 basis points from ~~83.6% in~~88.1% for the ~~2016~~2021 quarter to ~~84.3% in~~86.5% for the ~~2017~~2022 quarter and ~~increased 30~~decreased 40 basis points from ~~85.8% in~~87.6% for the ~~2016~~2021 period to ~~86.1% in~~87.2% for the ~~2017 period. These increases~~2022 period primarily ~~were~~ due to the favorable impact of ~~the temporary suspension of the health insurance industry fee for calendar year 2017 which was contemplated in the pricing~~higher per member individual Medicare Advantage premiums and ~~benefit design of our products, margin compression~~lower inpatient utilization associated with the ~~competitive environment in the group~~individual Medicare Advantage ~~business and~~business. These factors were partially offset by lower favorable prior-period medical claims reserve development. ~~These increases were partially offset by~~Further, the ~~impact~~2022 quarter and period ratios reflect a shift in line of ~~planned exits from certain Medicare Advantage markets that carried a higher benefit ratio than other markets as well as lower than expected medical costs as compared to~~business mix within the ~~assumptions used~~segment, with growth in ~~the pricing of our~~ individual Medicare Advantage ~~business.~~and state-based contracts and other membership, which carry a higher benefits expense ratio, combined with a decline in Medicare stand-alone PDP, which has a lower benefits expense ratio.

The Retail ~~segment’s~~segment's benefits expense ~~for the 2017 quarter~~ included ~~$52~~$12 million in of favorable prior-period medical claims reserve development ~~versus $80~~in the 2022 quarter and $54 million inof favorable prior-period medical claims reserve development in the ~~2016~~2021 quarter. ~~For~~The Retail segment’s benefit expense included $379 million of favorable prior-period medical claims reserve development in the ~~2017~~2022 period and $673 million of favorable prior-period medical claims reserve development in the 2021 period. Prior-period medical claims reserve development decreased the Retail segment's benefit ~~expense includes the beneficial effect of $339 million in favorable prior-period reserve development versus $379 million~~ratio by approximately 10 basis points in the ~~2016 period.~~2022 quarter and decreased the Retail segment's benefit ratio by approximately 30 basis points in the 2021 quarter. Prior-period medical claims reserve development decreased the Retail segment benefit ratio by approximately 5060 basis points in the ~~2017 quarter versus approximately 70 basis points in the 2016 quarter. Favorable prior-period reserve development~~2022 period and decreased the Retail segment benefit ratio by ~~approximately 100 basis points in the 2017 period versus~~ approximately 120 basis points in the ~~2016~~2021 period.

Operating Costs

The Retail segment operating cost ratio ~~of 9.8% for the 2017 quarter decreased 80~~increased 30 basis points from ~~10.6%~~9.1% for the ~~2016 quarter. The Retail segment operating cost ratio of 8.9%~~2021 quarter to 9.4% for the ~~2017 period decreased 120~~2022 quarter and increased 10 basis points from ~~10.1%~~8.4% for the ~~2016 period. These decreases~~2021 period to 8.5% for the 2022 period primarily ~~were~~ due to strategic investments to position the ~~temporary suspension~~segment for long-term success, including the impact of higher marketing spend in the ~~health insurance industry fee for calendar year 2017,~~2022 period to support individual Medicare Advantage growth. These factors were partially offset by scale efficiencies associated with growth in the ~~increase in employee compensation costs resulting from the continued strong performance. The non-deductible health insurance industry fee impacted the operating cost ratio by 170 basis points in each~~individual Medicare Advantage membership.

Table of ~~the 2016 quarter and the 2016 period.~~Contents

Group and Specialty Segment


	September 30,		Change
	2022	2021	Members	%
Membership:
Medical membership:
Fully-insured commercial group	574,500	690,000	(115,500)	(16.7)	%
ASO	438,600	496,500	(57,900)	(11.7)	%
Military services	5,977,900	6,051,700	(73,800)	(1.2)	%
Total group medical members	6,991,000	7,238,200	(247,200)	(3.4)	%
Specialty membership (a)	5,210,100	5,313,100	(103,000)	(1.9)	%

September 30, Change
2017 2016 Members Percentage
Membership:
Medical membership:
Fully-insured commercial group 1,098,800
1,131,500
(32,700 ) (2.9 )%
ASO 445,700
570,300
(124,600 ) (21.8 )%
Military services 3,099,000

3,080,900

18,100

0.6 %
Total group and specialty medical members 4,643,500
4,782,700
(139,200 ) (2.9 )%
Specialty membership (a) 6,934,000
6,955,200
(21,200 ) (0.3 )%


~~(a)~~	Specialty products include dental, vision, voluntary benefit products and other supplemental health and financial protection products. Members included in these products may not be unique to each product since members have the ability to enroll in multiple products.

(a)We provide a full range of insured specialty products including dental, vision, and life insurance benefits marketed to individuals and groups. Members included in these products may not be unique to each product since members have the ability to enroll in a medical product and one or more specialty products.



																									Change
	For the three months ended September 30,						Change						Three months ended September 30,						Nine months ended September 30,						Three months ended September 30, 2022 vs 2021				Nine months ended September 30, 2022 vs 2021
	2017			2016			Dollars			Percentage			2022			2021			2022			2021			$		%		$		%
	(in millions)												($ in millions)
Premiums and Services Revenue:												Premiums and Services Revenue:
Premiums:												Premiums:
Fully-insured commercial group	$	1,370		$	1,350		$	20		1.5	%	Fully-insured commercial group	$	912		$	1,052		$	2,827		$	3,229		$	(140)	(13.3)	%	$	(402)	(12.4)	%
Group specialty	331			318			13			4.1	%	Group specialty	425			432			1,281			1,298			(7)		(1.6)	%	(17)		(1.3)	%
Military services	—			2			(2		)	(100.0	)%
Total premiums	1,701			1,670			31			1.9	%	Total premiums	1,337			1,484			4,108			4,527			(147)		(9.9)	%	(419)		(9.3)	%
Services	140			147			(7		)	(4.8	)%	Services	197			198			588			582			(1)		(0.5)	%	6		1.0	%
Total premiums and services revenue	$	1,841		$	1,817		$	24		1.3	%	Total premiums and services revenue	$	1,534		$	1,682		$	4,696		$	5,109		$	(148)	(8.8)	%	$	(413)	(8.1)	%
Income before income taxes	$	93		$	37		$	56		151.4	%
Segment earnings (loss)												Segment earnings (loss)	$	49		$	(28)		$	282		$	186		$	77	275.0	%	$	96	51.6	%
Benefit ratio	79.6		%	81.0		%				(1.4	)%	Benefit ratio	78.7		%	86.4		%	76.5		%	81.2		%			(7.7)	%			(4.7)	%
Operating cost ratio	20.9		%	23.1		%				(2.2	)%	Operating cost ratio	27.6		%	24.9		%	26.5		%	23.9		%			2.7	%			2.6	%

For the nine months ended
September 30, Change
2017 2016 Dollars Percentage
(in millions)
Premiums and Services Revenue:
Premiums:
Fully-insured commercial group $ 4,098
$ 4,044
$ 54
1.3 %
Group specialty 976
957
19
2.0 %
Military services —
12
(12 ) (100.0 )%
Total premiums 5,074
5,013
61
1.2 %
Services 444
500
(56 ) (11.2 )%
Total premiums and services revenue $ 5,518
$ 5,513
$ 5
0.1 %
Income before income taxes $ 365
$ 333
$ 32
9.6 %
Benefit ratio 77.9 % 77.3 % 0.6 %
Operating cost ratio 21.3 % 23.1 % (1.8 )%

~~Pretax Results~~Segment Earnings

Group and Specialty segment ~~pretax income was $93~~earnings increased $77 million, or 275.0%, from a $28 million loss in the 2021 quarter to $49 million in earnings in the 2022 quarter and increased $96 million, or 51.6%, from $186 million in the ~~2017 quarter, an increase of $56 million, or 151.4%, from $37~~2021 period to $282 million in the ~~2016 quarter. This increase~~2022 period primarily ~~reflects~~due to the ~~impact of higher pretax earnings associated with our fully-insured commercial medical products. The Group and Specialty segment pretax income was $365 million in~~same factors impacting the 2017 period, an increase of $32 million from $333 million in the 2016 period. The increase primarily reflects the impact of higher pretax earnings associated with our fully-insured commercial medical products,segment's lower benefit ratio partially offset by the ~~impact of~~same factors impacting the ~~timing of revenues under our TRICARE contract primarily relating to medical cost trend incentives and amounts for additional services requested under the contract.~~segment's higher operating ratio as more fully described below.

Enrollment

Fully-insured commercial group medical membership decreased ~~32,700~~115,500 members, or ~~2.9%~~16.7%, from September 30, ~~2016~~2021 to September 30, ~~2017~~2022 reflecting ~~lower membership in small group accounts due in part~~the impact of pricing discipline to ~~more small group accounts selecting ASO products in 2017.~~address COVID-19 and improve profitability.

Group ASO commercial medical membership decreased ~~124,600~~57,900 members, or ~~21.8%~~11.7%, from September 30, ~~2016~~2021 to September 30, ~~2017~~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 73,800 members, or 1.2%, from September 30, 2021 to September 30, 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 103,000 members, or 1.9%, from September 30, 2021 to September 30, 2022 primarily due to the loss of ~~certain large~~dental and vision groups cross-sold with medical, as reflected in the loss of group ~~accounts as a result~~fully-insured commercial medical membership above. In addition, current membership reflects the economic impact of ~~continued discipline in pricing of services for self-funded accounts amid a highly competitive environment, partially offset by more small group accounts selecting ASO products in 2017.~~

Specialty membership decreased 21,200 members, or 0.3%, from September 30, 2016 to September 30, 2017 primarily due to declines in other supplemental benefits membership, as well as a decline in dental ASO membership due to terminations of several large group accounts. Other supplemental benefits include life, disability, and fixed benefit products including cancer and critical illness policies.the COVID-19 pandemic.

Premiums Revenue

Group and Specialty segment premiums ~~increased $31~~revenue decreased $147 million, or ~~1.9%~~9.9%, from $1.5 billion in the ~~2016~~2021 quarter to ~~$1.7~~$1.3 billion ~~for~~in the ~~2017~~2022 quarter and ~~increased $61~~decreased $419 million, or ~~1.2%~~9.3%, from $4.5 billion in the ~~2016~~2021 period to ~~$5.1~~$4.1 billion ~~for~~in the ~~2017 period. These increases~~2022 period primarily ~~were~~ due to ~~an increase~~the decline in ~~group~~our fully-insured commercial medical ~~per-member premiums,~~and ASO commercial membership, partially offset by ~~a decline in average group~~higher per member premiums across the fully-insured commercial ~~medical membership.~~

business.

Services Revenue

Group and Specialty segment services revenue ~~was relatively unchanged for the 2017 quarter, decreasing $7~~decreased $1 million, or ~~4.8%~~0.5%, from $198 million in the ~~2016 quarter. The Group~~2021 quarter to $197 million in the 2022 quarter and ~~Specialty segment service revenue decreased $56~~increased $6 million, or ~~11.2%~~1.0%, from $582 million in the ~~2016~~2021 period to ~~$444~~$588 million ~~for~~in the ~~2017 period, primarily due to a decline in revenue in our group ASO commercial medical business mainly due to membership declines as well as due to the timing of revenue under our TRICARE contract.~~2022 period.

Benefits Expense

The Group and Specialty segment benefit ratio decreased ~~140~~770 basis points from ~~81.0%~~86.4% in the ~~2016~~2021 quarter to ~~79.6%~~78.7% in the ~~2017~~2022 quarter ~~primarily reflecting favorable utilization~~and decreased 470 basis points from 81.2% in the ~~fully-insured commercial~~2021 period to 76.5% in the 2022 period primarily due to the impact of the specialty product's lower benefit ratio, as the segment results now reflect a higher mix of the specialty business, pricing and benefit design efforts to address COVID-19 and increase profitability, a less severe COVID-19 impact in the 2022 period compared to the elevated impact in the 2021 period, including the Delta variant in the 2021 quarter, and the enrolled population's higher vaccination rate in 2022 compared to 2021. These factors were partially offset by lower prior-period medical ~~business~~claims reserve development.

The Group and ~~higher favorable~~Specialty segment's benefits expense included $5 million of unfavorable prior-period medical claims reserve development in the 2022 quarter and $5 million of unfavorable prior-period medical claims reserve development ~~partially offset by the impact of the temporary suspension of the health insurance industry fee for calendar year 2017 which was contemplated~~ in the ~~pricing of our products.~~ 2021 quarter. The Group and Specialty segment benefit ratio increased 60 basis points from 77.3% in the 2016 period to 77.9% in the 2017 period primarily due to the impact of the temporary suspension of the health insurance industry fee for calendar year 2017 which was contemplated in the pricing of our products, partially offset by lower utilization for the fully-insured commercial medical business in the 2017 period.

~~The Group and Specialty segment~~segment's benefits expense included ~~$13~~$25 million inof favorable prior-period medical claims reserve development in the ~~2017 quarter versus~~2022 period and $95 million of favorable prior-period medical claims reserve development ~~of $3 million~~ in the ~~2016~~2021 period. Prior-period medical claims reserve development increased the Group and Specialty segment benefit ratio by approximately 40 basis points in the 2022 quarter and increased the Group Specialty segment benefit ratio by approximately 30 basis points in the 2021 quarter. ~~This favorable prior-period~~Prior-period medical claims reserve development decreased the Group and Specialty segment benefit ratio by approximately 8060 basis points in the ~~2017 quarter~~2022 period and decreased the benefit ratio by 20 basis points in the 2016 quarter. The Group and Specialty segment’s benefits expense included the beneficial effect of a favorable prior-period medical claims reserve development of $44 million in the 2017 period versus $41 million in the 2016 period. This favorable prior-period medical claims reserve development decreased the Group and Specialty segment benefit ratio by approximately 90210 basis points in the ~~2017 period and 80 basis points in the 2016~~2021 period.

Operating Costs

The Group and Specialty segment operating cost ratio ~~of 20.9% for the 2017 quarter decreased 220~~increased 270 basis points from ~~23.1%~~24.9% for the ~~2016 quarter. For~~2021 quarter to 27.6% for the ~~2017 period, the Group~~2022 quarter and ~~Specialty segment operating cost ratio of 21.3% decreased 180~~increased 260 basis points from 23.1% for the 2016 period. These decreases primarily were due to the temporary suspension of the health insurance industry fee for calendar year 2017 as well as operating cost efficiencies, partially offset by an increase in employee compensation costs resulting from the continued strong performance. The non-deductible health insurance industry fee impacted the operating cost ratio by 150 basis points in both the 2016 quarter and period.

~~Healthcare Services Segment~~

For the three months ended September 30, Change
2017 2016 Dollars Percentage
(in millions)
Revenues:
Services:
Clinical care services $ 39
$ 50
$ (11 ) (22.0 )%
Pharmacy solutions 20
8
12
150.0 %
Provider services 21
19
2
10.5 %
Total services revenues 80
77
3
3.9 %
Intersegment revenues:
Pharmacy solutions 5,246
5,562
(316 ) (5.7 )%
Provider services 392
418
(26 ) (6.2 )%
Clinical care services 273

341

(68 )
(19.9 )%
Total intersegment revenues 5,911
6,321
(410 ) (6.5 )%
Total services and intersegment revenues $ 5,991
$ 6,398
$ (407 ) (6.4 )%
Income before income taxes $ 240
$ 297
$ (57 ) (19.2 )%
Operating cost ratio 95.6 % 94.9 % 0.7 %

For the nine months ended
September 30, Change
2017 2016 Dollars Percentage
(in millions)
Revenues:
Services:
Clinical care services $ 135
$ 157
$ (22 ) (14.0 )%
Pharmacy solutions 58
22
36
163.6 %
Provider services 58
58
—
— %
Total services revenues 251
237
14
5.9 %
Intersegment revenues:

Pharmacy solutions 15,581
16,404
(823 ) (5.0 )%
Provider services 1,207
1,263
(56 ) (4.4 )%
Clinical care services 876
998
(122 ) (12.2 )%
Total intersegment revenues 17,664
18,665
(1,001 ) (5.4 )%
Total services and intersegment revenues $ 17,915
$ 18,902
$ (987 ) (5.2 )%
Income before income taxes $ 754
$ 828
$ (74 ) (8.9 )%
Operating cost ratio 95.4 % 95.2 % 0.2 %

~~Pretax Results~~

~~Healthcare Services segment pretax income of $240 million for the 2017 quarter decreased by $57 million, or 19.2%, from $297 million~~23.9% in the ~~2016 quarter. For the 2017~~2021 period ~~the Healthcare Services segment pretax income of $754 million decreased $74 million, or 8.9%, from $828 million~~to 26.5% in the ~~2016 period. These decreases~~ 2022 periodprimarily ~~were~~ due to the impact of membership declining at a greater rate than the ~~optimization process~~decline in absolute administrative expenses, as well as a greater proportion of membership associated with our ~~chronic care management~~

~~programs~~ASO commercial, Military services, and ~~increases in the~~specialty businesses, each of 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 ~~both~~ the ~~2017 quarter and period,~~next generation of the United States Department of Defense's TRICARE contracts, as well as ~~pressures~~investments in ~~our provider~~the specialty business to promote growth.

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Healthcare Services Segment




													Change
	Three months ended September 30,						Nine months ended September 30,						Three months ended September 30, 2022 vs 2021				Nine months ended September 30, 2022 vs 2021
	2022			2021			2022			2021			$		%		$		%
	($ in millions)
Revenues:
Services:


Home solutions	$	519		$	374		$	1,997		$	423		$	145	38.8	%	$	1,574	372.1	%
Pharmacy solutions	274			163			754			482			111		68.1	%	272		56.4	%
Provider services	159			110			409			298			49		44.5	%	111		37.2	%
Total services revenue	952			647			3,160			1,203			305		47.1	%	1,957		162.7	%
Intersegment revenues:


Home solutions	223			191			639			452			32		16.8	%	187		41.4	%
Pharmacy solutions	6,966			6,569			20,464			19,244			397		6.0	%	1,220		6.3	%
Provider services	736			630			2,261			1,858			106		16.8	%	403		21.7	%
Total intersegment revenues	7,925			7,390			23,364			21,554			535		7.2	%	1,810		8.4	%
Total services and intersegment revenues	$	8,877		$	8,037		$	26,524		$	22,757		$	840	10.5	%	$	3,767	16.6	%
Segment earnings	$	630		$	373		$	1,513		$	953		$	257	68.9	%	$	560	58.8	%
Operating cost ratio	95.0		%	95.0		%	94.6		%	95.6		%			—	%			(1.0)	%

Segment Earnings

Healthcare Services segment earnings increased $257 million, or 68.9%, from $373 million in the 2021 quarter to $630 million in the 2022 quarter and increased $560 million, or 58.8%, from $953 million in the 2021 period to $1.5 billion in the 2022 periodprimarily due to the same factors impacting the increase in services ~~business reflecting lower Medicare rates year-over-year in geographies where our provider assets are primarily located for the 2017 period. The reductions in pharmacy solutions~~revenue and intersegment revenues ~~were offset by similar reductions~~as well as the same factors impacting the segment's lower operating cost ratio in ~~operating costs associated with~~ the ~~pharmacy solutions business.~~2022 period as more fully described below.

Script Volume

Humana Pharmacy Solutions script volumes on an adjusted 30-day equivalent basis ~~for Retail, Group and Specialty, and Individual Commercial segment membership~~ increased to approximately ~~108~~134 million in the ~~2017~~2022 quarter, up ~~1.2%~~3.1%, versus scripts of approximately ~~107~~130 million in the ~~2016 quarter. For the 2017 period, script volumes for Retail, Group~~2021 quarter and ~~Specialty, and Individual Commercial segment membership~~ increased to approximately ~~323~~398 million in the 2022 period, up ~~2.1%~~3.7%, versus scripts of approximately ~~316~~384 million in the ~~2016 period. These increases~~2021 period primarily ~~reflected~~due to individual Medicare Advantage membership growth ~~associated with~~and higher ~~Medicare membership for the 2017 quarter and 2017 period compared to the 2016 quarter and 2016 period, partially~~utilization in PDP offset by the decline in ~~Individual Commercial~~fully-insured commercial and ASO membership.

Services ~~Revenues~~Revenue

Services ~~revenues~~revenue increased $3$305 million, or ~~3.9%~~47.1%, from $647 million in the ~~2016~~2021 quarter to ~~$80~~$952 million ~~for~~in the ~~2017~~2022 quarter and increased ~~$14 million,~~$2.0 billion, or ~~5.9%~~162.7%, from $1.2 billion in the ~~2016~~2021 period to ~~$251 million for~~$3.2 billion in the ~~2017~~2022 periodprimarily due to ~~service revenue growth from our pharmacy~~the impact of home solutions ~~business.~~revenues which reflects the acquisition of the remaining 60% interest in KAH during August 2021 partially offset by the divestiture of the 60% ownership of KAH Hospice during August 2022.

Intersegment Revenues

Intersegment revenues ~~decreased $410~~increased $535 million, or ~~6.5%~~7.2%, from $7.4 billion in the ~~2016~~2021 quarter to ~~$5.9~~$7.9 billion ~~for~~in the ~~2017~~2022 quarter and ~~decreased $1.0~~increased $1.8 billion, or ~~5.4%~~8.4%, from $21.6 billion in the ~~2016~~2021 period to ~~$17.7~~$23.4 billion ~~for~~in the ~~2017~~

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2022 period primarily due to ~~our~~individual Medicare Advantage and state-based contracts membership growth leading to higher pharmacy ~~solutions business~~revenues, the impact of greater mail-order pharmacy penetration, as well as ~~the result of the optimization process associated~~higher revenues associated with ~~our chronic care management programs discussed previously, as well as ongoing pressures~~growth in our provider services business reflecting lower Medicare rates year-over-year in geographies where our provider assets are primarily located. Our pharmacy solutions business revenues were impacted by improvements in net pharmacy costs driven by our pharmacy benefit manager and an increase in the generic dispensing rate. These items were partially offset by higher year-over-year script volume from growth in our Medicare Advantage and stand-alone PDP membership, partially offset by the impact of lower Individual Commercial membership. Our generic dispensing rate improved to 91.2% and 91.3% during the 2017 quarter and 2017 period, respectively, compared to 90.4% and 90.3% during the 2016 quarter and 2016 period, respectively. The higher generic dispensing rate reduced revenues (and operating costs) for our pharmacy solutions business as generic drugs are generally priced lower than branded drugs.business.

Operating Costs

The Healthcare Services segment operating cost ratio ofwas unchanged at 95.0% for the 2021 quarter and the 2022 quarter and decreased 100 basis points from 95.6% for the ~~2017 quarter increased 70 basis points from 94.9%~~2021 period to 94.6% for the 2016 quarter primarily due to the timing of the optimization process associated with our chronic conditions management programs and the increase in employee compensation costs resulting from the continued strong performance. As we optimize our chronic care management programs, operating cost reductions may lag the associated reduction in revenue, negatively impacting the operating cost ratio. For the 2017 period, the Healthcare Services segment operating cost ratio was relatively unchanged from the 2016 period.

~~Individual Commercial Segment~~

~~As announced on February 14, 2017, we are exiting our Individual Commercial medical business commencing January 1, 2018.~~

Individual Commercial segment pretax income of $26 million for the 2017 quarter increased $24 million from the 2016 quarter, primarily due to the exit of certain markets in 2017, and per-member premium increases. For the 2017 period, the Individual Commercial segment pretax income of $207 million increased $442 million from the 20162022 period primarily due to the ~~same factors impacting~~consolidation of KAH operations for the ~~quarter in addition~~entire 2022 period compared to the ~~$208 million increase in the premium deficiency reserve recorded in the second quarter of 2016 related~~partial 2021 period due to ~~certain of our 2016 policies.~~

Individual commercial medical membership decreased 583,400 members, or 80.3%, from September 30, 2016 to September 30, 2017 reflecting the decline in the number of counties we offered on-exchange coverage and the discontinuance of offering off-exchange products.

The benefit ratio for the Individual Commercial segment was 65.6% and 51.6% for the 2017 quarter and 2017 period, respectively, a significant decrease from 82.4% and 90.9% for the 2016 quarter and 2016 period, respectively. The year-over-year declines primarily resulted from the impact from planned exits in 2017 in certain markets that carried a higher benefit ratio, and per-member premium increases. The 2017 period was also impacted by the effecttiming of the ~~$208 million increase in the 2016 premium deficiency reserve recorded in the second quarter of 2016 related to certain of our 2016 policies.~~

previously disclosed transaction. The KAH operations have a lower operating cost ratio ~~for~~than other businesses within the ~~Individual Commercial segment was 21.9%~~segment. The decrease further reflects favorability in the 2017 quarter, an increase of 560 basis points from 16.3% in the 2016 quarter. The Individual Commercial segment operating cost ratio of 20.0% for the 2017 period increased 340 basis points from 16.6% in the 2016 period. These increases are primarily due to the loss of scale efficiency from market exits in 2017our pharmacy operations partially offset by investments in KAH to abate the ~~temporary suspension~~pressures of the ~~health insurance industry fee for calendar year 2017.~~current nursing labor environment.

Liquidity

~~Our~~Historically, our primary sources of cash ~~include~~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, ~~borrowings,~~ and ~~proceeds from sales of businesses.~~borrowings. Our primary uses of cash ~~include~~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~~As 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 ~~operating~~ 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 ~~operating~~ 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).

The effect of the commercial risk adjustment, risk corridor, and reinsurance provisions of the Health Care Reform Law impact the timing of our operating cash flows, as we build receivables for each coverage year that are expected to be collected in subsequent coverage years. During the nine months ended September 30, 2017, net collections under the 3Rs associated with prior coverage years were $307 million compared to $319 million during the nine months ended September 30, 2016. The remaining net receivable balance associated with the 3Rs was approximately $173 million at September 30, 2017, including $171 million related to prior coverage years, compared to $456 million at December 31, 2016, neither of which includes any risk corridor receivable. Amounts associated with prior coverage years of $171 million are expected to be collected during the fourth quarter of 2017 and first quarter of 2018. The remaining net receivable balance is primarily related to our Individual Commercial medical business which we are exiting commencing January 1, 2018. Any amounts receivable or payable associated with these risk limiting programs may have an impact on subsidiary liquidity, with any temporary shortfalls funded by the parent company.

For additional information onregarding our liquidity risk, ~~please~~ refer to ~~the section entitled “Risk Factors”~~Part I, Item 1A, "Risk Factors" in our ~~2016~~2021 Form ~~10-K.~~10-K and Part II, Item 1A, "Risk Factors" of this Form 10-Q.

Cash and cash equivalents increased to approximately ~~$9.9~~$13.6 billion at September 30, ~~2017~~2022 from ~~$3.9~~$3.4 billion at December 31, ~~2016.~~2021. The change in cash and cash equivalents for the nine months ended September 30, ~~2017~~2022 and ~~2016~~2021 is summarized as follows:


	Nine Months Ended							Nine Months Ended
	2017			2016				2022		2021
	(in millions)							(in millions)
Net cash provided by operating activities	$	6,962		$	4,709		Net cash provided by operating activities	$	9,714	$	2,358
Net cash used in investing activities	(1,776		)	(534		)
Net cash provided by (used in) investing activities							Net cash provided by (used in) investing activities	6		(6,454)
Net cash provided by financing activities	802			23			Net cash provided by financing activities	444		3,727
Increase in cash and cash equivalents	$	5,988		$	4,198
Increase (decrease) in cash and cash equivalents							Increase (decrease) in cash and cash equivalents	$	10,164	$	(369)

Cash Flow from Operating Activities

Cash flows provided by operations of $9.7 billion in the 2022 period increased $7.4 billion from cash flows provided by operations of $2.4 billion in the 2021 period. Our operating cash flows for the ~~2017~~2022 period ~~were~~was significantly impacted ~~by the receipt of the $1 billion Merger break-up fee, net of related expenses and the portion of taxes paid to date, and~~ by the early receipt of the Medicare premium remittance ~~for October 2017~~ of ~~$3.1~~$5.8 billion in September ~~2017, as well as for October 2016 of $3.0 billion in September 2016,~~2022 because the payment ~~dates of~~date for October ~~1, 2017 and October 1, 2016~~2022 fell on a weekend. Generally, when the first day of a month falls on a weekend or holiday, with the exception of January 1 (New Year's Day), we receive this payment at the end of the previous month. This also resulted in an increase to unearned revenues in our condensed consolidated balance sheet

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at September 30, ~~2017. Excluding the Merger termination fee and the timing of the Medicare premium remittances, our~~2022. Our operating cash flows for the 2022 period were positively impacted by higher earnings, exclusive of the gain on the sale of KAH Hospice recognized in the 2022 period and the ~~timing~~gain on the KAH equity method investment recognized in the 2021 period, combined with the 2021 period impact associated with the pay down of ~~working capital items.~~claims inventory and capitation for provider surplus amounts earned in 2020 and additional provider support.

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~~Benefits expense includes claim payments, capitation payments, pharmacy costs net of rebates, allocations of certain centralized expenses and various other costs incurred to provide health insurance coverage to members, as well as estimates of future payments to hospitals and others for medical care and other supplemental benefits provided on or prior to the ~~following summaries of~~balance sheet date. For additional information regarding our benefits payable and ~~receivables.~~

~~The detail of~~ benefits ~~payable was as follows at September 30, 2017~~expense recognition, refer to Note 2 to the audited Consolidated Financial Statements included in Part II, Item 8, "Financial Statements and ~~December 31, 2016:~~

September 30, 2017 December 31, 2016 2017
Period
Change 2016
Period
Change
(in millions)
IBNR (1) $ 3,308
$ 3,422
$ (114 ) $ (104 )
Reported claims in process (2) 698
654
44
22
Premium deficiency reserve (3) —
—
—
30
Other benefits payable (4) 953
487
466
125
Total benefits payable $ 4,959
$ 4,563
$ 396
$ 73

~~(1)~~

IBNR represents an estimate of benefits payable for claims incurred but not reported (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)~~	~~Premium deficiency reserve for our Individual Commercial medical business compliant with the Health Care Reform Law associated with the 2016 coverage year.~~


~~(4)~~	~~Other benefits payable primarily include amounts owed to providers under capitated and risk sharing arrangements.~~

~~The increase~~Supplementary Data" in benefits payable from December 31, 2016 to September 30, 2017 primarily was due to an increase in the amounts owed to providers under the capitated and risk sharing arrangements. This was partially offset by a decrease in IBNR primarily driven by declines in individual commercial medical membership in the 2017 period, partially offset by an increase in group Medicare Advantage membership. The increase in benefits payable from December 31, 2015 to September 30, 2016 largely was due to an increase in the amounts owed to providers under the capitated and risk sharing arrangements, an increase in the premium deficiency reserve associated with our individual commercial medical products, and an increase in the amount of processed but unpaid claims, which fluctuate due to month-end cutoff. These items were partially offset by a decrease in IBNR primarily driven by declines in group Medicare Advantage and individual commercial medical membership in the 2016 period, partially offset by an increase in individual Medicare Advantage membership.2021 Form 10-K.

The detail of total net receivables ~~was as follows~~ at September 30, ~~2017~~2022 and December 31, ~~2016:~~2021 and reconciliation to cash flow for the nine months ended September 30, 2022 and 2021 was as follows:


	September 30, 2022		December 31, 2021		2022 Period Change		2021 Period Change
	(in millions)
Medicare	$	1,218	$	1,214	$	4	$	254
Commercial and other	354		579		(225)		490
Military services	108		104		4		7
Allowances	(71)		(83)		12		(10)
Total net receivables	$	1,609	$	1,814	$	(205)	$	741
Reconciliation to cash flow statement:
Receivables from acquisition					—		(447)
Receivables disposed					194
Change in receivables per cash flow statement					$	(11)	$	294

September 30, 2017 December 31, 2016 2017
Period
Change 2016
Period
Change
(in millions)
Medicare $ 494
$ 787
$ (293 ) $ (259 )
Commercial and other 441
579
(138 ) (100 )
Military services 76
32
44
(27 )
Allowance for doubtful accounts (89 ) (118 ) 29
(10 )
Total net receivables $ 922
$ 1,280
$ (358 ) $ (396 )

The changes in Medicare receivables for both the ~~2017~~2022 period and the ~~2016~~2021 period 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.

~~Many provisions~~ We received the 2022 mid-year settlement of approximately $2.0 billion in July 2022. The decrease in Commercial and other receivables and the Health Care Reform Law became effective in 2014, including the commercial risk adjustment, risk corridor, and reinsurance provisions as well as the non-deductible health insurance industry fee. As discussed previously, the timing of payments and receipts associated with these provisions impact our operating cash flows as we build receivablesallowance for ~~each coverage year that are expected to be collected in subsequent coverage years. During the 2017 period, we received net collections of $307 million~~doubtful accounts for the ~~commercial 3Rs associated with prior coverage years as compared~~2022 period primarily relates to ~~net collections of $319 million~~the KAH Hospice disposition. The increase in Commercial and other receivables and the allowance for doubtful accounts for the 2021 period primarily relates to the Kindred at Home acquisition in the ~~2016~~2021 period. The net receivable balance associated with the 3Rs was approximately $173 million at September 30, 2017 and $456 million at December 31, 2016, including certain amounts recorded in receivables in the table above. In 2017, we will not pay the federal government for the annual health insurance industry fee due to the temporary one year suspension as compared to our payment of $916 million in the third quarter of 2016. The Consolidated Appropriations Act, 2016, enacted on December 18, 2015, included a one-time one year suspension in 2017 of the health insurer fee.

Cash Flow from Investing Activities

~~We reinvested~~During the 2022 period, we acquired various businesses totaling to approximately $293 million, net of cash and cash equivalents received.

During the 2021 period, we acquired KAH and other various health and wellness related businesses for cash consideration of approximately $4.0 billion, net of cash received.

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During the 2022 period, we completed the sale of a ~~portion~~60% interest of ~~our operating~~KAH Hospice to CD&R for cash ~~flows in investment securities, primarily investment-grade fixed income securities, totaling $1.4~~proceeds of approximately $2.7 billion, net of cash disposed, including debt repayments from KAH Hospice to Humana of $1.9 billion. In connection with the sale we recognized a pre-tax gain, net of transaction costs, of $240 million which is reported as a gain on sale of KAH Hospice in the ~~2017 period~~accompanying condensed consolidated statements of income for the three and ~~$132 million in the 2016 period.~~nine months ended September 30, 2022.

Our ongoing capital expenditures primarily relate to our information technology initiatives, ~~as well as~~ 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 ~~$376~~$862 million in the ~~2017~~2022 period and ~~$395~~$945 million in the ~~2016~~2021 period.

Net purchases of investment securities were $1.5 billion in the 2022 period and net purchases of investment securities were $1.6 billion in the 2021 period.

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 ~~claims~~claim payments by ~~$1.9~~$3.7 billion ~~during~~and $624 million in the ~~2017 period~~2022 and higher than claims payments by $404 million during the 2016 period. Our net payable for CMS subsidies and brand name prescription drug discounts was $1.1 billion at September 30, 2017 compared to a net receivable of $1.6 billion at September 30, 2016 and $873 million at December 31, 2016. Refer to Note 6 to the condensed consolidated financial statements included in this report.2021 periods, respectively.

Under our administrative services only TRICARE ~~South Region contract,~~contracts, reimbursements from the federal government exceeded health care ~~cost~~costs payments for which we do not assume risk by ~~$22~~$60 million in the ~~2017~~2022 period and ~~by $8 million in the 2016 period.~~

~~Claims~~health care costs payments ~~associated with cost sharing provisions of the Health Care Reform Law~~ for which we do not assume risk ~~were~~ ~~$41 million higher than~~exceeded reimbursements from ~~HHS~~the federal government by $19 million in the 2021 period.

On August 16, 2022, we repaid the $2.0 billion October 2021 Term Loan Agreement without a prepayment penalty due.

In August 2021, we borrowed $500 million under the delayed draw term loan agreement and repaid $150 million of term loan borrowings.

Net repayments from the issuance of commercial paper were $660 million in the 2022 period and net proceeds from the issuance of commercial paper were $193 million in the 2021 period. The maximum principal amount outstanding at any one time during the ~~2017~~2022 period 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 ~~$62 million higher than reimbursements from HHS during~~commissions paid, were $744 million.

On January 11, 2022, we entered into the ~~2016 period.~~

~~Under a share~~January 2022 ASR Agreements with Mizuho and Wells Fargo to repurchase ~~plan~~$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, we ~~repurchased 7.63~~made a payment of $1 billion and received an initial delivery of 2.2 million shares for $1.7 billion in the 2017 period, including $1.5 billion under the February 2017 accelerated stock repurchase plan. There were no share repurchases under share repurchase plans authorized by the Board of ~~Directors in the 2016 period due to the restrictions of the Merger Agreement.~~ our common stock.

We ~~also~~ acquired common shares in connection with employee stock plans for an aggregate cost of ~~$79~~$32 million in the ~~2017~~2022 period and ~~$75~~$36 million in the ~~2016~~2021 period.

In March 2017, we issued $600 million of 3.95% senior notes due March 15, 2027 and $400 million of 4.80% senior notes due March 15, 2047. Our net proceeds, reduced for the underwriters' discount and commission and offering expenses paid as of March 31, 2017, were $991 million. We intend to use the net proceeds for general corporate purposes.

Net repayments of commercial paper were $153 million in the 2017 period and $1 million in the 2016 period. The maximum principal amount outstanding at any one time during the 2017 period was $500 million.

We paid dividends to stockholders of ~~$162~~$291 million during the ~~2017~~2022 period and ~~$133~~$263 million during the ~~2016 period, as discussed further below.~~2021 period.

The remainder of the cash used in or provided by financing activities in 2022 and 2021 primarily resulted from the change in book overdraft.

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Future Sources and Uses of Liquidity

Dividends

For ~~a detailed discussion of~~additional information regarding our dividends to stockholders, ~~please~~ refer to Note 1110 to the ~~condensed consolidated financial statements.~~unaudited Consolidated Financial Statements included in Part I, Item 1, "Financial Statements" of this Form 10-Q.

Stock Repurchases

For ~~a detailed discussion of~~additional information regarding stock repurchases, ~~please~~ refer to Note 1110 to the ~~condensed consolidated financial statements.~~unaudited Consolidated Financial Statements included in Part I, Item 1, "Financial Statements" of this Form 10-Q.

Debt

For ~~a detailed discussion of our~~additional information regarding debt, including our senior notes, term loans, revolving credit ~~agreement and~~agreements, commercial paper program ~~please~~and other short-term borrowings, refer to Note 1312 to the unaudited Consolidated Financial Statements included in Part I, Item 1, "Financial Statements" of this Form 10-Q.

Divestiture

On August 11, 2022, we completed the sale of a 60% interest of KAH Hospice to CD&R for cash proceeds of approximately $2.7 billion, net of cash received, including debt repayments from KAH Hospice to Humana of $1.9 billion. In connection with the sale we recognized a pre-tax gain, net of transaction costs, of $240 million which is reported as a gain on sale of KAH Hospice in the accompanying condensed consolidated ~~financial statements.~~statements of income for the three and nine months ended September 30, 2022.

~~Divestitures~~

~~On November 6, 2017, we entered into a definitive agreement~~For additional information regarding the divestiture, refer to sell the stock of our wholly-owned subsidiary, KMG America Corporation, or KMG, to Continental General Insurance Company, or CGIC, a Texas-based insurance company wholly owned by HC2 Holdings, Inc., a diversified holding company. KMG’s subsidiary, Kanawha Insurance Company, or KIC, includes our closed block of non-strategic commercial long-term care insurance policies. We will fund the transaction with approximately $203 million of parent company cash contributed into KMG, subject to customary adjustments, in additionNote 3 to the ~~transfer~~unaudited Consolidated Financial Statements included in Part I, Item 1, "Financial Statements" of ~~approximately $150 million of statutory capital with the sale.~~

this Form 10-Q.

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 September 30, ~~2017~~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 ~~$750~~$250 million of our senior notes. Successive one notch downgrades increase the interest rate an additional 25 basis points, or annual interest expense by $2less than $1 million, up to a maximum 100 basis points, or annual interest expense by $8$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 ~~$2.3~~$1.2 billion at September 30, ~~2017~~2022 compared to ~~$2.0~~$1.3 billion at December 31, ~~2016.~~2021. This ~~increase~~decrease primarily ~~reflects~~was due to the ~~receipt of $1.4 billion of subsidiary dividends, the receipt~~repayment of the ~~Merger termination fee, net~~October 2021 Term Loan Agreement, common stock repurchases, capital expenditures, repayment of ~~related expenses,~~borrowings under the commercial paper program, cash dividends to shareholders, capital contributions to certain subsidiaries and ~~the net proceeds associated with the issuance of senior notes in March 2017,~~acquisitions, partially offset by net proceeds from the ~~payment~~senior notes, proceeds from the sale of ~~$1.7 billion for~~investment securities as well as earnings and cash proceeds from the sale of KAH Hospice within our ~~share repurchase program, the capital contribution of $535 million to our long-term care subsidiary, as described below, dividends, capital expenditures and other insignificant items.~~ non-regulated Healthcare Services subsidiaries.Our use of operating cash derived from our non-insurance

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subsidiaries, such as our Healthcare Services segment, is generally not restricted by departments of insurance (or comparable state ~~regulator)~~regulators).

Our parent company funded a subsidiary capital contribution of approximately $535 million in the first quarter of 2017 for reserve strengthening associated with our closed block of long-term care insurance policies.

The annual health insurance industry fee has been suspended for calendar year 2017, but is scheduled to resume in calendar year 2018. In September 2016, we paid the federal government $916 million for our portion of the annual health insurance industry fee attributed to calendar year 2016 in accordance with the Health Care Reform Law. This fee is not deductible for tax purposes. Each year on January 1, except for 2017, we record a liability for this fee in trade accounts payable and accrued expenses which we carry until the fee is paid. We record a corresponding deferred cost in other current assets in our condensed consolidated financial statements which is amortized ratably to expense over the calendar year. Amortization of the deferred cost resulted in operating cost expense of approximately $231 million and $687 million for the three and nine months ended September 30, 2016, respectively, resulting from the amortization of the 2016 annual health insurance industry fee.

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. ~~Actual dividends paid may vary due to consideration of excess statutory capital and surplus and expected future surplus requirements related to, for example, premium volume and product mix.~~

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 June 30, ~~2017,~~2022, our state regulated subsidiaries had aggregate statutory capital and surplus of approximately ~~$7.3~~$11.0 billion, which exceeded aggregate minimum regulatory requirements of ~~$4.8~~$7.9 billion. ~~Subsidiary dividends are subject~~The amount, timing and mix of ordinary and extraordinary dividend payments will vary due to state regulatory ~~approval,~~requirements, the ~~amount~~level of excess statutory capital and ~~timing~~surplus and expected future surplus requirements related to, for example, premium volume and product mix.

Table of which could be reduced or delayed. The amount of dividends paid to our parent company was approximately $1.4 billion during the nine months ended September 30, 2017 compared to $663 million during the nine months ended September 30, 2016.Contents

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 September 30, ~~2017.~~2022. Our net unrealized position ~~increased $198~~decreased $1,962 million from a net unrealized gain position of $57 million at December 31, 2021 to a net unrealized loss position of ~~$28 million at December 31, 2016 to a net unrealized gain position of $170~~$1,905 million at September 30, ~~2017.~~2022. At September 30, ~~2017,~~2022, we had gross unrealized losses of ~~$82~~$1,906 million on our investment portfolio primarily due to an increase in market interest rates since the time the securities were purchased. There ~~were~~were no material ~~other-than-temporary impairments during~~credit allowances during the nine months ended September 30, ~~2017.~~2022. While we believe that these ~~impairments are temporary~~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 ~~other-than-temporary impairments~~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~~2.9 years as of September 30, ~~2017~~2022 and approximately ~~4.4~~3.6 years as of December 31, ~~2016.~~2021. The decrease in the average duration is reflective of various portfolio management activities and the increased 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 ~~$700~~$794 million at September 30, ~~2017.~~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 September 30, ~~2017.~~2022.

Based on our evaluation, 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.

There have been no changes in the Company’s internal control over financial reporting during the quarter ended September 30, ~~2017~~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~~additional information regarding legal proceedings pending against us and certain other pending or threatened litigation, investigations or other matters, ~~see~~refer to “Legal Proceedings and Certain Regulatory Matters” in Note 1413 to the ~~condensed consolidated financial statements beginning on page 29~~unaudited Consolidated Financial Statements included in Part I, Item 1, "Financial Statements" of this Form 10-Q.

Item 1A. Risk Factors

There have been no changes to the risk factors included in our ~~2016~~2021 Form ~~10-K, other than as follows:~~10-K.

The divestiture of our subsidiary, KMG America Corporation, is subject to various closing conditions, including various regulatory approvals and customary closing conditions, as well as other uncertainties, and there can be no assurances as to whether and when it may be completed.

On November 6, 2017, we entered into a definitive agreement to sell the stock of our wholly-owned subsidiary, KMG America Corporation, or KMG, to Continental General Insurance Company, or CGIC, a Texas-based insurance company wholly owned by HC2 Holdings, Inc., a diversified holding company. KMG’s subsidiary, Kanawha Insurance Company, or KIC, includes our closed block of non-strategic commercial long-term care insurance policies that serves approximately 30,100 policyholders. Consummation of the divestiture involves certain risks, including, among other things, the timing to consummate the divestiture, the risk that a condition to closing of the divestiture may not be satisfied, the risk that required regulatory approvals for the divestiture are not obtained, are delayed or are subject to conditions that are not anticipated, the risk that we may not recognize all or a portion of the expected tax benefits from the divestiture, and the risk of indemnification exposure under the contractual agreements to effect the divestiture.

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 September 30, 2022:

~~Item 2:~~Period

~~Unregistered Sales~~ Total Number
of ~~Equity Securities and Use~~Shares
Purchased (1)(2)

Average
Price Paid
per Share

Total Number of ~~Proceeds~~
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)

July 2022			—						$	—					—						$	2,000,000,000
~~(a)~~August 2022			~~None.~~—

				—						—						2,000,000,000
~~(b)~~September 2022			~~N/A~~—

				—						—						2,000,000,000
~~(c)~~Total			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 September 30, 2017:—

Period Total Number
of Shares
Purchased (1)(2) Average
Price Paid
per Share (3) 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)
July 2017 —
$ —
—
$ 1,050,000,093
August 2017 953,235
253.02
953,235
721,003,128
September 2017 844,568
249.56
844,568
510,251,912
Total 1,797,803
$ 249.97
1,797,803

—

~~(1)~~

(1)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 November 1, 2022.

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(2)Excludes 73,567 shares repurchased in connection with employee stock plans.

On February 14, 2017, we announced that the Board had approved a new authorization for share repurchases of up to $2.25 billion of our common stock exclusive of shares repurchased in connection with employee stock plans, expiring on December 31, 2017. Under this new authorization, we entered into a $1.5 billion accelerated share repurchase program in the first quarter of 2017. On August 28, 2017, we completed the final settlement of our accelerated share repurchase program. Our remaining repurchase authorization was approximately $239 million as of November 3, 2017.


~~(2)~~	Includes 0.84 million shares received in August 2017 upon settlement of an accelerated repurchase program for which no cash was paid during the period and excludes 0.37 million shares repurchased in connection with employee stock plans.


~~(3)~~	Excludes the impact of the 0.84 million shares received in August 2017 upon settlement of an accelerated repurchase program which were determined by the average daily volume weighted-average share price of our common stock during the term of the ASR Agreement of $224.81.


~~Item 3:~~	~~Defaults Upon Senior Securities~~

Item 3. Defaults Upon Senior Securities

None.


~~Item 4:~~	~~Mine Safety Disclosures~~

Item 4. Mine Safety Disclosures

Not applicable.


~~Item 5:~~	~~Other Information~~

Item 5. Other Information

None.

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Item 6: Exhibits


~~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).

~~3(ii)By-Laws of Humana Inc., as amended on January 4, 2007 (incorporated herein by reference to Exhibit 3 to Humana Inc.’s Annual Report on Form 10-K for the year ended December 31, 2006).~~

12~~Computation of ratio of earnings to fixed charges.~~

~~31.1Principal Executive Officer certification pursuant to Section 302 of Sarbanes–Oxley Act of 2002.~~

~~31.2Principal Financial Officer certification pursuant to Section 302 of Sarbanes–Oxley Act of 2002.~~

32~~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.~~

3(ii)			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).
~~101~~ 31.1			Principal Executive Officer certification pursuant to Section 302 of Sarbanes–Oxley Act of 2002.
31.2			Principal Financial Officer certification pursuant to Section 302 of Sarbanes–Oxley Act of 2002.
32			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.
101			The following materials from Humana Inc.'s Quarterly Report on Form 10-Q formatted in ~~XBRL (Extensible~~iXBRL (Inline Extensible Business Reporting Language): (i) the Condensed Consolidated Balance Sheets at September 30, ~~2017~~2022 and December 31, ~~2016;~~2021; (ii) the Condensed Consolidated Statements of Income for the three and nine months ended September 30, ~~2017~~2022 and ~~2016;~~2021; (iii) the Condensed Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, ~~2017~~2022 and ~~2016;~~2021; (iv) the Consolidated Statements of Stockholders' Equity for the three and nine months ended September 30, 2022 and 2021; (v) the Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, ~~2017~~2022 and ~~2016;~~2021; and ~~(v)~~(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.
104			Cover 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:			November 2, 2022	~~HUMANA INC.~~By:	/s/ JOHN-PAUL W. FELTER
				~~(Registrant)~~	John-Paul W. Felter

~~Date:~~	~~November 8, 2017~~	~~By:~~	~~/s/ CYNTHIA H. ZIPPERLE~~
			~~Cynthia H. Zipperle~~
			Senior Vice President, Chief Accounting Officer and Controller (Principal Accounting Officer)

6558



	September 30, 2017			December 31, 2016
	(in millions, except share amounts)
ASSETS
Current assets:
Cash and cash equivalents	$	9,865		$	3,877
Investment securities	8,622			7,595
Receivables, less allowance for doubtful accounts of $89 in 2017 and $118 in 2016	922			1,280
Other current assets	3,776			3,438
Total current assets	23,185			16,190
Property and equipment, net	1,560			1,505
Long-term investment securities	2,716			2,203
Goodwill	3,281			3,272
Other long-term assets	2,214			2,226
Total assets	$	32,956		$	25,396
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Benefits payable	$	4,959		$	4,563
Trade accounts payable and accrued expenses	4,888			2,467
Book overdraft	171			212
Unearned revenues	3,447			280
Short-term debt	953			300
Total current liabilities	14,418			7,822
Long-term debt	3,977			3,792
Future policy benefits payable	2,893			2,834
Other long-term liabilities	457			263
Total liabilities	21,745			14,711
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; 198,572,158 shares issued at September 30, 2017 and 198,495,007 shares issued at December 31, 2016	33			33
Capital in excess of par value	2,641			2,562
Retained earnings	13,542			11,454
Accumulated other comprehensive income (loss)	12			(66		)
Treasury stock, at cost, 55,712,062 shares at September 30, 2017 and 49,189,811 shares at December 31, 2016	(5,017		)	(3,298		)
Total stockholders’ equity	11,211			10,685
Total liabilities and stockholders’ equity	$	32,956		$	25,396



	For the nine months ended September 30,
	2017			2016
	(in millions)
Cash flows from operating activities
Net income	$	2,264		$	1,015
Adjustments to reconcile net income to net cash provided by operating activities:
Net realized capital gains	(28		)	(65		)
Stock-based compensation	116			76
Depreciation	303			289
Other intangible amortization	54			59
(Benefit) provision for deferred income taxes	(54		)	54
Changes in operating assets and liabilities, net of effect of businesses acquired and dispositions:
Receivables	358			396
Other assets	(369		)	(419		)
Benefits payable	396			73
Other liabilities	641			127
Unearned revenues	3,167			2,987
Other, net	114			117
Net cash provided by operating activities	6,962			4,709
Cash flows from investing activities
Acquisitions, net of cash acquired	(10		)	(7		)
Purchases of property and equipment	(376		)	(395		)
Purchases of investment securities	(4,337		)	(4,533		)
Maturities of investment securities	919			1,082
Proceeds from sales of investment securities	2,028			3,319
Net cash used in investing activities	(1,776		)	(534		)
Cash flows from financing activities
Receipts from contract deposits, net	1,931			350
Proceeds from issuance of senior notes, net	985			—
Repayment of commercial paper, net	(153		)	(1		)
Change in book overdraft	(41		)	(118		)
Common stock repurchases	(1,819		)	(75		)
Dividends paid	(162		)	(133		)
Proceeds from stock option exercises and other	61			—
Net cash provided by financing activities	802			23
Increase in cash and cash equivalents	5,988			4,198
Cash and cash equivalents at beginning of period	3,877			2,571
Cash and cash equivalents at end of period	$	9,865		$	6,769
Supplemental cash flow disclosures:
Interest payments	$	124		$	102
Income tax payments, net	$	1,206		$	851



	September 30, 2017						December 31, 2016
	Risk Corridor Settlement			CMS Subsidies/ Discounts			Risk Corridor Settlement			CMS Subsidies/ Discounts
	(in millions)
Other current assets	$	9		$	1,058		$	8		$	1,001
Trade accounts payable and accrued expenses	(118		)	(2,134		)	(158		)	(128		)
Net current (liability) asset	(109		)	(1,076		)	(150		)	873
Other long-term assets	3			—			—			—
Other long-term liabilities	(180		)	—			—			—
Net long-term liability	(177		)	—			—			—
Total net (liability) asset	$	(286	)	$	(1,076	)	$	(150	)	$	873



	September 30, 2017					December 31, 2016
	Risk Adjustment Settlement			Reinsurance Recoverables		Risk Adjustment Settlement			Reinsurance Recoverables
	(in millions)
Prior Coverage Years
Premiums receivable	$	127		$	—	$	307		$	—
Other current assets	—			44		—			260
Trade accounts payable and accrued expenses	—			—		(117		)	—
Net current asset	127			44		190			260
Other long-term assets	—			—		6			—
Total prior coverage years' net asset	127			44		196			260
Current Coverage Year
Premiums receivable	30			—		—			—
Trade accounts payable and accrued expenses	(57		)	—		—			—
Net current liability	(27		)	—		—			—
Other long-term assets	29			—		—			—
Other long-term liabilities	—			—		—			—
Net long-term asset	29			—		—			—
Total 2017 coverage year net asset	2			—		—			—
Total net asset	$	129		$	44	$	196		$	260



	September 30, 2017		December 31, 2016		2017 Period Change			2016 Period Change
	(in millions)
IBNR (1)	$	3,308	$	3,422	$	(114	)	$	(104	)
Reported claims in process (2)	698		654		44			22
Premium deficiency reserve (3)	—		—		—			30
Other benefits payable (4)	953		487		466			125
Total benefits payable	$	4,959	$	4,563	$	396		$	73



Period	Total Number of Shares Purchased (1)(2)	Average Price Paid per Share (3)		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)
July 2017	—	$	—	—	$	1,050,000,093
August 2017	953,235	253.02		953,235	721,003,128
September 2017	844,568	249.56		844,568	510,251,912
Total	1,797,803	$	249.97	1,797,803