UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


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

For the quarterly period ended ~~September~~June 30, ~~2020~~2021


☐			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 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 ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated 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 ☒

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~~June 30, ~~2020~~2021
$0.16 2/3 par value			~~132,341,451~~128,504,664 shares

Table of Contents

Humana Inc.

FORM 10-Q

~~SEPTEMBER~~JUNE 30, ~~2020~~2021

INDEX


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

	Condensed Consolidated Balance Sheets at ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019~~2020	3

	Condensed Consolidated Statements of Income for the three and ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 and ~~2019~~2020	4

	Condensed Consolidated Statements of Comprehensive Income for the three and ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 and ~~2019~~2020	5

	Condensed Consolidated Statements of Stockholders' Equity for the three and ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 and ~~2019~~2020	6

	Condensed Consolidated Statements of Cash Flows for the ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 and ~~2019~~2020	8

	Notes to Condensed Consolidated Financial Statements	9

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	3533

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	5854

Item 4.	Controls and Procedures	5854

Part II: Other Information

Item 1.	Legal Proceedings	5955

Item 1A.	Risk Factors	5955

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	6055

Item 3.	Defaults Upon Senior Securities	6156

Item 4.	Mine Safety Disclosures	6156

Item 5.	Other Information	6156

Item 6.	Exhibits	6257

	Signatures	6359

	Certifications

Humana Inc.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)


		September 30, 2020		December 31, 2019			June 30, 2021		December 31, 2020
		(in millions, except share amounts)					(in millions, except share amounts)
ASSETS	ASSETS					ASSETS
Current assets:	Current assets:					Current assets:
Cash and cash equivalents	Cash and cash equivalents	$	7,985	$	4,054	Cash and cash equivalents	$	3,378	$	4,673
Investment securities	Investment securities	12,741		10,972		Investment securities	13,471		12,554
Receivables, less allowance for doubtful accounts of $78 in 2020 and $69 in 2019		1,135		1,056
Receivables, less allowance for doubtful accounts of $78 in 2021 and $72 in 2020						Receivables, less allowance for doubtful accounts of $78 in 2021 and $72 in 2020	2,438		1,138
Other current assets	Other current assets	5,170		3,806		Other current assets	6,503		5,276
Total current assets	Total current assets	27,031		19,888		Total current assets	25,790		23,641
Property and equipment, net	Property and equipment, net	2,228		1,955		Property and equipment, net	2,690		2,371
Long-term investment securities	Long-term investment securities	1,105		406		Long-term investment securities	1,182		1,212
Equity method investments	Equity method investments	1,160		1,063		Equity method investments	1,240		1,170
Goodwill	Goodwill	4,443		3,928		Goodwill	4,914		4,447
Other long-term assets	Other long-term assets	2,510		1,834		Other long-term assets	2,254		2,128
Total assets	Total assets	$	38,477	$	29,074	Total assets	$	38,070	$	34,969
LIABILITIES AND STOCKHOLDERS’ EQUITY	LIABILITIES AND STOCKHOLDERS’ EQUITY					LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:	Current liabilities:					Current liabilities:
Benefits payable	Benefits payable	$	8,208	$	6,004	Benefits payable	$	8,485	$	8,143
Trade accounts payable and accrued expenses	Trade accounts payable and accrued expenses	4,472		3,754		Trade accounts payable and accrued expenses	4,898		4,013
Book overdraft	Book overdraft	214		225		Book overdraft	236		320
Unearned revenues	Unearned revenues	287		247		Unearned revenues	323		318
Short-term debt	Short-term debt	1,724		699		Short-term debt	1,109		600
Total current liabilities	Total current liabilities	14,905		10,929		Total current liabilities	15,051		13,394
Long-term debt	Long-term debt	6,059		4,967		Long-term debt	6,063		6,060
Future policy benefits payable		202		206
Other long-term liabilities	Other long-term liabilities	1,543		935		Other long-term liabilities	2,113		1,787
Total liabilities	Total liabilities	22,709		17,037		Total liabilities	23,227		21,241

Stockholders’ equity:	Stockholders’ equity:					Stockholders’ equity:
Preferred stock, $1 par; 10,000,000 shares authorized; NaN issued	Preferred stock, $1 par; 10,000,000 shares authorized; NaN issued	0		0		Preferred stock, $1 par; 10,000,000 shares authorized; NaN issued	0		0
Common stock, $0.16 2/3 par; 300,000,000 shares authorized; 198,648,742 shares issued at September 30, 2020 and 198,629,992 shares issued at December 31, 2019		33		33
Common stock, $0.16 2/3 par; 300,000,000 shares authorized; 198,648,742 shares issued at June 30, 2021 and December 31, 2020						Common stock, $0.16 2/3 par; 300,000,000 shares authorized; 198,648,742 shares issued at June 30, 2021 and December 31, 2020	33		33
Capital in excess of par value	Capital in excess of par value	2,940		2,820		Capital in excess of par value	3,018		2,705
Retained earnings	Retained earnings	20,872		17,483		Retained earnings	21,751		20,517
Accumulated other comprehensive income	Accumulated other comprehensive income	370		156		Accumulated other comprehensive income	216		391
Treasury stock, at cost, 66,307,291 shares at September 30, 2020 and 66,524,771 shares at December 31, 2019		(8,447)		(8,455)
Treasury stock, at cost, 70,144,078 shares at June 30, 2021 and 69,787,614 shares at December 31, 2020						Treasury stock, at cost, 70,144,078 shares at June 30, 2021 and 69,787,614 shares at December 31, 2020	(10,175)		(9,918)
Total stockholders’ equity	Total stockholders’ equity	15,768		12,037		Total stockholders’ equity	14,843		13,728
Total liabilities and stockholders’ equity	Total liabilities and stockholders’ equity	$	38,477	$	29,074	Total liabilities and stockholders’ equity	$	38,070	$	34,969

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 June 30,				Six months ended June 30,
		2020		2019		2020		2019			2021		2020		2021		2020
		(in millions, except per share results)									(in millions, except per share results)
Revenues:	Revenues:									Revenues:
Premiums	Premiums	$	18,904	$	15,712	$	55,822	$	47,139	Premiums	$	19,978	$	18,556	$	40,102	$	36,918
Services	Services	457		393		1,331		1,103		Services	491		450		957		874
Investment income	Investment income	714		136		940		351		Investment income	176		77		254		226
Total revenues	Total revenues	20,075		16,241		58,093		48,593		Total revenues	20,645		19,083		41,313		38,018
Operating expenses:	Operating expenses:									Operating expenses:
Benefits	Benefits	15,611		13,357		45,415		40,168		Benefits	17,149		14,175		34,445		29,804
Operating costs	Operating costs	2,513		1,889		6,984		5,252		Operating costs	2,116		2,354		4,123		4,471
Depreciation and amortization	Depreciation and amortization	128		127		362		343		Depreciation and amortization	144		119		286		234
Total operating expenses	Total operating expenses	18,252		15,373		52,761		45,763		Total operating expenses	19,409		16,648		38,854		34,509
Income from operations	Income from operations	1,823		868		5,332		2,830		Income from operations	1,236		2,435		2,459		3,509

Interest expense	Interest expense	75		62		211		184		Interest expense	79		76		147		136
Other (income) expense, net		(7)		(82)		63		(217)
Other expense (income), net										Other expense (income), net	419		(227)		534		70
Income before income taxes and equity in net earnings	Income before income taxes and equity in net earnings	1,755		888		5,058		2,863		Income before income taxes and equity in net earnings	738		2,586		1,778		3,303
Provision for income taxes	Provision for income taxes	450		200		1,485		684		Provision for income taxes	183		783		416		1,035
Equity in net earnings	Equity in net earnings	35		1		68		16		Equity in net earnings	33		25		54		33
Net income	Net income	$	1,340	$	689	$	3,641	$	2,195	Net income	$	588	$	1,828	$	1,416	$	2,301
Basic earnings per common share	Basic earnings per common share	$	10.12	$	5.16	$	27.53	$	16.31	Basic earnings per common share	$	4.57	$	13.83	$	11.00	$	17.41
Diluted earnings per common share	Diluted earnings per common share	$	10.05	$	5.14	$	27.37	$	16.24	Diluted earnings per common share	$	4.55	$	13.75	$	10.94	$	17.31

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,					Three months ended June 30,				Six months ended June 30,
		2020		2019		2020		2019			2021		2020		2021		2020
		(in millions)									(in millions)
Net income	Net income	$	1,340	$	689	$	3,641	$	2,195	Net income	$	588	$	1,828	$	1,416	$	2,301
Other comprehensive income:	Other comprehensive income:									Other comprehensive income:
Change in gross unrealized investment gains/losses	Change in gross unrealized investment gains/losses	66		87		332		452		Change in gross unrealized investment gains/losses	136		358		(184)		266
Effect of income taxes	Effect of income taxes	(15)		(20)		(78)		(105)		Effect of income taxes	(31)		(85)		42		(63)
Total change in unrealized investment gains/losses, net of tax	Total change in unrealized investment gains/losses, net of tax	51		67		254		347		Total change in unrealized investment gains/losses, net of tax	105		273		(142)		203
Reclassification adjustment for net realized gains	Reclassification adjustment for net realized gains	(1)		(1)		(48)		(7)		Reclassification adjustment for net realized gains	(9)		(2)		(64)		(47)
Effect of income taxes	Effect of income taxes	0		0		10		2		Effect of income taxes	2		0		15		10
Total reclassification adjustment, net of tax	Total reclassification adjustment, net of tax	(1)		(1)		(38)		(5)		Total reclassification adjustment, net of tax	(7)		(2)		(49)		(37)
Other comprehensive income, net of tax		50		66		216		342
Other comprehensive gain (loss), net of tax										Other comprehensive gain (loss), net of tax	98		271		(191)		166
Comprehensive income (loss) attributable to equity method investments	Comprehensive income (loss) attributable to equity method investments	3		(1)		(2)		(6)		Comprehensive income (loss) attributable to equity method investments	10		(2)		16		(5)
Comprehensive income	Comprehensive income	$	1,393	$	754	$	3,855	$	2,531	Comprehensive income	$	696	$	2,097	$	1,241	$	2,462

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		Total Stockholders’ Equity			Common Stock			Capital In Excess of Par Value		Retained Earnings		Accumulated Other Comprehensive Income (loss)		Treasury Stock		Total Stockholders’ Equity
		Issued Shares	Amount													Issued Shares	Amount
		(dollars in millions, share amounts in thousands)														(dollars in millions, share amounts in thousands)
Three months ended September 30, 2020
Balances, June 30, 2020		198,630	$	33	$	2,898	$	19,616	$	317	$	(8,448)	$	14,416
Three months ended June 30, 2021															Three months ended June 30, 2021
Balances, March 31, 2021															Balances, March 31, 2021	198,649	$	33	$	2,712	$	21,252	$	108	$	(9,915)	$	14,190
Net income	Net income						1,340						1,340		Net income						588						588

Other comprehensive loss									53				53
Other comprehensive income															Other comprehensive income								108				108
Common stock repurchases	Common stock repurchases	19			0						(5)		(5)		Common stock repurchases				263						(265)		(2)
Dividends and dividend equivalents	Dividends and dividend equivalents						(84)						(84)		Dividends and dividend equivalents						(89)						(89)
Stock-based compensation	Stock-based compensation				47								47		Stock-based compensation				45								45
Restricted stock unit vesting	Restricted stock unit vesting	0			(6)						6		0		Restricted stock unit vesting	0	0		(3)						3		0
Stock option exercises	Stock option exercises	0			1						0		1		Stock option exercises	0	0		1						2		3

Balances, September 30, 2020		198,649	$	33	$	2,940	$	20,872	$	370	$	(8,447)	$	15,768
Balances, June 30, 2021															Balances, June 30, 2021	198,649	$	33	$	3,018	$	21,751	$	216	$	(10,175)	$	14,843

Three months ended September 30, 2019
Balances, June 30, 2019		198,628	$	33	$	2,763	$	16,429	$	112	$	(7,465)	$	11,872
Three months ended June 30, 2020															Three months ended June 30, 2020
Balances, March 31, 2020															Balances, March 31, 2020	198,630	$	33	$	2,857	$	17,871	$	48	$	(8,454)	$	12,355
Net income	Net income						689						689		Net income						1,828						1,828
Other comprehensive income	Other comprehensive income								65				65		Other comprehensive income								269				269
Common stock repurchases	Common stock repurchases	—			(200)						(800)		(1,000)		Common stock repurchases				0						(8)		(8)
Dividends and dividend equivalents	Dividends and dividend equivalents						(73)						(73)		Dividends and dividend equivalents						(83)						(83)
Stock-based compensation	Stock-based compensation				43								43		Stock-based compensation				46								46
Restricted stock unit vesting	Restricted stock unit vesting	0			0						0		0		Restricted stock unit vesting	0	0		(9)						9		0
Stock option exercises	Stock option exercises	1			2						3		5		Stock option exercises	0	0		4						5		9

Balances, September 30, 2019		198,629	$	33	$	2,608	$	17,045	$	177	$	(8,262)	$	11,601
Balances, June 30, 2020															Balances, June 30, 2020	198,630	$	33	$	2,898	$	19,616	$	317	$	(8,448)	$	14,416

See accompanying notes to condensed consolidated financial statements.

Humana Inc.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY ~~— (Continued)~~

(Unaudited)

Common Stock Capital In
Excess of
Par Value Retained
Earnings Accumulated
Other
Comprehensive
Income (Loss) Treasury
Stock Total
Stockholders’
Equity
Issued
Shares Amount
(dollars in millions, share amounts in thousands)
Nine months ended September 30, 2020
Balances, December 31, 2019 198,630 $ 33 $ 2,820 $ 17,483 $ 156 $ (8,455) $ 12,037
Net income 3,641 3,641
Impact of adopting ASC 326 -
Current expected credit loss
standard (CECL) (2) (2)
Other comprehensive income 214 214
Common stock repurchases 19 0 (30) (30)
Dividends and dividend
equivalents (250) (250)
Stock-based compensation 129 129
Restricted stock unit vesting 0 (21) 21 0
Stock option exercises 0 12 17 29
Balances, September 30, 2020 198,649 $ 33 $ 2,940 $ 20,872 $ 370 $ (8,447) $ 15,768
Nine months ended September 30, 2019
Balances, December 31, 2018 198,595 $ 33 $ 2,535 $ 15,072 $ (159) $ (7,320) $ 10,161
Net income 2,195 2,195
Other comprehensive loss 336 336
Common stock repurchases — (50) (960) (1,010)
Dividends and dividend
equivalents (222) (222)
Stock-based compensation 119 119
Restricted stock unit vesting 32 (3) 3 0
Stock option exercises 2 7 15 22
Balances, September 30, 2019 198,629 $ 33 $ 2,608 $ 17,045 $ 177 $ (8,262) $ 11,601




	Common Stock			Capital In Excess of Par Value		Retained Earnings		Accumulated Other Comprehensive Income		Treasury Stock		Total Stockholders’ Equity
	Issued Shares	Amount
	(dollars in millions, share amounts in thousands)
Six months ended June 30, 2021
Balances, December 31, 2020	198,649	$	33	$	2,705	$	20,517	$	391	$	(9,918)	$	13,728
Net income						1,416						1,416

Other comprehensive loss								(175)				(175)
Common stock repurchases				263						(296)		(33)
Dividends and dividend equivalents						(182)						(182)
Stock-based compensation				84								84
Restricted stock unit vesting	0	0		(36)						36		0
Stock option exercises	0	0		2						3		5

Balances, June 30, 2021	198,649	$	33	$	3,018	$	21,751	$	216	$	(10,175)	$	14,843

Six months ended June 30, 2020
Balances, December 31, 2019	198,630	$	33	$	2,820	$	17,483	$	156	$	(8,455)	$	12,037
Net income						2,301						2,301
Impact of adopting ASC 326 - Current expected credit loss standard (CECL)						(2)						(2)
Other comprehensive income								161				161
Common stock repurchases				0						(25)		(25)
Dividends and dividend equivalents						(166)						(166)
Stock-based compensation				82								82
Restricted stock unit vesting	0	0		(15)						15		0
Stock option exercises	0	0		11						17		28

Balances, June 30, 2020	198,630	$	33	$	2,898	$	19,616	$	317	$	(8,448)	$	14,416

See accompanying notes to condensed consolidated financial statements.

Humana Inc.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)


		For the nine months ended September 30,					For the six months ended June 30,
		2020		2019			2021		2020
		(in millions)					(in millions)
Cash flows from operating activities	Cash flows from operating activities					Cash flows from operating activities
Net income	Net income	$	3,641	$	2,195	Net income	$	1,416	$	2,301
Adjustments to reconcile net income to net cash provided by operating activities:
Adjustments to reconcile net income to net cash (used in) provided by operating activities:						Adjustments to reconcile net income to net cash (used in) provided by operating activities:

Gains on investment securities, net	Gains on investment securities, net	(696)		(23)		Gains on investment securities, net	(86)		(51)
Equity in net earnings	Equity in net earnings	(68)		(16)		Equity in net earnings	(54)		(33)
Stock-based compensation	Stock-based compensation	129		119		Stock-based compensation	84		82
Depreciation	Depreciation	390		382		Depreciation	308		252
Amortization	Amortization	66		53		Amortization	30		43
Benefit for deferred income taxes	Benefit for deferred income taxes	(3)		(21)		Benefit for deferred income taxes	0		(3)
Changes in operating assets and liabilities, net of effect of businesses acquired and dispositions:	Changes in operating assets and liabilities, net of effect of businesses acquired and dispositions:					Changes in operating assets and liabilities, net of effect of businesses acquired and dispositions:
Receivables	Receivables	(82)		179		Receivables	(1,285)		(1,185)
Other assets	Other assets	(1,547)		334		Other assets	(879)		(2,124)
Benefits payable	Benefits payable	2,204		1,358		Benefits payable	300		1,976
Other liabilities	Other liabilities	1,257		168		Other liabilities	(301)		2,267
Unearned revenues	Unearned revenues	40		(9)		Unearned revenues	5		19
Other	Other	25		53		Other	(15)		(3)
Net cash provided by operating activities		5,356		4,772
Net cash (used in) provided by operating activities						Net cash (used in) provided by operating activities	(477)		3,541
Cash flows from investing activities	Cash flows from investing activities					Cash flows from investing activities

Acquisitions, net of cash acquired	Acquisitions, net of cash acquired	(709)		0		Acquisitions, net of cash acquired	(325)		(709)

Purchases of property and equipment	Purchases of property and equipment	(668)		(506)		Purchases of property and equipment	(619)		(418)
Purchases of investment securities	Purchases of investment securities	(7,230)		(4,130)		Purchases of investment securities	(5,307)		(5,464)
Maturities of investment securities	Maturities of investment securities	3,500		1,281		Maturities of investment securities	1,627		1,645
Proceeds from sales of investment securities	Proceeds from sales of investment securities	2,097		2,878		Proceeds from sales of investment securities	2,421		2,084
Net cash used in investing activities	Net cash used in investing activities	(3,010)		(477)		Net cash used in investing activities	(2,203)		(2,862)
Cash flows from financing activities	Cash flows from financing activities					Cash flows from financing activities
(Withdrawals) receipts from contract deposits, net		(274)		11
Receipts from contract deposits, net						Receipts from contract deposits, net	1,183		389
Proceeds from issuance of senior notes, net	Proceeds from issuance of senior notes, net	1,088		987		Proceeds from issuance of senior notes, net	0		1,088
Proceeds (repayments) from issuance of commercial paper, net		21		(358)
Proceeds from issuance of commercial paper, net						Proceeds from issuance of commercial paper, net	508		21
Proceeds from term loan	Proceeds from term loan	1,000		0		Proceeds from term loan	0		1,000
Repayment of term loan		0		(650)

Debt issue costs						Debt issue costs	(21)		0
Change in book overdraft	Change in book overdraft	(11)		102		Change in book overdraft	(84)		85
Common stock repurchases	Common stock repurchases	(30)		(1,010)		Common stock repurchases	(33)		(25)
Dividends paid	Dividends paid	(239)		(216)		Dividends paid	(173)		(156)

Proceeds from stock option exercises and other, net	Proceeds from stock option exercises and other, net	30		23		Proceeds from stock option exercises and other, net	5		28
Net cash provided by (used in) financing activities		1,585		(1,111)
Increase in cash and cash equivalents		3,931		3,184
Net cash provided by financing activities						Net cash provided by financing activities	1,385		2,430
(Decrease) increase in cash and cash equivalents						(Decrease) increase in cash and cash equivalents	(1,295)		3,109
Cash and cash equivalents at beginning of period	Cash and cash equivalents at beginning of period	4,054		2,343		Cash and cash equivalents at beginning of period	4,673		4,054
Cash and cash equivalents at end of period	Cash and cash equivalents at end of period	$	7,985	$	5,527	Cash and cash equivalents at end of period	$	3,378	$	7,163
Supplemental cash flow disclosures:	Supplemental cash flow disclosures:					Supplemental cash flow disclosures:
Interest payments	Interest payments	$	159	$	136	Interest payments	$	132	$	115
Income tax payments, net	Income tax payments, net	$	778	$	578	Income tax payments, net	$	386	$	36

See accompanying notes to condensed consolidated financial statements.

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(Unaudited)

1. BASIS OF PRESENTATION AND SIGNIFICANT EVENTS

The accompanying condensed consolidated financial statements are presented in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the disclosures normally required by accounting principles generally accepted in the United States of America, or GAAP, or those normally made in an Annual Report on Form 10-K. The year-end condensed consolidated balance sheet data was derived from audited financial statements, but does not include all disclosures required by GAAP. For further information, the reader of this Form 10-Q should refer to our Form 10-K for the year ended December 31, ~~2019,~~2020, that was filed with the Securities and Exchange Commission, or the SEC, on February ~~20, 2020.~~18, 2021. We refer to the Form 10-K as the ~~“2019~~“2020 Form 10-K” in this document. References throughout this document to “we,” “us,” “our,” “Company,” and “Humana” mean Humana Inc. and its subsidiaries.

The preparation of our condensed consolidated financial statements in accordance with GAAP requires us to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and accompanying notes. The areas involving the most significant use of estimates are the estimation of benefits payable, the impact of risk adjustment provisions related to our Medicare contracts, the valuation and related impairment recognition of investment securities, and the valuation and related impairment recognition of long-lived assets, including goodwill. These estimates are based on knowledge of current events and anticipated future events, and accordingly, actual results may ultimately differ materially from those estimates. Refer to Note 2 to the consolidated financial statements included in our ~~2019~~2020 Form 10-K for information on accounting policies that we consider in preparing our consolidated financial statements. Since the filing of our 2019 Form 10-K we have received common stock, primarily in Oak Street Health, Inc., or OSH, as part of their initial public offering during the third quarter of 2020. We have updated our accounting policy for investment securities below.

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.

~~Investment Securities~~Kindred at Home Acquisition

~~Investment securities,~~On April 27, 2021, we entered into a definitive agreement to acquire the remaining 60% interest in Kindred at Home, or KAH, the nation’s largest home health and hospice provider, from TPG Capital, the private equity platform of global alternative asset firm, or TPG, and Welsh, Carson, Anderson & Stowe, or WCAS, two private equity funds, or the Sponsors, for an enterprise value of $8.1 billion, which ~~consist~~includes our existing equity value of debt and equity securities, are stated at fair value. Our debt securities have been categorized as available for sale. Debt securities available for current operations are classified as current assets and debt securities available for$2.4 billion associated with our long-term insurance products and professional liability funding requirements, as well as restricted statutory deposits and equity securities, are classified as long-term assets. For the purpose of determining realized gross gains and losses for debt securities sold,40% minority ownership interest. KAH has locations in 40 states, providing extensive geographic coverage with approximately 65% overlap with our individual Medicare Advantage membership. The acquisition, which ~~are included as a component of investment income~~is expected to close in the ~~consolidated statements~~third quarter of ~~income,~~2021, is subject to customary state and federal regulatory approvals. We expect to fund the ~~cost~~approximate $5.7 billion transaction (net of ~~investment securities sold is based upon specific identification. Unrealized holding gains~~our existing equity stake) through a combination of parent company cash, debt financing, and ~~losses for debt securities, net~~the assumption of applicable deferred taxes, are included as a component of stockholders’ equity and comprehensive income until realized from a sale or other-than-temporary impairment. For the purpose of determining gross gains and losses for equity securities, changes in fair value at the reporting date are included as a component of investment income in the consolidated statements of income.existing KAH indebtedness.

COVID-19

The ~~temporary deferral of non-essential care resulting from stay-at-home~~emergence and ~~physical distancing orders and other restrictions on movement and economic activity implemented throughout the country beginning in the second half of March 2020 to reduce the~~ spread of the novel coronavirus, or COVID-19, beginning in the first quarter of 2020 has impacted our business. ~~Hospital~~During periods of increased incidences of COVID-19, non-essential care from a reduction in non-COVID-19 hospital admissions and lower overall healthcare system consumption decreased utilization. Likewise COVID-19 treatment and testing cost increased utilization. The significant disruption in utilization ~~were significantly depressed in April~~during 2020 also impacted our ability to implement clinical initiatives to manage health care costs and ~~increased throughout May~~chronic conditions of our members, and ~~June. Utilization continued to rebound throughout~~appropriately document their risk profiles, and, as such, affecting our 2021 revenue under the third quarter of 2020, reaching approximately 95% of historic baseline levels at the close of the third quarter. The impact of the deferral of non-essential care was partially offset by COVID-19 testing and treatment costs, as well as our ongoing pandemic relief efforts.risk adjustment payment model for Medicare Advantage plans.

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~~(Unaudited)~~

Revenue Recognition

Our revenues include premium and service revenues. Service revenues include administrative service fees that are recorded based upon established per member per month rates and the number of members for the month and are

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recognized as services are provided for the month. Additionally, service revenues include net patient service revenues that are recorded based upon established billing rates, less allowances for contractual adjustments, and are recognized as services are provided. For more information about our revenues, refer to Note 2 to the consolidated financial statements included in our ~~2019~~2020 Form 10-K for information on accounting policies that we consider in preparing our consolidated financial statements. See Note 14 for disaggregation of revenue by segment and type.

At ~~September~~June 30, ~~2020,~~2021, accounts receivable related to services were ~~$155~~$192 million. For the three and ~~nine~~six months ended ~~September~~June 30, ~~2020,~~2021, 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~~June 30, ~~2020.~~2021.

For the three and ~~nine~~six months ended ~~September~~June 30, ~~2020,~~2021, services revenue recognized from performance obligations related to prior periods (for example, due to changes in transaction price), was not material. Further, services revenue expected to be recognized in any future year related to remaining performance obligations was not material.

~~Health Care Reform~~

The Patient Protection and Affordable Care Act and The Health Care and Education Reconciliation Act of 2010 (which we collectively refer to as the Health Care Reform Law) enacted significant reforms to various aspects of the U.S. health insurance industry. Certain of these reforms became effective January 1, 2014, including an annual insurance industry premium-based fee. The Continuing Resolution bill, H.R. 195, enacted on January 22, 2018, included a one year suspension in 2019 of the health insurance industry fee, but the fee resumed in calendar year 2020. The Further Consolidated Appropriations Act, 2020, enacted on December 20, 2019, permanently repealed the health insurance industry fee beginning in calendar year 2021.

In September 2020, we paid the federal government $1.2 billion for the annual health insurance industry fee attributed to calendar year 2020. This fee, fixed in amount by law and apportioned to insurance carriers based on market share, is not deductible for tax purposes. On January 1 we recorded a liability for this fee in trade accounts payable and accrued expenses which we carried until the fee was paid. We also recorded 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 $292 million and $884 million for the three and nine months ended September 30, 2020, respectively, resulting from the amortization of the 2020 annual health insurance industry fee.

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 April 27, 2020, the U.S. Supreme Court ruled that the government is obligated to pay the losses under this risk corridor program, and that Congress did not impliedly repeal the obligation under its appropriations riders. In September 2020, we received a $609 million payment from the U.S Government pursuant to the judgement issued by the Court of Federal Claims on July 7, 2020. The $609 million payment received from the U.S Government and approximately $31 million in related fees and expenses are reflected in "Premiums" revenue and "Operating costs", respectively, in our condensed consolidated statements of income for the three and nine months ended September 30, 2020 and reported in the Corporate segment.

2. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

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 was effective for us beginning January 1, 2020. The new current expected credit losses (CECL) model generally calls for the immediate recognition

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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 primarily of available for sale debt securities. We adopted the new standard effective January 1, 2020. Due to the high concentration of our financial assets measured at amortized cost being with the federal government resulting in zero nonpayment risk as well as our available for sale debt securities primarily being in an unrealized gain position, the adoption of the new standard did not have a material impact on our results of operations, financial condition, or cash flows.

In September 2018, the FASB issued new guidance related to accounting for long-duration contracts of insurers which revises key elements of the measurement models and disclosure requirements for long-duration contracts issued by insurers and reinsurers. The new guidance is effective for us beginning with annual and interim periods in 2023, with earlier adoption permitted, and requires retrospective application to previously issued annual and interim financial statements. We are currently evaluating the impact on our results of operations, financial position and cash flows.

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

3. ACQUISITIONS AND DIVESTITURES

~~On January 31,~~During 2021 and 2020, we purchased privately held Enclara Healthcare, or Enclara, one of the nation’s largest hospice pharmacy and benefit management providers for cash consideration of approximately $709 million, net of cash received. This resulted in a preliminary purchase price allocation to goodwill of $515 million, other intangible assets of $240 million, and net tangible liabilities assumed of $11 million. The goodwill was assigned to the Healthcare Services segment. The other intangible assets, which primarily consist of customer contracts, have an estimated weighted average useful life of 11.4 years. The purchase price allocation is preliminary, subject to completion of valuation analysis, including for example, refining assumptions used to calculate the fair value of intangible assets.

On February 1, 2020, our Partners in Primary Care wholly-owned subsidiary entered into a strategic partnership with Welsh, Carson, Anderson & Stowe, or WCAS, to accelerate the expansion of our primary care model. The WCAS partnership is expected to open approximately 50 payor-agnostic, senior-focused primary care centers over 3 years beginning in 2020. Partners in Primary Care committed to the acquisition of a non-controlling interest in the approximately $600 million entity accounted for under the equity method of accounting. In addition, the agreement includes a series of put and call options through which WCAS may require us to purchase their interest in the entity, and through which we may acquire WCAS’s interest, over the next 5 to 10 years.

~~During 2020 and 2019, we~~ acquired ~~other~~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 ~~2020~~2021 and ~~2019~~2020 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 ~~2020~~2021 and ~~2019~~2020 were not material to our results of operations. The pro forma financial information assuming the acquisitions had occurred as of the beginning of the calendar year prior to the year of acquisition, as well as the revenues and earnings generated during the year of acquisition, were not material for disclosure purposes.

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4. INVESTMENT SECURITIES

Investment securities classified as current and long-term were as follows at ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019,~~2020, respectively:


		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value			Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
		(in millions)									(in millions)
September 30, 2020
June 30, 2021										June 30, 2021
U.S. Treasury and other U.S. government corporations and agencies:	U.S. Treasury and other U.S. government corporations and agencies:									U.S. Treasury and other U.S. government corporations and agencies:
U.S. Treasury and agency obligations	U.S. Treasury and agency obligations	$	1,195	$	2	$	(1)	$	1,196	U.S. Treasury and agency obligations	$	646	$	2	$	(7)	$	641
Mortgage-backed securities	Mortgage-backed securities	3,511		183		(2)		3,692		Mortgage-backed securities	3,493		79		(42)		3,530
Tax-exempt municipal securities	Tax-exempt municipal securities	1,439		40		(3)		1,476		Tax-exempt municipal securities	1,052		43		(1)		1,094

Commercial mortgage-backed securities		1,020		54		(1)		1,073
Mortgage-backed securities:										Mortgage-backed securities:
Residential										Residential	257		0		(1)		256
Commercial										Commercial	1,415		43		(5)		1,453
Asset-backed securities	Asset-backed securities	1,278		8		(5)		1,281		Asset-backed securities	1,450		8		0		1,458
Corporate debt securities	Corporate debt securities	4,199		218		(2)		4,415		Corporate debt securities	5,280		179		(31)		5,428
Total debt securities	Total debt securities	$	12,642	$	505	$	(14)	13,133		Total debt securities	$	13,593	$	354	$	(87)	13,860
Common stock	Common stock							713		Common stock							793
Total investment securities	Total investment securities							$	13,846	Total investment securities							$	14,653

December 31, 2019
December 31, 2020										December 31, 2020
U.S. Treasury and other U.S. government corporations and agencies:	U.S. Treasury and other U.S. government corporations and agencies:									U.S. Treasury and other U.S. government corporations and agencies:
U.S. Treasury and agency obligations	U.S. Treasury and agency obligations	$	353	$	1	$	0	$	354	U.S. Treasury and agency obligations	$	616	$	1	$	(1)	$	616
Mortgage-backed securities	Mortgage-backed securities	3,628		85		(3)		3,710		Mortgage-backed securities	3,115		140		(1)		3,254
Tax-exempt municipal securities	Tax-exempt municipal securities	1,433		30		0		1,463		Tax-exempt municipal securities	1,393		54		0		1,447

Commercial mortgage-backed securities		786		18		0		804
Mortgage-backed securities:										Mortgage-backed securities:
Residential										Residential	17		0		0		17
Commercial										Commercial	1,260		59		(1)		1,318
Asset-backed securities	Asset-backed securities	1,093		3		(3)		1,093		Asset-backed securities	1,364		10		(2)		1,372
Corporate debt securities	Corporate debt securities	3,867		82		(2)		3,947		Corporate debt securities	4,672		256		(1)		4,927
Total debt securities	Total debt securities	$	11,160	$	219	$	(8)	11,371		Total debt securities	$	12,437	$	520	$	(6)	12,951
Common stock	Common stock							7		Common stock							815
Total investment securities	Total investment securities							$	11,378	Total investment securities							$	13,766

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Gross unrealized losses and fair values aggregated by investment category and length of time of individual debt securities that have been in a continuous unrealized loss position for which no allowances for credit loss has been recorded were as follows at ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019,~~2020, 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, 2020
U.S. Treasury and other U.S.
government corporations
and agencies:
U.S. Treasury and agency
obligations $ 662 $ (1) $ 0 $ 0 $ 662 $ (1)
Mortgage-backed
securities 450 (2) 0 0 450 (2)
Tax-exempt municipal
securities 127 (3) 12 0 139 (3)
Commercial mortgage-backed securities 181 0 36 (1) 217 (1)
Asset-backed securities 121 (1) 537 (4) 658 (5)
Corporate debt securities 275 (1) 98 (1) 373 (2)
Total debt securities $ 1,816 $ (8) $ 683 $ (6) $ 2,499 $ (14)
December 31, 2019
U.S. Treasury and other U.S.
government corporations
and agencies:
U.S. Treasury and agency
obligations $ 48 $ 0 $ 23 $ 0 $ 71 $ 0
Mortgage-backed
securities 315 (1) 204 (2) 519 (3)
Tax-exempt municipal
securities 58 0 75 0 133 0
Commercial mortgage-backed securities 118 0 36 0 154 0
Asset-backed securities 20 0 607 (3) 627 (3)
Corporate debt securities 589 (2) 155 0 744 (2)
Total debt securities $ 1,148 $ (3) $ 1,100 $ (5) $ 2,248 $ (8)


	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)
June 30, 2021
U.S. Treasury and other U.S. government corporations and agencies:
U.S. Treasury and agency obligations	$	373	$	(7)	$	17	$	0	$	390	$	(7)
Mortgage-backed securities	2,336		(39)		114		(3)		2,450		(42)
Tax-exempt municipal securities	81		(1)		4		0		85		(1)
Mortgage-backed securities:
Residential	79		(1)		0		0		79		(1)
Commercial	255		(5)		74		0		329		(5)
Asset-backed securities	231		0		149		0		380		0
Corporate debt securities	1,388		(31)		19		0		1,407		(31)
Total debt securities	$	4,743	$	(84)	$	377	$	(3)	$	5,120	$	(87)

December 31, 2020
U.S. Treasury and other U.S. government corporations and agencies:
U.S. Treasury and agency obligations	$	225	$	(1)	$	0	$	0	$	225	$	(1)
Mortgage-backed securities	199		(1)		0		0		199		(1)
Tax-exempt municipal securities	16		0		19		0		35		0
Mortgage-backed securities:
Residential	17		0		0		0		17		0
Commercial	193		(1)		43		0		236		(1)
Asset-backed securities	65		0		498		(2)		563		(2)
Corporate debt securities	342		(1)		16		0		358		(1)
Total debt securities	$	1,057	$	(4)	$	576	$	(2)	$	1,633	$	(6)

Approximately ~~96%~~95% of our debt securities were investment-grade quality, with a weighted average credit rating of AAAA- by Standard & Poor's Rating Service, or S&P, at ~~September~~June 30, ~~2020.~~2021. 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

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with no individual state exceeding 1% of our total debt securities. Our investment policy limits investments in a single issuer and requires diversification among various asset types.

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Our unrealized losses from all debt securities were generated from approximately ~~155~~405 positions out of a total of approximately ~~1,530~~1,700 positions at ~~September~~June 30, ~~2020.~~2021. All issuers of debt securities we own that were trading at an unrealized loss at ~~September~~June 30, ~~2020~~2021 remain current on all contractual payments. After taking into account these and other factors previously described, we believe these unrealized losses primarily were caused by an increase in market interest rates in the current markets since the time these debt securities were purchased. At ~~September~~June 30, ~~2020,~~2021, we did not intend to sell any debt securities with an unrealized loss position in accumulated other comprehensive income, and it is not likely that we will be required to sell these debt securities before recovery of their amortized cost basis. Additionally, we did not record any material credit allowances for debt securities that were in an unrealized loss position for the three and ~~nine~~six months ended ~~September~~June 30, 2021 and 2020.

The detail of gains (losses) related to investment securities and included within investment income was as follows for the three and ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 and ~~2019:~~2020:


		Three months ended September 30,				Nine months ended September 30,					Three months ended June 30,				Six months ended June 30,
		2020		2019		2020		2019			2021		2020		2021		2020
		(in millions)									(in millions)				(in millions)
Gross gains on investment securities	Gross gains on investment securities	$	645	$	41	$	714	$	59	Gross gains on investment securities	$	14	$	13	$	109	$	69
Gross losses on investment securities	Gross losses on investment securities	0		(23)		(18)		(36)		Gross losses on investment securities	0		(11)		0		(18)
Net gains (losses) on equity securities										Net gains (losses) on equity securities	62		0		(23)		0
Net gains on investment securities	Net gains on investment securities	$	645	$	18	$	696	$	23	Net gains on investment securities	$	76	$	2	$	86	$	51

Gross gain on investment securities includes both the gain resulting from the initial conversion of our prior ownership interest in certain privately held companies into common stock upon such companies' initial public offering, or IPO, during the three months ended September 30, 2020, and subsequent changes in the market value of such securities from the IPO through the end of the period, which combined to total $643 million for the three and nine months ended September 30, 2020.

~~All purchases~~Purchases of and proceeds from investment securities for the three and ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 and ~~2019~~2020 relate to debt securities.

~~There were no material other-than-temporary impairments for the three and nine months ended September 30, 2019.~~

The contractual maturities of debt securities available for sale at ~~September~~June 30, ~~2020,~~2021, 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			Amortized Cost		Fair Value
		(in millions)					(in millions)
Due within one year	Due within one year	$	1,487	$	1,490	Due within one year	$	461	$	465
Due after one year through five years	Due after one year through five years	2,176		2,259		Due after one year through five years	2,061		2,134
Due after five years through ten years	Due after five years through ten years	1,999		2,128		Due after five years through ten years	2,958		3,035
Due after ten years	Due after ten years	1,171		1,210		Due after ten years	1,498		1,529
Mortgage and asset-backed securities	Mortgage and asset-backed securities	5,809		6,046		Mortgage and asset-backed securities	6,615		6,697
Total debt securities	Total debt securities	$	12,642	$	13,133	Total debt securities	$	13,593	$	13,860

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5. FAIR VALUE

Financial Assets

The following table summarizes our fair value measurements at ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019,~~2020, 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, 2020
Cash equivalents $ 7,722 $ 7,722 $ 0 $ 0
Debt securities:
U.S. Treasury and other U.S. government
corporations and agencies:
U.S. Treasury and agency obligations 1,196 0 1,196 0
Mortgage-backed securities 3,692 0 3,692 0
Tax-exempt municipal securities 1,476 0 1,476 0
Commercial mortgage-backed securities 1,073 0 1,073 0
Asset-backed securities 1,281 0 1,281 0
Corporate debt securities 4,415 0 4,415 0
Total debt securities 13,133 0 13,133 0
Common stock 713 713 0 0
Total investment securities $ 21,568 $ 8,435 $ 13,133 $ 0
December 31, 2019
Cash equivalents $ 3,660 $ 3,660 $ 0 $ 0
Debt securities:
U.S. Treasury and other U.S. government
corporations and agencies:
U.S. Treasury and agency obligations 354 0 354 0
Mortgage-backed securities 3,710 0 3,710 0
Tax-exempt municipal securities 1,463 0 1,463 0
Commercial mortgage-backed securities 804 0 804 0
Asset-backed securities 1,093 0 1,093 0
Corporate debt securities 3,947 0 3,947 0
Total debt securities 11,371 0 11,371 0
Common stock 7 7 0 0
Total investment securities $ 15,038 $ 3,667 $ 11,371 $ 0


	Fair Value Measurements Using
	Fair Value		Quoted Prices in Active Markets (Level 1)		Other Observable Inputs (Level 2)		Unobservable Inputs (Level 3)
	(in millions)
June 30, 2021
Cash equivalents	$	3,191	$	3,191	$	0	$	0
Debt securities:
U.S. Treasury and other U.S. government corporations and agencies:
U.S. Treasury and agency obligations	641		0		641		0
Mortgage-backed securities	3,530		0		3,530		0
Tax-exempt municipal securities	1,094		0		1,094		0
Mortgage-backed securities:
Residential	256		0		256		0
Commercial	1,453		0		1,453		0
Asset-backed securities	1,458		0		1,458		0
Corporate debt securities	5,428		0		5,428		0
Total debt securities	13,860		0		13,860		0
Common stock	793		793		0		0
Total invested assets	$	17,844	$	3,984	$	13,860	$	0

December 31, 2020
Cash equivalents	$	4,548	$	4,548	$	0	$	0
Debt securities:
U.S. Treasury and other U.S. government corporations and agencies:
U.S. Treasury and agency obligations	616		0		616		0
Mortgage-backed securities	3,254		0		3,254		0
Tax-exempt municipal securities	1,447		0		1,447		0
Mortgage-backed securities:
Residential	17		0		17		0
Commercial	1,318		0		1,318		0
Asset-backed securities	1,372		0		1,372		0
Corporate debt securities	4,927		0		4,927		0
Total debt securities	12,951		0		12,951		0
Common stock	815		815		0		0
Total invested assets	$	18,314	$	5,363	$	12,951	$	0

1514

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

Financial Liabilities

Our debt is recorded at carrying value in our consolidated balance sheets. The carrying value of our senior notes debt outstanding, net of unamortized debt issuance costs, was ~~$6,458 million~~$6.1 billion at ~~September~~June 30, ~~2020~~2021 and ~~$5,366 million at~~ December 31, ~~2019.~~2020. The fair value of our senior notes debt was ~~$7,674 million~~$7.1 billion at ~~September~~June 30, ~~2020~~2021 and ~~$5,916 million~~$7.4 billion at December 31, ~~2019.~~2020. The fair value of our senior ~~note~~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 value approximates fair value for our term note and commercial paper borrowings. The ~~term loan outstanding and~~ commercial paper borrowings were ~~$1,325 million~~$1.1 billion and $0.6 billion as of ~~September~~June 30, ~~2020. The commercial paper borrowings were $300 million as of~~2021 and December 31, ~~2019.~~2020, respectively.

Put and Call Options Measured at Fair Value

As part of our investment in Kindred at Home, we entered into a shareholders agreement with TPG Capital, or TPG, and Welsh, Carson, Anderson & Stowe, or WCAS, the Sponsors, that provides for certain rights and obligations of each party. The shareholders agreementEffective April 27, 2021, with the ~~Sponsors includes a put option under which they have~~signing of the ~~right~~definitive agreement to ~~require us to purchase their~~acquire the remaining 60% interest inof KAH, the joint venture beginning on July 2, 2021 and ending on July 1, 2022. Likewise, we have a call option under which we have the right to require the Sponsors to sell their interest in the joint venture to Humana beginning on July 2, 2022 and ending on July 1, 2023. The put and call options ~~which are exercisable at a fixed EBITDA multiple~~were terminated. As such, the $63 million put and ~~provide a minimum return on~~$440 million call fair values as of the ~~Sponsor's investment if exercised, are measured at fair value each period using a Monte Carlo simulation.~~first quarter of 2021 were reduced to 0, resulting in $377 million in "Other (income) expense, net" in our condensed consolidated statements of income during the three months ended June 30, 2021.

The put and call options were measured at fair value using a Monte Carlo simulation which resulted in fair values ~~were $151~~of $45 million and ~~$634 million, respectively, at September 30, 2020, and $28 million and $557~~$503 million, respectively, at December 31, ~~2019.~~2020. The put option is included within other long-term liabilities and the call option is included within other long-term ~~assets.~~assets at December 31, 2020. The change in fair value of the put and call options is reflected as "Other (income) expense, net" in our condensed consolidated statements of income.

The significant unobservable inputs utilized in these Level 3 fair value measurements (and selected values) include the enterprise value of Kindred at Home, annualized volatility and secured credit rate. Enterprise value was derived from a discounted cash flow model, which utilized significant unobservable inputs for long-term net operating profit after tax margin, or NOPAT, 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.

September 30, 2020 December 31, 2019
Annualized volatility 44.9 % 19.8 %
Secured credit rate 0.4 % 2.2 %
NOPAT 12.0 % 12.0 %
Weighted average cost of capital 10.0 % 10.0 %
Long term growth rate 3.0 % 3.0 %

The calculation of NOPAT utilized net income plus after tax interest expense. We regularly evaluate each of the assumptions used in establishing these assets and liabilities. Significant changes in assumptions for weighted average cost of capital, long term growth rates, NOPAT, volatility, credit spreads, risk free rate, and underlying cash flow estimates, could result in significantly lower or higher fair value measurements. A change in one of these assumptions is not necessarily accompanied by a change in another assumption.

Other Assets and Liabilities Measured at Fair Value

~~As disclosed in Note 3, we acquired Enclara during 2020. The values of net tangible assets acquired and~~Other than the resulting goodwill and other intangible assets were recorded at fair value using Level 3 inputs. The majority of the net tangible liabilities assumed were recorded at their carrying values as of the date of acquisition, as their carrying values approximated their fair values due to their short-term nature. The fair values of goodwill and other intangible

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~~Humana Inc.~~

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

~~(Unaudited)~~

assets acquired in this acquisition were internally estimated primarily based on the income approach. The income approach estimates fair value based on the present value of the cash flows that the assets are expected to generate in the future. We developed internal estimates for the expected future cash flows and discount rates used in the present value calculations. Other thanimmaterial assets acquired and liabilities assumed in ~~this acquisition,~~the acquisitions in Note 3, there were no other material assets or liabilities measured at fair value on a recurring or nonrecurring basis during ~~2020.~~2021.

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 ~~2019~~2020 Form 10-K. The accompanying condensed consolidated balance sheets include the following amounts associated with Medicare Part D at ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019.~~2020. 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, 2020				December 31, 2019					June 30, 2021				December 31, 2020
		Risk Corridor Settlement		CMS Subsidies/ Discounts		Risk Corridor Settlement		CMS Subsidies/ Discounts			Risk Corridor Settlement		CMS Subsidies/ Discounts		Risk Corridor Settlement		CMS Subsidies/ Discounts
		(in millions)									(in millions)
Other current assets	Other current assets	$	25	$	1,226	$	5	$	585	Other current assets	$	169	$	1,635	$	216	$	1,420
Trade accounts payable and accrued expenses	Trade accounts payable and accrued expenses	(101)		(714)		(120)		(356)		Trade accounts payable and accrued expenses	(13)		(1,653)		(39)		(253)
Net current (liability) asset		(76)		512		(115)		229
Net current asset (liability)										Net current asset (liability)	156		(18)		177		1,167
Other long-term assets	Other long-term assets	273		0		6		0		Other long-term assets	317		0		8		0
Other long-term liabilities	Other long-term liabilities	(176)		0		(61)		0		Other long-term liabilities	(198)		0		(90)		0
Net long-term asset (liability)	Net long-term asset (liability)	97		0		(55)		0		Net long-term asset (liability)	119		0		(82)		0
Total net asset (liability)	Total net asset (liability)	$	21	$	512	$	(170)	$	229	Total net asset (liability)	$	275	$	(18)	$	95	$	1,167

~~7. GOODWILL AND OTHER INTANGIBLE ASSETS~~

~~Changes in the carrying amount of goodwill for our reportable segments for the nine months ended September 30, 2020 were as follows:~~

Retail Group and Specialty Healthcare
Services Total
(in millions)
Balance at January 1, 2020 $ 1,535 $ 261 $ 2,132 $ 3,928
Acquisitions 0 0 515 515
Balance at September 30, 2020 $ 1,535 $ 261 $ 2,647 $ 4,443

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

7. GOODWILL AND OTHER INTANGIBLE ASSETS

Changes in the carrying amount of goodwill for our reportable segments for the six months ended June 30, 2021 were as follows:


	Retail		Group and Specialty		Healthcare Services		Total
	(in millions)
Balance at January 1, 2021	$	1,535	$	261	$	2,651	$	4,447
Acquisitions	112		0		355		467


Balance at June 30, 2021	$	1,647	$	261	$	3,006	$	4,914

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~~June 30, ~~2020~~2021 and December 31, ~~2019.~~2020.

September 30, 2020 December 31, 2019
Weighted
Average
Life Cost Accumulated
Amortization Net Cost Accumulated
Amortization Net
($ in millions)
Other intangible assets:
Customer contracts/
relationships 9.5 years $ 849 $ 553 $ 296 $ 646 $ 496 $ 150
Trade names and
technology 7.0 years 122 87 35 84 84 0
Provider contracts 11.8 years 70 49 21 70 44 26
Noncompetes and
other 7.3 years 29 29 0 29 28 1
Total other intangible
assets 9.3 years $ 1,070 $ 718 $ 352 $ 829 $ 652 $ 177


		June 30, 2021						December 31, 2020
	Weighted Average Life	Cost		Accumulated Amortization		Net		Cost		Accumulated Amortization		Net
		($ in millions)
Other intangible assets:
Customer contracts/ relationships	9.4 years	$	875	$	596	$	279	$	849	$	572	$	277
Trade names and technology	6.7 years	136		92		44		122		89		33
Provider contracts	11.8 years	69		53		16		69		50		19
Noncompetes and other	7.1 years	32		29		3		29		29		0
Total other intangible assets	9.1 years	$	1,112	$	770	$	342	$	1,069	$	740	$	329

For the three months ended ~~September~~June 30, ~~2020~~2021 and ~~2019,~~2020, amortization expense for other intangible assets was approximately ~~$23~~$15 million and ~~$17~~$22 million, respectively. For the ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 and ~~2019,~~2020, amortization expense for other intangible assets was approximately ~~$66~~$30 million and ~~$53~~$43 million, respectively. The following table presents our estimate of amortization expense remaining for ~~2020~~2021 and each of the five next succeeding years:


		(in millions)			(in millions)
For the years ending December 31,	For the years ending December 31,			For the years ending December 31,
2020		$	22
2021	2021	56		2021	$	33
2022	2022	53		2022	62
2023	2023	40		2023	48
2024	2024	33		2024	40
2025	2025	33		2025	39
2026				2026	27

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(Unaudited)

8. BENEFITS PAYABLE

On a consolidated basis, activity in benefits payable, was as follows for the ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 and ~~2019:~~2020:


		For the nine months ended September 30,						For the six months ended June 30,
			2020		2019				2021		2020
		(in millions)						(in millions)
Balances, beginning of period	Balances, beginning of period		$	6,004	$	4,862	Balances, beginning of period		$	8,143	$	6,004

Less: Reinsurance recoverables	Less: Reinsurance recoverables		(68)		(95)		Less: Reinsurance recoverables		0		(68)
Balances, beginning of period, net	Balances, beginning of period, net		5,936		4,767		Balances, beginning of period, net		8,143		5,936

Acquisitions							Acquisitions		42		0
Incurred related to:	Incurred related to:						Incurred related to:
Current year	Current year		45,693		40,499		Current year		35,164		30,039
Prior years	Prior years		(278)		(331)		Prior years		(719)		(235)
Total incurred	Total incurred		45,415		40,168		Total incurred		34,445		29,804
Paid related to:	Paid related to:						Paid related to:
Current year	Current year		(37,810)		(34,625)		Current year		(27,556)		(22,665)
Prior years	Prior years		(5,334)		(4,158)		Prior years		(6,589)		(5,098)
Total paid	Total paid		(43,144)		(38,783)		Total paid		(34,145)		(27,763)

Reinsurance recoverable	Reinsurance recoverable		1		68		Reinsurance recoverable		0		3
Balances, end of period	Balances, end of period		$	8,208	$	6,220	Balances, end of period		$	8,485	$	7,980

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.

The higher prior year favorable development for the six months ended June 20, 2021 was primarily attributable to the reversal of actions taken in 2020, including the suspension of certain financial recovery programs for a period of time. The suspension during 2020 was intended to provide financial and administrative relief for providers facing unprecedented strain as a result of the COVID-19 pandemic.

Incurred and Paid Claims Development

The following discussion provides information about incurred and paid claims development for our Retail and Group and Specialty segments as of ~~September~~June 30, ~~2020~~2021 and ~~2019,~~2020, net of reinsurance, and the total estimate of benefits payable for claims incurred but not reported, or IBNR, included within the net incurred claims amounts.

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(Unaudited)

Retail Segment

Activity in benefits payable for our Retail segment was as follows for the ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 and ~~2019:~~2020:


		For the nine months ended September 30,						For the six months ended June 30,
			2020		2019				2021		2020
		(in millions)						(in millions)
Balances, beginning of period	Balances, beginning of period		$	5,363	$	4,338	Balances, beginning of period		$	7,428	$	5,363

Less: Reinsurance recoverables	Less: Reinsurance recoverables		(68)		(95)		Less: Reinsurance recoverables		0		(68)
Balances, beginning of period, net	Balances, beginning of period, net		5,295		4,243		Balances, beginning of period, net		7,428		5,295

Acquisitions							Acquisitions		42		0
Incurred related to:	Incurred related to:						Incurred related to:
Current year	Current year		42,186		36,762		Current year		32,986		27,921
Prior years	Prior years		(235)		(366)		Prior years		(619)		(205)
Total incurred	Total incurred		41,951		36,396		Total incurred		32,367		27,716
Paid related to:	Paid related to:						Paid related to:
Current year	Current year		(34,946)		(31,476)		Current year		(25,953)		(21,063)
Prior years	Prior years		(4,759)		(3,634)		Prior years		(5,990)		(4,528)
Total paid	Total paid		(39,705)		(35,110)		Total paid		(31,943)		(25,591)

Reinsurance recoverable	Reinsurance recoverable		1		68		Reinsurance recoverable		0		3
Balances, end of period	Balances, end of period		$	7,542	$	5,597	Balances, end of period		$	7,894	$	7,423

At ~~September~~June 30, ~~2020,~~2021, benefits payable for our Retail segment included IBNR of approximately ~~$4.6~~$4.9 billion, primarily associated with claims incurred in ~~2020.~~2021.

Group and Specialty Segment

Activity in benefits payable for our Group and Specialty segment was as follows for the ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 and ~~2019:~~2020:


		For the nine months ended September 30,						For the six months ended June 30,
			2020		2019				2021		2020
		(in millions)						(in millions)
Balances, beginning of period	Balances, beginning of period		$	641	$	517	Balances, beginning of period		$	715	$	641

Incurred related to:	Incurred related to:						Incurred related to:
Current year	Current year		3,929		4,142		Current year		2,492		2,434
Prior years	Prior years		(43)		35		Prior years		(100)		(30)
Total incurred	Total incurred		3,886		4,177		Total incurred		2,392		2,404
Paid related to:	Paid related to:						Paid related to:
Current year	Current year		(3,286)		(3,547)		Current year		(1,917)		(1,918)
Prior years	Prior years		(575)		(524)		Prior years		(599)		(570)
Total paid	Total paid		(3,861)		(4,071)		Total paid		(2,516)		(2,488)

Balances, end of period	Balances, end of period		$	666	$	623	Balances, end of period		$	591	$	557

At ~~September~~June 30, ~~2020,~~2021, benefits payable for our Group and Specialty segment included IBNR of approximately ~~$576~~$514 million, primarily associated with claims incurred in ~~2020.~~2021.

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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,~~
	~~2020~~
~~Net outstanding liabilities~~	~~(in millions)~~
~~Retail~~	$	~~7,541~~
~~Group and Specialty~~	~~666~~


~~Benefits payable, net of reinsurance~~	~~8,207~~

~~Reinsurance recoverable on unpaid claims~~
~~Retail~~	1









~~Total benefits payable, gross~~	$	~~8,208~~

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~~six months ended ~~September~~June 30, 2021 and 2020:


	Three months ended June 30,				Six months ended June 30,
	2021		2020		2021		2020
	(dollars in millions, except per common share results; number of shares in thousands)
Net income available for common stockholders	$	588	$	1,828	$	1,416	$	2,301
Weighted average outstanding shares of common stock used to compute basic earnings per common share	128,692		132,248		128,811		132,192
Dilutive effect of:
Employee stock options	74		89		63		90
Restricted stock	621		686		595		635
Shares used to compute diluted earnings per common share	129,387		133,023		129,469		132,917
Basic earnings per common share	$	4.57	$	13.83	$	11.00	$	17.41
Diluted earnings per common share	$	4.55	$	13.75	$	10.94	$	17.31
Number of antidilutive stock options and restricted stock excluded from computation	103		130		317		395

10. STOCKHOLDERS’ EQUITY

Dividends

The following table provides details of dividend payments, excluding dividend equivalent rights for unvested stock awards, in 2020 and ~~2019:~~2021 under our Board approved quarterly cash dividend policy:

Three months ended September 30, Nine months ended September 30,
2020 2019 2020 2019
(dollars in millions, except per common share results; number of shares in thousands)
Net income available for common stockholders $ 1,340 $ 689 $ 3,641 $ 2,195
Weighted average outstanding shares of common stock
used to compute basic earnings per common share 132,318 133,321 132,234 134,589
Dilutive effect of:
Employee stock options 105 101 95 99
Restricted stock 773 603 681 501
Shares used to compute diluted earnings per common share 133,196 134,025 133,010 135,189
Basic earnings per common share $ 10.12 $ 5.16 $ 27.53 $ 16.31
Diluted earnings per common share $ 10.05 $ 5.14 $ 27.37 $ 16.24
Number of antidilutive stock options and restricted stock
excluded from computation 143 302 311 589


Record Date	Payment Date	Amount per Share		Total Amount
				(in millions)
2020 payments
12/31/2019	1/31/2020	$	0.550	$	73
3/31/2020	4/24/2020	0.625		83
6/30/2020	7/31/2020	0.625		83
9/30/2020	10/30/2020	0.625		83
2021 payments
12/31/2020	1/29/2021	$	0.625	$	81
3/31/2020	4/30/2021	0.700		90

In April 2021, the Board declared a cash dividend of $0.70 per share payable on July 30, 2021 to stockholders of record on June 30, 2021.

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(Unaudited)

~~10. STOCKHOLDERS’ EQUITY~~

~~Dividends~~

~~The following table provides details of dividend payments, excluding dividend equivalent rights for unvested stock awards, in 2019 and 2020 under our Board approved quarterly cash dividend policy:~~

Record
Date Payment
Date Amount
per Share Total
Amount
(in millions)
2019 payments
12/31/2018 1/25/2019 $ 0.50 $ 68
3/29/2019 4/26/2019 $ 0.55 $ 74
6/28/2019 7/26/2019 $ 0.55 $ 74
9/30/2019 10/25/2019 $ 0.55 $ 73
2020 payments
12/31/2019 1/31/2020 $ 0.55 $ 73
3/31/2020 4/24/2020 $ 0.625 $ 83
6/30/2020 7/31/2020 $ 0.625 $ 83
9/30/2020 10/30/2020 $ 0.625 $ 83

~~In November 2020, the Board declared a cash dividend of $0.625 per share payable on January 29, 2021 to stockholders of record on December 31, 2020.~~

Stock Repurchases

Our Board of Directors may authorize the purchase of our common stock shares. Under the share repurchase authorization, shares may be purchased from time to time at prevailing prices in the open market, by block purchases, through plans designed to comply with Rule 10b5-1 under the Securities Exchange Act of 1934, as amended, or in privately-negotiated transactions, including pursuant to accelerated share repurchase agreements with investment banks, subject to certain regulatory restrictions on volume, pricing, and timing.

On July 30, 2019, the Board of Directors replaced a previous share repurchase authorization of up to $3 billion (of which approximately $1.03 billion remained unused) with a new authorization for repurchases of up to $3 billion of our common shares exclusive of shares repurchased in connection with employee stock plans, expiring on June 30, 2022.

On July 31, 2019, we entered into an accelerated stock repurchase agreement, the July 2019 ASR, with Citibank, N.A., or Citi, to repurchase $1 billion of our common stock. On August 2, 2019, we made a payment of $1 billion to Citi and received an initial delivery of 2.7 million shares of our common stock. We recorded the payment to Citi as a reduction to stockholders’ equity, consisting of an $800 million increase in treasury stock, which reflects the value of the initial 2.7 million shares received upon initial settlement, and a $200 million decrease in capital in excess of par value, which reflects the value of stock held back by Citi pending final settlement of the July 2019 ASR. Upon final settlement of the July 2019 ASR on December 26, 2019, we received an additional 0.7 million shares 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 $296.19, bringing the total shares received under the July 2019 ASR to 3.4 million. In addition, upon settlement we reclassified the $200 million value of stock initially held back by Citi from capital in excess of par value to treasury stock.

On December 22, 2020, we entered into separate accelerated stock repurchase agreements, ("the December 2020 ASR Agreements"), with Citibank, N.A., or Citi, and JPMorgan Chase Bank, or JPM, to repurchase $1.75 billion of our common stock as part of the $3 billion repurchase program authorized by the Board of Directors on July 30, 2019. On December 23, 2020, in accordance with the December 2020 ASR Agreements, we made a payment of $1.75 billion ($875 million to Citi and $875 million to JPM) and received an initial delivery of 3.8 million shares of our common stock (1.9 million shares each from Citi and JPM). We recorded the payments to Citi and JPM as a reduction to stockholders’ equity, consisting of an $1.5 billion increase in treasury stock, which reflects the value of the initial 3.8 million shares received upon initial settlement, and a $262.5 million decrease in capital in excess of par value, which reflects the value of stock held back by Citi and JPM pending final settlement of the December 2020 ASR Agreements. Upon final settlement of the December 2020 ASR agreements with Citi and JPM on May 4, 2021 and May 5, 2021, respectively, we received an additional 0.3 million shares and 0.3 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 $400.07 and 401.49, respectively, bringing the total shares received under the December 2020 ASR agreements to 4.4 million. In addition, upon settlement we reclassified the $262.5 million value of stock initially held back by Citi and JPM from capital in excess of par value to treasury stock.

On February 18, 2021, the Board of Directors replaced the previous share repurchase authorization of up to $3 billion (of which approximately $250 million remained unused) with a new authorization for repurchases of up to $3 billion of our common shares exclusive of shares repurchased in connection with employee stock plans, expiring as of February 18, 2024. Our remaining repurchase authorization was ~~approximately $2~~$3 billion as of July 27, 2021.

In connection with employee stock plans, we acquired 0.09 million common shares for $33 million and 0.08 million common shares for $25 million during the six months ended June 30, 2021 and 2020, respectively.

11. INCOME TAXES

The effective income tax rate was 23.7% and 22.7% for the three and six months ended June 30, 2021, respectively, compared to 30.0% and 31.0% for the three and six months ended June 30, 2020, respectively, primarily due to the termination of the ~~$3 billion share repurchase program as of November 2, 2020.~~non-deductible health insurance industry fee in 2021.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

In connection with employee stock plans, we acquired 0.08 million common shares for $30 million and 0.03 million common shares for $10 million during the nine months ended September 30, 2020 and 2019, respectively.

~~11. INCOME TAXES~~

The effective income tax rate was 25.2% and 29.0% for the three and nine months ended September 30, 2020, respectively, compared to 22.5% and 23.8% for the three and nine months ended September 30, 2019, respectively, primarily due to the reinstatement of the non-deductible health insurance industry fee in 2020.

12. DEBT

The carrying value of debt outstanding, net of unamortized debt issuance costs, was as follows at ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019:~~2020:


		September 30, 2020		December 31, 2019			June 30, 2021		December 31, 2020
		(in millions)					(in millions)
Short-term debt:	Short-term debt:					Short-term debt:
Commercial paper	Commercial paper	$	325	$	300	Commercial paper	$	1,109	$	600
Term note		1,000		0
Senior notes:
$400 million, 2.50% due December 15, 2020		399		399

Total short-term debt	Total short-term debt	$	1,724	$	699	Total short-term debt	$	1,109	$	600

Long-term debt:	Long-term debt:					Long-term debt:
Senior notes:	Senior notes:					Senior notes:
$600 million, 3.15% due December 1, 2022	$600 million, 3.15% due December 1, 2022	$	598	$	598	$600 million, 3.15% due December 1, 2022	$	598	$	598
$400 million, 2.90% due December 15, 2022	$400 million, 2.90% due December 15, 2022	398		397		$400 million, 2.90% due December 15, 2022	398		398
$600 million, 3.85% due October 1, 2024	$600 million, 3.85% due October 1, 2024	597		597		$600 million, 3.85% due October 1, 2024	598		598
$600 million, 4.50% due April 1, 2025	$600 million, 4.50% due April 1, 2025	595		0		$600 million, 4.50% due April 1, 2025	595		595
$600 million, 3.95% due March 15, 2027	$600 million, 3.95% due March 15, 2027	596		595		$600 million, 3.95% due March 15, 2027	596		596
$500 million, 3.125% due August 15, 2029	$500 million, 3.125% due August 15, 2029	495		495		$500 million, 3.125% due August 15, 2029	496		495
$500 million, 4.875% due April 1, 2030	$500 million, 4.875% due April 1, 2030	494		0		$500 million, 4.875% due April 1, 2030	495		494
$250 million, 8.15% due June 15, 2038	$250 million, 8.15% due June 15, 2038	262		262		$250 million, 8.15% due June 15, 2038	262		262
$400 million, 4.625% due December 1, 2042	$400 million, 4.625% due December 1, 2042	396		396		$400 million, 4.625% due December 1, 2042	396		396
$750 million, 4.95% due October 1, 2044	$750 million, 4.95% due October 1, 2044	739		739		$750 million, 4.95% due October 1, 2044	740		739
$400 million, 4.80% due March 15, 2047	$400 million, 4.80% due March 15, 2047	396		396		$400 million, 4.80% due March 15, 2047	396		396
$500 million, 3.95% due August 15, 2049	$500 million, 3.95% due August 15, 2049	493		492		$500 million, 3.95% due August 15, 2049	493		493
Total long-term debt	Total long-term debt	$	6,059	$	4,967	Total long-term debt	$	6,063	$	6,060

Senior Notes

In March 2020, we issued $600 million of 4.500% senior notes due April 1, 2025 and $500 million of 4.875% senior notes due April 1, 2030. Our net proceeds, reduced for the underwriters' discount and commission and offering expenses paid, were approximately $1,088 million as of September 30, 2020. We intend to use the net proceeds for general corporate purposes, which may include the repayment of existing indebtedness.

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Our senior notes, which are unsecured, may be redeemed at our option at any time at 100% of the principal amount plus accrued interest and a specified make-whole amount. The 8.15% senior notes are subject to an interest rate adjustment if the debt ratings assigned to the notes are downgraded (or subsequently upgraded). In addition, our senior notes contain a change of control provision that may require us to purchase the notes under certain circumstances.

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Revolving Credit ~~Agreement~~Agreements

~~Our~~In June 2021, we entered into two separate revolving credit agreements: (i) a 5-year, ~~$2.0~~$2.5 billion unsecured revolving credit agreement ~~expires May 2022.~~and (ii) a 364-day $1.5 billion unsecured revolving credit agreement. Under the revolving credit ~~agreement,~~agreements, at our option, we can borrow on either a competitive advance basis or a revolving credit basis. The revolving credit portion bears interest at either LIBOR plus a spread or the base rate plus a spread. If drawn upon, the revolving credit would revert to using the alternative base rate once LIBOR is discontinued. 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, at our option. The revolving credit agreements provide for the transition from LIBOR and do not require amendment in connection with such transition.

The LIBOR spread, currently 110.0 basis points under the 5-year revolving credit agreements and 115.0 basis points under the 364-day revolving credit agreement, varies depending on our credit ratings ranging from 91.0 to 140.0 basis points under the 5-year revolving credit agreement and from 93.0 to 145.0 basis points under the 364-day revolving credit agreement. We also pay an annual facility fee regardless of utilization. This facility fee, currently 15.0 basis points, under the 5-year revolving credit agreement and 10.0 basis points under the 364-day revolving agreement, various depending on our credit ratings ranging from 9.0 to 22.5 basis points under the 5-year revolving credit agreement and from 7.0 to 17.5 basis points under the 364-day revolving credit agreement.

The terms of the revolving credit ~~agreement~~agreements include standard provisions related to conditions of borrowing which could limit our ability to borrow additional funds. In addition, the credit ~~agreement contains~~agreements contain customary restrictive covenants and a financial covenant regarding maximum debt to capitalization of ~~50%~~60%, as well as customary events of default. We are in compliance with this financial covenant, with actual debt to capitalization of 33% as measured in accordance with the revolving credit ~~agreement~~agreements as of ~~September~~June 30, ~~2020.~~2021. Upon our agreement with one or more financial institutions, we may expand the aggregate commitments under the revolving credit ~~agreement~~agreements by up to $750 million in the aggregate, to a maximum of ~~$2.5~~$4.75 billion, ~~through a $500 million incremental loan facility.~~across the 5-year and 364-day revolving credit agreements.

At ~~September~~June 30, ~~2020,~~2021, we had 0 borrowings and 0less than $1 million of letters of credit outstanding under the revolving credit ~~agreement.~~agreements. Accordingly, as of ~~September~~June 30, ~~2020,~~2021, we had ~~$2.0~~$2.5 billion of remaining borrowing capacity under the 5-year revolving credit agreement and $1.5 billion of remaining borrowing capacity under the 364-day revolving credit agreement (which excludes the uncommitted ~~$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 to the revolving credit agreements.

Delayed Draw Term Loan Credit Agreement

In May 2021, we entered into a $500 million unsecured delayed draw term loan credit agreement. Under the term loan credit agreement, loans bear interest at either LIBOR plus a spread or the base rate plus a spread. The loans under the term loan credit agreement mature on the third anniversary of the funding date. The LIBOR spread, currently 125 basis points, varies depending on our credit ratings ranging from 100.0 to 162.5 basis points. The term loan credit agreement provides for the transition from LIBOR and does not require amendment in connection with such transition.

The term loan credit agreement contains customary restrictive covenants and a financial covenant regarding maximum debt to capitalization of 60%, as well as customary events of default. We are in compliance with this financial covenant, with actual debt to capitalization of 33% as measured in accordance with the term loan credit agreement as of June 30, 2021. At June 30, 2021, we had 0 borrowings under the delayed term loan credit agreement.

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

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Commercial Paper

Under our commercial paper program we may issue short-term, unsecured commercial paper notes privately placed on a discount basis through certain broker dealers at any time 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~~six months ended ~~September~~June 30, ~~2020~~2021 was ~~$600 million,~~$1.3 billion, with ~~$325 million~~$1.1 billion outstanding at ~~September~~June 30, ~~2020~~2021 compared to ~~$300~~$600 million outstanding at December 31, ~~2019.~~2020. The outstanding commercial paper at ~~September~~June 30, ~~2020~~2021 had a weighted average annual interest rate of ~~0.35%~~0.32%.

~~Term Note~~Other Short-term Borrowings

We are a member, through one subsidiary, of the Federal Home Loan Bank of Cincinnati, or FHLB. As a member we have the ability to obtain short-term cash advances, subject to certain minimum collateral requirements. At June 30, 2021 we had 0 outstanding short-term FHLB borrowings.

Bridge Loan Financing

In ~~February 2020,~~April 2021, we entered into a commitment letter with Goldman Sachs Bank USA, or Goldman Sachs, pursuant to which, and subject to the terms and conditions set forth therein, Goldman Sachs committed to lend us up to $3.5 billion under a new $1senior unsecured 364-day bridge loan facility, or Bridge Loan. If we enter into the Bridge Loan, the proceeds of the Bridge Loan will be used to finance a portion of the cash consideration payable for the KAH transaction. The outstanding Bridge Loan commitments under the commitment letter were reduced to $3.0 billion in connection with the effectiveness of the delayed draw term loan commitment with a bank that matures 1 year after the first draw, subject to a 1 year extension. In March 2020, we made a draw on the entire term loan commitment of $1 billion. The facility fee, interest rate and financial covenants are consistent with those of our revolving credit ~~agreement. There is no prepayment penalty.~~agreement in May 2021.

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13. COMMITMENTS, GUARANTEES AND CONTINGENCIES

Government Contracts

Our Medicare products, which accounted for approximately ~~82%~~83% of our total premiums and services revenue for the ~~nine~~six months ended ~~September~~June 30, ~~2020,~~2021, primarily ~~consisted~~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 ~~2021 and all of our~~2022. Our product offerings ~~have been approved.~~under those contracts are subject to approval by CMS in the third quarter of 2021.

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) and the Benefits Improvement and Protection Act of 2000 (BIPA), generally pays more where a plan's membership has higher expected costs. Under this model, rates paid to MA plans are based on actuarially determined bids, which include a process whereby our prospective payments are based on our estimated cost of providing standard Medicare-covered benefits to an enrollee with a "national average risk profile." That baseline payment amount is adjusted to reflect the health status of our enrolled membership. Under the risk-adjustment methodology, all MA plans must collect from providers and submit the necessary diagnosis code information ~~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

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include the internal contract level audits described in more detail below, as well as ordinary course reviews of our internal business processes.

CMS is phasing-in 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 diagnoses 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 ~~2019, 25%~~2020, 50% of the risk score was calculated from claims data submitted through EDS. CMS increased that percentage to ~~50% in 2020~~75% for 2021 and will increase that percentage to 75% in 2021. For 2022, CMS has proposed to calculate risk scores for payment to MA organizations using only risk adjustment eligible diagnoses identified from EDS data completingcomplete the phased-in transition from RAPS to ~~EDS.~~EDS by using only EDS data to calculate risk scores in 2022. 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, 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 and the Office of the Inspector General of Health and Human Services, or HHS-OIG, are continuing to perform audits of various companies’ selected MA contracts related to this risk adjustment diagnosis data. We refer to these audits as Risk-Adjustment Data Validation Audits, or RADV audits. RADV audits review medical records in an attempt to validate provider medical record documentation and coding practices which influence the calculation of premium payments to MA plans.

In 2012, CMS released a “Notice of Final Payment Error Calculation Methodology for Part C Medicare Advantage Risk Adjustment Data Validation (RADV) Contract-Level Audits.” The payment error calculation methodology provided that, in calculating the economic impact of audit results for an MA contract, if any, the results of the RADV audit sample would be extrapolated to the entire MA contract after a comparison of the audit results to a similar audit of the government’s traditional fee-for-service Medicare program, or Medicare FFS. We

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refer to the process of accounting for errors in FFS claims as the "FFS Adjuster." This comparison of RADV audit results to the FFS error rate is necessary to determine the economic impact, if any, of RADV audit results because the government used the Medicare FFS program data set, including any attendant errors that are present in that data set, to estimate the costs of various health status conditions and to set the resulting adjustments to MA plans’ payment rates in order to establish actuarial equivalence in payment rates as required under the Medicare statute. CMS already makes other adjustments to payment rates based on a comparison of coding pattern differences between MA plans and Medicare FFS data (such as for frequency of coding for certain diagnoses in MA plan data versus the Medicare FFS program dataset).

The final RADV extrapolation methodology, including the first application of extrapolated audit results to determine audit settlements, is expected to be applied to CMS RADV contract level audits conducted for contract year 2011 and subsequent years. CMS is currently conducting RADV contract level audits for certain of our Medicare Advantage plans.

Estimated audit settlements are recorded as a reduction of premiums revenue in our consolidated statements of income, based upon available information. We perform internal contract level audits based on the RADV audit methodology prescribed by CMS. Included in these internal contract level audits is an audit of our Private Fee-For Service business which we used to represent a proxy of the FFS Adjuster which has not yet been finalized. We based our accrual of estimated audit settlements for each contract year on the results of these internal contract level audits and update our estimates as each audit is completed. Estimates derived from these results were not material to our results of operations, financial position, or cash flows. We report the results of these internal contract level audits to CMS, including identified overpayments, if any.

On October 26, 2018, CMS issued a proposed rule and accompanying materials (which we refer to as the “Proposed Rule”) related to, among other things, the RADV audit methodology described above. If implemented, the Proposed Rule would use extrapolation in RADV audits applicable to payment year 2011 contract-level audits and all subsequent audits, without the application of a FFS Adjuster to audit findings. We believe that the Proposed Rule fails to address adequately the statutory requirement of actuarial equivalence, and have provided substantive

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comments to CMS on the Proposed Rule as part of the notice-and-comment rulemaking process. Whether, and to what extent, CMS finalizes the Proposed Rule, and any related regulatory, industry or company reactions, could have a material adverse effect on our results of operations, financial position, or cash flows.

In addition, as part of our internal compliance efforts, we routinely perform ordinary course reviews of our internal business processes related to, among other things, our risk coding and data submissions in connection with the risk adjustment model. These reviews may also result in the identification of errors and the submission of corrections to CMS, that may, either individually or in the aggregate, be material. As such, the result of these reviews may have a material adverse effect on our results of operations, financial position, or cash flows.

We believe that ~~CMS'~~CMS's statements and policies regarding the requirement to report and return identified overpayments received by MA plans are inconsistent with ~~CMS'~~CMS's 2012 RADV audit methodology, and the Medicare statute's requirements. These statements and policies, such as certain statements contained in the preamble to ~~CMS’~~CMS’s final rule release regarding Medicare Advantage and Part D prescription drug benefit program regulations for Contract Year 2015 (which we refer to as the "Overpayment Rule"), and the Proposed Rule, appear to equate each Medicare Advantage risk adjustment data error with an “overpayment” without addressing the principles underlying the FFS Adjuster referenced above. On September 7, 2018, the Federal District Court for the District of Columbia vacated CMS's Overpayment Rule, concluding that it violated the Medicare statute, including the requirement for actuarial equivalence, and that the Overpayment Rule was also arbitrary and capricious in departing from CMS's RADV methodology without adequate explanation (among other reasons). CMS has appealed the decision to the Circuit Court of Appeals.

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.

~~Table~~Our state-based Medicaid business, which accounted for approximately 6% of ~~Contents~~

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our total premiums and services revenue for the six months ended June 30, 2021 primarily consisted of serving members enrolled in Medicaid, and in certain circumstances members who qualify for both Medicaid and Medicare, under contracts with various states.

At ~~September~~June 30, ~~2020,~~2021, our military services business, which accounted for approximately 1% of our total premiums and services revenue for the ~~nine~~six months ended ~~September~~June 30, ~~2020,~~2021, primarily consisted of the TRICARE T2017 East Region contract. The T2017 East Region contract ~~is a consolidation of the former T3 North and South Regions,~~ comprising ~~NaN~~32 states and approximately 6 million TRICARE beneficiaries, under which delivery of health care services commenced on January 1, 2018. The T2017 East Region contract is a 5-year contract set to expire on December 31, 2022 and is subject to renewals on January 1 of each year during its term at the government's option.

Our state-based Medicaid business accounted for approximately 5% of our total premiums and services revenue for the nine months ended September 30, 2020. In addition 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), and in Illinois for stand-alone dual eligible demonstration programs serving individuals dually eligible for both the federal Medicare program and the applicable state-based Medicaid program.

The loss of any of the contracts above or significant changes in these programs as a result of legislative or regulatory action, including reductions in premium payments to us, regulatory restrictions on profitability, including reviews by regulatory bodies that may compare our Medicare Advantage profitability to our non-Medicare Advantage business profitability, or compare the profitability of various products within our Medicare Advantage business, and require that they remain within certain ranges of each other, or increases in member benefits or member eligibility criteria without corresponding increases in premium payments to us, may have a material adverse effect on our results of operations, financial position, and cash flows.

Legal Proceedings and Certain Regulatory Matters

As previously disclosed, the Civil Division of the United States Department of Justice provided us with an information request in December 2014, concerning our Medicare Part C risk adjustment practices. The request relates to our oversight and submission of risk adjustment data generated by providers in our Medicare Advantage network, as well as to our business and compliance practices related to risk adjustment data generated by our providers and by us, including medical record reviews conducted as part of our data and payment accuracy compliance efforts, the use of health and well-being assessments, and our fraud detection efforts. We believe that this request for information is in connection with a wider review of Medicare Risk Adjustment generally that

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includes a number of Medicare Advantage plans, providers and vendors. We continue to cooperate with the Department of Justice. These matters are expected to result in additional qui tam litigation.

As previously disclosed, on January 19, 2016, an individual filed a qui tam suit captioned United States of America ex rel. Steven Scott v. Humana, Inc., in United States District Court, Central District of California, Western Division. The complaint alleges certain civil violations by us in connection with the actuarial equivalence of the plan benefits under Humana’s Basic PDP plan, a prescription drug plan offered by us under Medicare Part D. The action seeks damages and penalties on behalf of the United States under the False Claims Act. The court ordered the qui tam action unsealed on September 13, 2017, so that the relator could proceed, following notice from the U.S. Government that it was not intervening at that time. On January 29, 2018, the suit was transferred to the United States District Court, Western District of Kentucky, Louisville Division. We take seriously our obligations to comply with applicable CMS requirements and actuarial standards of practice, and continue to vigorously defend against these allegations since the transfer to the Western District of Kentucky. We have substantially completed discovery with the relator who has pursued the matter on behalf of the United States following its unsealing, and expect the Court to consider our motion for summary judgment.

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the U.S Government and approximately $31 million in related fees and expenses are reflected in "Premiums" revenue and "Operating costs", respectively, in our condensed consolidated statements of income for the three and nine months ended September 30, 2020.

Other Lawsuits and Regulatory Matters

Our current and past business practices are subject to review or other investigations by various state insurance and health care regulatory authorities and other state and federal regulatory authorities. These authorities regularly scrutinize the business practices of health insurance, health care delivery and benefits companies. These reviews focus on numerous facets of our business, including claims payment practices, statutory capital requirements, provider contracting, risk adjustment, competitive practices, commission payments, privacy issues, utilization management practices, pharmacy benefits, access to care, and sales practices, among others. Some of these reviews have historically resulted in fines imposed on us and some have required changes to some of our practices. We continue to be subject to these reviews, which could result in additional fines or other sanctions being imposed on us or additional changes in some of our practices.

We also are involved in various other lawsuits that arise, for the most part, in the ordinary course of our business operations, certain of which may be styled as class-action lawsuits. Among other matters, this litigation may include employment matters, claims of medical malpractice, bad faith, nonacceptance or termination of providers, anticompetitive practices, improper rate setting, provider contract rate and payment disputes, including disputes over reimbursement rates required by statute, disputes arising from competitive procurement process, general contractual matters, intellectual property matters, and challenges to subrogation practices. Under state guaranty assessment laws, including those related to state cooperative failures in the industry, we may be assessed (up to prescribed limits) for certain obligations to the policyholders and claimants of insolvent insurance companies that write the same line or lines of business as we do.

As a government contractor, we may also be subject to qui tam litigation brought by individuals who seek to sue on behalf of the government, alleging that the government contractor submitted false claims to the government including, among other allegations, those resulting from coding and review practices under the Medicare risk adjustment model. Qui tam litigation is filed under seal to allow the government an opportunity to investigate and to decide if it wishes to intervene and assume control of the litigation. If the government does not intervene, the individual may continue to prosecute the action on his or her own, on behalf of the government. We also are subject to other allegations of nonperformance of 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.

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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.

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The outcome of any current or future litigation or governmental or internal investigations, including the matters described above, cannot be accurately predicted, nor can we predict any resulting judgments, penalties, fines or other sanctions that may be imposed at the discretion of federal or state regulatory authorities or as a result of actions by third parties. Nevertheless, it is reasonably possible that any such outcome of litigation, judgments, penalties, fines or other sanctions could be substantial, and the outcome of these matters may have a material adverse effect on our results of operations, financial position, and cash flows, and may also affect our reputation.

14. SEGMENT INFORMATION

We manage our business with 3 reportable segments: Retail, Group and Specialty, and Healthcare Services. The reportable segments are based on a combination of the type of health plan customer and adjacent businesses centered on well-being solutions for our health plans and other customers, as described below. These segment groupings are consistent with information used by our Chief Executive Officer, the Chief Operating Decision Maker, to assess performance and allocate resources.

The Retail segment consists of Medicare benefits, marketed to individuals or directly via group Medicare accounts. In addition, the Retail segment also includes our contract with CMS to administer the Limited Income Newly Eligible Transition, or LI-NET, prescription drug plan program and contracts with various states to provide Medicaid, dual eligible, and Long-Term Support Services benefits, which we refer to collectively as our state-based contracts. The Group and Specialty segment consists of employer group commercial fully-insured medical and specialty health insurance benefits marketed to individuals and employer groups, including dental, vision, and other supplemental health benefits, as well as administrative services only, or ASO products. In addition, our Group and Specialty segment includes our military services business, primarily our TRICARE T2017 East Region contract. The Healthcare Services segment includes ~~our~~ services offered to our health plan members as well as to third parties, including pharmacy solutions, provider services, and clinical care service, such as home health and other services and capabilities to promote wellness and advance population health, including our non-consolidating minority investment in Kindred at Home and the strategic partnership with WCAS to develop and operate senior-focused, payor-agnostic, primary care centers.

Our Healthcare Services intersegment revenues primarily relate to managing prescription drug coverage for members of our other segments through Humana Pharmacy Solutions®, or HPS, and includes the operations of Humana Pharmacy, Inc., our mail order pharmacy business. These revenues consist of the prescription price (ingredient cost plus dispensing fee), including the portion to be settled with the member (co-share) or with the government (subsidies), plus any associated administrative fees. Services revenues related to the distribution of 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~~ risk based

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agreements, the provider receives a monthly capitated fee that varies depending on the demographics and health status of the member, for each member assigned to these owned providers by our health plans. The owned provider assumes the economic risk of funding the assigned members’ healthcare services. Under non risk-based agreements, our health plans retain the economic risk of funding the assigned members' healthcare services. Our Healthcare Services segment reports provider services revenues associated with risk-based agreements on a gross basis, whereby capitation fee revenue is recognized in the period in which the assigned members are entitled to receive healthcare services. Provider services revenues associated with non-risk-based agreements are presented net of associated healthcare costs.

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

~~(Unaudited)~~

We present our condensed consolidated results of operations from the perspective of the health plans. As a result, the cost of providing benefits to our members, whether provided via a third party provider or internally through a stand-alone subsidiary, is classified as benefits expense and excludes the portion of the cost for which the health plans do not bear responsibility, including member co-share amounts and government subsidies of $4.4 billion and $4.0 billion for the three months ended ~~September~~June 30, ~~2020~~2021 and ~~2019,~~2020, respectively. For the ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 and ~~2019~~2020 these amounts were ~~$11.9~~$8.0 billion and ~~$10.7~~$7.4 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 provider services and pharmacy operations, are included with benefits expense. The amount of this expense was ~~$33~~$26 million and ~~$32~~$31 million for the three months ended ~~September~~June 30, ~~2020~~2021 and ~~2019,~~2020, respectively. For the ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 and ~~2019,~~2020, the amount of this expense was ~~$94~~$52 million and ~~$92~~$61 million, respectively.

Other than those described previously, the accounting policies of each segment are the same and are described in Note 2 to the consolidated financial statements included in our ~~2019~~2020 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 services, to our Retail and Group and Specialty segment customers. Intersegment sales and expenses are recorded at fair value and eliminated in consolidation. Members served by our segments often use the same provider networks, enabling us in some instances to obtain more favorable contract terms with providers. Our segments also share indirect costs and assets. As a result, the profitability of each segment is interdependent. We allocate most operating expenses to our segments. Assets and certain corporate income and expenses are not allocated to the segments, including the portion of investment income not supporting segment operations, interest expense on corporate debt, and certain other corporate expenses. These items are managed at a corporate level. These corporate amounts are reported separately from our reportable segments and are included with intersegment eliminations in the tables presenting segment results below.

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Humana Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

Our segment results were as follows for the three and ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 and ~~2019:~~2020:


		Retail		Group and Specialty		Healthcare Services		Eliminations/ Corporate		Consolidated			Retail		Group and Specialty		Healthcare Services		Eliminations/ Corporate		Consolidated
Three months ended September 30, 2020		(in millions)
Three months ended June 30, 2021												Three months ended June 30, 2021	(in millions)
External revenues	External revenues											External revenues
Premiums:	Premiums:											Premiums:
Individual Medicare Advantage	Individual Medicare Advantage	$	12,949	$	0	$	0	$	0	$	12,949	Individual Medicare Advantage	$	14,585	$	0	$	0	$	0	$	14,585
Group Medicare Advantage	Group Medicare Advantage	1,880		0		0		0		1,880		Group Medicare Advantage	1,775		0		0		0		1,775
Medicare stand-alone PDP	Medicare stand-alone PDP	622		0		0		0		622		Medicare stand-alone PDP	662		0		0		0		662
Total Medicare	Total Medicare	15,451		0		0		0		15,451		Total Medicare	17,022		0		0		0		17,022
Fully-insured	Fully-insured	177		1,169		0		602		1,948		Fully-insured	182		1,078		0		0		1,260
Specialty	Specialty	0		424		0		0		424		Specialty	0		432		0		0		432
Medicaid and other	Medicaid and other	1,081		0		0		0		1,081		Medicaid and other	1,264		0		0		0		1,264
Total premiums	Total premiums	16,709		1,593		0		602		18,904		Total premiums	18,468		1,510		0		0		19,978
Services revenue:	Services revenue:											Services revenue:
Provider	Provider	0		0		107		0		107		Provider	0		0		122		0		122
ASO and other	ASO and other	4		189		0		0		193		ASO and other	12		194		0		0		206
Pharmacy	Pharmacy	0		0		157		0		157		Pharmacy	0		0		163		0		163
Total services revenue	Total services revenue	4		189		264		0		457		Total services revenue	12		194		285		0		491
Total external revenues	Total external revenues	16,713		1,782		264		602		19,361		Total external revenues	18,480		1,704		285		0		20,469
Intersegment revenues	Intersegment revenues											Intersegment revenues
Services	Services	0		9		4,852		(4,861)		0		Services	0		10		4,977		(4,987)		0
Products	Products	0		0		2,013		(2,013)		0		Products	0		0		2,261		(2,261)		0
Total intersegment revenues	Total intersegment revenues	0		9		6,865		(6,874)		0		Total intersegment revenues	0		10		7,238		(7,248)		0
Investment income	Investment income	28		3		2		681		714		Investment income	65		4		1		106		176
Total revenues	Total revenues	16,741		1,794		7,131		(5,591)		20,075		Total revenues	18,545		1,718		7,524		(7,142)		20,645
Operating expenses:	Operating expenses:											Operating expenses:
Benefits	Benefits	14,224		1,481		0		(94)		15,611		Benefits	16,068		1,247		0		(166)		17,149
Operating costs	Operating costs	1,877		452		6,871		(6,687)		2,513		Operating costs	1,533		409		7,205		(7,031)		2,116

Depreciation and amortization	Depreciation and amortization	87		21		46		(26)		128		Depreciation and amortization	108		22		41		(27)		144
Total operating expenses	Total operating expenses	16,188		1,954		6,917		(6,807)		18,252		Total operating expenses	17,709		1,678		7,246		(7,224)		19,409
Income (loss) from operations		553		(160)		214		1,216		1,823
Income from operations												Income from operations	836		40		278		82		1,236

Interest expense	Interest expense	0		0		0		75		75		Interest expense	0		0		0		79		79
Other income, net		0		0		0		(7)		(7)
Other expense, net												Other expense, net	0		0		0		419		419
Income (loss) before income taxes and equity in net earnings	Income (loss) before income taxes and equity in net earnings	553		(160)		214		1,148		1,755		Income (loss) before income taxes and equity in net earnings	836		40		278		(416)		738
Equity in net earnings	Equity in net earnings	0		0		35		0		35		Equity in net earnings	0		0		33		0		33
Segment earnings (loss)	Segment earnings (loss)	$	553	$	(160)	$	249	$	1,148	$	1,790	Segment earnings (loss)	$	836	$	40	$	311	$	(416)	$	771

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Humana Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)



	Retail		Group and Specialty		Healthcare Services		Eliminations/ Corporate		Consolidated
Three months ended June 30, 2020	(in millions)
External revenues
Premiums:
Individual Medicare Advantage	$	13,005	$	0	$	0	$	0	$	13,005
Group Medicare Advantage	1,976		0		0		0		1,976
Medicare stand-alone PDP	731		0		0		0		731
Total Medicare	15,712		0		0		0		15,712
Fully-insured	169		1,208		0		0		1,377
Specialty	0		425		0		0		425
Medicaid and other	1,042		0		0		0		1,042
Total premiums	16,923		1,633		0		0		18,556
Services revenue:
Provider	0		0		105		0		105
ASO and other	6		192		0		0		198
Pharmacy	0		0		147		0		147
Total services revenue	6		192		252		0		450
Total external revenues	16,929		1,825		252		0		19,006
Intersegment revenues
Services	0		6		4,712		(4,718)		0
Products	0		0		1,977		(1,977)		0
Total intersegment revenues	0		6		6,689		(6,695)		0
Investment income	32		4		0		41		77
Total revenues	16,961		1,835		6,941		(6,654)		19,083
Operating expenses:
Benefits	13,251		1,094		0		(170)		14,175
Operating costs	1,638		435		6,603		(6,322)		2,354

Depreciation and amortization	83		19		46		(29)		119
Total operating expenses	14,972		1,548		6,649		(6,521)		16,648
Income (loss) from operations	1,989		287		292		(133)		2,435

Interest expense	0		0		0		76		76
Other income, net	0		0		0		(227)		(227)
Income before income taxes and equity in net earnings	1,989		287		292		18		2,586
Equity in net earnings	0		0		25		0		25
Segment earnings	$	1,989	$	287	$	317	$	18	$	2,611

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Humana Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)



	Retail		Group and Specialty		Healthcare Services		Eliminations/ Corporate		Consolidated
Six months ended June 30, 2021	(in millions)
External revenues
Premiums:
Individual Medicare Advantage	$	29,400	$	0	$	0	$	0	$	29,400
Group Medicare Advantage	3,530		0		0		0		3,530
Medicare stand-alone PDP	1,326		0		0		0		1,326
Total Medicare	34,256		0		0		0		34,256
Fully-insured	360		2,177		0		0		2,537
Specialty	0		866		0		0		866
Medicaid and other	2,443		0		0		0		2,443
Total premiums	37,059		3,043		0		0		40,102
Services revenue:
Provider	0		0		237		0		237
ASO and other	17		384		0		0		401
Pharmacy	0		0		319		0		319
Total services revenue	17		384		556		0		957
Total external revenues	37,076		3,427		556		0		41,059
Intersegment revenues
Services	0		20		9,751		(9,771)		0
Products	0		0		4,413		(4,413)		0
Total intersegment revenues	0		20		14,164		(14,184)		0
Investment income	117		8		2		127		254
Total revenues	37,193		3,455		14,722		(14,057)		41,313
Operating expenses:
Benefits	32,367		2,392		0		(314)		34,445
Operating costs	2,984		806		14,115		(13,782)		4,123

Depreciation and amortization	212		43		81		(50)		286
Total operating expenses	35,563		3,241		14,196		(14,146)		38,854
Income from operations	1,630		214		526		89		2,459

Interest expense	0		0		0		147		147
Other expense, net	0		0		0		534		534
Income (loss) before income taxes and equity in net earnings	1,630		214		526		(592)		1,778
Equity in net earnings	0		0		54		0		54
Segment earnings (loss)	$	1,630	$	214	$	580	$	(592)	$	1,832

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Humana Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

Retail Group and Specialty Healthcare
Services Eliminations/
Corporate Consolidated
Three months ended September 30, 2019 (in millions)
External revenues
Premiums:
Individual Medicare Advantage $ 10,752 $ 0 $ 0 $ 0 $ 10,752
Group Medicare Advantage 1,609 0 0 0 1,609
Medicare stand-alone PDP 781 0 0 0 781
Total Medicare 13,142 0 0 0 13,142
Fully-insured 150 1,278 0 0 1,428
Specialty 0 400 0 0 400
Medicaid and other 742 0 0 0 742
Total premiums 14,034 1,678 0 0 15,712
Services revenue:
Provider 0 0 136 0 136
ASO and other 4 200 0 0 204
Pharmacy 0 0 53 0 53
Total services revenue 4 200 189 0 393
Total external revenues 14,038 1,878 189 0 16,105
Intersegment revenues
Services 0 4 4,654 (4,658) 0
Products 0 0 1,759 (1,759) 0
Total intersegment revenues 0 4 6,413 (6,417) 0
Investment income 50 7 0 79 136
Total revenues 14,088 1,889 6,602 (6,338) 16,241
Operating expenses:
Benefits 12,050 1,448 0 (141) 13,357
Operating costs 1,310 413 6,348 (6,182) 1,889
Depreciation and amortization 89 24 43 (29) 127
Total operating expenses 13,449 1,885 6,391 (6,352) 15,373
Income from operations 639 4 211 14 868
Interest expense 0 0 0 62 62
Other income, net 0 0 0 (82) (82)
Income before income taxes and equity in net earnings 639 4 211 34 888
Equity in net earnings 0 0 1 0 1
Segment earnings $ 639 $ 4 $ 212 $ 34 $ 889

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~~Humana Inc.~~

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

~~(Unaudited)~~


		Retail		Group and Specialty		Healthcare Services		Eliminations/ Corporate		Consolidated			Retail		Group and Specialty		Healthcare Services		Eliminations/ Corporate		Consolidated
Nine months ended September 30, 2020		(in millions)
External revenues
Six months ended June 30, 2020												Six months ended June 30, 2020	(in millions)
External Revenues												External Revenues
Premiums:	Premiums:											Premiums:
Individual Medicare Advantage	Individual Medicare Advantage	$	38,748	$	0	$	0	$	0	$	38,748	Individual Medicare Advantage	$	25,799	$	0	$	0	$	0	$	25,799
Group Medicare Advantage	Group Medicare Advantage	5,867		0		0		0		5,867		Group Medicare Advantage	3,987		0		0		0		3,987
Medicare stand-alone PDP	Medicare stand-alone PDP	2,108		0		0		0		2,108		Medicare stand-alone PDP	1,486		0		0		0		1,486
Total Medicare	Total Medicare	46,723		0		0		0		46,723		Total Medicare	31,272		0		0		0		31,272
Fully-insured	Fully-insured	509		3,606		0		602		4,717		Fully-insured	332		2,437		0		0		2,769
Specialty	Specialty	0		1,278		0		0		1,278		Specialty	0		854		0		0		854
Medicaid and other	Medicaid and other	3,104		0		0		0		3,104		Medicaid and other	2,023		0		0		0		2,023
Total premiums	Total premiums	50,336		4,884		0		602		55,822		Total premiums	33,627		3,291		0		0		36,918
Services revenue:	Services revenue:											Services revenue:
Provider	Provider	0		0		316		0		316		Provider	0		0		209		0		209
ASO and other	ASO and other	14		576		0		0		590		ASO and other	10		387		0		0		397
Pharmacy	Pharmacy	0		0		425		0		425		Pharmacy	0		0		268		0		268
Total services revenue	Total services revenue	14		576		741		0		1,331		Total services revenue	10		387		477		0		874
Total external revenues	Total external revenues	50,350		5,460		741		602		57,153		Total external revenues	33,637		3,678		477		0		37,792
Intersegment revenues	Intersegment revenues											Intersegment revenues
Services	Services	0		22		14,514		(14,536)		0		Services	0		13		9,662		(9,675)		0
Products	Products	0		0		5,900		(5,900)		0		Products	0		0		3,887		(3,887)		0
Total intersegment revenues	Total intersegment revenues	0		22		20,414		(20,436)		0		Total intersegment revenues	0		13		13,549		(13,562)		0
Investment income	Investment income	114		12		2		812		940		Investment income	86		9		0		131		226
Total revenues	Total revenues	50,464		5,494		21,157		(19,022)		58,093		Total revenues	33,723		3,700		14,026		(13,431)		38,018
Operating expenses:	Operating expenses:											Operating expenses:
Benefits	Benefits	41,939		3,886		0		(410)		45,415		Benefits	27,715		2,405		0		(316)		29,804
Operating costs	Operating costs	5,047		1,316		20,274		(19,653)		6,984		Operating costs	3,170		864		13,403		(12,966)		4,471

Depreciation and amortization	Depreciation and amortization	251		60		135		(84)		362		Depreciation and amortization	164		39		89		(58)		234
Total operating expenses	Total operating expenses	47,237		5,262		20,409		(20,147)		52,761		Total operating expenses	31,049		3,308		13,492		(13,340)		34,509
Income from operations		3,227		232		748		1,125		5,332
Income (loss) from operations												Income (loss) from operations	2,674		392		534		(91)		3,509

Interest expense	Interest expense	0		0		0		211		211		Interest expense	0		0		0		136		136
Other expense, net	Other expense, net	0		0		0		63		63		Other expense, net	0		0		0		70		70
Income before income taxes and equity in net earnings		3,227		232		748		851		5,058
Income (loss) before income taxes and equity in net earnings												Income (loss) before income taxes and equity in net earnings	2,674		392		534		(297)		3,303
Equity in net earnings	Equity in net earnings	0		0		68		0		68		Equity in net earnings	0		0		33		0		33
Segment earnings		$	3,227	$	232	$	816	$	851	$	5,126
Segment earnings (loss)												Segment earnings (loss)	$	2,674	$	392	$	567	$	(297)	$	3,336

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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, 2019 (in millions)
External Revenues
Premiums:
Individual Medicare Advantage $ 32,254 $ 0 $ 0 $ 0 $ 32,254
Group Medicare Advantage 4,867 0 0 0 4,867
Medicare stand-alone PDP 2,408 0 0 0 2,408
Total Medicare 39,529 0 0 0 39,529
Fully-insured 434 3,873 0 0 4,307
Specialty 0 1,160 0 0 1,160
Medicaid and other 2,143 0 0 0 2,143
Total premiums 42,106 5,033 0 0 47,139
Services revenue:
Provider 0 0 367 0 367
ASO and other 14 587 0 0 601
Pharmacy 0 0 135 0 135
Total services revenue 14 587 502 0 1,103
Total external revenues 42,120 5,620 502 0 48,242
Intersegment revenues
Services 0 13 13,456 (13,469) 0
Products 0 0 5,128 (5,128) 0
Total intersegment revenues 0 13 18,584 (18,597) 0
Investment income 139 17 1 194 351
Total revenues 42,259 5,650 19,087 (18,403) 48,593
Operating expenses:
Benefits 36,396 4,177 0 (405) 40,168
Operating costs 3,664 1,232 18,371 (18,015) 5,252
Depreciation and amortization 239 67 121 (84) 343
Total operating expenses 40,299 5,476 18,492 (18,504) 45,763
Income from operations 1,960 174 595 101 2,830
Interest expense 0 0 0 184 184
Other income, net 0 0 0 (217) (217)
Income before income taxes and equity in net earnings 1,960 174 595 134 2,863
Equity in net earnings 0 0 16 0 16
Segment earnings $ 1,960 $ 174 $ 611 $ 134 $ 2,879

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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 ~~2019~~2020 Form 10-K, as modified by any changes to those risk factors included in this document ~~including the potential impacts of risks related to the spread of, and response to, the COVID-19 pandemic as further discussed in Part II of this report~~ and in other reports we filed subsequent to February ~~20, 2020,~~18, 2021, in each case incorporated by reference herein. In making these statements, we are not undertaking to address or update such forward-looking statements in future filings or communications regarding our business or results. In light of these risks, uncertainties and assumptions, the forward–looking events discussed in this document might not occur. There may also be other risks that we are unable to predict at this time. Any of these risks and uncertainties may cause actual results to differ materially from the results discussed in the forward–looking statements.

Executive Overview

General

Humana Inc., headquartered in Louisville, Kentucky, is a leading health and well-being company committed to helping our millions of medical and specialty members achieve their best health. Our successful history in care delivery and health plan administration is helping us create a new kind of integrated care with the power to improve health and well being and lower costs. Our efforts are leading to a better quality of life for people with Medicare, families, individuals, military service personnel, and communities at large. To accomplish that, we support physicians and other health care professionals as they work to deliver the right care in the right place for their patients, our members. Our range of clinical capabilities, resources and tools, such as in home care, behavioral health, pharmacy services, data analytics and wellness solutions, combine to produce a simplified experience that makes health care easier to navigate and more effective.

Our industry relies on two key statistics to measure performance. The benefit ratio, which is computed by taking

total benefits expense as a percentage of premiums revenue, represents a statistic used to measure underwriting profitability. The operating cost ratio, which is computed by taking total operating costs, excluding depreciation and amortization, as a percentage of total revenue less investment income, represents a statistic used to measure administrative spending efficiency.

~~COVID-19~~Kindred at Home Acquisition

~~We have continued~~On April 27, 2021, we entered into a definitive agreement to ~~take actions to protect, inform,~~acquire the remaining 60% interest in Kindred at Home, or KAH, the nation’s largest home health and ~~care~~hospice provider, from TPG Capital, the private equity platform of global alternative asset firm, or TPG, and Welsh, Carson, Anderson & Stowe, or WCAS, two private equity funds, or the Sponsors, for an enterprise value of $8.1 billion, which includes our ~~members, providers, employees, and other stakeholders~~existing equity value of $2.4 billion associated with our 40% minority ownership interest. KAH has locations in 40 states, providing extensive geographic coverage with approximately 65% overlap with our individual Medicare Advantage membership. The acquisition, which is expected to close in the ~~outbreak~~third quarter of 2021, is subject to customary state and federal regulatory approvals. We expect to fund the approximate $5.7 billion transaction (net of our existing equity stake) through a combination of parent company cash, debt financing, and the assumption of existing KAH indebtedness. A mark to market gain on our existing 40% ownership interest, currently expected to approximate $1 billion, will be recorded upon closing of the transaction.

COVID-19

The emergence and spread of the novel coronavirus, or ~~COVID-19. Specifically, we have taken~~COVID-19, beginning in the ~~following actions to support our members:~~

•~~waiving all cost sharing for in-network primary care, outpatient behavioral health, and telehealth visits for the remainder~~first quarter of 2020 ~~for~~has impacted our ~~Medicare Advantage members, to reduce financial barriers to members seeking to re-engage with their providers, while continuing to encourage the use~~business. During periods of ~~telehealth;~~

•~~delivering meals to our senior members~~increased incidences of COVID-19, non-essential care from a reduction in ~~need;~~

•making it easier for members to be tested for COVID-19 by offering at-home testing, as well as collaborating with other providers to deploy drive-thru testing at hundreds of sites throughout the country;

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•~~mailing in-home screening kits~~non-COVID-19 hospital admissions and lower overall healthcare system consumption decreased utilization. Likewise COVID-19 treatment and testing cost increased 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, ~~to encourage members to seek preventative care that may have been delayed during~~and appropriately document their risk profiles, and, as such, affecting our 2021 revenue under the ~~pandemic;~~risk adjustment payment model for Medicare Advantage plans.

•~~proactively delivering safety kits, including face masks, to members and employee homes to facilitate access to care and support visits to providers safely;~~

•~~continuing to extend grace periods for premium payments for our fully-insured commercial group members, to ensure continuity of coverage during times of financial stress; and~~

•~~establishing a clinical outreach team to proactively engage with our most vulnerable members.~~

~~In addition, we took steps to support our provider partners and boost system viability:~~

•increasing provider funding, simplifying and expanding claims processing and releasing advanced funding to providers, to get reimbursement payments to providers as quickly as possible and ease financial concerns so that members are able to continue to access the care and information they need; and

•~~expanding modifications to certain utilization management processes, to ease administrative stress and make sure providers are able to most efficiently care for their patients.~~

Finally, we continued to support the communities we serve by donating $200 million during the first half of 2020 to the Humana Foundation to address social determinants of health in an effort to promote more health days and encourage greater health equity.

The temporary deferral of non-essential care resulting from stay-at-home and physical distancing orders and other restrictions on movement and economic activity implemented throughout the country beginning in the second half of March 2020 to reduce the spread of the novel coronavirus, or COVID-19, has impacted our business. Hospital admissions and utilization were significantly depressed in April and increased throughout May and June. Utilization continued to rebound throughout the third quarter of 2020, reaching approximately 95% of historic baseline levels at the close of the third quarter. The impact of the deferral of non-essential care was partially offset by COVID-19 testing and treatment costs, as well as our ongoing pandemic relief efforts.

We significantly increased our liquidity position during March 2020 with the issuance of $1.1 billion in senior notes and a $1 billion draw under the prior one-year term loan bank commitment. At September 30, 2020, we held $2.4 billion of cash and short-term investments at our parent company and access to an additional $2.0 billion under our credit agreement.

For the remainder of 2020, we expect our year to date 2020 performance will be further offset by the impact of increasing utilization, COVID-19 testing and treatment costs and the continued support for our constituents. A number of significant variables and uncertainties will impact these trends including, among others, the severity and duration of the pandemic, continued actions taken to mitigate the spread of COVID-19 and in turn, relax those restrictions, the timing and degree in resumption of demand for deferred health care services, the ability of our commercial members to pay their premium, the nature, level and cost of diagnostic testing, the cost and timing of new therapeutic treatments and vaccines, all of which are difficult to predict.~~As such, our response to this global health crisis and the subsequent recovery will continue to evolve over the coming months to support the needs of our stakeholders.~~

~~Recent Transactions~~

In the first quarter of 2020, we purchased privately held Enclara, one of the nation’s largest hospice pharmacy and benefit management providers, for cash consideration of approximately $709 million, net of cash received.

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We have entered into a strategic partnership with WCAS to accelerate the expansion of our primary care model. The WCAS partnership is expected to open approximately 50 payor-agnostic, senior-focused primary care centers over 3 years beginning in 2020.

~~These transactions are more fully discussed in Note 3 to the condensed consolidated financial statements.~~

Business Segments

We manage our business with three reportable segments: Retail, Group and Specialty, and Healthcare Services. The reportable segments are based on a combination of the type of health plan customer and adjacent businesses centered on well-being solutions for our health plans and other customers, as described below. These segment groupings are consistent with information used by our Chief Executive Officer, the Chief Operating Decision Maker, to assess performance and allocate resources.

The results of each segment are measured by segment earnings, and for our Healthcare Services Segment, also include equity in net earnings from our equity method investees. Transactions between reportable segments primarily consist of sales of services rendered by our Healthcare Services segment, primarily pharmacy, provider, and clinical care services, to our Retail and Group and Specialty segment customers. Intersegment sales and expenses are recorded at fair value and eliminated in consolidation. Members served by our segments often use the same provider networks, enabling us in some instances to obtain more favorable contract terms with providers. Our segments also share indirect costs and assets. As a result, the profitability of each segment is interdependent. We allocate most operating expenses to our segments. Assets and certain corporate income and expenses are not allocated to the segments, including the portion of investment income not supporting segment operations, interest expense on corporate debt, and certain other corporate expenses. These items are managed at a corporate level. These corporate amounts are reported separately from our reportable segments and are included with intersegment eliminations.

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

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stages of a member’s plan period, which begins annually on January 1 for renewals. These plan designs generally result in us sharing a greater portion of the responsibility for total prescription drug costs in the early stages and less in the latter stages. As a result, the PDP benefit ratio generally decreases as the year progresses. In addition, the number of low income senior members as well as year-over-year changes in the mix of membership in our ~~stand-alone~~standalone PDP products affects the quarterly benefit ratio pattern.

In addition, the Retail segment also experiences seasonality in the operating cost ratio as a result of costs incurred in the second half of the year associated with the Medicare marketing season.

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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.

~~2020~~2021 Highlights

•Our strategy offers our members affordable health care combined with a positive consumer experience in growing markets. At the core of this strategy is our integrated care delivery model, which unites quality care, high member engagement, and sophisticated data analytics. Our approach to primary, physician-directed care for our members aims to provide quality care that is consistent, integrated, cost-effective, and member-focused, provided by both employed physicians and physicians with network contract arrangements. The model is designed to improve health outcomes and affordability for individuals and for the health system as a whole, while offering our members a simple, seamless healthcare experience. We believe this strategy is positioning us for long-term growth in both membership and earnings. We offer providers a continuum of opportunities to increase the integration of care and offer assistance to providers in transitioning from a fee-for-service to a value-based arrangement. These include performance bonuses, shared savings and shared risk relationships. At ~~September~~June 30, ~~2020,~~2021, approximately ~~2,605,900~~2,914,300 members, or ~~66%~~67%, of our individual Medicare Advantage members were in value-based relationships under our integrated care delivery model, as compared to ~~2,340,600~~2,552,300 members, or 66%, at ~~September~~June 30, ~~2019.~~2020. Medicare Advantage and dual demonstration program membership enrolled in a Humana ~~chronic~~ care management program was ~~917,200~~947,400 at ~~September~~June 30, ~~2020,~~2021, an increase of 4%5.1% from ~~882,800~~901,000 at ~~September~~June 30, ~~2019.~~2020. These members may not be unique to each program since members have the ability to enroll in multiple programs. The increase is primarily driven by ~~our improved process for identifying and enrolling members in the appropriate program at the right time, coupled with~~ growth in Special Needs Plans, or SNP, ~~membership.~~

•In October, 2020, the Centers for Medicare and Medicaid Services, or CMS, issued its preliminary 2022 Medicare Advantage and Part D payment rates and proposed policy changes, collectively, the Advance Notice. CMS has invited public comment on the Advance Notice before publishing final rates on or before April 5, 2021, or the Final Notice, and indicated that the Final Notice may be published earlymembership, partially offset by improved predictive modeling leading to a reduction in ~~light of the challenges posed~~members being managed by the uncertainty associated with the COVID-19 pandemic. In the Advance Notice, CMS estimates Medicare Advantage plans across the sector will, on average, experience a 2.82 percent increase in benchmark funding based on proposals included therein. As indicated by CMS, its estimate excludes the impact of fee-for-service county rebasing/re-pricing since the related impact is dependent upon finalization of certain data, which will be available with the publication of the Final Notice. Based on our preliminary analysis using the same factors CMS included in its estimate, the components of which are detailed on CMS’ website, we anticipate the proposals in the Advance Notice would result in a change generally in line with CMS’ estimate, with the exception of our Medicare Star Ratings for bonus year 2022, as more fully described below, that led our peers. We will be drawing upon our program expertise to provide CMS formal commentary on the impact of the Advance Notice and the related impact upon Medicare beneficiaries’ quality oflegacy care ~~and service to our members through the Medicare Advantage program.~~

•In October 2020, CMS published its updated Medicare Star Ratings for bonus year 2022.We have 4.1 million members, or approximately 92 percent of our Medicare Advantage membership as of September 2020, enrolled in 15 contracts that received a 4-star rating or above. In addition, we received a 5 out of 5-star rating for our CarePlus Health Plans, Inc. contract in Florida for the third consecutive year and received a 4.5-star rating for three Medicare Advantage contracts offered in 7 states, which cover approximately 796,000 members. Additionally, over 99 percent of retirees in our group Medicare Advantage plans remain in 4-star or above contracts for bonus year 2022. Our Star Ratings continue to reflect our focus on quality in both member experience and clinical outcomes. management programs.

•Net income was ~~$1.3~~$588 million, or $4.55 per diluted common share, and $1.8 billion, or ~~$10.05~~$13.75, for the three months ended June 30, 2021, and 2020, respectively. Net income was $1.4 billion, or $10.94 per diluted common share, and $2.3 billion, or $17.31 per diluted common share for the ~~three~~six months ended ~~September~~June 30, 2021, and 2020, ~~or the 2020 quarter, compared to $689 million, or $5.14 per diluted common share, for the three months ended September 30, 2019, or the 2019 quarter, and~~respectively. This comparison was ~~$3.6 billion, or $27.37 per diluted~~

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common share, for the nine months ended September 30, 2020, or the 2020 period, compared to $2.2 billion, or $16.24 per diluted common share, for the nine months ended September 30, 2019, or the 2019 period. These comparisons were significantly impacted by the put/call valuation adjustments associated with certain equity method investments, the change in the fair value of publicly-traded equity securities, and transaction and integration costs associated with the ~~net receipt of commercial risk corridor receivables previously written off, and the~~pending Kindred at Home acquisition. The put/call valuation adjustments ~~associated with certain equity method investments. The change in~~included the fair value of our publicly-traded equity securities relates primarily to our common stock holdings, including both the gain resulting from the initial conversion of our prior ownership interest in certain privately held companies, primarily in Oak Street Health, Inc., or OSH, into common stock upon such companies' initial public offering, or IPO, during the third quarter of 2020, and the subsequent changes in the market value of such securities from their IPO through the endimpact of the ~~period.~~ In September 2020, we received $578 million, net of related fees and expenses pursuant to the U.S. Supreme Court ruling that the government is obligated to pay the losses under the risk corridor program. The receipttermination of the ~~risk corridor payments was associated with losses incurred under~~put/call agreement related to Kindred at Home as a result of the Health Care Reform business in 2014 to 2016. The receipt of these risk corridor payments accounted for less than half of our accumulated losses before income taxes from this business during that time period.transaction announced on April 27, 2021. 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 ~~2020~~2021 quarter and period.

For the three months ended September 30, For the nine months ended September 30,
2020 2019 2020 2019
Consolidated income before income taxes and equity in net earnings:
Change in the fair value of publicly-traded equity securities $ 643 $ — $ 643 $ —
Receipt of commercial risk corridor receivables previously written off, net 578 — 578 —
Put/call valuation adjustments 7 82 (63) 217
Total $ 1,228 $ 82 $ 1,158 $ 217
For the three months ended September 30, For the nine months ended September 30,
2020 2019 2020 2019
Diluted earnings per common share:
Change in the fair value of publicly-traded equity securities $ 3.72 $ — $ 3.73 $ —
Receipt of commercial risk corridor receivables previously written off, net 3.35 — 3.35 —
Put/call valuation adjustments 0.03 0.47 (0.37) 1.23
Total $ 7.10 $ 0.47 $ 6.71 $ 1.23

Excluding these adjustments, our results of operations reflect the impact of the ongoing COVID-19 pandemic. Utilization continued to rebound throughout the 2020 quarter, reaching approximately 95% of historic baseline levels by end of the third quarter. As such, our 2020 quarter results of operations comparisons were impacted by increasing utilization, COVID-19 testing and treatment costs, as well as the financial impact of our ongoing crisis relief efforts. Our 2020 period results reflect historically low utilization levels in the first six months of the year from the temporary deferral of non-essential care amid the COVID-19 pandemic.

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	For the three months ended June 30,				For the six months ended June 30,
	2021		2020		2021		2020
Consolidated income before income taxes and equity in net earnings:
Change in the fair value of publicly-traded equity securities	$	63	$	—	$	(22)	$	—

Transaction and integration costs associated with pending KAH acquisition	(22)		—		(22)		—
Put/call valuation adjustments	(419)		227		(534)		(70)
Total	$	(378)	$	227	$	(578)	$	(70)

	For the three months ended June 30,				For the six months ended June 30,
	2021		2020		2021		2020
Diluted earnings per common share:
Change in the fair value of publicly-traded equity securities	$	0.37	$	—	$	(0.13)	$	—

Transaction and integration costs associated with pending KAH acquisition	(0.13)		—		(0.13)		—
Put/call valuation adjustments	(2.49)		1.32		(3.18)		(0.40)
Total	$	(2.25)	$	1.32	$	(3.44)	$	(0.40)

~~These changes~~Excluding these adjustments, comparisons of our results of operations were materially impacted by the significant, temporary deferral of care in 2020 resulting from stay-at-home orders, physical distancing measures, and other restrictions implemented to reduce the spread of COVID-19, as well as the impact of COVID-19 testing and treatment costs, which on a net basis significantly and favorably impacted the 2020 quarter and period results when compared to the 2021 quarter and period results.

In addition, our results of operations for 2021 were favorably impacted by individual Medicare Advantage and state-based contract membership growth and improved operating performance in the Group and Specialty and Healthcare Services segments. Further, 2021 was also favorably impacted by the lower tax rate resulting from the termination of the non-deductible health insurance industry fee in 2021, as well as a lower number of shares used to compute dilutive earnings per common share, primarily reflecting share ~~repurchases completed during 2019, partially offset by a higher tax rate resulting from the return of the non-deductible health insurance industry free in 2020.~~repurchases.

•~~Contributing to our Retail segment revenue growth was our individual Medicare Advantage membership, which increased 382,600 members, or 10.8%, from September 30, 2019 to September 30, 2020.~~

•~~Our operating cash flows for the 2020 period of $5.4 billion increased from the 2019 period of $4.8 billion primarily due primarily to higher income from operations.~~

Health Care Reform

The Health Care Reform Law enacted significant reforms to various aspects of the U.S. health insurance industry. Certain significant provisions of the Health Care Reform Law include, among others, mandated coverage requirements, mandated benefits and guarantee issuance associated with commercial medical insurance, rebates to policyholders based on minimum benefit ratios, adjustments to Medicare Advantage premiums, the establishment of federally facilitated or state-based exchanges coupled with programs designed to spread risk among insurers, and the introduction of plan designs based on set actuarial values. In addition, the Health Care Reform Law established insurance industry assessments, including an annual health insurance industry fee. The annual health insurance industry fee, which was ~~suspended in 2019, but has resumed for calendar year 2020, is~~ not deductible for income tax purposes and significantly ~~increases~~increased our effective tax ~~rate. We paid the federal government $1.2 billion~~rate, was in ~~September~~effect for 2020, ~~for this fee. Under current law, the health industry fee will be~~but was permanently repealed beginning in calendar year 2021.

It is reasonably possible that the Health Care Reform Law and related regulations, as well as other current or future legislative, judicial or regulatory changes such as the Families First Coronavirus Response Act (the "Families First Act"), the Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act") and other legislative ~~and~~or regulatory ~~changes associated with~~action taken in response to COVID-19 including restrictions on our ability to manage our provider

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network or otherwise operate our business, or restrictions on profitability, including reviews by regulatory bodies that may compare our Medicare Advantage profitability to our non-Medicare Advantage business profitability, or compare the profitability of various products within our Medicare Advantage business, and require that they remain within certain ranges of each other, increases in member benefits or changes to member eligibility criteria without corresponding increases in premium payments to us, or increases in regulation of our prescription drug benefit businesses, in the aggregate may have a material adverse effect on our results of operations (including restricting revenue, enrollment and premium growth in certain products and market segments, restricting our ability to expand into new markets, increasing our medical and operating costs, further lowering our Medicare payment rates and increasing our expenses associated with assessments); our financial position (including our ability to maintain the value of our goodwill); and our cash flows.

We intend for the discussion of our financial condition and results of operations that follows to assist in the understanding of our financial statements and related changes in certain key items in those financial statements from year to year, including the primary factors that accounted for those changes. Transactions between reportable segments primarily consist of sales of services rendered by our Healthcare Services segment, primarily pharmacy, provider, and clinical care services, to our Retail and Group and Specialty segment customers and are described in Note 14 to the condensed consolidated financial statements included in this report.

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Comparison of Results of Operations for ~~2020~~2021 and ~~2019~~2020

The following discussion primarily deals with our results of operations for the three months ended ~~September~~June 30, 2021, or the 2021 quarter, and the three months ended June 30, 2020, or the 2020 quarter, the six months ended June 30, 2021, or the 2021 period, and the ~~three~~six months ended ~~September 30, 2019, or the 2019 quarter, the nine months ended September~~June 30, 2020, or the 2020 ~~period, and the nine months ended September 30, 2019, or the 2019~~ period.

Consolidated


		For the three months ended September 30,						Change					For the three months ended June 30,						Change
		2020			2019			Dollars		Percentage			2021			2020			Dollars		Percentage
		(dollars in millions, except per common share results)											(dollars in millions, except per common share results)
Revenues:	Revenues:											Revenues:
Premiums:	Premiums:											Premiums:
Retail	Retail	$	16,709		$	14,034		$	2,675	19.1	%	Retail	$	18,468		$	16,923		$	1,545	9.1	%
Group and Specialty	Group and Specialty	1,593			1,678			(85)		(5.1)	%	Group and Specialty	1,510			1,633			(123)		(7.5)	%
Corporate		602			—			602		100.0	%

Total premiums	Total premiums	18,904			15,712			3,192		20.3	%	Total premiums	19,978			18,556			1,422		7.7	%
Services:	Services:											Services:
Retail	Retail	4			4			—		—	%	Retail	12			6			6		100.0	%
Group and Specialty	Group and Specialty	189			200			(11)		(5.5)	%	Group and Specialty	194			192			2		1.0	%
Healthcare Services	Healthcare Services	264			189			75		39.7	%	Healthcare Services	285			252			33		13.1	%
Total services	Total services	457			393			64		16.3	%	Total services	491			450			41		9.1	%
Investment income	Investment income	714			136			578		425.0	%	Investment income	176			77			99		128.6	%
Total revenues	Total revenues	20,075			16,241			3,834		23.6	%	Total revenues	20,645			19,083			1,562		8.2	%
Operating expenses:	Operating expenses:											Operating expenses:
Benefits	Benefits	15,611			13,357			2,254		16.9	%	Benefits	17,149			14,175			2,974		21.0	%
Operating costs	Operating costs	2,513			1,889			624		33.0	%	Operating costs	2,116			2,354			(238)		(10.1)	%
Depreciation and amortization	Depreciation and amortization	128			127			1		0.8	%	Depreciation and amortization	144			119			25		21.0	%
Total operating expenses	Total operating expenses	18,252			15,373			2,879		18.7	%	Total operating expenses	19,409			16,648			2,761		16.6	%
Income from operations	Income from operations	1,823			868			955		110.0	%	Income from operations	1,236			2,435			(1,199)		(49.2)	%
Interest expense	Interest expense	75			62			13		21.0	%	Interest expense	79			76			3		3.9	%
Other income, net		(7)			(82)			(75)		(91.5)	%
Other expense (income), net												Other expense (income), net	419			(227)			646		284.6	%
Income before income taxes and equity in net earnings	Income before income taxes and equity in net earnings	1,755			888			867		97.6	%	Income before income taxes and equity in net earnings	738			2,586			(1,848)		(71.5)	%
Provision for income taxes	Provision for income taxes	450			200			250		125.0	%	Provision for income taxes	183			783			(600)		(76.6)	%
Equity in net earnings	Equity in net earnings	35			1			34		3,400.0	%	Equity in net earnings	33			25			8		32.0	%
Net income	Net income	$	1,340		$	689		$	651	94.5	%	Net income	$	588		$	1,828		$	(1,240)	(67.8)	%
Diluted earnings per common share	Diluted earnings per common share	$	10.05		$	5.14		$	4.91	95.5	%	Diluted earnings per common share	$	4.55		$	13.75		$	(9.20)	(66.9)	%
Benefit ratio (a)	Benefit ratio (a)	82.6		%	85.0		%			(2.4)	%	Benefit ratio (a)	85.8		%	76.4		%			9.4	%
Operating cost ratio (b)	Operating cost ratio (b)	13.0		%	11.7		%			1.3	%	Operating cost ratio (b)	10.3		%	12.4		%			(2.1)	%
Effective tax rate	Effective tax rate	25.2		%	22.5		%			2.7	%	Effective tax rate	23.7		%	30.0		%			(6.3)	%

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		For the nine months ended September 30,						Change					For the six months ended June 30,						Change
		2020			2019			Dollars		Percentage			2021			2020			Dollars		Percentage
		(dollars in millions, except per common share results)											(dollars in millions, except per common share results)
Revenues:	Revenues:											Revenues:
Premiums:	Premiums:											Premiums:
Retail	Retail	$	50,336		$	42,106		$	8,230	19.5	%	Retail	$	37,059		$	33,627		$	3,432	10.2	%
Group and Specialty	Group and Specialty	4,884			5,033			(149)		(3.0)	%	Group and Specialty	3,043			3,291			(248)		(7.5)	%
Corporate		602			—			602		100.0	%

Total premiums	Total premiums	55,822			47,139			8,683		18.4	%	Total premiums	40,102			36,918			3,184		8.6	%
Services:	Services:											Services:
Retail	Retail	14			14			—		—	%	Retail	17			10			7		70.0	%
Group and Specialty	Group and Specialty	576			587			(11)		(1.9)	%	Group and Specialty	384			387			(3)		(0.8)	%
Healthcare Services	Healthcare Services	741			502			239		47.6	%	Healthcare Services	556			477			79		16.6	%
Total services	Total services	1,331			1,103			228		20.7	%	Total services	957			874			83		9.5	%
Investment income	Investment income	940			351			589		167.8	%	Investment income	254			226			28		12.4	%
Total revenues	Total revenues	58,093			48,593			9,500		19.6	%	Total revenues	41,313			38,018			3,295		8.7	%
Operating expenses:	Operating expenses:											Operating expenses:
Benefits	Benefits	45,415			40,168			5,247		13.1	%	Benefits	34,445			29,804			4,641		15.6	%
Operating costs	Operating costs	6,984			5,252			1,732		33.0	%	Operating costs	4,123			4,471			(348)		(7.8)	%
Depreciation and amortization	Depreciation and amortization	362			343			19		5.5	%	Depreciation and amortization	286			234			52		22.2	%
Total operating expenses	Total operating expenses	52,761			45,763			6,998		15.3	%	Total operating expenses	38,854			34,509			4,345		12.6	%
Income from operations	Income from operations	5,332			2,830			2,502		88.4	%	Income from operations	2,459			3,509			(1,050)		(29.9)	%
Interest expense	Interest expense	211			184			27		14.7	%	Interest expense	147			136			11		8.1	%
Other expense (income), net		63			(217)			280		129.0	%
Other expense, net												Other expense, net	534			70			464		662.9	%
Income before income taxes and equity in net earnings	Income before income taxes and equity in net earnings	5,058			2,863			2,195		76.7	%	Income before income taxes and equity in net earnings	1,778			3,303			(1,525)		(46.2)	%
Provision for income taxes	Provision for income taxes	1,485			684			801		117.1	%	Provision for income taxes	416			1,035			(619)		(59.8)	%
Equity in net earnings	Equity in net earnings	68			16			52		325.0	%	Equity in net earnings	54			33			21		63.6	%
Net income	Net income	$	3,641		$	2,195		$	1,446	65.9	%	Net income	$	1,416		$	2,301		$	(885)	(38.5)	%
Diluted earnings per common share	Diluted earnings per common share	$	27.37		$	16.24		$	11.13	68.5	%	Diluted earnings per common share	$	10.94		$	17.31		$	(6.37)	(36.8)	%
Benefit ratio (a)	Benefit ratio (a)	81.4		%	85.2		%			(3.8)	%	Benefit ratio (a)	85.9		%	80.7		%			5.2	%
Operating cost ratio (b)	Operating cost ratio (b)	12.2		%	10.9		%			1.3	%	Operating cost ratio (b)	10.0		%	11.8		%			(1.8)	%
Effective tax rate	Effective tax rate	29.0		%	23.8		%			5.2	%	Effective tax rate	22.7		%	31.0		%			(8.3)	%

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

(b)Represents operating costs as a percentage of total revenues less investment income.

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Premiums Revenue

Consolidated premiums increased ~~$3.2~~$1.4 billion, or ~~20.3%~~7.7%, from ~~$15.7 billion in the 2019 quarter to $18.9~~$18.6 billion in the 2020 quarter ~~and increased $8.7 billion, or~~ ~~18.4%, from $47.1~~to $20.0 billion in the ~~2019 period to $55.8~~2021 quarter and increased $3.2 billion, or 8.6%, from $36.9 billion in the 2020 period to $40.1 billion in the 2021 period. These increases were primarily due to ~~higher premiums in the Retail segment, mainly resulting from~~individual Medicare Advantage and state-based contracts membership growth, as well as higher per member individual Medicare Advantage premiums ~~and~~as a result of the ~~receipt~~improving CMS benchmark rate for 2021, net of ~~commercial risk corridor receivables previously written off,~~Medicare Risk Adjustment, or MRA, headwinds resulting from COVID-19 related utilization disruption in 2020. These increases were partially offset by ~~the impact of~~ declining stand-alone PDP, ~~membership as more fully described~~group commercial medical, and group Medicare Advantage membership. The 2021 period was further impacted by the Medicare sequestration relief in the ~~detailed segment results discussion~~first quarter of 2021 that ~~follows.~~was not enacted until the second quarter of 2020.

Consolidated services revenue increased ~~$64~~$41 million, or ~~16.3%~~9.1%, from ~~$393 million in the 2019 quarter to $457~~$450 million in the 2020 quarter to $491 million in the 2021 quarter and increased ~~$228~~$83 million, or ~~20.7%~~9.5%, from ~~$1.1 billion in the 2019 period to $1.3 billion~~$874 million in the 2020 period to $957 million in the 2021 period. These increases ~~were~~ were primarily due to ~~an increase in services revenue in the Healthcare Services segment~~higher revenues associated with ~~higher external~~our pharmacy and provider businesses. The 2021 period further reflects additional pharmacy revenues ~~resulting from~~associated with the acquisition of Enclara ~~acquisition in~~which was closed during the first quarter of 2020.

Investment Income

Investment income increased ~~$578~~$99 million, or ~~425.0%~~128.6%, from ~~$136 million in the 2019 quarter to $714~~$77 million in the 2020 quarter ~~and~~ ~~increased $589 million, or 167.8%, from $351~~to $176 million in the ~~2019 period to $940~~2021 quarter primarily reflecting changes in the fair value of our common stock investments and higher realized capital gains, partially offset by lower average invested balances. Investment income increased $28 million, or 12.4%, from $226 million in the 2020 ~~period. These increases were primarily due~~period to $254 million in the ~~$643 million change~~2021 period primarily reflecting higher realized capital gains, partially offset by changes inthe fair value of ~~publicly-traded equity securities during the 2020 quarter.~~our common stock investments and lower average invested balances.

Benefit Expense

Consolidated benefits expense increased ~~$2.3~~$3.0 billion, or ~~16.9%~~21.0%, from ~~$13.4 billion in the 2019 quarter to $15.6~~$14.2 billion in the 2020 quarter ~~and increased $5.2 billion, or 13.1%, from $40.2~~to $17.1 billion in the ~~2019 period to $45.4~~2021 quarter and increased $4.6 billion, or 15.6%, from $29.8 billion in the 2020 period to $34.4 billion in the 2021 period. The consolidated benefit ratio ~~decreased 240~~increased 940 basis points from ~~85.0% for the 2019 quarter to 82.6%~~76.4% for the 2020 quarter to 85.8% for the 2021 quarter and ~~decreased 380~~increased 520 basis points from ~~85.2% for the 2019 period to 81.4%~~80.7% for the 2020 period to 85.9% for the 2021 period. These ~~comparisons~~increases reflect the ~~receipt~~significant impact of the ~~commercial risk corridor receivables previously written off, the change~~deferral of non-essential care, net of COVID-19 treatment and testing costs and our pandemic relief efforts in ~~quarterly utilization patterns from~~2020, amid the COVID-19 pandemic, and the ~~reinstatement~~termination in 2021 of the non-deductible health insurance industry fee ~~in 2020 that~~which, along with a portion of the related tax benefit, was contemplated in the pricing and benefit design of our ~~products.T~~products. The increases were also due to the impact in 2021 a~~hese~~ssociated with the competitive nature of the group Medicare Advantage business, particularly in large group accounts that were recently procured, as well as in the stand-alone PDP business. These factors ~~were~~ were partially offset by ~~COVID-19 testing and treatment costs along with our ongoing pandemic relief efforts.~~higher favorable prior-period medical claims reserve development in 2021.

The higher favorable prior-period medical claims reserve development was primarily attributable to the reversal of actions taken in 2020, including the suspension of certain financial recovery programs for a period of time. The suspension during 2020 was intended to provide financial and administrative relief for provider facing unprecedented strain as a result of the COVID-19 pandemic. The favorable prior-period medical claims reserve development decreased the consolidated benefit ratio by approximately 2080 basis points in the ~~2020~~2021 quarter ~~versus~~whereas the unfavorable prior-period medical claims reserve development increased the consolidated benefit ratio by approximately 4030 basis points in the ~~2019~~2020 quarter. The favorable prior-period medical claims reserve development decreased the consolidated benefit ratio by approximately 50180 basis points in the 2021 period versus approximately 60 basis points in the 2020 ~~period versus approximately 70 basis points in the 2019~~ 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.

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Consolidated operating costs ~~increased $624~~decreased $238 million, or ~~33.0%~~10.1%, from ~~$1.9 billion in the 2019 quarter to $2.5~~$2.4 billion in the 2020 quarter ~~and increased $1.7 billion, or 33.0% from $5.3~~to $2.1 billion in the ~~2019 period to $7.0~~2021 quarter and decreased $348 million, or 7.8%, from $4.5 billion in the 2020 period.

to $4.1 billion in the 2021 period. The consolidated operating cost ratio ~~increased 130~~decreased 210 basis points from ~~11.7% for the 2019 quarter to 13.0%~~12.4% for the 2020 quarter to 10.3% for the 2021 quarter and ~~increased 130~~decreased 180 basis points from ~~10.9% for the 2019 period to 12.2%~~11.8% for the 2020 period to 10.0% for the 2021 period. These ~~increases~~decreases were primarily due to the ~~reinstatement~~termination of the non-deductible health insurance industry fee in 2021, the impact of a $150 million contribution in the 2020 quarter to the Humana Foundation to support communities served by us particularly those with social and health disparities, as well as the impact of lower COVID-19 related administrative costs ~~including those~~in 2021 compared to 2020. Administrative costs in 2020 included costs associated with ~~purchasing~~ personal protective equipment, ~~for our clinicians,~~ member response efforts, and the build-out of infrastructure necessary to support employees working remotely. These ~~increases~~decreases were ~~partially offset~~further impacted by scale efficiencies associated with growth in our Medicare Advantage membership ~~significant~~and operating cost efficiencies in ~~the 2020 quarter driven~~2021 from previously implemented productivity initiatives. These factors were partially offset by ~~previously disclosed~~

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productivity initiatives, charges associated with workforce optimization in the 2019 quarter that did not recur in the 2020 quarter, and the net impact of the receipt of the commercial risk corridor receivables previously written off. The 2020 period was further impacted by a $200 million contribution during the first half of 2020continued strategic investments made to ~~the Humana Foundation to support the communities served by~~position us ~~particularly those with social and health disparities.~~for long-term success. The non-deductible health insurance industry fee impacted the operating cost ratio by 150 basis points in the 2020 quarter and ~~period~~. by 160 basis points in the 2020 period.

Depreciation and Amortization

Depreciation and amortization increased $1$25 million, or ~~0.8%~~21.0%, from ~~$127 million in the 2019 quarter to $128~~$119 million in the 2020 quarter ~~and increased $19 million, or 5.5%, from $343~~to $144 million in the ~~2019 period to $362~~2021 quarter and increased $52 million, or 22.2%, from $234 million in the 2020 ~~period.~~period to $286 million in the 2021 period primarily due to capital expenditures.

Interest Expense

Interest expense increased ~~$13~~$3 million, or ~~21.0%~~3.9%, from ~~$62 million in the 2019 quarter to $75~~$76 million in the 2020 quarter ~~and increased $27 million, or 14.7%, from $184~~to $79 million in the ~~2019 period to $211~~2021 quarter and increased $11 million, or 8.1%, from $136 million in the 2020 period to $147 million in the 2021 period.

Income Taxes

The effective income tax rate was ~~25.2%~~23.7% and ~~29.0%~~30.0% for the three ~~and nine~~ months ended ~~September~~June 30, 2021, and 2020, respectively ~~compared to 22.5%~~ and ~~23.8%~~was 22.7% and 31.0% for the ~~three and nine~~six months ended ~~September~~June 30, ~~2019,~~2021, and 2020, respectively. ~~These increases~~The decreases were primarily due to the ~~reinstatement~~termination of the non-deductible health insurance industry fee in ~~2020.~~2021.

Retail Segment


		September 30,		Change				June 30,		Change
		2020	2019	Members	Percentage			2021	2020	Members	Percentage
Membership:	Membership:						Membership:
Medical membership:	Medical membership:						Medical membership:
Individual Medicare Advantage	Individual Medicare Advantage	3,935,100	3,552,500	382,600	10.8	%	Individual Medicare Advantage	4,341,600	3,877,200	464,400	12.0	%
Group Medicare Advantage	Group Medicare Advantage	612,000	523,900	88,100	16.8	%	Group Medicare Advantage	557,300	608,300	(51,000)	(8.4)	%
Medicare stand-alone PDP	Medicare stand-alone PDP	3,892,200	4,379,800	(487,600)	(11.1)	%	Medicare stand-alone PDP	3,653,100	3,888,400	(235,300)	(6.1)	%
Total Retail Medicare	Total Retail Medicare	8,439,300	8,456,200	(16,900)	(0.2)	%	Total Retail Medicare	8,552,000	8,373,900	178,100	2.1	%

State-based Medicaid		730,100	469,000	261,100	55.7	%
State-based Medicaid and other							State-based Medicaid and other	877,300	689,200	188,100	27.3	%
Medicare Supplement	Medicare Supplement	331,300	286,600	44,700	15.6	%	Medicare Supplement	330,400	324,600	5,800	1.8	%
Total Retail medical members	Total Retail medical members	9,500,700	9,211,800	288,900	3.1	%	Total Retail medical members	9,759,700	9,387,700	372,000	4.0	%

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		For the three months ended September 30,						Change					For the three months ended June 30,						Change
		2020			2019			Dollars		Percentage			2021			2020			Dollars		Percentage
		(in millions)											(in millions)
Premiums and Services Revenue:	Premiums and Services Revenue:											Premiums and Services Revenue:
Premiums:	Premiums:											Premiums:
Individual Medicare Advantage	Individual Medicare Advantage	$	12,949		$	10,752		$	2,197	20.4	%	Individual Medicare Advantage	$	14,585		$	13,005		$	1,580	12.1	%
Group Medicare Advantage	Group Medicare Advantage	1,880			1,609			271		16.8	%	Group Medicare Advantage	1,775			1,976			(201)		(10.2)	%
Medicare stand-alone PDP	Medicare stand-alone PDP	622			781			(159)		(20.4)	%	Medicare stand-alone PDP	662			731			(69)		(9.4)	%
Total Retail Medicare	Total Retail Medicare	15,451			13,142			2,309		17.6	%	Total Retail Medicare	17,022			15,712			1,310		8.3	%
State-based Medicaid		1,081			742			339		45.7	%
State-based Medicaid and other												State-based Medicaid and other	1,264			1,042			222		21.3	%
Medicare Supplement	Medicare Supplement	177			150			27		18.0	%	Medicare Supplement	182			169			13		7.7	%
Total premiums	Total premiums	16,709			14,034			2,675		19.1	%	Total premiums	18,468			16,923			1,545		9.1	%
Services	Services	4			4			—		—	%	Services	12			6			6		100.0	%
Total premiums and services revenue	Total premiums and services revenue	16,713			$	14,038		$	2,675	19.1	%	Total premiums and services revenue	18,480			$	16,929		$	1,551	9.2	%
Segment earnings	Segment earnings	$	553		$	639		$	(86)	(13.5)	%	Segment earnings	$	836		$	1,989		$	(1,153)	(58.0)	%
Benefit ratio	Benefit ratio	85.1		%	85.9		%			(0.8)	%	Benefit ratio	87.0		%	78.3		%			8.7	%
Operating cost ratio	Operating cost ratio	11.2		%	9.3		%			1.9	%	Operating cost ratio	8.3		%	9.7		%			(1.4)	%

For the nine months ended
September 30, Change
2020 2019 Dollars Percentage
(in millions)
Premiums and Services Revenue:
Premiums:
Individual Medicare Advantage $ 38,748 $ 32,254 $ 6,494 20.1 %
Group Medicare Advantage 5,867 4,867 1,000 20.5 %
Medicare stand-alone PDP 2,108 2,408 (300) (12.5) %
Total Retail Medicare 46,723 39,529 7,194 18.2 %
State-based Medicaid 3,104 2,143 961 44.8 %
Medicare Supplement 509 434 75 17.3 %
Total premiums 50,336 42,106 8,230 19.5 %
Services 14 14 — — %
Total premiums and services revenue $ 50,350 $ 42,120 $ 8,230 19.5 %
Segment earnings $ 3,227 $ 1,960 $ 1,267 64.6 %
Benefit ratio 83.3 % 86.4 % (3.1) %
Operating cost ratio 10.0 % 8.7 % 1.3 %



	For the six months ended June 30,						Change
	2021			2020			Dollars		Percentage
	(in millions)
Premiums and Services Revenue:
Premiums:
Individual Medicare Advantage	$	29,400		$	25,799		$	3,601	14.0	%
Group Medicare Advantage	3,530			3,987			(457)		(11.5)	%
Medicare stand-alone PDP	1,326			1,486			(160)		(10.8)	%
Total Retail Medicare	34,256			31,272			2,984		9.5	%
State-based Medicaid and other	2,443			2,023			420		20.8	%
Medicare Supplement	360			332			28		8.4	%

Total premiums	37,059			33,627			3,432		10.2	%
Services	17			10			7		70.0	%
Total premiums and services revenue	$	37,076		$	33,637		$	3,439	10.2	%
Segment earnings	$	1,630		$	2,674		$	(1,044)	(39.0)	%
Benefit ratio	87.3		%	82.4		%			4.9	%
Operating cost ratio	8.0		%	9.4		%			(1.4)	%

Segment Earnings

•Retail segment earnings decreased $86 million, or 13.5%, from $639 million in the 2019 quarter to $553 million in the 2020 quarter primarily due to a higher operating cost ratio, partially offset by a lower benefit ratio as more fully described below. Retail segment earnings increased $1.3$1.2 billion, or ~~64.6%~~58.0%, from $2.0 billion in the ~~2019 period~~2020 quarter to ~~$3.2~~$836 million in the 2021 quarter and decreased $1.0 billion, or 39.0%, from $2.7 billion in the 2020 period to $1.6 billion in the 2021 period. These decreases primarily ~~due~~resulted from the same factors that led to the ~~net favorable impact of a lower~~segment's higher benefit ratio, partially offset by ~~a higher~~the segment's lower operating cost ratio as more fully described below.

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Enrollment

•Individual Medicare Advantage membership increased ~~382,600~~464,400 members, or ~~10.8%~~12.0%, from ~~September~~June 30, ~~2019~~2020 to ~~September~~June 30, ~~2020~~,2021, primarily due to membership additions associated with the ~~previous~~most recent Annual Election Period, or AEP, and Open Election Period, or OEP, for Medicare beneficiaries. The ~~OEP sales period, which ran~~membership growth was further impacted by continued enrollment resulting from ~~January 1 to March 31, 2020 added approximately 30,000 members. Since the conclusion of the 2020 OEP, enrollment continued to increase due to~~ special elections, age-ins, and Dual Eligible Special Need Plans, or D-SNP, members. The OEP sales period, which ran from January 1 to March 31, 2021 added approximately 36,000 members compared to the 2020 OEP that added approximately 30,000 members. Individual Medicare Advantage membership includes ~~391,100~~532,900 D-SNP members as of ~~September~~June 30, ~~2020,~~2021, a net increase of ~~110,400,~~167,600, or ~~39.3%~~45.9%, from ~~280,700~~365,300 as of ~~September~~June 30, ~~2019.~~2020.

•Group Medicare Advantage membership ~~increased 88,100,~~decreased 51,000, or ~~16.8%~~8.4%, from ~~September~~June 30, ~~2019~~2020 to ~~September~~June 30, ~~2020,~~2021, primarily due to the ~~addition~~net loss of acertain large ~~account~~accounts in Ja~~nuary 2020, along with net membership additions associated with the previous AEP for Medicare beneficiaries.~~January 2021, partially offset by continued growth in small group accounts.

•Medicare stand-alone PDP membership decreased ~~487,600~~235,300 members, or ~~11.1%~~6.1%, from ~~September~~June 30, ~~2019~~2020 to ~~September~~June 30, ~~2020~~2021, primarily ~~reflecting net~~due to anticipated declines ~~during~~as a result of the previous AEP for Medicare beneficiaries. The anticipated decline primarily resulted from terminations driven by premium and benefit adjustments experienced by members that were previously enrolled in our 2019 Humana Walmart Rx plan and the 2019 Humana Enhanced plan, which were consolidated into the Premier Rx plan in 2020. The expected PDP losses were partially offset by growth in the new low-price Humana Walmart Value Rx plan ~~driven by both new sales and plan to plan changes.~~no longer being the low cost leader in 2021.

•State-based Medicaid membership increased ~~261,100~~188,100 members, or ~~55.7%~~27.3%, from ~~September~~June 30, ~~2019~~2020 to ~~September~~June 30, ~~2020. This increase~~2021, primarily ~~reflects the impact of discontinuing the reinsurance agreement with CareSource and the assumption of full financial risk for the existing Kentucky Medicaid contract as of January 1, 2020, as well as~~reflecting additional enrollment ~~particularly in Florida,~~ resulting from the ~~current~~ economic downturn due to the COVID-19 ~~pandemic.~~pandemic, as well as the recently completed acquisition in Wisconsin.

Premiums Revenue

•Retail segment premiums increased ~~$2.7~~$1.5 billion, or ~~19.1%~~9.1%, from ~~$14.0 billion in the 2019 quarter to $16.7~~$16.9 billion in the 2020 quarter ~~and increased $8.2 billion, or 19.5%, from $42.1~~to $18.5 billion in the ~~2019 period to $50.3~~2021 quarter and increased $3.4 billion, or 10.2%, from $33.6 billion in the 2020 period to $37.1 billion in the 2021 period. These increases were primarily ~~reflect~~due to higher premiums as a result of individual Medicare Advantage and state-based contracts membership growth and higher per member individual Medicare Advantage ~~premiums.~~premiums as a result of the improving CMS benchmark rate for 2021, net of MRA headwinds resulting from COVID-19 related utilization disruption in 2020. These favorable items were partially offset by the decline in membership in our stand-alone PDP and group Medicare Advantage offerings. The 2021 period was further impacted by the Medicare sequestration relief in the first quarter of 2021 that was not enacted until the second quarter of 2020.

Benefits Expense

•The Retail segment benefit ratio ~~decreased 80~~increased 870 basis points from ~~85.9% for the 2019 quarter to 85.1%~~78.3% for the 2020 quarter to 87.0% for the 2021 quarter and increased 490 basis points from 82.4% for the 2020 period to 87.3% for the 2021 period. These increases were primarily due to the significant impact of the ~~temporary~~ deferral of non-essential care, net of COVID-19 treatment and testing costs and our pandemic relief efforts in the 2020 quarter, amid the COVID-19 ~~pandemic, and~~pandemic. These comparisons were further impacted by the ~~reinstatement~~termination in 2021 of the non-deductible health insurance industry fee ~~in 2020~~ which, along with a portion of the related tax benefit, was contemplated in the pricing and benefit design of our ~~products.~~ products, as well as the impact in 2021 associated with the competitive nature of the group Medicare Advantage business, particularly in large group accounts that were recently procured, as well as in the stand-alone PDP business. These factors were partially offset by COVID-19 testing and treatment costs, as well as our ongoing pandemic relief efforts, including the waiver of all cost sharing for in-network primary care, outpatient behavioral health, and telehealth visits for our Medicare Advantage members, continued delivery of meals to senior members in need, the distribution of in-home preventative screening kits to members, establishment of a clinical outreach team to proactively engage with our most vulnerable members, and various provider initiatives. The 2020 quarter was further impacted by a shift in Medicare membership mix due to the loss of stand-alone PDP members and significant growth in the Medicare Advantage membership as well as lowerhigher favorable prior-period medical claims reserve development. ~~The benefit ratio for stand-alone PDP members generally decreases as the year progresses. The Retail segment benefit ratio~~ ~~decreased 310 basis points from 86.4% for the 2019 period to 83.3% for the 2020 period~~ ~~primarily reflecting significantly depressed utilization experienced in the first~~

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~~half of 2020 as well as the same factors as discussed above with the exception of the impact from a shift in Medicare membership mix.~~

•The Retail segment's benefits expense for the ~~2020~~2021 quarter ~~included $30~~includes $156 million in favorable prior-period medical claims reserve development versus ~~$55~~$33 million in unfavorable prior-period medical claims development in the ~~2019~~2020 quarter. For the ~~2020~~2021 period, the Retail segment’s benefit expense ~~included~~includes the ~~beneficial~~beneficial effect of ~~$235~~$619 million in favorable prior-period medical claims reserve development versus ~~$366~~$205 million in the ~~2019 period~~.2020 period. Prior-period medical claims reserve development decreased the Retail ~~segment~~segment's benefit ratio by approximately 80 basis points in the 2021 quarter but increased the Retail segment's benefit ratio by approximately 20 basis points in the 2020 ~~quarter versus approximately 40 basis points in the 2019~~ quarter. Favorable prior-period medical claims reserve

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development decreased the Retail segment benefit ratio by approximately 50170 basis points in the 2021 period versus approximately 60 basis points in the 2020 ~~period versus approximately 90 basis points in the 2019~~ period.

Operating Costs

•The Retail segment operating cost ratio ~~increased 190~~decreased 140 basis points from ~~9.3% for the 2019 quarter to 11.2%~~9.7% for the 2020 quarter to 8.3% for the 2021 quarter and ~~increased 130~~decreased 140 basis points from ~~8.7% for the 2019 period to 10.0%~~9.4% for the 2020 period to 8.0% for the 2021 period. These ~~increases~~decreases were primarily due to the ~~reinstatement~~termination of the non-deductible health insurance industry fee in ~~2020 and~~2021, lower COVID-19 related administrative costs in the 2021 quarter, as previously discussed, ~~partially offset by~~ scale efficiencies associated with growth in our individual Medicare Advantage membership, and ~~significant~~ operating cost efficiencies in the 2021 quarter driven by previously ~~disclosed~~implemented productivity initiatives. These improvements were partially offset by continued strategic investments made to position us for long-term success. The non-deductible health insurance industry fee impacted the operating cost ratio by 160 basis points in the 2020 quarter and period.

Group and Specialty Segment


		September 30,		Change				June 30,		Change
		2020	2019	Members	Percentage			2021	2020	Members	Percentage
Membership:	Membership:						Membership:
Medical membership:	Medical membership:						Medical membership:
Fully-insured commercial group	Fully-insured commercial group	799,500	927,400	(127,900)	(13.8)	%	Fully-insured commercial group	706,100	820,800	(114,700)	(14.0)	%
ASO	ASO	502,100	516,800	(14,700)	(2.8)	%	ASO	497,800	506,200	(8,400)	(1.7)	%
Military services	Military services	6,016,400	5,998,700	17,700	0.3	%	Military services	6,038,500	6,033,300	5,200	0.1	%
Total group medical members	Total group medical members	7,318,000	7,442,900	(124,900)	(1.7)	%	Total group medical members	7,242,400	7,360,300	(117,900)	(1.6)	%
Specialty membership (a)	Specialty membership (a)	5,325,600	5,411,400	(85,800)	(1.6)	%	Specialty membership (a)	5,327,500	5,344,900	(17,400)	(0.3)	%

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



	For the three months ended June 30,						Change
	2021			2020			Dollars		Percentage
	(in millions)
Premiums and Services Revenue:
Premiums:
Fully-insured commercial group	$	1,078		$	1,208		$	(130)	(10.8)	%
Group specialty	432			425			7		1.6	%
Total premiums	1,510			1,633			(123)		(7.5)	%
Services	194			192			2		1.0	%
Total premiums and services revenue	$	1,704		$	1,825		$	(121)	(6.6)	%
Segment earnings	$	40		$	287		$	(247)	(86.1)	%
Benefit ratio	82.6		%	67.0		%			15.6	%
Operating cost ratio	23.9		%	23.8		%			0.1	%

Table of Contents

For the three months ended September 30, Change
2020 2019 Dollars Percentage
(in millions)
Premiums and Services Revenue:
Premiums:
Fully-insured commercial group $ 1,169 $ 1,278 $ (109) (8.5) %
Group specialty 424 400 24 6.0 %
Total premiums 1,593 1,678 (85) (5.1) %
Services 189 200 (11) (5.5) %
Total premiums and services revenue $ 1,782 $ 1,878 $ (96) (5.1) %
Segment (losses) earnings $ (160) $ 4 $ (164) (4100.0) %
Benefit ratio 93.0 % 86.3 % 6.7 %
Operating cost ratio 25.2 % 21.9 % 3.3 %


		For the nine months ended September 30,						Change					For the six months ended June 30,						Change
		2020			2019			Dollars		Percentage			2021			2020			Dollars		Percentage
		(in millions)											(in millions)
Premiums and Services Revenue:	Premiums and Services Revenue:											Premiums and Services Revenue:
Premiums:	Premiums:											Premiums:
Fully-insured commercial group	Fully-insured commercial group	$	3,606		$	3,873		$	(267)	(6.9)	%	Fully-insured commercial group	$	2,177		$	2,437		$	(260)	(10.7)	%
Group specialty	Group specialty	1,278			1,160			118		10.2	%	Group specialty	866			854			12		1.4	%

Total premiums	Total premiums	4,884			5,033			(149)		(3.0)	%	Total premiums	3,043			3,291			(248)		(7.5)	%
Services	Services	576			587			(11)		(1.9)	%	Services	384			387			(3)		(0.8)	%
Total premiums and services revenue	Total premiums and services revenue	$	5,460		$	5,620		$	(160)	(2.8)	%	Total premiums and services revenue	$	3,427		$	3,678		$	(251)	(6.8)	%
Segment earnings	Segment earnings	$	232		$	174		$	58	33.3	%	Segment earnings	$	214		$	392		$	(178)	(45.4)	%
Benefit ratio	Benefit ratio	79.6		%	83.0		%			(3.4)	%	Benefit ratio	78.6		%	73.1		%			5.5	%
Operating cost ratio	Operating cost ratio	24.0		%	21.9		%			2.1	%	Operating cost ratio	23.4		%	23.4		%			—	%

Segment Earnings

•Group and Specialty segment earnings decreased ~~$164~~$247 million, or 86.1%, from $4$287 million ~~segment earnings in the 2019 quarter to $160 million segment loss~~ in the 2020 quarter ~~primarily due~~ to ~~higher benefit and operating cost ratios as more fully described below. Group and Specialty segment earnings~~ ~~increased $58 million, or 33.3%, from $174~~$40 million in the ~~2019 period to $232~~2021 quarter and decreased $178 million, or 45.4%, from $392 million in the 2020 period to $214 million in the 2021 period. These decreases were primarily due the same factors that led to the ~~net favorable impact of a lower~~segment's higher benefit ~~ratio, partially offset by a higher operating cost ratio as more fully described below.~~ratio.

Enrollment

•Fully-insured commercial group medical membership decreased ~~127,900~~114,700 members, or ~~13.8%~~14.0%, from ~~September~~June 30, ~~2019~~2020 to ~~September~~June 30, ~~2020. These anticipated declines primarily reflect~~2021 reflecting lower ~~membership in~~ small group ~~accounts due in part~~quoting activity and sales attributable to more small group accounts selecting level-funded ASO products, as well as the loss of certain large group accounts due to disciplined pricing in the competitive environment. Additionally, the declines in membership were impacted by the currentdepressed economic ~~downturn driven by~~activity from the COVID-19 pandemic, ~~resulting~~partially offset by higher retention of existing customers, particularly in ~~higher unemployment rates and loss of coverage for fully-insured commercial group members.~~larger groups. The portion of group fully-insured commercial medical membership in small group accounts was approximately ~~56%~~52% at ~~September~~June 30, ~~2020~~2021 and ~~60%~~57% at ~~September~~June 30, ~~2019.~~2020.

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•Group ASO commercial medical ~~membership~~membership decreased ~~14,700~~8,400 members, or ~~2.8%~~1.7%, from ~~September 30, 2019 to September~~June 30, 2020 ~~primarily reflecting~~ to June 30, 2021. Sthe loss of certain large group accounts due to continued discipline in pricing of services for self-funded accounts amid a highly competitive environment and the impact of the current economic downturn driven by the COVID-19 pandemic as previously discussed, partially offset by more small group accounts selecting level-funded ASO products. Smallmall group membership comprised 45% of group ASO medical membership at ~~September~~June 30, ~~2020 versus 39%~~2021 and 45% at ~~September~~June 30, ~~2019.~~2020. The membership change reflects intensified competition for small group accounts, partially offset by strong retention among large group accounts.

•Military services membership increased ~~17,700~~5,200 members, or ~~0.3%~~0.1%, from ~~September~~June 30, ~~2019~~2020 to ~~September~~June 30, ~~2020.~~2021. Membership includes military service members, retirees, and their families to whom we are providing healthcare services under the current TRICARE East Region contract.

•S~~pecialty~~pecialty membership decreased ~~85,800~~17,400 members, or ~~1.6%~~0.3%, from ~~September 30, 2019 to September~~June 30, 2020 to June 30, 2021 due primarily ~~due~~to the loss of dental and vision groups cross-sold with medical, as reflected in the loss of group fully-insured commercial medical membership described above, as well as the loss of certain ~~group accounts offering~~groups with stand-alone dental and ~~vision products, as well as~~vision. The decrease also reflects the impact of the ~~current~~ economic downturn driven by the COVID-19 ~~pandemic as previously discussed.~~pandemic.

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Premiums Revenue

•Group and Specialty segment premiums decreased ~~$85~~$123 million, or ~~5.1%~~7.5%, from ~~$1.7 billion in the 2019 quarter to~~ $1.6 billion in the 2020 quarter ~~and decreased $149 million, or 3.0%, from $5.0~~to $1.5 billion in the ~~2019 period to $4.9~~2021 quarter and decreased $248 million, or 7.5%, from $3.3 billion in the 2020 period. to $3.0 billion in the 2021 period. These decreases were primarily due to the decline in our fully-insured group commercial membership, partially offset by ~~higher stop-loss revenues related to our level-funded ASO accounts resulting from membership growth in this product and~~ higher per member premiums across the fully-insured commercial business.

Services Revenue

•Group and Specialty segment services revenue ~~decreased $11~~increased $2 million, or ~~5.5%~~1.0%, from ~~$200 million in the 2019 quarter to $189~~$192 million in the 2020 quarter ~~and decreased $11 million, or 1.9%, from $587~~to $194 million in the ~~2019~~2021 quarter and decreased $3 million, or 0.8%, from $387 million in the 2020 period to ~~$576~~$384 million in the ~~2020~~2021 period. ~~These decreases were primarily due to lower ASO membership described previously.~~

Benefits Expense

•The Group and Specialty segment benefit ratio increased ~~670~~1,560 basis points from ~~86.3% in the 2019 quarter to 93.0%~~67.0% in the 2020 quarter to 82.6% in the 2021 quarter and increased 550 basis points from 73.1% in the 2020 period to 78.6% in the 2021 period. These increases were primarily due to ~~ongoing~~the significant impact of the deferral of non-essential care, net of COVID-19 treatment and testing costs and our pandemic relief efforts ~~primarily surrounding initiatives to ease administrative and financial stress for providers and employers, including premium rate relief for select employer groups~~in the 2020 quarter, amid the COVID-19 pandemic, and the ~~payment of monthly stipends to support participating dental providers, and~~ ~~meaningful~~ ~~COVID-19 testing and treatment costs for fully-insured commercial group medical members as several of our key commercial markets were located~~termination in ~~areas more significantly impacted by COVID-19. These items were partially offset by the reinstatement~~2021 of the non-deductible health insurance industry fee in ~~2020~~ which, along with a portion of the related tax benefit, was contemplated in the pricing and benefit design of our ~~products, the temporary deferral of non-essential care as previously discussed, and~~products. These increases were partially offset by higher favorable prior-period medical claims reserve ~~development. Utilization returned faster for fully-insured commercial group members~~development, as ~~compared to members in the Retail segment, but remained below historic baseline levels at the close of the 2020 quarter.~~

•~~The Group and Specialty segment benefit ratio~~ ~~decreased 340 basis points from 83.0% in the 2019 period to 79.6% in the 2020 period primarily~~well as the result of significantly depressed utilization levels experienced during the first half of 2020 as previously discussed, the reinstatement of the non-deductible health insurance industry fee in 2020 which was contemplated in thedeliberate pricing and benefit design ~~of our products, as well as higher favorable prior-period medical claims development. These items were partially offset by COVID-19 testing~~efforts to increase profitability and ~~treatments costs, and our ongoing pandemic relief efforts as previously described.~~position the commercial business for long-term success.

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•The Group and Specialty segment's benefits expense included ~~$13~~$8 million in favorable prior-period medical claims reserve development in the ~~2020~~2021 quarter versus $1$16 million in unfavorable prior-period medical claims reserve development in the ~~2019~~2020 quarter. This ~~favorable~~ prior-period medical claims reserve development decreased the Group and Specialty segment benefit ratio by approximately 8050 basis points in the 2021 quarter but increased the Group Specialty segment benefit ratio by approximately 100 basis points in the 2020 ~~quarter and by approximately 10 basis points in the 2019~~ quarter. The Group and Specialty segment's benefits expense included the effect of a favorable prior-period medical claims reserve development of ~~$43~~$100 million in the 2021 period versus $30 million in the 2020 ~~period versus an unfavorable prior-period medical claims reserve development~~ ~~of $35 million in the 2019~~ period. The favorable ~~prior-period~~prior period medical claims reserve development for the ~~2020~~2021 period decreased the Group and Specialty segment benefit ratio by approximately 330 basis points and 90 basis points ~~and~~in the ~~unfavorable development for the 2019 period increased the Group and Specialty segment benefit ratio 70 basis points.~~2020 period.

Operating Costs

•The Group and Specialty segment operating cost ratio increased ~~330~~10 basis points from ~~21.9% for the 2019 quarter to 25.2%~~23.8% for the 2020 quarter ~~and increased 210 basis points from 21.9%~~to 23.9% for the ~~2019 period~~2021 quarter primarily reflecting the continued strategic investments made to ~~24.0%~~position us for long-term success. The impact of the ~~2020 period. These increases were~~ ~~primarily due to~~strategic investments was partially offset by the ~~reinstatement~~termination of the non-deductible health insurance industry fee in ~~2020 and~~2021, lower COVID-19 related administrative costs in 2021, as previously ~~discussed.These increases were partially offset by significant~~discussed, and operating cost efficiencies driven by previously ~~disclosed~~implemented productivity initiatives. The Group and Specialty segment operating cost ratio was unchanged from 23.4% for the 2020 period. The non-deductible health insurance industry fee impacted the operating cost ratio by 130 basis points in the 2020 quarter and period.

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Healthcare Services Segment


		For the three months ended September 30,						Change					For the three months ended June 30,						Change
		2020			2019			Dollars		Percentage			2021			2020			Dollars		Percentage
		(in millions)											(in millions)
Revenues:	Revenues:											Revenues:
Services:	Services:											Services:
Pharmacy solutions												Pharmacy solutions	$	163		$	147		$	16	10.9	%
Provider services	Provider services	$	81		$	104		$	(23)	(22.1)	%	Provider services	97			79			18		22.8	%
Pharmacy solutions		157			53			104		196.2	%
Clinical care services	Clinical care services	26			32			(6)		(18.8)	%	Clinical care services	25			26			(1)		(3.8)	%
Total services revenues	Total services revenues	264			189			75		39.7	%	Total services revenues	285			252			33		13.1	%
Intersegment revenues:	Intersegment revenues:											Intersegment revenues:
Pharmacy solutions	Pharmacy solutions	6,158			5,673			485		8.5	%	Pharmacy solutions	6,458			5,977			481		8.0	%
Provider services	Provider services	573			591			(18)		(3.0)	%	Provider services	642			575			67		11.7	%

Clinical care services	Clinical care services	134			149			(15)		(10.1)	%	Clinical care services	138			137			1		0.7	%
Total intersegment revenues	Total intersegment revenues	6,865			6,413			452		7.0	%	Total intersegment revenues	7,238			6,689			549		8.2	%
Total services and intersegment revenues	Total services and intersegment revenues	$	7,129		$	6,602		$	527	8.0	%	Total services and intersegment revenues	$	7,523		$	6,941		$	582	8.4	%
Segment earnings	Segment earnings	$	249		$	212		$	37	17.5	%	Segment earnings	$	311		$	317		$	(6)	(1.9)	%
Operating cost ratio	Operating cost ratio	96.4		%	96.2		%			0.2	%	Operating cost ratio	95.8		%	95.1		%			0.7	%

For the nine months ended
September 30, Change
2020 2019 Dollars Percentage
(in millions)
Revenues:
Services:
Pharmacy solutions $ 425 $ 134 $ 291 217.2 %
Provider services 236 265 (29) (10.9) %
Clinical care services 80 103 (23) (22.3) %
Total services revenues 741 502 239 47.6 %
Intersegment revenues:
Pharmacy solutions 18,275 16,335 1,940 11.9 %
Provider services 1,724 1,792 (68) (3.8) %
Clinical care services 415 457 (42) (9.2) %
Total intersegment revenues 20,414 18,584 1,830 9.8 %
Total services and intersegment revenues $ 21,155 $ 19,086 $ 2,069 10.8 %
Segment earnings $ 816 $ 611 $ 205 33.6 %
Operating cost ratio 95.8 % 96.3 % (0.5) %

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	For the six months ended June 30,						Change
	2021			2020			Dollars		Percentage
	(in millions)
Revenues:
Services:
Pharmacy solutions	$	319		$	268		$	51	19.0	%
Provider services	188			155			33		21.3	%
Clinical care services	49			54			(5)		(9.3)	%
Total services revenues	556			477			79		16.6	%
Intersegment revenues:
Pharmacy solutions	12,675			12,117			558		4.6	%
Provider services	1,228			1,151			77		6.7	%
Clinical care services	261			281			(20)		(7.1)	%
Total intersegment revenues	14,164			13,549			615		4.5	%
Total services and intersegment revenues	$	14,720		$	14,026		$	694	4.9	%
Segment earnings	$	580		$	567		$	13	2.3	%
Operating cost ratio	95.9		%	95.6		%			0.3	%

Segment Earnings

•Healthcare Services segment earnings ~~increased $37~~decreased $6 million, or ~~17.5%~~1.9%, from ~~$212 million in the 2019 quarter to $249~~$317 million in the 2020 quarter ~~and increased $205 million, or 33.6%, from $611~~ to $311 million in the ~~2019 period~~2021 quarter resulting from the same factors that led to ~~$816~~the segment's increased operating cost ratio in the 2021 quarter, partially offset by higher earnings from equity method investments. Healthcare Services segment earnings increased $13 million, or 2.3%, from $567 million in the 2020 ~~period. These increases were~~period

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to $580 million in the 2021 period primarily due to ~~operational improvements and reduced utilization resulting from COVID-19~~improved operating performance in ~~our~~the provider services business. These improvements were partially offset by COVID-19 administrative related costs, including expenses associated with additional safety measures for our provider and clinical teams who have continued to provide services to members during the COVID-19 pandemic. The 2020 period was further impacted bybusiness, as well as higher earnings from ~~our pharmacy operations.~~equity method investments.

Script Volume

•Humana Pharmacy Solutions script volumes on an adjusted 30-day equivalent basis increased to approximately ~~119~~129 million in the ~~2020~~2021 quarter, up 3%11.2%, versus scripts of approximately 116 million in the ~~2019~~2020 quarter. For the ~~2020~~2021 period, script volumes increased to ~~approximately 356~~approximately 255 million, up 5%7.8%, versus scripts of approximately ~~339~~236 million in the ~~2019~~2020 period. These increases were primarily due to ~~the growth associated with~~ higher individual Medicare Advantage and state-based contracts membership, ~~along with~~partially offset by the decline in stand-alone PDP and group Medicare Advantage membership and the impact of early prescription refills in the second quarter of 2020 as members prepared for extended supply needs in response to ~~COVID-19. These increases were partially offset by the decline in stand-alone PDP membership.~~COVID-19 restrictions.

Services Revenues

•Services revenues increased ~~$75~~$33 million, or ~~39.7%~~13.1%, from ~~$189 million in the 2019 quarter to $264~~$252 million in the 2020 quarter ~~and increased $239 million, or 47.6%, from $502~~to $285 million in the ~~2019 period to $741~~2021 quarter and increased $79 million, or 16.6%, from $477 million in the 2020 period to $556 million in the 2021 period. These increases were primarily due to ~~the~~higher revenues associated with our pharmacy and provider businesses. The 2021 period further reflects additional pharmacy revenues associated with the acquisition of Enclara inwhich was closed during the ~~2020 period.~~first quarter of 2020.

Intersegment Revenues

•Intersegment revenues increased ~~$452~~$549 million, or ~~7.0%~~8.2%, from ~~$6.4 billion in the 2019 quarter to $6.9~~$6.69 billion in the 2020 quarter ~~and increased $1.8 billion, or 9.8%, from $18.6~~to $7.24 billion in the ~~2019 period to $20.4~~2021 quarter and increased $615 million, or 4.5%, from $13.5 billion in the 2020 period to $14.2 billion in the 2021 period. These increases were ~~primarily~~primarily due to ~~strong~~individual Medicare Advantage and state-based contracts membership growth, as well as higher revenues associated with our provider business. These increases were partially offset by the loss of intersegment revenues associated with the decline in stand-alone PDP ~~membership. The~~and group Medicare Advantage membership as previously discussed and the impact of increased pharmacy revenues in the 2020 ~~period was also impacted by the modest increase in pharmacy revenues~~quarter as a result of us allowing early prescription refills to permit our members to prepare for extended supply needs ~~in response~~due to COVID-19 ~~and a slight shift by members to 90-day mail supply.~~restrictions.

Operating Costs

•The Healthcare Services segment operating cost ratio increased 2070 basis points from ~~96.2% for the 2019 quarter to 96.4%~~95.1% for the 2020 quarter ~~primarily due~~ to 95.8% for the 2021 quarter and increased 30 basis points from 95.6% for the 2020 period to 95.9% for the 2021 period. These increases reflect increased administrative costs in the pharmacy operations as a result of incremental spend to accelerate growth within the business, additional shipping costs incurred in pharmacy operations to ensure members' timely receipt of prescriptions, and increased utilization levels in our provider business in 2021 compared to depressed levels in 2020 amid the COVID-19 pandemic. These increases were partially offset by the impact on the 2020 ratios associated with COVID-19 administrative related costs, including expenses associated with additional safety measures taken for our pharmacy, provider, and clinical teams who ~~have~~ continued to provide services to members ~~during~~throughout the COVID-19 pandemic. The increase further reflects higher costs incurred in the pharmacy business to ensure timely delivery of prescriptions amid the COVID-19 pandemic. These costs were partially offset bycrisis, as well as operational ~~improvements and reduced utilization resulting from COVID-19~~improvement in our provider services business, ~~as well as significant~~largely related to Conviva, along with operating cost efficiencies ~~in the 2020 quarter~~ driven by previously ~~disclosed~~implemented productivity ~~initiatives.~~initiatives in 2021. The ~~Healthcare Services segment operating cost ratio decreased 50 basis points from 96.3% for~~2021 period was further impacted by pharmacy labor-related overtime costs due to weather disruptions occurring in the ~~2019 period to 95.8% for the 2020 period as a result~~first quarter of ~~the net favorable impact of the same factors affecting the 2020 quarter.~~2021.

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Liquidity

Historically, our primary sources of cash have included receipts of premiums, services revenue, and investment and other income, as well as proceeds from the sale or maturity of our investment securities, and borrowings. Our primary uses of cash historically have included disbursements for claims payments, operating costs, interest on borrowings, taxes, purchases of investment securities, acquisitions, capital expenditures, repayments on borrowings,

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dividends, and share repurchases. Because premiums generally are collected in advance of claim payments by a period of up to several months, our business normally should produce positive cash flows during periods of increasing premiums and enrollment. Conversely, cash flows would be negatively impacted during periods of decreasing premiums and enrollment. From period to period, our cash flows may also be affected by the timing of working capital items including premiums receivable, benefits payable, and other receivables and payables. Our cash flows are impacted by the timing of payments to and receipts from CMS associated with Medicare Part D subsidies for which we do not assume risk. The use of cash flows may be limited by regulatory requirements of state departments of insurance (or comparable state regulators) which require, among other items, that our regulated subsidiaries maintain minimum levels of capital and seek approval before paying dividends from the subsidiaries to the parent. Our use of cash flows derived from our non-insurance subsidiaries, such as in our Healthcare Services segment, is generally not restricted by state departments of insurance (or comparable state regulators).

For additional information on our liquidity risk, please refer to the section entitled “Risk Factors” in our ~~2019~~2020 Form 10-K and Item 1A of Part II of this document.

Cash and cash equivalents ~~increased~~decreased to approximately ~~$8.0~~$3.4 billion at ~~September~~June 30, ~~2020~~2021 from ~~$4.1~~$4.7 billion at December 31, ~~2019.~~2020. The change in cash and cash equivalents for the ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 and ~~2019~~2020 is summarized as follows:

Nine Months Ended
2020 2019
(in millions)
Net cash provided by operating activities $ 5,356 $ 4,772
Net cash used in investing activities (3,010) (477)
Net cash provided by (used in) financing activities 1,585 (1,111)
Increase in cash and cash equivalents $ 3,931 $ 3,184


	Six Months Ended
	2021		2020
	(in millions)
Net cash (used in) provided by operating activities	$	(477)	$	3,541
Net cash used in investing activities	(2,203)		(2,862)
Net cash provided by financing activities	1,385		2,430
(Decrease) increase in cash and cash equivalents	$	(1,295)	$	3,109

Cash Flow from Operating Activities

Cash flows used in operations of $477 million in the 2021 period decreased $4.0 billion from cash flows provided by operations of $3.5 billion in the 2020 period primarily due to the negative impact of working capital items and lower earnings in the 2021 period compared to the 2020 period. Our 2021 period operating cash flows were significantly impacted by changes to working capital levels, primarily as a result of prior year disruptions caused by COVID-19. These impacts include paying down claims inventory and capitation for provider surplus amounts earned in 2020 as well as additional provider support. Further, quarterly tax payment estimates typically paid in the 2020 period ~~increased from~~were deferred to the ~~2019 period~~third quarter of 2020 due ~~primarily~~ to ~~higher income from operations.~~COVID-19.

The most significant drivers of changes in our working capital are typically the timing of payments of benefits expense and receipts for premiums. We illustrate these changes with the following summaries of benefits payable and receivables.

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The detail of benefits payable was as follows at ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019:~~2020:


		September 30, 2020		December 31, 2019		2020 Period Change		2019 Period Change			June 30, 2021		December 31, 2020		2021 Period Change		2020 Period Change
		(in millions)									(in millions)
IBNR (1)	IBNR (1)	$	5,149	$	4,150	$	999	$	656	IBNR (1)	$	5,419	$	5,290	$	129	$	698
Reported claims in process (2)	Reported claims in process (2)	1,167		628		539		467		Reported claims in process (2)	1,244		816		428		331

Other benefits payable (3)	Other benefits payable (3)	1,892		1,226		666		235		Other benefits payable (3)	1,822		2,037		(215)		947
Total benefits payable	Total benefits payable	$	8,208	$	6,004	$	2,204	$	1,358	Total benefits payable	$	8,485	$	8,143	$	342	$	1,976

Payables from acquisition										Payables from acquisition					(42)		—
Change in benefits payable per cash flow statement resulting in cash from operations										Change in benefits payable per cash flow statement resulting in cash from operations					$	300	$	1,976

(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,

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medical claim trends and the receipt cycle time, which represents the length of time between when a claim is initially incurred and when the claim form is received and processed (i.e. a shorter time span results in a lower IBNR).

(2)Reported claims in process represents the estimated valuation of processed claims that are in the post claim adjudication process, which consists of administrative functions such as audit and check batching and handling, as well as amounts owed to our pharmacy benefit administrator which fluctuate due to bi-weekly payments and the month-end cutoff.

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

The increase in benefits payable ~~from December 31, 2019 to September 30, 2020~~in 2021 was primarily due to an increase in reported claims in process and higher IBNR, partially offset by reduction in capitation accruals. Higher reported claims in process was a function of month-end cutoff. IBNR increased primarily as a result of individual Medicare Advantage membership growth partially offset by paying down claim inventories. The 2020 period was significantly impacted by higher capitation accruals as ~~well as increases~~significantly lower utilization caused by COVID-19 resulted in ~~amounts owed~~higher surplus accruals to providers under the capitated and risk sharing arrangements, which were affected by the response to COVID-19 and resulting deferral of care impact on medical claims reserves, and an increase in the amount of processed but unpaid claims which fluctuate due to month-end cutoff. The increases in benefits payable from December 31, 2018 to September 30, 2019 were due to an increase in IBNR primarily as a result of Medicare Advantage membership growth and an increase in the amount of processed but unpaid claims which fluctuate due to month-end cutoff.providers.

The detail of total net receivables was as follows at ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019:~~2020:


		September 30, 2020		December 31, 2019		2020 Period Change		2019 Period Change			June 30, 2021		December 31, 2020		2021 Period Change		2020 Period Change
		(in millions)									(in millions)
Medicare	Medicare	$	863	$	835	$	28	$	(198)	Medicare	$	2,153	$	928	$	1,225	$	1,179
Commercial and other	Commercial and other	209		162		47		17		Commercial and other	200		122		78		13
Military services	Military services	141		128		13		8		Military services	163		160		3		9
Allowance for doubtful accounts	Allowance for doubtful accounts	(78)		(69)		(9)		6		Allowance for doubtful accounts	(78)		(72)		(6)		(19)
Total net receivables	Total net receivables	$	1,135	$	1,056	$	79	$	(167)	Total net receivables	$	2,438	$	1,138	$	1,300	$	1,182
Reconciliation to cash flow statement:	Reconciliation to cash flow statement:									Reconciliation to cash flow statement:
Receivables from disposition (acquisition) of business						3		(12)
Receivables from acquisition										Receivables from acquisition					(15)		3
Change in receivables per cash flow statement resulting in cash from operations	Change in receivables per cash flow statement resulting in cash from operations					$	82	$	(179)	Change in receivables per cash flow statement resulting in cash from operations					$	1,285	$	1,185

The changes in ~~Commercial and other receivables for the 2020 period were primarily as a result of Medicaid membership growth. The changes in~~ Medicare receivables for both the ~~2020~~2021 period and the ~~2019~~2020 period reflect 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. We received the 2021 $1.3 billion mid-year settlement in July 2021.

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Cash Flow from Investing Activities

~~In the first quarter~~During 2021, we acquired various health and wellness related businesses for cash consideration of approximately $325 million, net of cash received.

During 2020, we acquired privately held Enclara Healthcare for cash consideration of approximately $709 million, net of cash ~~received as discussed in Note 3 to the condensed consolidated financial statements.~~received.

Our ongoing capital expenditures primarily relate to our information technology initiatives, support of services in our provider services operations including medical and administrative facility improvements necessary for activities such as the provision of care to members, claims processing, billing and collections, wellness solutions,

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care coordination, regulatory compliance and customer service. Total capital expenditures, excluding acquisitions, were ~~$668~~$619 million in the ~~2020~~2021 period and ~~$506~~$418 million in the ~~2019~~2020 period.

Net purchases of investment securities were $1.3 billion and $1.7 billion in the 2021 and 2020 period, ~~were $1.6 billion as compared to net proceeds from investment securities sales and maturities of $29 million in the 2019 period.~~respectively.

Cash Flow from Financing Activities

~~Claims payments were $283 million higher than receipts from CMS associated with Medicare Part D claim subsidies for which we do not assume risk in the 2020 period and receipts~~Receipts from CMS associated with Medicare Part D claim subsidies for which we do not assume risk were higher than ~~claims~~claim payments by ~~$113~~$1.2 billion and $412 million in the ~~2019 period.~~2021 and 2020 period, respectively.

Under our administrative services only TRICARE contracts, ~~reimbursements from the federal government exceeded~~ health care ~~cost payments for which we do not assume risk by~~ ~~$9 million in the 2020 period and health care cost~~costs payments for which we do not assume risk exceeded reimbursements from the federal government by ~~$102~~$2 million and $23 million in the ~~2019~~2021 and 2020 period, respectively.

Net proceeds from the issuance of commercial paper were $508 million in the 2021 period and $21 million in the 2020 period. The maximum principal amount outstanding at any one time during the 2021 period was $1.3 billion.

In August 2019, we issued $500 million of 3.125% senior notes due August 15, 2029 and $500 million of 3.950% senior notes due August 15, 2049. Our net proceeds, reduced for the underwriters' discount and commission and offering expenses paid as of September 30, 2019 were $987 million. We used the net proceeds from this offering, together with available cash, to repay the $650 million outstanding amount due under our term note in August 2019, and the $400 million aggregate principal amount of our 2.625% senior notes due on its maturity date of October 1, 2019.

We paid dividends to stockholders of $173 million during the 2021 period and ~~$10~~$156 million induring the ~~2019~~2020 period.

In March 2020, we drew $1 billion on our existing term loan ~~commitment.~~commitment, which was repaid in November 2020.

~~Net~~

The remainder of the cash used in or provided by financing activities in 2021 and 2020 primarily resulted from proceeds from stock option exercises and the ~~issuance of commercial paper were $21 million~~change in ~~the 2020 period and net repayments from the issuance of commercial paper were $358 million in~~ ~~the 2019 period. The maximum principal amount outstanding at any one time during the 2020 period was $600 million.~~

~~We paid dividends to stockholders of $239 million during the 2020 period and $216 million during the 2019 period.~~book overdraft.

Future Sources and Uses of Liquidity

Dividends

For a detailed discussion of dividends to stockholders, please refer to Note 10 to the condensed consolidated financial statements.

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Stock Repurchases

For a detailed discussion of stock repurchases, please refer to Note 10 to the condensed consolidated financial statements.

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Debt

For a detailed discussion of our debt, including our senior notes, ~~term loan,~~ credit ~~agreement and~~agreements, commercial paper program, and other short-term borrowings, please refer to Note 12 to the condensed consolidated financial statements.

~~Acquisitions and Divestitures~~Kindred at Home Acquisition

~~During~~On April 27, 2021, we entered into a definitive agreement to acquire the ~~2020 period, we completed the acquisition of privately held Enclara, one of~~remaining 60% interest in KAH, the nation’s largest home health and hospice ~~pharmacy~~provider, from TPG and ~~benefit management providers~~WCAS, two private equity funds, or the Sponsors, for an enterprise value of $8.1 billion, which includes our existing equity value of $2.4 billion associated with our 40% minority ownership interest. KAH has locations in 40 states, providing extensive geographic coverage with approximately 65% overlap with our individual Medicare Advantage membership. The acquisition, which is expected to close in the third quarter of 2021, is subject to customary state and federal regulatory approvals. We expect to fund the approximate $5.7 billion transaction (net of our existing equity stake) through a combination of parent company cash and debt financing.

In April 2021, we entered into a commitment letter with Goldman Sachs Bank USA, or Goldman Sachs, pursuant to which, and subject to the terms and conditions set forth therein, Goldman Sachs committed to lend us up to $3.5 billion under a new senior unsecured 364-day bridge loan facility, or Bridge Loan. If we enter into the Bridge Loan, the proceeds of the Bridge Loan will be used to finance a portion of the cash consideration payable for the KAH transaction. The outstanding Bridge Loan commitments under the commitment letter were reduced to $3.0 billion in connection with the effectiveness of ~~approximately $709~~the delayed draw term loan credit agreement described below.

In May 2021, we entered into a $500 million ~~net~~unsecured delayed draw term loan credit agreement. If we draw on the delayed term loan, the proceeds will be used to finance a portion of the cash ~~received. For a detailed discussion of this transaction, please refer to Note 3 to~~consideration payable for the ~~condensed consolidated financial statements.~~KAH transaction.

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~~June 30, ~~2020~~2021 was BBB+ according to Standard & Poor’s Rating Services, or S&P, and Baa3 according to Moody’s Investors Services, Inc., or Moody’s. A downgrade by S&P to BB+ or by Moody’s to Ba1 triggers an interest rate increase of 25 basis points with respect to $250 million of our senior notes. Successive one notch downgrades increase the interest rate an additional 25 basis points, or annual interest expense by less than $1 million, up to a maximum 100 basis points, or annual interest expense by $3 million.

In addition, we operate as a holding company in a highly regulated industry. Humana Inc., our parent company, is dependent upon dividends and administrative expense reimbursements from our subsidiaries, most of which are subject to regulatory restrictions. We continue to maintain significant levels of aggregate excess statutory capital and surplus in our state-regulated operating subsidiaries. Cash, cash equivalents, and short-term investments at the parent company were ~~$2.4~~$1.3 billion at ~~September~~June 30, ~~2020~~2021 compared to ~~$1.4 billion~~$772 million at December 31, ~~2019.~~2020. This increase primarily was due to ~~the net proceeds~~dividends received from regulated subsidiaries, earnings in non-regulated Healthcare Services subsidiaries, and the issuance of ~~senior notes, proceeds from a term loan, and~~ commercial paper, ~~issuance. The increase was further impacted by regulated subsidiary dividends and non-regulated subsidiary earnings in our Healthcare Services segment. These increases were~~ partially offset by ~~the Enclara acquisition,~~acquisitions, capital expenditures, cash

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dividends to shareholders, and ~~other working~~ capital ~~changes.~~contributions to certain subsidiaries. Our use of operating cash derived from our non-insurance subsidiaries, such as our Healthcare Services segment, is generally not restricted by departments of insurance (or comparable state regulators).

Regulatory Requirements

Certain of our subsidiaries operate in states that regulate the payment of dividends, loans, or other cash transfers to Humana Inc., our parent company, and require minimum levels of equity as well as limit investments to approved securities. The amount of dividends that may be paid to Humana Inc. by these subsidiaries, without prior approval by state regulatory authorities, or ordinary dividends, is limited based on the entity’s level of statutory income and statutory capital and surplus. If the dividend, together with other dividends paid within the preceding twelve months, exceeds a specified statutory limit or is paid from sources other than earned surplus, it is generally considered an extraordinary dividend requiring prior regulatory approval. In most states, prior notification is provided before paying a dividend even if approval is not required.

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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, 2020,~~March 31, 2021, our state regulated subsidiaries had aggregate statutory capital and surplus of approximately ~~$9.3~~$10.0 billion, which exceeded aggregate minimum regulatory requirements of ~~$6.4~~$7.2 billion. The amount of ordinary dividends paid to our parent company was approximately $1.3 billion during the six months ended June 30, 2021 compared to $360 million during the ~~nine~~six months ended ~~September~~June 30, ~~2020 compared to $1.4 billion during the nine months ended September 30, 2019. Actual dividends paid may~~2020. The amount, timing and mix of ordinary and extraordinary dividend payments will vary ~~year over year~~ due to ~~consideration~~state regulatory requirements, the level of excess statutory capital and surplus and expected future surplus requirements related to, for example, premium volume and product mix.

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Item 3. Quantitative and Qualitative Disclosures about Market Risk

Our earnings and financial position are exposed to financial market risk, including those resulting from changes in interest rates.

Interest rate risk also represents a market risk factor affecting our consolidated financial position due to our significant investment portfolio, consisting primarily of fixed maturity securities of investment-grade quality with a weighted average S&P credit rating of AAAA- at ~~September~~June 30, ~~2020.~~2021. Our net unrealized position ~~increased $280~~decreased $247 million from a net unrealized gain position of ~~$211~~$514 million at December 31, ~~2019~~2020 to a net unrealized gain position of ~~$491~~$267 million at ~~September~~June 30, ~~2020.~~2021. At ~~September~~June 30, ~~2020,~~2021, we had gross unrealized losses of ~~$14~~$87 million on our investment portfolio primarily due to an increase in market interest rates since the time the securities were purchased. There were no material credit allowances during the ~~nine~~six months ended ~~September~~June 30, ~~2020.~~2021. While we believe that these securities in an unrealized loss will recover in value over time and we currently do not have the intent to sell such securities, given the current market conditions and the significant judgments involved, there is a continuing risk that future declines in fair value may occur and material realized losses from sales or credit allowances may be recorded in future periods.

Duration is the time-weighted average of the present value of the bond portfolio’s cash flow. Duration is indicative of the relationship between changes in fair value and changes in interest rates, providing a general indication of the sensitivity of the fair values of our fixed maturity securities to changes in interest rates. However, actual fair values may differ significantly from estimates based on duration. The average duration of our investment portfolio, including cash and cash equivalents, was approximately ~~2.1~~3.6 years as of ~~September~~June 30, ~~2020~~2021 and approximately ~~2.5~~3.0 years as of December 31, ~~2019.~~2020. The ~~decline~~increase in the average duration is reflective of the ~~increased~~decreased holdings of cash and cash equivalents, along with other portfolio management activities. Based on the duration, including cash equivalents, a 1% increase in interest rates would generally decrease the fair value of our securities by approximately ~~$452~~$619 million at ~~September~~June 30, ~~2020.~~2021.

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~~June 30, ~~2020.~~2021.

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~~June 30, ~~2020~~2021 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

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Part II. Other Information

Item 1. Legal Proceedings

For a description of the legal proceedings pending against us and certain other pending or threatened litigation, investigations, or other matters, see “Legal Proceedings and Certain Regulatory Matters” in Note 13 to the condensed consolidated financial statements beginning on page 2725 of this Form 10-Q.

Item 1A. Risk Factors

~~In addition~~There have been no changes to the ~~other information set forth in this report, you should carefully consider the~~risk factors ~~discussed in Part I, Item 1A. “Risk factors”~~included in our ~~Annual Report on~~2020 Form ~~10-K for the year ended December 31, 2019, and the risk factor set forth below.~~

The spread of, and response to, the novel coronavirus, or COVID-19, underscores certain risks we face, including those discussed in our Form 10-K for the fiscal year ended December 31, 2019, and the rapid development and fluidity of this situation precludes any prediction as to the ultimate adverse impact to us of COVID-19.

In December 2019, a novel strain of coronavirus (COVID-19) emerged which was declared a pandemic by the World Health Organization on March 11, 2020, and has now spread globally including throughout the United States. The spread of COVID-19 underscores certain risks we face in our business, including those discussed in our Form 10-K for the fiscal year ended December 31, 2019.

Governmental and non-governmental organizations may not effectively combat the spread and severity of COVID-19, increasing the potential for harm for our members. If the spread of COVID-19 is not contained, the premiums we charge may prove to be insufficient to cover the cost of health care services delivered to our members, which may increase significantly as a result of higher utilization rates of medical facilities and services and other increases in associated hospital and pharmaceutical costs. Over time, we may also experience increased costs or decreased revenues if, as a result of our members being unable to see their providers due to actions taken to mitigate the spread of COVID-19, we are unable to implement clinical initiatives to manage health care costs and chronic conditions of our members, and appropriately document their risk profiles. In addition, we are offering our members expanded benefit coverage, such as waiving out of pocket costs for COVID-19 diagnostic testing and treatment, certain additional coverages have been mandated by governmental action and we are taking actions designed to help provide financial and administrative relief for the health care provider community. Such measures and any further steps taken by us, or governmental action, to continue to respond to and to address the ongoing impact of COVID-19, including further expansion or modification of the services delivered to our members, the adoption or modification of regulatory requirements associated with those services and the costs and challenges associated with ensuring timely compliance with such requirements, to provide further relief for the health care provider community, or in connection with the relaxation of stay-at-home and physical distancing orders and other restrictions on movement and economic activity, including the potential for widespread testing and therapeutic treatments and a vaccine, once available, as a component of lifting these measures, could adversely impact our profitability.

The spread and impact of COVID-19, or actions taken to mitigate this spread, could have material and adverse effects on our ability to operate effectively, including as a result of the complete or partial closure of facilities or labor shortages. Disruptions in public and private infrastructure, including communications, availability of in-person sales and marketing channels, financial services and supply chains, could materially and adversely disrupt our normal business operations. We have transitioned a significant subset of our employee population to a remote work environment in an effort to mitigate the spread of COVID-19, as have a number of our third-party service providers, which may exacerbate

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certain risks to our business, including an increased demand for information technology resources, increased risk of phishing and other cybersecurity attacks, and increased risk of unauthorized dissemination of sensitive personal information or proprietary or confidential information about us or our members or other third-parties. The outbreak of COVID-19 has severely impacted global economic activity, including the businesses of some of our commercial customers, and caused significant volatility and negative pressure in the financial markets. In addition to disrupting our operations, these developments may adversely affect the timing of commercial customer premium collections and corresponding claim payments, the value of our investment portfolio, or future liquidity needs.

The rapid development and fluidity of this situation precludes any prediction as to the ultimate adverse impact to us of COVID-19. We are continuing to monitor the spread of COVID-19, changes to our benefit coverages, the ongoing costs and business impacts of dealing with COVID-19, including the potential costs and impacts associated with lifting, or reimposing restrictions on movement and economic activity and related risks. The magnitude and duration of the pandemic and its ultimate impact on our business, results of operations, financial position, and cash flows is uncertain as this continues to evolve globally, but such impacts could be material to our business, results of operations, financial position and cash flows.10-K.

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Item 2:2. 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~~June 30, ~~2020:~~2021:

Period

Total Number
of Shares
Purchased (1)(2)

Average
Price Paid
per Share

Total Number of
Shares Purchased
as Part of Publicly
Announced Plans
or Programs (1)(2)

Dollar Value of
Shares that May
Yet Be Purchased
Under the Plans
or Programs (1)

~~July 2020~~April 2021

—

~~August 2020~~May 2021

—

~~September 2020~~June 2021

—

Total

—

(1)On December 22, 2020, we entered into separate accelerated stock repurchase agreements, ("the December 2020 ASR Agreements"), with Citibank, N.A., or Citi, and JPMorgan Chase Bank, or JPM, to repurchase $1.75 billion of our common stock as part of the $3 billion repurchase program authorized by the Board of Directors on July 30, ~~2019,~~2019. On December 23, 2020, in accordance with the December 2020 ASR Agreements, we made a payment of $1.75 billion ($875 million to Citi and $875 million to JPM) and received an initial delivery of 3.8 million shares of our common stock (1.9 million shares each from Citi and JPM). We recorded the payments to Citi and JPM as a reduction to stockholders’ equity, consisting of an $1.5 billion increase in treasury stock, which reflects the value of the initial 3.8 million shares received upon initial settlement, and a $262.5 million decrease in capital in excess of par value, which reflects the value of stock held back by Citi and JPM pending final settlement of the December 2020 ASR Agreements. Upon final settlement of the December 2020 ASR agreements with Citi and JPM on May 4, 2021 and May 5, 2021, respectively, we received an additional 0.3 million shares and 0.3 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 $400.07 and 401.49, respectively, bringing the total shares received under the December 2020 ASR agreements to 4.4 million. In addition, upon settlement we reclassified the $262.5 million value of stock initially held back by Citi and JPM from capital in excess of par value to treasury stock. On February 18, 2021, the Board of Directors replaced athe previous share repurchase authorization of up to $3 billion (of which approximately $250 million remained unused) with a new authorization for repurchases of up to $3 billion of our common shares exclusive of shares repurchased in connection with employee stock plans, expiring ~~on June 30, 2022.~~as of February 18, 2024. Under our share repurchase authorization, shares may be purchased from time to time at prevailing prices in the open market, by block purchases, through plans designed to comply with Rule 10b5-1 under the Securities Exchange Act of 1934, as amended, or in privately-negotiated transactions (including pursuant to accelerated share repurchase agreements with investment banks), subject to certain regulatory restrictions on volume, pricing, and timing. Our remaining repurchase authorization was ~~approximately~~ $23 billion as of ~~November 2, 2020~~July 27, 2021.

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(2)Excludes ~~80,000~~90,000 shares repurchased in connection with employee stock plans.

Item 3:3. Defaults Upon Senior Securities

None.

Item 4:4. Mine Safety Disclosures

Not applicable.

Item 5:5. Other Information

None.

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Item 6: Exhibits


3(i)			Restated Certificate of Incorporation of Humana Inc. filed with the Secretary of State of Delaware on November 9, 1989, as restated to incorporate the amendment of January 9, 1992, and the correction of March 23, 1992 (incorporated herein by reference to Exhibit 4(i) to Humana Inc.’s Post-Effective Amendment No. 1 to the Registration Statement on Form S-8 (Reg. No. 33-49305) filed February 2, 1994).
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).
10.1			Five-Year $2.5 Billion Amended and Restated Credit Agreement, dated as of June 4, 2021, among Humana Inc., and JPMorgan Chase Bank, N.A. as Agent and as CAF Loan Agent, Bank of America, N.A. and Goldman Sachs Bank USA as Syndication Agents, Citibank, N.A., PNC Bank, National Association, U.S. Bank National Association and Wells Fargo Securities, LLC, as Documentation Agents, and JPMorgan Chase Bank, N.A., BofA Securities, Inc., Goldman Sachs Bank USA, Citigroup Global Markets, Inc., PNC Capital Markets LLC, U.S. Bank National Association and Wells Fargo Securities, LLC, as Joint-Lead Arrangers and Joint Bookrunners (incorporated herein by reference to Exhibit 10 to Humana Inc.’s Current Report on Form 8-K filed on June 4, 2021).
10.2			364-Day $1.5 Billion Revolving Credit Agreement, dated as of June 4, 2021, among Humana Inc., and JPMorgan Chase Bank, N.A. as Agent and as CAF Loan Agent, Bank of America, N.A. and Goldman Sachs Bank USA as Syndication Agents, Citibank, N.A., PNC Bank, National Association, U.S. Bank National Association and Wells Fargo Securities, LLC, as Documentation Agents, and JPMorgan Chase Bank, N.A., BofA Securities, Inc., Goldman Sachs Bank USA, Citigroup Global Markets, Inc., PNC Capital Markets LLC, U.S. Bank National Association and Wells Fargo Securities, LLC, as Joint-Lead Arrangers and Joint Bookrunners (incorporated herein by reference to Exhibit 10 to Humana Inc.’s Current Report on Form 8-K filed on June 4, 2021).
10.3			$500 Million Delayed Draw Term Loan Credit Agreement, dated as of May 28, 2021, among Humana Inc., and JPMorgan Chase Bank, N.A. as Agent, Bank of America, N.A. and Goldman Sachs Bank USA as Syndication Agents, Citibank, N.A., PNC Capital Markets LLC, Trust Bank, U.S. Bank, National Association and Wells Fargo Securities, LLC, as Documentation Agents, and Goldman Sachs Bank USA, BofA Securities, Inc., JPMorgan Chase Bank, N.A., Citibank, N.A., PNC Capital Markets LLC, Trust Securities, Inc., U.S. Bank National Association and Wells Fargo Securities, LLC, as Joint-Lead Arrangers and Joint Bookrunners (incorporated herein by reference to Exhibit 10 to Humana Inc.’s Current Report on Form 8-K filed on June 4, 2021).
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.

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101			The following materials from Humana Inc.'s Quarterly Report on Form 10-Q formatted in iXBRL (Inline Extensible Business Reporting Language): (i) the Condensed Consolidated Balance Sheets at ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019;~~2020; (ii) the Condensed Consolidated Statements of Income for the three ~~months~~ and ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 and ~~2019;~~2020; (iii) the Condensed Consolidated Statements of Comprehensive Income for the three and ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 and ~~2019;~~2020; (iv) the Consolidated Statements of Equity for the three and ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 and ~~2019;~~2020; (v) the Condensed Consolidated Statements of Cash Flows for the ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 and ~~2019;~~2020; and (vi) Notes to Condensed Consolidated Financial Statements. The instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
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 3, 2020~~July 28, 2021	By:	/s/ CYNTHIA H. ZIPPERLE
			Cynthia H. Zipperle
			Senior Vice President, Chief Accounting Officer and Controller (Principal Accounting Officer)

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	September 30, 2020		December 31, 2019
Annualized volatility	44.9	%	19.8	%
Secured credit rate	0.4	%	2.2	%
NOPAT	12.0	%	12.0	%
Weighted average cost of capital	10.0	%	10.0	%
Long term growth rate	3.0	%	3.0	%


	Three months ended September 30,				Nine months ended September 30,
	2020		2019		2020		2019
	(dollars in millions, except per common share results; number of shares in thousands)
Net income available for common stockholders	$	1,340	$	689	$	3,641	$	2,195
Weighted average outstanding shares of common stock used to compute basic earnings per common share	132,318		133,321		132,234		134,589
Dilutive effect of:
Employee stock options	105		101		95		99
Restricted stock	773		603		681		501
Shares used to compute diluted earnings per common share	133,196		134,025		133,010		135,189
Basic earnings per common share	$	10.12	$	5.16	$	27.53	$	16.31
Diluted earnings per common share	$	10.05	$	5.14	$	27.37	$	16.24
Number of antidilutive stock options and restricted stock excluded from computation	143		302		311		589


	Nine Months Ended
	2020		2019
	(in millions)
Net cash provided by operating activities	$	5,356	$	4,772
Net cash used in investing activities	(3,010)		(477)
Net cash provided by (used in) financing activities	1,585		(1,111)
Increase in cash and cash equivalents	$	3,931	$	3,184