What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2023-02-16 compared with 2022-02-17 · 348 added, 372 removed, 1279 unchanged (36% of the section changed)

6 unchanged sentences

Investment securities 13,881 13,192

Receivables, less allowance for doubtful accounts

of $ 83 in 2021 and $ 72 in 2020

Receivables, net of allowances of $ 70 in 2022 and $ 83 in 2021

Other current assets 5,567 6,493

23 unchanged sentences

300,000,000 shares authorized;

198,648,742 shares issued at December 31, 2021 and December 31, 2020

198,666,598 shares issued at December 31, 2022 and 198,648,742 shares issued at December 31, 2021

Capital in excess of par value 3,246 3,082

Retained earnings 25,492 23,086

Accumulated other comprehensive income 42 391

Accumulated other comprehensive (loss) income ( 1,304 ) 42

Treasury stock, at cost, 73,691,955 shares at December 31, 2022

1 unchanged sentence

( 12,156 ) ( 10,163 )

Noncontrolling interests 23 —

Total stockholders' equity 15,311 16,080

Total liabilities and stockholders’ equity $ 44,358 $ 34,969

Noncontrolling interests 59 23

Total equity 15,370 16,103

Total liabilities and equity $ 43,055 $ 44,358

The accompanying notes are an integral part of the consolidated financial statements.

13 unchanged sentences

Income from operations 3,800 3,148 4,986

Gain on sale of KAH Hospice ( 237 ) — —

Interest expense 401 326 283

Other (income) expense, net ( 532 ) 103 ( 506 )

Income before income taxes and equity in net earnings 3,354 4,600 3,456

Other expense (income), net 68 ( 532 ) 103

Income before income taxes and equity in net (losses) earnings 3,568 3,354 4,600

Provision for income taxes 762 485 1,307

Equity in net earnings 65 74 14

Equity in net (losses) earnings ( 4 ) 65 74

Net income $ 2,802 $ 2,934 $ 3,367

Net income attributable to noncontrolling interests ( 1 ) — —

Net loss (income) attributable to noncontrolling interests 4 ( 1 ) —

Net income attributable to Humana $ 2,806 $ 2,933 $ 3,367

13 unchanged sentences

Reclassification adjustment for net realized

gains included in investment income ( 103 ) ( 90 ) ( 34 )

losses (gains) included in investment income 72 ( 103 ) ( 90 )

Effect of income taxes ( 17 ) 23 20

1 unchanged sentence

Other comprehensive (loss) income, net of tax ( 1,346 ) ( 355 ) 234

Comprehensive income (loss) attributable to equity method

Comprehensive income attributable to equity method

investments — 6 1

Comprehensive income $ 2,584 $ 3,602 $ 3,022

Comprehensive income attributable to Humana $ 1,460 $ 2,584 $ 3,602

The accompanying notes are an integral part of the consolidated financial statements.

5 unchanged sentences

Income (Loss) Treasury

Stock Noncontrolling Interests Total

Stockholders’

Stock Total Stockholders'

Equity Noncontrolling Interests Total

Shares Amount

2 unchanged sentences

Net income 3,367 3,367 — 3,367

Impact of adopting accounting standard ( 2 ) ( 2 ) — ( 2 )

Other comprehensive income 235 235 235

7 unchanged sentences

Net income 2,933 2,933 1 2,934

Impact of adopting accounting standard ( 2 ) ( 2 )

Other comprehensive income — 235 235

Acquisition — 22 22

Other comprehensive loss ( 349 ) ( 349 ) ( 349 )

Common stock repurchases — 262 ( 341 ) ( 79 ) ( 79 )

6 unchanged sentences

Net income 2,806 2,806 ( 4 ) 2,802

Distribution to noncontrolling interest holders, net — ( 1 ) ( 1 )

Sale of KAH Hospice — ( 11 ) ( 11 )

Acquisition — 52 52

15 unchanged sentences

Adjustments to reconcile net income to net cash provided by operating activities:

Gain on sale of KAH Hospice ( 237 ) — —

Loss (gain) on investment securities, net 205 130 ( 838 )

Gain on Kindred at Home equity method investment — ( 1,129 ) —

Equity in net earnings ( 65 ) ( 74 ) ( 14 )

Stock compensation 180 181 163

Equity in net losses (earnings) 4 ( 65 ) ( 74 )

Stock-based compensation 216 180 181

Depreciation 749 640 528

Amortization 96 73 88

Provision for deferred income taxes 15 195 162

Impairment of property and equipment 248 — —

(Benefit) provision for deferred income taxes ( 100 ) 15 195

Changes in operating assets and liabilities, net of effect of businesses acquired and dispositions:

4 unchanged sentences

Unearned revenues 32 ( 65 ) 71

Other 40 49 90

Other, net 70 40 49

Net cash provided by operating activities 4,587 2,262 5,639

Cash flows from investing activities

Proceeds from sale of KAH Hospice, net 2,701 — —

Acquisitions, net of cash and cash equivalents acquired ( 337 ) ( 4,187 ) ( 709 )

5 unchanged sentences

Cash flows from financing activities

Withdrawals receipts from contract deposits, net ( 306 ) ( 939 ) ( 623 )

Receipts (withdrawals) from contract deposits, net 1,993 ( 306 ) ( 939 )

Proceeds from issuance of senior notes, net 1,982 2,984 1,088

Repayment of senior notes ( 1,000 ) — ( 400 )

Proceeds (repayments) from issuance of commercial paper, net 352 295 ( 360 )

(Repayments) proceeds from issuance of commercial paper, net ( 376 ) 352 295

Proceeds from term loan — 2,500 1,000

4 unchanged sentences

Change in book overdraft ( 28 ) 6 95

Proceeds from stock option exercises & other 21 49 58

Net cash provided by (used in) financing activities 3,015 ( 1,955 ) ( 2,295 )

(Decrease) increase in cash and cash equivalents ( 1,279 ) 619 1,711

Other, net 9 21 49

Net cash (used in) provided by financing activities ( 1,914 ) 3,015 ( 1,955 )

Increase (decrease) in cash and cash equivalents 1,667 ( 1,279 ) 619

Cash and cash equivalents at beginning of period 3,394 4,673 4,054

26 unchanged sentences

CMS is the federal government’s agency responsible for administering the Medicare program.

Business Segment Realignment

During December 2022, we realigned our businesses into two distinct segments:

Insurance and CenterWell.

The Insurance segment includes the businesses that were previously included in the Retail and Group and Specialty segments, as well as the Pharmacy Benefit Manager, or PBM, business which was previously included in the Healthcare Services segment.

The CenterWell segment (formerly Healthcare Services) represents our payor-agnostic healthcare services offerings, including pharmacy dispensing services, provider services, and home services.

In addition to the new segment classifications being utilized to assess performance and allocate resources, we believe this simpler structure will create greater collaboration across the Insurance and CenterWell businesses and will accelerate work that is underway to centralize and integrate operations within the organization.

Prior period segment financial information has been recast to conform to the 2022 presentation.

For a recast of prior period segment financial information, refer to Note 18 to the audited Consolidated Financial Statements included in Part II, Item 8, "Financial Statements and Supplementary Data" of this Form 10-K.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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The areas involving the most significant use of estimates are the estimation of benefits payable, the impact of risk adjustment provisions related to our Medicare contracts, the valuation and related impairment recognition of investment securities, and the valuation and related impairment recognition of long-lived assets, including goodwill and indefinite-lived intangible assets.

These estimates are based on knowledge of current events and anticipated future events, and accordingly, actual results may ultimately differ materially from those estimates.

These estimates are based

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

on knowledge of current events and anticipated future events, and accordingly, actual results may ultimately differ materially from those estimates.

Value Creation Initiatives

During 2022, in order to create capacity to fund growth and investment in our Medicare Advantage business and further expansion of our healthcare services capabilities in 2023, we committed to drive additional value for the enterprise through cost saving, productivity initiatives, and value acceleration from previous investments.

As a result of these initiatives, we recorded charges of $ 473 million included within operating costs in the consolidated statement of income for the year ended December 31, 2022.

These charges primarily relate to $ 248 million in asset impairments, including software and abandonment, and $ 116 million of severance charges in connection with workforce optimization.

The remainder of the charges primarily relate to external consulting fees.

These charges were recorded at the corporate level and not allocated to the segments.

The emergence and spread of the novel coronavirus, or COVID-19, beginning in the first quarter of 2020 has impacted our business.

During periods of increased incidences of COVID-19, non-essential care from a reduction in non-COVID-19 hospital admissions and lower overall healthcare system consumption decreased utilization.

During periods of increased incidences of COVID-19, a reduction in non-COVID-19 hospital admissions for non-emergent and elective medical care have resulted in lower overall healthcare system utilization.

At the same time, COVID-19 treatment and testing costs increased utilization.

During 2022, we experienced lower overall utilization of the healthcare system than anticipated, as the reduction in COVID-19 utilization following the increased incidence associated with the Omicron variant outpaced the increase in non-COVID-19 utilization.

The significant disruption in utilization during 2020 also impacted our ability to implement clinical initiatives to manage health care costs and chronic conditions of our members, and appropriately document their risk profiles, and, as such, significantly affected our 2021 revenue under the risk adjustment payment model for Medicare Advantage plans.

Finally, changes in utilization patterns and actions taken in 2020 and 2021 as a result of the COVID-19 pandemic, including the suspension of certain financial recovery programs for a period of time and shifting the timing of claim payments and provider capitation surplus payments, impacted our claim reserve development and operating cash flows for 2020 and 2021.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Health Care Reform

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The Further Consolidated Appropriations Act, 2020, enacted on December 20, 2019, permanently repealed the health insurance industry fee beginning in calendar year 2021.

The annual premium-based fee on health insurers were not deductible for tax purposes.

The annual premium-based fee on health insurers was not deductible for tax purposes.

We estimated a liability for the health insurance industry fee and recorded it in full once qualifying insurance coverage was provided in the applicable calendar year in which the fee was payable with a corresponding deferred cost that was amortized ratably to expense over the same calendar year.

4 unchanged sentences

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.

Supreme Court ruled that the government is obligated to pay the losses under this risk corridor program and that Congress did not implicitly repeal the obligation under its appropriations riders.

In September 2020, we received a $ 609 million payment from the U.S Government pursuant

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

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 consolidated statements of income for the year ended December 31, 2020 and reported in the Corporate segment.

6 unchanged sentences

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 to fund our professional and other self-insurance liability 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, which are included as a component of investment income in the consolidated statements of income, the cost of investment securities sold is based upon specific identification.

Unrealized holding gains and losses for debt securities, net of applicable deferred taxes, are included as a component of stockholders’ equity and comprehensive income until realized from a sale or an expected credit loss is recognized.

Debt securities available for current operations, as well as our equity securities, are classified as current assets, and debt securities available to fund our professional and other self-insurance liability requirements, as well as restricted statutory deposits, are classified as long-term assets.

For the purpose of determining realized gross gains and losses for debt securities sold, that are included as a component of investment income in the consolidated statements of income, the cost of investment securities sold is based upon specific identification.

Unrealized holding gains and losses for debt securities, net of applicable deferred taxes, are included in other comprehensive income or loss as a component of stockholders’ equity until realized from a sale or an expected credit loss is recognized.

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.

Prior to January 1, 2020, we applied the other-than-temporary impairment model for securities in an unrealized loss position which did not result in any material impairments for 2019.

Beginning on January 1, 2020, we adopted the new current expected credit losses, or CECL, model which retained many similarities from the previous other-than-temporary impairment model except eliminating from consideration in the impairment analysis the length of time over which the fair value had been less than cost.

Also, under the CECL model, expected losses on available for sale debt securities are recognized through an allowance for credit losses rather than as reductions in the amortized cost of the securities.

For debt securities whose fair value is less than their amortized cost which we do

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

not intend to sell or are not required to sell, we evaluate the expected cash flows to be received as compared to amortized cost and determine if an expected credit loss has occurred.

For debt securities whose fair value is less than their amortized cost which we do not intend to sell or are not required to sell, we evaluate the expected cash flows to be received as compared to amortized cost and determine if an expected credit loss has occurred.

In the event of an expected credit loss, only the amount of the impairment associated with the expected credit loss is recognized in income with the remainder, if any, of the loss recognized in other comprehensive income.

14 unchanged sentences

Our Medicare contracts with CMS renew annually.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Our military services contracts with the federal government and certain contracts with various state Medicaid programs generally are multi-year contracts subject to annual renewal provisions.

12 unchanged sentences

Premiums received prior to the service period are recorded as unearned revenues.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Medicare Part D

15 unchanged sentences

These discounts are funded by CMS and pharmaceutical manufacturers while we administer the application of these funds.

We account for these subsidies and discounts as a deposit in our consolidated balance sheets and as a financing activity under receipts (withdrawals) from contract deposits in our consolidated statements of cash flows.

We account for these subsidies

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

and discounts as a deposit in our consolidated balance sheets and as a financing activity under receipts (withdrawals) from contract deposits, net in our consolidated statements of cash flows.

2022 2021 2020

2 unchanged sentences

Part D subsidy/discount reimbursements 18,498 14,628 12,410

Net payments $ ( 261 ) $ ( 938 ) $ ( 560 )

Net reimbursements (payments) $ 1,968 $ ( 261 ) $ ( 938 )

We do not recognize premiums revenue or benefit expenses for these subsidies or discounts.

4 unchanged sentences

See Note 7 for detail regarding amounts recorded to our consolidated balance sheets related to the risk corridor settlement and subsidies from CMS with respect to the Medicare Part D program.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Services Revenue

Patient services revenue

Patient services include services related to pharmacy solutions, provider services, and home solutions services, such as home health and other services and capabilities to promote wellness and advance population health.

Patient services revenues are reported in the amount reflecting the ultimate consideration we expect to receive, primarily from government programs (Medicare and Medicaid), net of contractual allowances, discounts, or other implicit price concessions.

We estimate the transaction price utilizing contractual rates, historical experience and current conditions.

Patient services revenues are recognized as performance obligations are satisfied, which is in the period services are rendered.

Patient services include services related to pharmacy, provider services, and home solutions services, such as home health and other services and capabilities to promote wellness and advance population health.

For our pharmacy business, external pharmacy revenues include the cost of pharmaceuticals (net of rebates), a negotiated dispensing fee and customer co-payments for drugs dispensed through our CenterWell Pharmacy (our mail- order pharmacy business), CenterWell Specialty Pharmacy, and retail pharmacies jointly located within CenterWell Senior Primary Care clinics.

Pharmacy products are billed to customers based on the number of transactions occurring during the billing period.

Services revenues related to product revenues from dispensing prescriptions are recorded when the prescription or product is shipped.

Our provider services business recognizes revenues for certain value-based arrangements.

Under these value-based arrangements, we enter into agreements with health plans to stand ready to deliver, integrate, direct and control the administration and management of certain health care services for our patients.

In exchange, we receive a premium that is typically paid on a per-member per-month basis.

These value-based arrangements represent a single performance obligation where revenues are recognized in the period in which we are obligated to provide integrated health care services to our patients.

Fee-for-service revenue is recognized at agreed upon rates, net of contractual allowances, as the performance obligation is completed on the date of service.

For our home solutions businesses, revenues include net patient services revenue recorded based upon established billing rates, net of contractual allowances, discounts, or other implicit price concessions, and are recognized as performance obligations are satisfied, which is in the period services are rendered.

For the year ended December 31, 2022, revenue recognized from performance obligations related to prior periods (for example, due to changes in transaction price), was not material.

Further, revenue expected to be recognized in any future year related to remaining performance obligations was not material.

Further, revenue expected to be recognized in any future year related to remaining performance obligations is not material.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Administrative services fees

13 unchanged sentences

We pay health care costs related to these services to the providers and are subsequently reimbursed by the DoD for such payments.

We account for the payments of the federal government’s claims and the related reimbursements under deposit accounting in our consolidated balance sheets and as a financing activity under receipts (withdrawals) from contract deposits in our consolidated statements of cash flows.

2022 2021 2020

2 unchanged sentences

Health care cost reimbursements 7,135 6,898 6,252

Net payments $ ( 45 ) $ ( 1 ) $ ( 63 )

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Net reimbursements (payments) $ 25 $ ( 45 ) $ ( 1 )

Receivables, including premium receivables, patient services revenue receivables, and ASO fee receivables, are shown net of allowances for estimated uncollectible accounts, retroactive membership adjustments, and contractual allowances.

4 unchanged sentences

We accrue pharmaceutical rebates as they are earned based on contractual terms and usage of the product.

The balance of pharmaceutical rebates receivable was $ 2.0 billion and $ 1.4 billion at December 31, 2021 and 2020, respectively.

The balance of pharmaceutical rebates receivable was $ 2.0 billion at December 31, 2022 and 2021.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Policy Acquisition Costs

5 unchanged sentences

Property and equipment is recorded at cost.

Gains and losses on sales or disposals of property and equipment are included in operating costs.

Gains and losses on sales or disposals of property and equipment are included in operating costs in our consolidated income statements.

Certain costs related to the development or purchase of internal-use software are capitalized.

1 unchanged sentence

Improvements to leased facilities are depreciated over the shorter of the remaining lease term or the anticipated life of the improvement.

We periodically review long-lived assets, including property and equipment and definite-lived intangible assets, for impairment whenever adverse events or changes in circumstances indicate the carrying value of the asset may not be recoverable.

We periodically review long-lived assets, including property and equipment and other definite-lived intangible assets, for impairment whenever adverse events or changes in circumstances indicate the carrying value of the asset may not be recoverable.

Losses are recognized for a long-lived asset to be held and used in our operations when the undiscounted future cash flows expected to result from the use of the asset are less than its carrying value.

8 unchanged sentences

Generally, under the equity method, original investments in these entities are recorded at cost and subsequently adjusted by our share of equity in income or losses after the date of acquisition as well as capital contributions to and distributions from these companies.

Our proportionate share of the net income or loss of these companies is included

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

in consolidated net income.

Our proportionate share of the net income or loss of these companies is included in consolidated net income.

Investment amounts in excess of our share of an investee’s net assets are amortized over the life of the related asset creating the excess.

6 unchanged sentences

Goodwill represents the unamortized excess of cost over the fair value of the net tangible and other intangible assets acquired.

We are required to test at least annually for impairment at a level of reporting referred to as the reporting unit, and more frequently if adverse events or changes in circumstances indicate that the asset may be impaired.

We are required to test at least annually for impairment at a level of reporting referred to as the

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

reporting unit, and more frequently if adverse events or changes in circumstances indicate that the asset may be impaired.

A reporting unit either is our operating segments or one level below the operating segments, referred to as a component, which comprise our reportable segments.

5 unchanged sentences

We rely on an evaluation of future discounted cash flows to determine fair value of our reporting units.

The fair value of our reporting units with significant goodwill exceeded carrying amounts by a substantial margin.

The fair value of our reporting units with significant goodwill exceeded carrying amounts.

However, unfavorable changes in key assumptions or combinations of assumptions including a significant increase in the discount rate, decrease in the long-term growth rate or substantial reduction in our underlying cash flow assumptions, including revenue growth rates, medical and operating cost trends, and projected operating income could have a significant negative impact on the estimated fair value of our home solutions and provider reporting units, which accounted for $ 4.3 billion and $ 1.1 billion of goodwill, respectively.

Impairment tests completed for 2022, 2021, and 2020 did no t result in an impairment loss.

Indefinite-lived intangible assets relate to Certificate of Needs (CON) and Medicare licenses acquired as part of our acquisition of Kindred at Home, or KAH, and are included within other long-term assets in the consolidated balance sheet at December 31, 2021.

Intangible assets with indefinite lives relate to Certificate of Needs (CON) and Medicare licenses acquired as part of our acquisition of Kindred at Home, or KAH, and are included within other long-term assets in the consolidated balance sheet at December 31, 2022 and December 31, 2021.

See Note 3 for further information.

2 unchanged sentences

Fair values of indefinite-lived intangible assets are determined based on the income approach.

Impairment tests completed for 2021 did no t result in an impairment loss.

Impairment tests completed for 2022 did not result in a material impairment loss.

These charges reflect the amount by which the carrying value exceeded its estimated fair value.

Impairment tests completed for 2021 did not result in an impairment loss.

The fair values of the assets were measured using Level 3 inputs, such as projected revenues and operating cash flows.

Definite-lived intangible assets primarily relate to acquired customer contracts/relationships and are included with other long-term assets in the consolidated balance sheets.

1 unchanged sentence

We review definite-lived intangible assets for impairment under our long-lived asset policy.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Benefits Payable and Benefits Expense Recognition

6 unchanged sentences

We continually review estimates of future payments relating to claims costs for services incurred in the current and prior periods and make necessary adjustments to our reserves.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Benefits expense is recognized in the period in which services are provided and includes an estimate of the cost of services which have been incurred but not yet reported, or IBNR.

16 unchanged sentences

Increases in electronic claim submissions from providers decrease the receipt cycle time.

If claims are submitted or processed on a faster (slower) pace than prior periods, the actual claim may be

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

more (less) complete than originally estimated using our completion factors, which may result in reserves that are higher (lower) than required.

If claims are submitted or processed on a faster (slower) pace than prior periods, the actual claim may be more (less) complete than originally estimated using our completion factors, which may result in reserves that are higher (lower) than required.

Medical cost trends potentially are more volatile than other segments of the economy.

6 unchanged sentences

Each of these factors requires significant judgment by management.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

We reassess the profitability of our contracts for providing insurance coverage to our members when current operating results or forecasts indicate probable future losses.

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We also recognize the future tax benefits such as net operating and capital loss carryforwards as deferred tax assets.

A valuation allowance is provided against these deferred tax assets if it is more

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

likely than not that some portion or all of the deferred tax assets will not be realized.

A valuation allowance is provided against these deferred tax assets if it is more likely than not that some portion or all of the deferred tax assets will not be realized.

Future years’ tax expense may be increased or decreased by adjustments to the valuation allowance or to the estimated accrual for income taxes.

8 unchanged sentences

Distributions to holders of noncontrolling interests are adjusted to the respective noncontrolling interest holders’ balances.

Noncontrolling interests, which relate to the minority ownership held by third party investors in certain of our Home Solutions business, are reported below net income under the heading “Net income attributable to noncontrolling interests” in the consolidated statements of income and presented as a component of equity in the consolidated balance sheets.

Noncontrolling interests, which relate to the minority ownership held by third party investors in certain of our businesses within our Insurance and CenterWell segments, are reported below net income under the heading “Net

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

income attributable to noncontrolling interests” in the consolidated statements of income and presented as a component of equity in the consolidated balance sheets.

Stock-Based Compensation

13 unchanged sentences

Level 1 assets and liabilities include securities that are traded in an active exchange market.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 2 – Observable inputs other than Level 1 prices such as quoted prices in active markets for similar assets or liabilities, quoted prices for identical or similar assets or liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 2 assets and liabilities include debt securities with quoted prices that are traded less frequently than exchange-traded instruments as well as debt securities whose value is determined using a pricing model with inputs that are observable in the market or can be derived principally from or corroborated by observable market data.

4 unchanged sentences

Fair value of privately held investment grade debt securities are estimated using a variety of valuation methodologies, including both market and income approaches, where an observable quoted market does not exist and are generally classified as Level 3.

For privately-held investment grade debt securities, such methodologies include reviewing the value ascribed to the most recent financing, comparing the security with securities of publicly-traded companies in similar lines of business with similar credit characteristics, and reviewing the underlying financial performance including estimating discounted cash flows.

For privately-held investment grade debt securities, such methodologies include reviewing the value ascribed to the most recent financing, comparing the security with

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

securities of publicly-traded companies in similar lines of business with similar credit characteristics, and reviewing the underlying financial performance including estimating discounted cash flows.

We obtain at least one price for each security from a third party pricing service.

7 unchanged sentences

Accounting Pronouncements Effective in Future Periods

In September 2018, the FASB issued new guidance related to accounting for long-duration contracts of insurers which revises key elements of the measurement models and disclosure requirements for long-duration contracts issued by insurers, including the amortization of deferred contract acquisition costs and the measurement of liabilities for future policy benefits using current, rather than locked-in, assumptions.

The new guidance, limited to our Medicare supplement product which represent less than 1 % of consolidated premiums and services revenue, is effective for us beginning with annual and interim periods in 2023 and is to be applied to contracts in force at the beginning of the earliest period presented, with an option to apply retrospectively with a cumulative effect adjustment to the opening balances of retained earnings as of the earliest period presented.

We are currently evaluating the impact on our results of operations, financial position and cash flows.

In November 2020, the FASB issued Accounting Standards Update No.

2020-11, Financial Services—Insurance (Topic 944):

Effective Date and Early Application (“ASU 2020-11”).

The amendments in ASU 2020-11 make changes to the effective date and early application of Accounting Standards Update No.

2018-12, Financial Services—Insurance (Topic 944):

Targeted Improvements to the Accounting for Long-Duration Contracts (“ASU 2018-12”), which was issued in November 2018.

The amendments in ASU 2020-11 have extended the original effective date by one year, and now the amendments are required for our interim and annual reporting periods beginning after December 15, 2022.

The new guidance relates to accounting for long-duration contracts of insurers which revises key elements of the measurement models and disclosure requirements for long-duration contracts issued by insurers, including the amortization of deferred contract acquisition costs and the measurement of liabilities for future policy benefits using current, rather than locked-in, assumptions.

The new guidance, limited to our Medicare supplement product which represent less than 1 % of consolidated premiums and services revenue, is effective for us beginning with annual and interim periods in 2023 and is to be applied to contracts in force on the basis of their existing carrying value amounts at the beginning of the earliest period presented.

The adoption of the new standard in 2023 did not have a material impact on our consolidated 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.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

On August 17, 2021, we acquired the remaining 60 % interest in Kindred at Home, the nation’s largest home health and hospice provider, from TPG Capital and Welsh, Carson, Anderson & Stowe, two private equity funds, for an enterprise value of $ 8.2 billion, which includes our equity value of $ 2.4 billion associated with our 40 % minority ownership interest.

ACQUISITIONS AND DIVESTITURES

On August 11, 2022, we completed the sale of a 60 % i nterest in Humana’s Kindred at Home Hospice subsidiary, or KAH Hospice, to Clayton, Dubilier & Rice, or CD&R, for cash proceeds of approximately $ 2.7 billion, net of cash disposed, including debt repayments from KAH Hospice to Humana of $ 1.9 billion.

In connection with the sale, we recognized a pre-tax gain, net of transaction costs, of $ 237 million which is reported as a gain on sale of KAH Hospice in the accompanying consolidated statement of income for the year ended December 31, 2022.

In June 2022, we classified KAH Hospice as held-for-sale and aggregated KAH Hospice’s assets and liabilities separately on the balance sheet.

The assets, liabilities and noncontrolling interest disposed of on August 11, 2022 were as follows:

(in millions)

Cash and cash equivalents $ 73

Receivables, net of allowances 194

Other current assets 20

Property and equipment, net 44

Goodwill 2,331

Other assets 960

Total assets $ 3,622

Trade accounts payable and accrued expenses $ 245

Other long-term liabilities 285

Total liabilities $ 530

Noncontrolling interest $ 11

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

Prior to the sale of a 60 % interest in KAH Hospice on August 11, 2022, as discussed above, KAH Hospice revenues and pretax earnings through the date of sale for the year ended December 31, 2022, were $ 958 million and $ 150 million, respectively.

KAH Hospice revenues and pretax earnings for the year ended December 31, 2021, were $ 582 million and $ 113 million, respectively.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

On August 17, 2021, we acquired the remaining 60 % interest in Kindred at Home, or KAH, the nation’s largest home health and hospice provider, from TPG Capital, or TPG, and Welsh, Carson, Anderson & Stowe, or WCAS, two private equity funds, for an enterprise value of $ 8.2 billion, which included our equity value of $ 2.4 billion associated with our 40 % minority ownership interest.

The remeasurement to fair value of our previously held 40 % equity method investment with a carrying value of approximately $ 1.3 billion, resulted in a $ 1.1 billion gain recognized in "Other (income) expense, net".

We paid the approximate $ 5.8 billion transaction price (net of our existing equity stake) through a combination of debt financing, the assumption of existing KAH indebtedness and parent company cash.

The preliminary fair values of KAH’s assets acquired and liabilities assumed at the date of the acquisition are summarized as follows:

Kindred at Home

The final fair values of KAH’s assets acquired and liabilities assumed at the date of the acquisition are summarized as follows:

(in millions)

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Net assets acquired $ 6,170

The other intangible assets primarily consist of Certificate of Needs (CON) and Medicare licenses which have indefinite lives.

Amortizing trade names included in other intangibles assets of approximately $ 18 million have an estimated weighted average useful life of 10 years.

The goodwill, allocated to our Healthcare Services segment, primarily relates to the future economic benefit arising from the assets acquired and is consistent with our integrated care delivery strategy.

Approximately $ 132 million of the goodwill is deductible for tax purposes.

The purchase price allocation is preliminary, subject to receipt and validation of certain tax related analyses.

The results of operations and financial condition of KAH have been included in our consolidated statements of income and consolidated balance sheets from the acquisition date.

In connection with the acquisition, we recognized approximately $ 45 million of acquisition-related costs, primarily compensation costs as well as banker and other professional fees, in operating costs in our consolidated statements of income.

In the first quarter of 2020, we acquired 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 purchase price allocation to goodwill of $ 517 million, other intangible assets of $ 240 million, and net tangible liabilities assumed of $ 13 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 years.

Enclara's goodwill is not deductible for tax purposes.

During 2021 and 2020, we acquired other health and wellness related businesses which other than the impacts to goodwill, individually or in the aggregate, have not had a material impact on our results of operations, financial

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

condition, or cash flows.

During 2022, 2021, and 2020 we acquired other health and wellness related businesses which other than the impacts to goodwill, 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 have been included in our consolidated statements of income and consolidated balance sheets from the respective acquisition dates.

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Prior to our acquisition of KAH in August 2021, we accounted for our 40 % investment in KAH using the equity method of accounting.

This investment was reflected in "Equity method investments" in our December 31, 2020 consolidated balance sheet, with our share of income or loss reported as Equity in net earnings in our consolidated statements of income.

The summarized balance sheet at December 31, 2020 and statements of income at December 31, 2020 and 2019 of KAH were as follows:

Our share of income or loss was reported as equity in net (losses) earnings in our consolidated statements of income.

We completed the sale of a 60 % interest in KAH Hospice on August 11, 2022 and account for our 40 % minority ownership in hospice operations using the equity method of accounting.

This investment was reflected in equity method investments in our December 31, 2022 consolidated balance sheet, with our share of income or loss reported as equity in net (losses) earnings in our consolidated statements of income.

The summarized balance sheet at December 31, 2022 and statement of income for the period beginning August 11, 2022 through December 31, 2022 of KAH Hospice were as follows:

Balance sheet December 31, 2022

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Statements of income

For the year ended December 31, 2020 For the year ended December 31, 2019

August 11, 2022 through December 31, 2022

(in millions)

Revenues $ 654

Expenses 2,552 2,835

Net income 207 54

Other insignificant equity method investments

In the first quarter of 2020, our Primary Care Organization entered into a strategic partnership with Welsh, Carson, Anderson & Stowe, or WCAS, to accelerate the expansion of our primary care model.

As of December 31, 2021, there were 31 primary care clinics operating under the partnership and we intend to open an additional 36 in future periods under the existing arrangement.

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 4 to 9 years.

We have several individually immaterial equity method investments, including our PIPC strategic partnership with WCAS as described above, included within Equity method investments in our consolidated balance sheets as of December 31, 2021, with our share of income or loss reported as Equity in net earnings in our consolidated statements of income for the years ended December 31, 2021 and 2020.

In 2020, our Primary Care Organization entered into a strategic partnership with Welsh, Carson, Anderson & Stowe, or WCAS, to accelerate the expansion of our primary care model.

In May 2022, we established a second strategic partnership with WCAS to develop additional centers between 2023 and 2025.

As of December 31, 2022, there were 50 primary care clinics operating under the partnership and we intend to open approximately 100 additional primary clinics in future periods under the existing arrangements.

In addition, the agreements include 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 3 to 10 years.

We have several individually immaterial equity method investments, including our strategic partnership with WCAS as described above, included within equity method investments in our consolidated balance sheets as of December 31, 2022 and 2021 with our share of income or loss reported as equity in net (losses) earnings in our consolidated statements of income for the years ended December 31, 2022, 2021 and 2020.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

In August 2022, we purchased certain corporate debt securities of KAH Hospice subsequent to the sale.

The book value and fair value are $ 280 million and $ 278 million, respectively, at December 31, 2022.

Gross unrealized losses and fair values aggregated by investment category and length of time that individual debt securities have been in a continuous unrealized loss position were as follows at December 31, 2022 and 2021, respectively:

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Our unrealized loss from all debt securities was generated from approximately 1,625 positions out of a total of approximately 1,710 positions at December 31, 2022.

All issuers of debt securities we own that were trading at an unrealized loss at December 31, 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 the debt securities were purchased.

At December 31, 2021,

All issuers of debt securities we own that were trading at an

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

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.

unrealized loss at December 31, 2022 remain current on all contractual payments.

At December 31, 2022, we did not intend to sell any debt securities with an unrealized loss position in accumulated other comprehensive income, and it is not likely that we will be required to sell these debt securities before recovery of their amortized cost basis.

Additionally, we did not record any material credit allowances for debt securities that were in an unrealized loss position at December 31, 2022, 2021 or 2020.

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The gains and losses related to equity securities for the years ended December 31, 2022, 2021 and 2020 was as follows:

2022 2021 2020

(in millions)

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Unrealized (losses) gains recognized on equity securities still held at the end of the period $ ( 18 ) $ ( 328 ) $ 746

All purchases of and proceeds from investment securities for the years ended December 31, 2020 and 2019 relate to debt securities.

There were no material other-than-temporary impairments in 2019.

All purchases of and proceeds from investment securities for the year ended December 31, 2020 relate to debt securities.

The contractual maturities of debt securities available for sale at December 31, 2022, regardless of their balance sheet classification, are shown below.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Our Level 3 assets had a fair value of $ 68 million at December 31, 2021, or 0.4 % of our total invested assets.

During the year ended December 31, 2021, the changes in the fair value of the assets measured using significant unobservable inputs (Level 3) were comprised of the following:

For the year ended December 31, 2021

Our Level 3 assets had fair values of $ 101 million, or 0.5 % of total invested assets, and $ 68 million, or 0.4 % of total invested assets, at December 31, 2022 and 2021, respectively.

During the years ended December 31, 2022 and 2021, the changes in the fair value of the assets measured using significant unobservable inputs (Level 3) were comprised of the following:

For the year ended December 31, 2022 For the year ended December 31, 2021

(in millions)

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Unrealized in other comprehensive income ( 14 ) ( 1 )

Purchases 47 69

Settlements — —

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Carrying value approximates fair value for our term loans and commercial paper borrowings.

The term loan and commercial paper borrowings were $ 3.5 billion at December 31, 2021.

Our commercial paper borrowings were $ 600 million at December 31, 2020.

The term loan and commercial paper borrowings were $ 1.1 billion at December 31, 2022 and $ 3.5 billion at December 31, 2021.

Put and Call Options Measured at Fair Value

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Effective April 27, 2021, with the signing of the definitive agreement to acquire the remaining 60 % interest of KAH, the respective put and call options were terminated.

As such, the $ 63 million put and $ 440 million call fair values as of the first quarter of 2021 were reduced to zero , resulting in $ 377 million in "Other (income) expense, net" in our consolidated statements of income for the year ended December 31, 2021.

The put and call options were measured at fair value using a Monte Carlo simulation which resulted in fair values of $ 45 million and $ 503 million, respectively, at December 31, 2020.

The put option was included within other long-term liabilities and the call option included within other long-term 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 consolidated statements of income.

The significant unobservable inputs utilized in these Level 3 fair value measurements (and selected values) include the enterprise value of KAH, 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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

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 December 31, 2020.

December 31, 2020

Annualized volatility 29.9 %

Secured credit rate 0.4 %

Weighted average cost of capital 9.5 %

Long term growth rate 3.0 %

As such, the $ 63 million put and $ 440 million call fair values as of the first quarter of 2021 were reduced to zero , resulting in $ 377 million in other expense (income),net in our consolidated statements of income for the year ended December 31, 2021.

The put and call options fair values associated with our Primary Care Organization strategic partnership with WCAS, which are exercisable at a fixed revenue exit multiple and provide a minimum return on WCAS' investment if exercised, are measured at fair value each reporting period using a Monte Carlo simulation.

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Enterprise value was derived from a discounted cash flow model, which utilized significant unobservable inputs for long-term revenue, to measure underlying cash flows, weighted average cost of capital and long term growth rate.

The table below presents the assumptions used for December 31, 2021.

December 31, 2021

The table below presents the assumptions used for December 31, 2022 and 2021, respectively:

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

December 31, 2022 December 31, 2021

Annualized volatility 16.7 % - 20.8 %

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Revenue exit multiple 1.5 x - 2.5 x

1.5 x - 2.5 x

Weighted average cost of capital 11.5 % - 12.5 %

Long term growth rate 3.0 % 3.0 %

The assumptions used for annualized volatility, credit spread and weighted average cost of capital reflect the lowest and highest values where they differ significantly across the series of put and call options due to their expected exercise dates.

Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis

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The excess purchase price over the fair value of assets and liabilities acquired is recorded as goodwill.

As disclosed in Note 3, we completed the sale of a 60 % interest in KAH Hospice on August 11, 2022.

The carrying value of the assets and liabilities of KAH Hospice disposed approximates fair value.

The amount of goodwill included in the carrying value is based on the relative fair value of KAH Hospice as compared to the total fair value of our home solutions reporting unit included within the CenterWell segment.

Other than the assets acquired and liabilities assumed in the KAH and other acquisitions in Note 3, there were no other material assets or liabilities measured at fair value on a recurring or nonrecurring basis during 2022, 2021, or 2020.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

MEDICARE PART D

As discussed in Note 2, we cover prescription drug benefits in accordance with Medicare Part D under multiple contracts with CMS.

We cover prescription drug benefits in accordance with Medicare Part D under multiple contracts with CMS.

The accompanying consolidated balance sheets include the following amounts associated with Medicare Part D as of December 31, 2022 and 2021.

CMS subsidies/discounts in the table below include the reinsurance and low-income cost subsidies funded by CMS for which we assume no risk as well as brand name prescription drug discounts for Part D plan participants in the coverage gap funded by CMS and pharmaceutical manufacturers.

For additional information regarding our prescription drug benefits coverage in accordance with Medicare Part D, refer to Note 2 to

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

the audited Consolidated Financial Statements included in Part II, Item 8, "Financial Statements and Supplementary Data" of this Form 10-K.

Settlement CMS

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Trade accounts payable and accrued expenses ( 166 ) ( 1,236 ) ( 68 ) ( 466 )

Net current asset 295 1,428 177 1,167

Net current asset (liability) 74 ( 540 ) 295 1,428

Other long-term assets 19 — 5 —

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Net long-term liability ( 59 ) — ( 189 ) —

Total net asset $ 106 $ 1,428 $ 95 $ 1,167

Total net asset (liability) $ 15 $ ( 540 ) $ 106 $ 1,428

PROPERTY AND EQUIPMENT, NET

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Depreciation expense was $ 749 million in 2022, $ 640 million in 2021, and $ 528 million in 2020, including amortization expense for capitalized internally developed and purchased software of $ 525 million in 2022, $ 443 million in 2021, and $ 351 million in 2020.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

GOODWILL AND OTHER INTANGIBLE ASSETS

The carrying amount of goodwill for our reportable segments has been retrospectively adjusted to conform to the 2022 business segment realignment as discussed in Note 1.

There was no impairment.

Changes in the carrying amount of goodwill for our reportable segments for the years ended December 31, 2022 and 2021 were as follows:

Retail Group and Specialty Healthcare Services Total

Insurance CenterWell Total

(in millions)

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Acquisitions 182 199 381

Dispositions — ( 2,331 ) ( 2,331 )

Balance at December 31, 2022 $ 2,472 $ 6,670 $ 9,142

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

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

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For new lease agreements, we combine lease and nonlease components for all of our asset classes.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

When portions of the lease payments are not fixed or depend on an index or rate, we consider those payments to be variable in nature.

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Right-of-use assets included within other long-term assets in our consolidated balance sheets were $ 515 million and $ 678 million at December 31, 2022 and December 31, 2021, respectively.

Operating lease liabilities included within trade accounts payable and accrued expenses were $ 185 million and $ 129 million at December 31, 2021 and December 31, 2020, respectively.

Additionally, operating lease liabilities included within other long-term liabilities were $ 546 million and $ 355 million at December 31, 2021 and December 31, 2020, respectively.

Operating lease liabilities included within trade accounts payable and accrued expenses in our consolidated balance sheets were $ 152 million and $ 185 million at December 31, 2022 and December 31, 2021, respectively.

Additionally, operating lease liabilities included within other long-term liabilities in our consolidated balance sheets were $ 456 million and $ 546 million at

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

December 31, 2022 and December 31, 2021, respectively.

The classification of our operating lease liabilities is based on the remaining lease term.

For the years ended December 31, 2021 and December 31, 2020, total fixed operating lease costs, excluding short-term lease costs, were $ 159 million and $ 141 million, respectively, and are included within operating costs in our consolidated statements of income.

Short-term lease costs were not material for the years ended December 31, 2021 and December 31, 2020.

In addition, for the years ended December 31, 2021 and December 31, 2020, total variable operating lease costs were $ 94 million and $ 92 million, respectively, and are included within operating costs in our consolidated statements of income.

For the years ended December 31, 2022, 2021 and 2020, total fixed operating lease costs, excluding short-term lease costs, were $ 183 million, $ 159 million and $ 141 million, respectively, and are included within operating costs in our consolidated statements of income.

Short-term lease costs were not material for the years ended December 31, 2022, 2021 and 2020.

In addition, for the years ended December 31, 2022, 2021 and 2020, total variable operating lease costs were $ 101 million, $ 94 million and $ 92 million, respectively, and are included within operating costs in our consolidated statements of income.

We sublease facilities or partial facilities to third party tenants for space not used in our operations.

For the years ended December 31, 2021 and December 31, 2020, sublease rental income was $ 43 million and $ 36 million, respectively, and is included within operating costs in our consolidated statements of income.

The weighted average remaining lease term is 5.4 years and 5.2 years with a weighted average discount rate of 3.2 % and 3.7 % at December 31, 2021 and December 31, 2020, respectively.

For the year-ended December 31, 2021 and December 31, 2020, cash paid for amounts included in the measurement of lease liabilities included within our operating cash flows was $ 165 million and $ 146 million, respectively.

For the years ended December 31, 2022, 2021 and 2020, sublease rental income was $ 52 million, $ 43 million and $ 36 million, respectively, and is included within operating costs in our consolidated statements of income.

The weighted average remaining lease term is 5.4 years with a weighted average discount rate of 3.2 % at December 31, 2022 and December 31, 2021.

For the years ended December 31, 2022, 2021 and 2020, cash paid for amounts included in the measurement of lease liabilities included within our operating cash flows was $ 191 million, $ 165 million and $ 146 million, respectively.

Maturity of Lease Liabilities December 31, 2022

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BENEFITS PAYABLE

On a consolidated basis, activity in benefits payable was as follows for the years ended December 31, 2021, 2020 and 2019:

On a consolidated basis, which represents our Insurance segment net of eliminations, activity in benefits payable was as follows for the years ended December 31, 2022, 2021 and 2020:

2022 2021 2020

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Total paid ( 74,715 ) ( 69,095 ) ( 59,421 )

Reinsurance recoverable — — 68

Balances at December 31 $ 9,264 $ 8,289 $ 8,143

The total estimate of benefits payable for claims incurred but not reported, or IBNR, is included within the net

incurred claims amounts.

At December 31, 2022, benefits payable included IBNR of approximately $ 5.7 billion, primarily associated with claims incurred in 2022.

The cumulative number of reported claims as of December 31, 2022 was approximately 173.5 million for claims incurred in 2022, 173.3 million for claims incurred in 2021, and 149.8 million for claims incurred in 2020.

Amounts incurred related to prior years vary from previously estimated liabilities as the claims ultimately are settled.

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We experienced favorable medical claims reserve development related to prior fiscal years of $ 415 million in 2022, $ 825 million in 2021, and $ 313 million in 2020.

The table below details our favorable medical claims reserve development related to prior fiscal years by segment for 2021, 2020, and 2019.

(Favorable) Unfavorable Medical Claims Reserve

2021 2020 2019

(in millions)

Retail Segment $ ( 729 ) $ ( 266 ) $ ( 386 )

Group and Specialty Segment ( 96 ) ( 47 ) 50

Total $ ( 825 ) $ ( 313 ) $ ( 336 )

The medical claims reserve development for 2022, 2021, and 2020 primarily reflects the consistent application of trend and completion factors estimated using an assumption of moderately adverse conditions.

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Incurred and Paid Claims Development

The following discussion provides information about incurred and paid claims development for our segments as of December 31, 2021, net of reinsurance, as well as cumulative claim frequency and the total of IBNR included

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

within the net incurred claims amounts.

The following discussion provides information about incurred and paid claims development as of December 31, 2022, net of reinsurance, as well as cumulative claim frequency and the total of IBNR included within the net incurred claims amounts.

The information about incurred and paid claims development for the years ended December 31, 2021 and 2020 is presented as supplementary information.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Claims frequency is measured as medical fee-for-service claims for each service encounter with a unique provider identification number.

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Claim counts may vary based on product mix and the percentage of delegated capitation arrangements.

Retail Segment

Activity in benefits payable for our Retail segment was as follows for the years ended December 31, 2021, 2020 and 2019:

2021 2020 2019

(in millions)

Balances at January 1 $ 7,428 $ 5,363 $ 4,338

Reinsurance recoverables — ( 68 ) ( 95 )

Balances at January 1, net 7,428 5,295 4,243

Acquisitions 42 — —

Incurred related to:

Current year 65,636 56,821 48,983

Prior years ( 729 ) ( 266 ) ( 386 )

Total incurred 64,907 56,555 48,597

Paid related to:

Current year ( 58,363 ) ( 49,586 ) ( 43,831 )

Prior years ( 6,339 ) ( 4,836 ) ( 3,714 )

Total paid ( 64,702 ) ( 54,422 ) ( 47,545 )

Reinsurance recoverable — — 68

Balances at December 31 $ 7,675 $ 7,428 $ 5,363

At December 31, 2021, benefits payable for our Retail segment included IBNR of approximately $ 5.2 billion, primarily associated with claims incurred in 2021.

The cumulative number of reported claims as of December 31, 2021 was approximately 156.1 million for claims incurred in 2021, 140.4 million for claims incurred in 2020, and 129.1 million for claims incurred in 2019.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The following tables provide information about incurred and paid claims development for the Retail segment as of December 31, 2021, net of reinsurance.

The following tables provide information about incurred and paid claims development as of December 31, 2022, net of reinsurance.

Incurred Claims, Net of Reinsurance

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Benefits payable, net of reinsurance $ 9,264

Group and Specialty Segment

Activity in benefits payable for our Group and Specialty segment, excluding military services, was as follows for the years ended December 31, 2021, 2020 and 2019:

2021 2020 2019

(in millions)

Balances at January 1 $ 715 $ 641 $ 517

Incurred related to:

Current year 5,047 5,576 5,708

Prior years ( 96 ) ( 47 ) 50

Total incurred 4,951 5,529 5,758

Paid related to:

Current year ( 4,445 ) ( 4,873 ) ( 5,081 )

Prior years ( 607 ) ( 582 ) ( 553 )

Total paid ( 5,052 ) ( 5,455 ) ( 5,634 )

Balances at December 31 $ 614 $ 715 $ 641

At December 31, 2021, benefits payable for our Group and Specialty segment included IBNR of approximately $ 532 million, primarily associated with claims incurred in 2021.

The cumulative number of reported claims as of December 31, 2021 was approximately 8.3 million for claims incurred in 2021, 9.1 million for claims incurred in 2020, and 10.1 million for claims incurred in 2019.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The following tables provide information about incurred and paid claims development for the Group and Specialty segment as of December 31, 2021, net of reinsurance.

Incurred Claims, Net of Reinsurance

For the Years Ended December 31,

Claims Incurred Year 2019

Unaudited 2020

Unaudited 2021

(in millions)

2019 $ 5,708 $ 5,657 $ 5,652

2020 5,576 5,491

Total $ 16,190

Cumulative Paid Claims, Net of Reinsurance

For the Years Ended December 31,

Claims Incurred Year 2019

Unaudited 2020

Unaudited 2021

(in millions)

2019 $ 5,081 $ 5,465 $ 5,652

2020 4,873 5,479

All outstanding benefit liabilities before 2019, net of reinsurance N/A

Benefits payable, net of reinsurance $ 614

For additional information regarding our benefits payable and benefits expense recognition, refer to Note 2 to the audited Consolidated Financial Statements included in Part II, Item 8, "Financial Statements and Supplementary Data" in this Form 10-K.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

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Total current provision 862 470 1,112

Deferred expense 15 195 162

Deferred (benefit) expense ( 100 ) 15 195

Provision for income taxes $ 762 $ 485 $ 1,307

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Non-taxable KAH gain — ( 264 ) —

Tax effect from sale of KAH Hospice ( 72 ) — —

Health insurance industry fee — — 268

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Unearned revenues 7 8

Investment securities 454 —

Total deferred income tax assets 908 643

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Investment securities — ( 98 )

Future policy benefits payable ( 4 ) ( 3 )

Other ( 6 ) ( 4 )

Total deferred income tax liabilities ( 878 ) ( 1,276 )

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We do not have material uncertain tax positions reflected in our consolidated balance sheets.

On August 16, 2022, the Inflation Reduction Act was signed into law.

The Inflation Reduction Act includes various tax provisions, which are effective for the tax years beginning on or after January 1, 2023.

There was no material impact on our consolidated financial statements at December 31, 2022.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

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Senior notes:

$ 1,500 million, 0.65 % due August 3, 2023

$ 600 million, 3.15 % due December 1, 2022

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Senior notes:

$ 600 million, 3.15 % due December 1, 2022

$ 400 million, 2.90 % due December 15, 2022

$ 1.5 billion, 0.65 % due August 3, 2023

$ 1,500 million, 0.65 % due August 3, 2023

$ 600 million, 3.85 % due October 1, 2024

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$ 600 million, 3.95 % due March 15, 2027

$ 500 million, 5.75 % due March 1, 2028

$ 750 million, 3.70 % due March 23, 2029

$ 500 million, 3.13 % due August 15, 2029

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$ 750 million, 2.15 % due February 3, 2032

$ 750 million, 5.88 % due March 1, 2033

$ 250 million, 8.15 % due June 15, 2038

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Total long-term debt $ 9,034 $ 10,541

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Maturities of the short-term and long-term debt for the years ending December 31, are as follows:

1 unchanged sentence

Thereafter 6,050

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

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.

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In addition, our senior notes contain a change of control provision that may require us to purchase the notes under certain circumstances.

In August 2021, we issued $ 1.5 billion of 0.650 % unsecured senior notes due August 3, 2023, $ 750 million of 1.350 % unsecured senior notes due February 3, 2027 and $ 750 million of 2.150 % unsecured senior notes due February 3, 2032.

In December 2022, we repaid $ 600 million aggregate principal amount of our 3.150 % senior notes due on their maturity date of December 1, 2022 and $ 400 million aggregate principal amount of our 2.900 % senior notes due on their maturity date of December 15, 2022.

In November 2022, we issued $ 500 million of 5.750 % unsecured senior notes due March 1, 2028 and $ 750 million of 5.875 % unsecured senior notes due March 1, 2033.

Our net proceeds, reduced for the underwriters' discounts and commissions paid, were $ 1.2 billion.

We used the net proceeds for general corporate purposes, which included the repayment of existing indebtedness.

In March 2022, we issued $ 750 million of 3.700 % unsecured senior notes due March 23, 2029.

Our net proceeds, reduced for the underwriters' discounts and commissions paid, were $ 744 million.

We used the net proceeds, together with cash on hand and borrowings under our $ 500 million delayed draw term loan, to fund the purchase price of KAH and to pay related fees and expenses.

We used the net proceeds for general corporate purposes, which included the repayment of existing indebtedness, including borrowings under our commercial paper program.

Delayed Draw Term Loan Credit Agreement

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

October 2021 Term Loan Agreement

On October 29, 2021, we entered into a $ 2.0 billion term loan credit agreement, which we refer to as the October 2021 Term Loan Agreement, with certain lending banks and other financial institutions.

Proceeds of the October 2021 Term Loan Agreement were applied to finance the repayment in full of the outstanding KAH debt.

Loans under the October 2021 Term Loan Agreement bear interest at adjusted Term SOFR, as defined in the October 2021 Term Loan Agreement, or the base rate plus a spread.

The applicable margin, currently 112.5 basis points, varies depending on our credit ratings ranging from 87.5 to 137.5 basis points.

The loans under the October 2021 Term Loan Agreement will mature on October 29, 2023.

The October 2021 Term Loan Agreement contains customary covenants, including a maximum debt to capitalization financial condition covenant regarding maximum debt to capitalization of 60 %, as well as customary events of default.

We are in compliance with this financial covenant, with actual debt to capitalization of 43.7 % as measured in accordance with the term loan credit agreement as of December 31, 2021.

We have other relationships, including financial advisory and banking, with some parties to the October 2021 Term Loan Agreement.

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Proceeds of the October 2021 Term Loan Agreement were applied to finance the repayment in full of the outstanding KAH debt of $ 1.9 billion.

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

Revolving Credit Agreements

In June 2021, we entered into two separate revolving credit agreements:

(i) a 5 -year, $ 2.5 billion unsecured revolving credit agreement and (ii) a 364 -day $ 1.5 billion unsecured revolving credit agreement.

Under the revolving credit agreements, at our option, we can borrow on either a competitive advance basis or a revolving credit basis.

In June 2021, we entered into a 5 -year, $ 2.5 billion unsecured revolving credit agreement.

Under the 5 -year revolving credit agreement, at our option, we can borrow on either a competitive advance basis or a revolving credit basis.

The revolving credit portion bears interest at either LIBOR plus a spread or the base rate plus a spread.

The competitive advance portion of any borrowings will bear interest at market rates prevailing at the time of borrowing on either a fixed rate or a floating rate based on LIBOR, at our option.

The revolving credit agreements provide for the transition from LIBOR and do not require amendment in connection with such transition.

The LIBOR spread, currently 110.0 basis points under the 5 -year revolving credit agreements and 115.0 basis points under the 364 -day revolving credit agreement, varies depending on our credit ratings ranging from 91.0 to 140.0 basis points under the 5 -year revolving credit agreement and from 93.0 to 145.0 basis points under the 364 -day revolving credit agreement.

The revolving credit agreement provides for the transition from LIBOR and does not require amendment in connection with such transition.

In June 2022, we entered into a 364 -day $ 1.5 billion unsecured revolving credit agreement (replacing the 364 -day $ 1.5 billion unsecured revolving credit agreement entered in June 2021, which expired in accordance with its terms).

Under the 364 -day revolving credit agreement, at our option, we can borrow on either a competitive advance basis or a revolving credit basis.

The revolving credit portion bears interest at Term SOFR or the base rate plus a spread.

The competitive advance portion of any borrowings will bear interest at market rates prevailing at the time of borrowing on either a fixed rate or a floating rate based Term SOFR, at our option.

The LIBOR spread, currently 110.0 basis points under the 5 -year revolving credit agreements and the SOFR spread, currently 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 94.0 to 135.0 basis points under the 364 -day revolving credit agreement.

We also pay an annual facility fee regardless of utilization.

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Upon our agreement with one or more financial institutions, we may expand the aggregate commitments under the revolving credit agreements by up to $ 750 million in the aggregate, to a maximum of $ 4.75 billion, across the 5 -year and 364 -day revolving credit agreements.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

At December 31, 2022, we had no borrowings and approximately $ 45 million of letters of credit outstanding under the revolving credit agreements, including those of KAH.

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As a member we have the ability to obtain short-term cash advances, subject to certain minimum collateral requirements.

At December 31, 2021 we had no outstanding short-term FHLB borrowings.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

As of December 31, 2022 and December 31, 2021, we had no outstanding short-term FHLB borrowings

EMPLOYEE BENEFIT PLANS

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Accordingly, upon retirement the earned portion of the current tranche will continue to vest on the originally scheduled vest date and any remaining unearned portion of the award will be forfeited.

Our equity award program includes a retirement provision that generally treats employees with a combination of age and years of services with the Company totaling 65 or greater, with a minimum required age of 55 and a minimum requirement of 5 years of service, as retirement-eligible.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

55 and a minimum requirement of 5 years of service, as retirement-eligible.

Upon exercise, stock-based compensation awards are settled with authorized but unissued company stock or treasury stock.

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There was no capitalized stock-based compensation expense during these years.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

At December 31, 2022, there were 11.0 million shares reserved for stock award plans under the Humana Inc.

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Shares may be issued from authorized but unissued company stock or treasury stock.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Restricted Stock

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Exercise provisions vary, but most options vest in whole or in part 1 to 3 years after grant and expire 7 years after grant.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The weighted-average fair value of each option granted during 2022, 2021, and 2020 is provided below.

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Treasury bond with a term substantially equal to the option’s expected term.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The volatility used to value employee stock options is based on historical volatility.

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We expect to recognize this compensation expense over a weighted-average period of approximately 1.7 years.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

EARNINGS PER COMMON SHARE COMPUTATION

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excluded from computation 205 216 238

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

STOCKHOLDERS’ EQUITY

The following table provides details of dividend payments, excluding dividend equivalent rights, in 2020, 2021, and 2022, under our Board approved quarterly cash dividend policy:

Payment Date Amount

per Share Total

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Under our share repurchase authorization, shares may have been 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 December 14, 2017, our Board of Directors authorized the repurchase of up to $ 3.0 billion of our common shares expiring on December 31, 2020, exclusive of shares repurchased in connection with employee stock plans.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

On November 28, 2018, we entered into an accelerated stock repurchase agreement, the November 2018 ASR, with Goldman Sachs to repurchase $ 750 million of our common stock as part of the $ 3.0 billion share repurchase program authorized by the Board of Directors on December 14, 2017.

On November 29, 2018, we made a payment of $ 750 million to Goldman Sachs from available cash on hand and received an initial delivery of 1.94 million shares of our common stock from Goldman Sachs.

The payment to Goldman Sachs was recorded as a reduction to stockholders’ equity, consisting of a $ 600 million increase in treasury stock, which reflected the value of the initial 1.94 million shares received upon initial settlement, and a $ 150 million decrease in capital in excess of par value, which reflected the value of stock held back by Goldman Sachs pending final settlement of the November 2018 ASR.

Upon final settlement of the November 2018 ASR on February 28, 2019, we received an additional 0.6 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 $ 295.15 , bringing the total shares received under this program to 2.54 million.

In addition, upon settlement we reclassified the $ 150 million value of stock initially held back by Goldman Sachs from capital in excess of par value to treasury stock.

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 as part of the $ 3 billion repurchase program authorized by the Board of Directors on July 30, 2019.

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 reflected 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 reflected 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.

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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.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

On February 18, 2021, the Board of Directors replaced the previous share repurchase authorization of up to $ 3 billion (of which approximately $ 1 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 as of February 18, 2024.

On January 11, 2022, we entered into separate accelerated stock repurchase agreements, the January 2022 ASR Agreements, with Mizuho Markets Americas LLC, or Mizuho, and Wells Fargo Bank, or Wells Fargo, to repurchase $ 1 billion of our common stock as part of the $ 3 billion repurchase program authorized by the Board of Directors on February 18, 2021.

On January 12, 2022, in accordance with the January 2022 ASR Agreements, we made a payment of $ 1 billion ($ 500 million to Mizuho and $ 500 million to Wells Fargo) and received an initial delivery of 2.2 million shares of our common stock ( 1.08 million shares each from Mizuho and Wells Fargo).

In January 2022, we recorded the payments to Mizuho and Wells Fargo as a reduction to stockholders’ equity, consisting of an $ 850 million increase in treasury stock, which reflects the value of the initial 2.2 million shares received upon initial settlement, and a $ 150 million decrease in capital in excess of par value, which reflects the value of stock held back by Mizuho and Wells Fargo pending final settlement of the January 2022 ASR Agreements.

The final number of shares that we may receive, or be required to remit, under the agreement, will be determined based on the daily volume-weighted average share price of our common stock over the term of the agreement, less a discount and subject to adjustments pursuant to the terms and conditions of the agreement.

We expect final settlement under the agreement to occur during the first quarter of 2022.

The agreement contains provisions customary for agreements of this type, including provisions for adjustments to the transaction terms upon certain specified events, the circumstances generally under which final settlement of the agreement may be accelerated, extended, or terminated early by Mizuho, Wells Fargo or Humana as well as various acknowledgments and representations made by the parties to each other.

At final settlement, under certain circumstances, we may be entitled to receive additional shares of our common stock from Mizuho and Wells Fargo or we may be required to make a payment.

If we are obligated to make payment, we may elect to satisfy such obligation in cash or shares of our common stock.

Our remaining repurchase authorization was $ 2 billion as of February 17, 2022.

On January 12, 2022, in accordance with the January 2022 ASR Agreements, we made a

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

payment of $ 1 billion ($ 500 million to Mizuho and $ 500 million to Wells Fargo) and received an initial delivery of 2.2 million shares of our common stock ( 1.08 million shares each from Mizuho and Wells Fargo).

We recorded the payments to Mizuho and Wells Fargo as a reduction to stockholders’ equity, consisting of an $ 850 million increase in treasury stock, which reflects the value of the initial 2.2 million shares received upon initial settlement, and a $ 150 million decrease in capital in excess of par value, which reflects the value of stock held back by Mizuho and Wells Fargo pending final settlement of the January 2022 ASR Agreements.

Upon final settlement of the January 2022 ASR Agreements with Mizuho and Wells Fargo on March 29, 2022 and March 30, 2022, respectively, we received an additional 0.1 million shares and 0.1 million shares, respectively, as determined by the average daily volume weighted-averages share price of our common stock during the term of the agreement, less a discount, of $ 410.96 and $ 411.66 , respectively, bringing the total shares received under the January 2022 ASR Agreements to 2.4 million.

In addition, upon settlement we reclassified the $ 150 million value of stock initially held back by Mizuho and Wells Fargo from capital in excess of par value to treasury stock.

On November 2, 2022, we entered into separate accelerated stock repurchase agreements, the November 2022 ASR Agreements, with Goldman Sachs & Co.

LLC, or Goldman Sachs, and Mizuho Markets Americas LLC, or Mizuho, to repurchase $ 1 billion of our common stock as part of the $ 3 billion repurchase program authorized by the Board of Directors on February 18, 2021.

In accordance with the November 2022 ASR Agreements, we made a payment of $ 1 billion ($ 500 million to Goldman Sachs on November 3, 2022 and $ 500 million to Mizuho on November 4, 2022) and received an initial delivery of 1.5 million shares of our common stock ( 0.760 million shares each from Goldman Sachs and Mizuho).

We recorded the payments to Goldman Sachs and Mizuho as a reduction to stockholders’ equity, consisting of an $ 850 million increase in treasury stock, which reflects the value of the initial 1.5 million shares received upon initial settlement, and a $ 150 million decrease in capital in excess of par value, which reflects the value of stock held back by Goldman Sachs and Mizuho pending final settlement of the November 2022 ASR Agreements.

Upon final settlement of the November 2022 ASR Agreements with Goldman Sachs and Mizuho on December 15, 2022 and December 16, 2022, respectively, we received an additional 0.177 million shares and 0.177 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 $ 534.16 and $ 533.87 , respectively, bringing the total shares received under the November 2022 ASR Agreements to 1.8 million.

In addition, upon settlement we reclassified the $ 150 million value of stock initially held back by Goldman Sachs and Mizuho from capital in excess of par value to treasury stock.

On February 15, 2023, the Board of Directors replaced the previous share repurchase authorization of up to $ 3 billion (of which approximately $ 1 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 as of February 15, 2026.

Excluding shares acquired in connection with employee stock plans, share repurchases were as follows during the years ended December 31, 2022, 2021 and 2020:

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In connection with employee stock plans, we acquired 0.2 million common shares for $ 96 million in 2022, 0.2 million common shares for $ 79 million in 2021, and 0.2 million common shares for $ 70 million in 2020.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

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

Regulatory Requirements

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The amount of ordinary dividends that may be paid to our parent company in 2023 is approximately $ 1.8 billion in the aggregate.

The amount, timing and mix of ordinary and extraordinary dividend payments will vary due to state regulatory requirements, the level of excess statutory capital and surplus

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

and expected future surplus requirements related to, for example, premium volume and product mix.

The amount, timing and mix of ordinary and extraordinary dividend payments will vary due to state regulatory requirements, the level of excess statutory capital and surplus and expected future surplus requirements related to, for example, premium volume and product mix.

Actual dividends that were paid to our parent company were approximately $ 1.3 billion in 2022, $ 1.6 billion in 2021, and $ 1.3 billion in 2020.

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Our parent also has guaranteed the obligations of certain of our non-regulated subsidiaries and funding to maintain required statutory capital levels of certain regulated subsidiaries.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

In the ordinary course of business, we enter into contractual arrangements under which we may agree to indemnify a third party to such arrangement from any losses incurred relating to the services they perform on behalf of us, or for losses arising from certain events as defined within the particular contract, which may include, for example, litigation or claims relating to past performance.

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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.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

profile." That baseline payment amount is adjusted to reflect the health status of our enrolled membership.

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 account for certain demographic characteristics and health status of our enrolled members.

Under the risk-adjustment methodology, all MA plans must collect from providers and submit the necessary diagnosis code information to CMS within prescribed deadlines.

The CMS risk-adjustment model uses the diagnosis data to calculate the risk-adjusted premium payment to MA plans, which CMS adjusts for coding pattern differences between the health plans and the government fee-for-service program.

We generally rely on providers, including certain providers in our network who are our employees, to code their claim submissions with appropriate diagnoses, which we send to CMS as the basis for our payment received from CMS under the actuarial risk-adjustment model.

The CMS risk-adjustment model uses the diagnosis data, collected from providers, to calculate the health status-related risk-adjusted premium payment to MA plans, which CMS further adjusts for coding pattern differences between the health plans and the government fee-for-service (FFS) 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 health status-adjusted payment received from CMS under the actuarial risk-adjustment model.

We also rely on these providers to document appropriately all medical data, including the diagnosis data submitted with claims.

In addition, we conduct medical record reviews as part of our data and payment accuracy compliance efforts, to more accurately reflect diagnosis conditions under the risk adjustment model.

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

CMS 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 2021, 75 % of the risk score was calculated from claims data submitted through EDS.

CMS will complete the phased-in transition from RAPS to 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.

CMS and the Office of the Inspector General of Health and Human Services, or HHS-OIG, perform audits of various companies’ risk adjustment diagnosis data submissions.

We refer to these audits as Risk-Adjustment Data Validation Audits, or RADV audits.

RADV audits review medical records in an attempt to validate provider medical record documentation and coding practices which influence the calculation of premium payments to MA plans.

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

We refer to the process of accounting for errors in FFS claims as the "FFS Adjuster." This comparison of RADV audit results to the FFS error rate is necessary to determine the economic impact, if any, of RADV audit results because the government used the Medicare FFS program data set, including any attendant errors that are present in that data set, to estimate the costs of various health status conditions and to set the resulting adjustments to MA plans’ payment rates in order to establish actuarial equivalence in payment rates as required under the Medicare statute.

CMS already makes other adjustments to payment rates based on a comparison of coding pattern differences between MA plans and Medicare FFS data (such as for frequency of coding for certain diagnoses in MA plan data versus the Medicare FFS program dataset).

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

RADV audits review medical records in an attempt to validate provider medical record documentation and coding practices that influence the calculation of health status-related premium payments to MA plans.

In 2012, CMS released an MA contract-level RADV methodology that would extrapolate the results of each CMS RADV audit sample to the audited MA contract’s entire health status-related risk adjusted premium amount for the year under audit.

In doing so, CMS recognized “that the documentation standard used in RADV audits to determine a contract’s payment error (medical records) is different from the documentation standard used to develop the Part C risk-adjustment model (FFS claims).” To correct for this difference, CMS stated that it would apply a “Fee-for-Service Adjuster (FFS Adjuster)” as “an offset to the preliminary recovery amount.” This adjuster would be “calculated by CMS based on a RADV-like review of records submitted to support FFS claims data.” CMS stated that this methodology would apply to audits beginning with PY 2011.

Humana relied on CMS’s 2012 guidance in submitting MA bids to CMS.

Humana also launched a “Self-Audits” program in 2013 that applied CMS’s 2012 RADV audit methodology and included an estimated FFS Adjuster.

Humana completed Self-Audits for PYs 2011-2016 and reported results to CMS.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

and update our estimates as each audit is completed.

Estimates derived from these results were not material to our results of operations, financial position, or cash flows.

We report the results of these internal contract level audits to CMS, including identified overpayments, if any.

On October 26, 2018, CMS issued a proposed rule and accompanying materials (which we refer to as the “Proposed Rule”) related to, among other things, the RADV audit methodology described above.

If implemented, the Proposed Rule would use extrapolation in RADV audits applicable to payment year 2011 contract-level audits and all subsequent audits, without the application of a FFS Adjuster to audit findings.

We believe that the Proposed Rule fails to address adequately the statutory requirement of actuarial equivalence, and have provided substantive comments to CMS on the Proposed Rule as part of the notice-and-comment rulemaking process.

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

In October 2018, however, CMS issued a proposed rule announcing possible changes to the RADV audit methodology, including elimination of the FFS Adjuster.

CMS proposed applying its revised methodology, including extrapolated recoveries without application of a FFS Adjuster, to RADV audits dating back to PY 2011.

On January 30, 2023, CMS published a final rule related to the RADV audit methodology (Final RADV Rule).

The Final RADV Rule confirmed CMS’s decision to eliminate the FFS Adjuster.

The Final RADV Rule states CMS’s intention to extrapolate results from CMS and HHS-OIG RADV audits beginning with PY 2018, rather than PY 2011 as proposed.

However, CMS’s Final RADV Rule does not adopt a specific sampling, extrapolation or audit methodology.

CMS instead stated its general plan to rely on “any statistically valid method .

that is determined to be well-suited to a particular audit.”

Humana is considering its legal options with respect to CMS’s changed position on the FFS Adjuster and seeking clarity regarding our compliance obligations in light of the Final RADV Rule.

We believe that the Final RADV Rule fails to address adequately the statutory requirement of actuarial equivalence.

Further, Humana’s actuarially certified bids through PY 2023 preserved Humana’s position that CMS should apply an FFS Adjuster in any RADV audit that CMS intends to extrapolate.

We expect CMS to apply the Final RADV Rule, including the first application of extrapolated audit results to determine audit settlements without a FFS Adjuster, to CMS and HHS-OIG RADV audits conducted for PY 2018 and subsequent years.

The Final RADV Rule, including the lack of a FFS Adjuster, 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.

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As such, the result of these reviews may have a material adverse effect on our results of operations, financial position, or cash flows.

We will continue to work with CMS to ensure that MA plans are paid accurately and that payment model principles are in accordance with the requirements of the Social Security Act, which, if not implemented correctly could have a material adverse effect on our results of operations, financial position, or cash flows.

As we explore our legal options and compliance obligations, we remain committed to working alongside CMS to promote the integrity of the MA program as well as affordability and cost certainty for our members.

It is critical that MA plans are paid accurately and that payment model principles, including the application of a FFS Adjuster, are in accordance with the requirements of the Social Security Act, which, if not implemented correctly could have a material adverse effect on our results of operations, financial position, or cash flows.

Our state-based Medicaid business accounted for approximately 6 % of our total premiums and services revenue for the year ended December 31, 2022 primarily serving members enrolled in Medicaid, and in certain circumstances members who qualify for both Medicaid and Medicare, under contracts with various states.

At December 31, 2021, our military services business, which accounted for approximately 1 % of our total premiums and services revenue for the year ended December 31, 2021, primarily consisted of the TRICARE T2017 East Region contract.

Our military services business, which accounted for approximately 1 % of our total premiums and services revenue for the year ended December 31, 2022, primarily consisted of the TRICARE T2017 East Region contract.

The T2017 East Region contract comprises 32 states and approximately six 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, unless extended, and is subject to renewals on January 1 of each year during its term at the government's option.

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

The T2017 East Region contract, which was originally set to expire on December 31, 2022, was subsequently extended by the DoD and is currently scheduled to expire on December 31, 2023, unless further extended.

In December 2022, we were awarded the next generation of TRICARE Managed Care Support Contracts, or T-5, for the TRICARE East Region by the Defense Health Agency of the DoD.

The contract is expected to go into effect in 2024.

Until then the T2017 contract remains in place.

Under the terms of the award, our service area covers approximately 4.6 million beneficiaries in a region consisting of 24 states and Washington, D.C.

The length of the contract is one base year with eight annual option periods, which, if all options are exercised, would result in a total contract length of nine years.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

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

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We believe that this request for information is in connection with a wider review of Medicare Risk Adjustment generally that includes a number of Medicare Advantage plans, providers and vendors.

We continue to cooperate with the Department of Justice.

These matters are expected to result in additional qui tam litigation.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

We cooperated with the Department of Justice, and we have not heard from the Department of Justice on this matter since 2020.

As previously disclosed, on January 19, 2016, an individual filed a qui tam suit captioned United States of America ex rel.

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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.

We have substantially completed discovery with the relator who has pursued the matter on behalf of the United States following its unsealing.

On March 31, 2022, the Court denied the parties' Motions for Summary Judgement.

We take seriously our obligations to comply with applicable CMS requirements and actuarial standards of practice, and continue to vigorously defend against these allegations.

Other Lawsuits and Regulatory Matters

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As a government contractor, we may also be subject to false claims litigation, such as qui tam lawsuits brought by individuals who seek to sue on behalf of the government, alleging that the government contractor submitted false claims to the government or related overpayments from the government, including, among other allegations, those resulting from coding and review practices under the Medicare risk adjustment model.

Qui tam litigation is filed under seal to allow the government an opportunity to investigate and to decide if it wishes to intervene and assume control of the litigation.

Qui tam litigation is filed

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

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.

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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.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

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.

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SEGMENT INFORMATION

We manage our business with three reportable segments:

Retail, Group and Specialty, and Healthcare Services.

The reportable segments are based on a combination of the type of health plan customer and adjacent businesses centered on well-being solutions for our health plans and other customers, as described below.

During December 2022, we realigned our businesses into two distinct segments:

Insurance and CenterWell.

The CenterWell segment (formerly Healthcare Services) represents our payor-agnostic healthcare services offerings, including pharmacy dispensing services, provider services, and home services.

Prior period segment financial information has been recast to conform to the 2022 presentation.

Our two reportable segments, Insurance and CenterWell, 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 demonstration, and Long-Term Support Services benefits, which we refer to collectively as our state-based contracts.

The Group and Specialty segment consists of employer group commercial fully-insured medical and specialty health insurance benefits marketed to individuals and employer groups, including dental, vision, and other supplemental health benefits, as well as administrative services only, or ASO products.

In addition, our Group and Specialty segment includes our military services business, primarily our TRICARE T2017 East Region contract.

The Healthcare Services segment includes pharmacy, provider, and home services, along with other services and capabilities to promote wellness and advance population health.

The operations of the recently acquired full ownership of Kindred at Home, as well as the company's strategic partnership with Welsh, Carson, Anderson & Stowe (WCAS) to develop and operate senior-focused, payor-agnostic, primary care centers are also included in the Healthcare Services segment.

Our Healthcare Services intersegment revenues primarily relate to managing prescription drug coverage for members of our other segments through Humana Pharmacy Solutions®, or HPS, and includes the operations of Humana Pharmacy, Inc., our mail order pharmacy business.

These revenues consist of the prescription price (ingredient cost plus dispensing fee), including the portion to be settled with the member (co-share) or with the government (subsidies), plus any associated administrative fees.

Services revenues related to the distribution of 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.

The Insurance segment consists of Medicare benefits, marketed to individuals or directly via group Medicare accounts, as well as 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 demonstration, and Long-Term Support Services benefits, which we refer to collectively as our state-based contracts.

This segment also includes products consisting of employer group commercial fully-insured medical and specialty health

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

In addition, our Healthcare Services intersegment revenues include revenues earned by certain owned providers derived from risk-based and non-risk-based managed care agreements with our health plans.

Under risk based agreements, the provider receives a monthly capitated fee that varies depending on the demographics and health status of the member, for each member assigned to these owned providers by our health plans.

The owned provider assumes the economic risk of funding the assigned members’ healthcare services.

Under non risk-based agreements, our health plans retain the economic risk of funding the assigned members' healthcare services.

Our Healthcare Services segment reports provider services revenues associated with risk-based agreements on a gross basis, whereby capitation fee revenue is recognized in the period in which the assigned members are entitled to receive healthcare services.

Provider services revenues associated with non-risk-based agreements are presented net of associated healthcare costs.

insurance benefits marketed to individuals and employer groups, including dental, vision, and other supplemental health benefits, as well as administrative services only, or ASO.

In addition, our Insurance segment includes our military services business, primarily our T-2017 East Region contract, as well as the operations of our PBM business.

The CenterWell segment includes our pharmacy, provider services, and home solutions operations.

The segment also includes our strategic partnerships with WCAS to develop and operate senior-focused, payor-agnostic, primary care centers, as well as our minority ownership interest in hospice operations.

Services offered by this segment are designed to enhance the overall healthcare experience.

These services may lead to lower utilization associated with improved member health and/or lower drug costs.

Our CenterWell intersegment revenues primarily relate to the operations of CenterWell Pharmacy (our mail- order pharmacy business), CenterWell Specialty Pharmacy, and retail pharmacies jointly located within CenterWell Senior Primary Care clinics.

In addition, our CenterWell intersegment revenues includes revenues earned by certain owned providers (CenterWell Senior Primary Care) derived from certain value-based arrangements with our health plans.

Under these value-based arrangements, our owned providers enter into agreements with our health plans to stand ready to deliver, integrate, direct and control the administration and management of certain health care services for our members.

In exchange, the owned provider receives a premium that is typically paid on a per-member per-month basis.

Fee-for-service revenue is recognized at agreed upon rates, net of contractual allowances, as the performance obligation is completed on the date of service.

We present our 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 $ 19.7 billion in 2022, $ 18.1 billion in 2021, and $ 16.5 billion in 2020.

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.

In addition, depreciation and amortization expense associated with certain businesses 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 $ 122 million in 2022, $ 108 million in 2021, and $ 127 million in 2020.

Other than those described previously, the accounting policies of each segment are the same and are described in Note 2.

Transactions between reportable segments primarily consist of sales of services rendered by our Healthcare Services segment, primarily pharmacy, provider, and home services, to our Retail and Group and Specialty segment customers.

Transactions between reportable segments primarily consist of sales of services rendered by our CenterWell segment, primarily pharmacy, provider, and home services, to our Insurance segment customers.

Intersegment sales and expenses are recorded at fair value and eliminated in consolidation.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Retail Group and Specialty Healthcare Services Eliminations/

Insurance CenterWell Eliminations/

Corporate Consolidated

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Products — 9,841 ( 9,841 ) —

Total intersegment revenues 1 40 29,022 ( 29,063 ) —

Intersegment revenues 56 13,373 ( 13,429 ) —

Investment income 223 8 151 382

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Income (loss) from operations 3,022 1,291 ( 513 ) 3,800

Gain on sale of KAH Hospice — ( 237 ) — ( 237 )

Interest expense — — 401 401

Other income, net — — 68 68

Income before income taxes and equity in net earnings 1,937 149 1,264 4 3,354

Equity in net earnings — — 65 — 65

Income before income taxes and equity in net earnings (losses) 3,022 1,528 ( 982 ) 3,568

Equity in net earnings (losses) 18 ( 22 ) — ( 4 )

Segment earnings $ 3,040 $ 1,506 $ ( 982 ) $ 3,564

noncontrolling interests — — ( 1 ) — ( 1 )

Segment earnings attributable to Humana $ 1,937 $ 149 $ 1,328 $ 4 $ 3,418

Net (income) loss attributable to noncontrolling interests 5 ( 1 ) — 4

Segment earnings (loss) attributable to Humana $ 3,045 $ 1,505 $ ( 982 ) $ 3,568

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Retail Group and Specialty Healthcare Services Eliminations/

Insurance CenterWell Eliminations/

Corporate Consolidated

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Products — 9,024 ( 9,024 ) —

Total intersegment revenues — 29 27,419 ( 27,448 ) —

Investment income 155 16 13 970 1,154

Intersegment revenues 41 11,852 ( 11,893 ) —

Investment income (loss) 214 4 ( 31 ) 187

Total revenues 80,930 14,058 ( 11,924 ) 83,064

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Interest expense — — 326 326

Other expense, net — — — 103 103

Income (loss) before income taxes and equity in net earnings 3,017 ( 143 ) 870 856 4,600

Other income, net — — ( 532 ) ( 532 )

Income before income taxes and equity in net earnings 2,412 938 4 3,354

Equity in net earnings — 65 — 65

Segment earnings (loss) $ 3,017 $ ( 143 ) $ 944 $ 856 $ 4,674

Segment earnings $ 2,412 $ 1,003 $ 4 $ 3,419

Net (income) loss attributable to noncontrolling interests — ( 1 ) — ( 1 )

Segment earnings attributable to Humana $ 2,412 $ 1,002 $ 4 $ 3,418

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Retail Group and Specialty Healthcare Services Eliminations/

Insurance CenterWell Eliminations/

Corporate Consolidated

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Products — 7,928 ( 7,928 ) —

Total intersegment revenues — 18 25,149 ( 25,167 ) —

Intersegment revenues 29 10,475 ( 10,504 ) —

Investment income 171 13 970 1,154

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Interest expense — — 283 283

Other income, net — — — ( 506 ) ( 506 )

Other expense, net — — 103 103

Income before income taxes and equity in net earnings 3,120 624 856 4,600

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The amount of these reinsurance recoverables resulting from 100 % coinsurance agreements was approximately $ 181 million at December 31, 2022 and approximately $ 188 million at December 31, 2021.

Premiums ceded were $ 6 million in 2021, $ 29 million in 2020 and $ 1 billion in 2019.

Premiums ceded were $ 5 million in 2022, $ 6 million in 2021 and $ 29 million in 2020.

Benefits ceded were $ 2 million in 2022, $ 2 million in 2021, and $ 7 million in 2020.

Ceded premium and benefits in 2019 reflect the activity associated with ceding all risk under a Medicaid contract to a third party reinsurer.

The reinsurance agreement ceding all risk under the Medicaid contract was terminated effective January 1, 2020.

We evaluate the financial condition of our reinsurers on a regular basis.

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We have audited the accompanying consolidated balance sheets of Humana Inc.

and its subsidiaries (the “Company”) as of December 31, 2021 and 2020, and the related consolidated statements of income, of comprehensive income, of stockholders’ equity and of cash flow for each of the three years in the period ended December 31, 2021, including the related notes and financial statement schedules listed in the index appearing under Item 15(a)(2) (collectively referred to as the “consolidated financial statements”).

and its subsidiaries (the “Company”) as of December 31, 2022 and 2021, and the related consolidated statements of income, of comprehensive income, of stockholders’ equity and of cash flow for each of the three years in the period ended December 31, 2022, including the related notes and financial statement schedule listed in the index appearing under Item 15(a)(2) (collectively referred to as the “consolidated financial statements”).

We also have audited the Company's internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

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We believe that our audits provide a reasonable basis for our opinions.

As described in Management’s Report on Internal Control over Financial Reporting, management has excluded Kindred at Home from its assessment of internal control over financial reporting as of December 31, 2021 because it was acquired by the Company in a purchase business combination during 2021.

We have also excluded Kindred at Home from our audit of internal control over financial reporting.

Kindred at Home is a wholly-owned subsidiary

whose total assets and total revenues excluded from management’s assessment and our audit of internal control over financial reporting represent 2% and 1%, respectively, of the related consolidated financial statement amounts as of and for the year ended December 31, 2021.

Definition and Limitations of Internal Control over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

accordance with generally accepted accounting principles.

A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company;

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For the most recent two months, the incurred claims are estimated primarily from a trend analysis based upon per member per month claims trends developed from historical experience in the preceding months, adjusted for known changes in estimates of hospital admissions, recent hospital and drug utilization data, provider contracting changes, changes in benefit levels, changes in member cost sharing, changes in medical management processes, product mix and workday seasonality.

The principal considerations for our determination that performing procedures relating to the valuation of IBNR is a critical audit matter are the significant judgment by management when developing the estimate of IBNR, which in turn led to a high degree of auditor judgment, subjectivity and effort in performing procedures and evaluating the actuarial methodologies and significant assumptions related to completion factors, per member per month claims

trends, and the potential for moderately adverse conditions.

Also, the audit effort involved the use of professionals with specialized skill and knowledge.

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These procedures included testing the effectiveness of controls relating to the valuation of IBNR, including controls over the actuarial methodologies and development of significant assumptions related to completion factors, per member per month claims trends, and the potential for moderately adverse conditions.

These procedures also included, among others, the involvement of professionals with specialized skill and knowledge to assist in developing an independent estimate of IBNR.

These procedures also included, among others, the involvement of professionals with

specialized skill and knowledge to assist in developing an independent estimate of IBNR.

This independent estimate includes a range of reasonable outcomes, including outcomes under moderately adverse conditions, which are compared to management’s estimate of IBNR.

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Professionals with specialized skill and knowledge were used to assist in the evaluation of the appropriateness of the Company’s discounted cash flows analysis and the reasonableness of the significant assumptions related to the terminal growth rates and the discount rates.

Acquisition of Kindred at Home – Valuation of Certificate of Need Intangible Assets

As described in Notes 3, 6 and 9 to the consolidated financial statements, in August 2021, the Company acquired the remaining 60% interest in Kindred at Home for an enterprise value of $8.2 billion, which resulted in $1.8 billion

of certificate of need intangible assets being recorded.

Management developed its estimate of the fair value of the certificate of need intangible assets acquired based on the income approach, which involved the use of inputs and significant assumptions including historical revenues and earnings, long-term growth rate, discount rate, contributory asset charges and future tax rates, among others.

The principal considerations for our determination that performing procedures relating to the valuation of the Kindred at Home certificate of need intangible assets acquired is a critical audit matter are the significant judgment by management when developing the fair value, which in turn led to a high degree of auditor judgment, subjectivity, and effort in performing procedures and evaluating management’s significant assumptions related to long-term growth rate and discount rate.

Also, the audit effort involved the use of professionals with specialized skill and knowledge.

Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements.

These procedures included testing the effectiveness of controls relating to the acquisition accounting, including controls over the valuation methodologies and the development of significant assumptions related to the valuation of the certificate of need intangible assets, including long-term growth rate and discount rate.

These procedures also included, among others, reading the purchase agreement and testing management’s process for estimating the fair value of certificate of need intangible assets.

Testing management’s process included evaluating the appropriateness of the income method and the reasonableness of the significant assumptions related to long-term growth rate and discount rate.

Evaluating the reasonableness of the long-term growth rate involved considering the past performance of the acquired business, the Company’s historical results, and whether the assumptions were consistent with evidence obtained in other areas of the audit.

Professionals with specialized skill and knowledge were used to assist in the evaluation of the appropriateness of the income method and the reasonableness of significant assumptions related to the long-term growth rate and discount rate.

/s/ PricewaterhouseCoopers LLP

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 8. Financial Statements and Supplementary Data