What changed in this filing

/stocks — the workspaceLOADING

Item 7. Management’s Discussion and Analysis

2024-02-15 compared with 2023-02-16 · 183 added, 340 removed, 399 unchanged (57% of the section changed)

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

For discussion of 2020 items and year-over-year comparisons between 2021 and 2020 that are not included in this 2022 10-K and were not impacted by our segment realignment, refer to "Item 7.

For discussion of 2021 items and year-over-year comparisons between 2022 and 2021 that are not included in this 2023 Form 10-K, refer to "Item 7.

– Management Discussion and Analysis of Financial Condition and Results of Operations" found in our Form 10-K for the year ended December 31, 2022, that was filed with the Securities and Exchange Commission on February 16, 2023.

Executive Overview

Humana Inc., headquartered in Louisville, Kentucky, is a leading health and well-being company committed to helping our millions of medical and specialty members achieve their best health.

Our successful history in care delivery and health plan administration is helping us create a new kind of integrated care with the power to improve health and well‐being and lower costs.

Our efforts are leading to a better quality of life for people with Medicare, families, individuals, military service personnel, and communities at large.

To accomplish that, we support physicians and other health care professionals as they work to deliver the right care in the right place for their patients, our members.

Our range of clinical capabilities, resources and tools, such as in‐home care, behavioral health, pharmacy services, data analytics and wellness solutions, combine to produce a simplified experience that makes health care easier to navigate and more effective.

The health benefits industry relies on two key statistics to measure performance.

Humana Inc., headquartered in Louisville, Kentucky, is committed to putting health first – for our teammates, our customers, and our company.

Through our Humana insurance services, and our CenterWell health care services, we make it easier for the millions of people we serve to achieve their best health – delivering the care and service they need, when they need it.

These efforts are leading to a better quality of life for people with Medicare, Medicaid, families, individuals, military service personnel, and communities at large.

Our industry relies on two key statistics to measure performance.

The benefit ratio, which is computed by taking total benefits expense as a percentage of premiums revenue, represents a statistic used to measure underwriting profitability.

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

Employer Group Commercial Medical Products Business Exit

In February 2023, we announced our planned exit from the Employer Group Commercial Medical Products business, which includes all fully insured, self-funded and Federal Employee Health Benefit medical plans, as well as associated wellness and rewards programs.

No other Humana health plan offerings are materially affected.

Following a strategic review, we determined the Employer Group Commercial Medical Products business was no longer positioned to sustainably meet the needs of commercial members over the long term or support our long-term strategic plans.

The exit from this line of business will be phased over the 18 to 24 months following our February 2023 announcement.

Sale of Hospice and Personal Care Divisions

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 statements of income for the year ended December 31, 2022.

Kindred at Home Acquisition

On August 17, 2021, we acquired the remaining 60% interest in Kindred at Home, or KAH, the nation’s largest home health and hospice provider, from TPG Capital 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.

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".

KAH has locations in 40 states, providing extensive geographic coverage with approximately 65% overlap with our individual Medicare Advantage membership.

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.

On August 11, 2022, we completed the sale of a 60% i nterest in Gentiva (formerly Kindred) Hospice to Clayton, Dubilier & Rice, or CD&R, for cash proceeds of approximately $2.7 billion, net of cash disposed, including debt repayments from Gentiva 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 was reported as a gain on sale of Gentiva Hospice in the accompanying consolidated statements of income for the year ended December 31, 2022.

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

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

Initially during periods of increased incidences of COVID-19, a reduction in non-COVID-19 hospital admissions for non-emergent and elective medical care 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.

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.

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.

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

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

The COVID-19 National Emergency declared in 2020 was terminated on April 10, 2023 and the Public Health Emergency expired on May 11, 2023.

Value Creation Initiatives and Impairment Charges

In order to create capacity to fund growth and investment in our Medicare Advantage business and further expansion of our healthcare services capabilities beginning in 2022, 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 $436 million and $473 million in 2023 and 2022, respectively, within operating costs in the consolidated statements of income.

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

We expect to incur additional charges through the end of 2024.

The value creation initiative charges primarily relate to $237 million and $248 million in asset impairments in 2023 and 2022, respectively, as well as $199 million and $116 million in severance charges in connection with workforce optimization in 2023 and 2022, respectively.

The remainder of the 2022 charges primarily relate to external consulting fees.

During 2023, we also recorded severance charges of $70 million within operating costs in our consolidated statement of income as a result of our exit from the Employer Group Commercial Medical Products business and impairment charges of $91 million, including $55 million relating to indefinite-lived intangibles.

The indefinite-lived intangibles impairment charges were included within operating costs in our consolidated statement of income with the remaining impairment charges included within investment income.

Business Segments

2 unchanged sentences

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.

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

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.

2021 segment financial information was 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.

4 unchanged sentences

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.

The CenterWell segment includes our pharmacy solutions, primary care, and home solutions 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.

The results of each segment are measured by income before income taxes and equity in net (losses) earnings from equity method investments, or segment earnings.

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.

The results of each segment are measured by income (loss) from operations.

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

8 unchanged sentences

At the same time, during periods of increased incidences of COVID-19, COVID-19 treatment and testing costs increase.

Similar impacts and seasonal disruptions from either higher or lower utilization are expected to persist as we respond to and recover from the COVID-19 global health crisis.

One of the product offerings of our Insurance segment is Medicare stand-alone prescription drug plans, or PDP, under the Medicare Part D program.

4 unchanged sentences

In addition, the number of low income senior members as well as year-over-year changes in the mix of membership in our standalone PDP products affects the quarterly benefit ratio pattern.

The Insurance segment also experiences seasonality in the fully-insured product offering.

The effect on the Insurance's segment benefit ratio is opposite of the Medicare stand-alone PDP impact, with the benefit ratio increasing as fully-insured members progress through their annual deductible and maximum out-of-pocket expenses.

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

The Insurance segment also experiences seasonality in the commercial fully-insured product offering.

The effect on the Insurance segment benefit ratio is opposite of the Medicare stand-alone PDP impact, with the benefit ratio increasing as fully-insured members progress through their annual deductible and maximum out-of-pocket expenses.

The Employer Group Commercial Fully-Insured business did not impact the Insurance segment benefit ratio for the year ended December 31, 2023 and increased the Insurance segment benefit ratio by 10 basis points for the year ended December 31, 2022.

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

The Insurance segment may experience adverse impacts in the operating cost ratio as a result of our Employer Group Commercial Medical Products exit phased over the 18 to 24 months following our February 2023 announcement.

The Employer Group Commercial Fully-Insured business increased the Insurance segment operating cost ratio by 30 basis points and increased the Insurance segment operating cost ratio by 40 basis points for the years ended December 31, 2023 and 2022, respectively.

• Our strategy offers our members affordable health care combined with a positive consumer experience in growing markets.

6 unchanged sentences

At December 31, 2023, approximately 3,764,300 members, or 70%, of our individual Medicare Advantage members were in value-based relationships under our integrated care delivery model, as compared to 3,175,500 members, or 70%, at December 31, 2022.

• On February 1, 2023, Centers for Medicare & Medicaid Services, or CMS, issued its preliminary 2024 Medicare Advantage and Part D payment rates and proposed policy changes, collectively, the Advance Notice.

• On January 31, 2024, Centers for Medicare & Medicaid Services, or CMS, issued its preliminary 2025 Medicare Advantage and Part D payment rates and proposed policy changes, collectively, the Advance Notice.

CMS has invited public comment on the Advance Notice before publishing final rates on or before April 1, 2024, or the Final Notice.

1 unchanged sentence

As indicated by CMS, its estimate excludes the impact of fee-for-service county rebasing/re-pricing since the related impact is dependent upon finalization of certain data, which will be available with the publication of the Final Notice.

Further the benchmark decrease excludes MA risk score trend as individual plans’ experience will vary.

Based on the company’s preliminary analysis using the same factors CMS included in its estimate, the components of which are detailed on CMS’s website, we anticipate the proposals in the Advance Notice would result, on average, in a change relatively in line with CMS’ estimate, with the exception of Humana's Medicare Star Ratings for bonus year 2024, which led the company’s peers, as well as the Risk Model Revision and Normalization Adjustment, which the company continues to analyze.

With respect to the Risk Model Revision and Normalization adjustment, CMS provided detail to the company indicating an average impact to Humana relatively in line with the average negative 3.12% industry impact.

The company continues to analyze the Advance Notice, including CMS’ estimate of the Humana specific impact related to the Risk Model Revision and Normalization adjustment, which is likely to have a more negative impact on individual plans and specific membership cohorts with greater risk score trend, and will be drawing upon its program expertise to provide CMS formal commentary on the impact of the Advance Notice and the related impact on Medicare beneficiaries’ quality of care and service to its members through the Medicare Advantage program.

• Net income was $2.8 billion, or $22.08 per diluted common share, and $2.9 billion, or $22.67 per diluted common share, in 2022 and 2021, respectively.

This comparison was significantly impacted by the gain on KAH equity method investment recognized in August 2021, put/call valuation adjustments associated with non-consolidating minority interest investments, transaction and integration costs, the change in the fair value of publicly-traded equity securities, charges associated with productivity initiatives related to previously disclosed $1 billion value creation plan, and the net gain on the sale of KAH Hospice.

The impact of these adjustments to our consolidated income before income taxes and equity in net (losses) earnings and diluted earnings per common share was as follows for the 2022 and 2021 periods:

Based on our preliminary analysis using the same factors included in CMS’ estimate, the components of which are detailed on CMS’ website, we anticipate the proposals in the Advance Notice would result in a change to our benchmark funding that is approximately 160 basis points worse than our expectation of a flat rate environment.

This difference is primarily due to the proposed effective growth rate restatements, which we did not anticipate in light of the higher medical cost trends experienced across the industry, as well as the negative impact of CMS’ proposed normalization factors.

As part of our typical engagement with the agency, we will provide actuarial data with respect to our concerns regarding these items.

We will continue to analyze the Advance Notice and will draw upon our program expertise to provide CMS formal commentary on the impact of the Advance Notice and the related impact upon Medicare beneficiaries’ quality of care, affordability, and service to its members through the Medicare Advantage program.

• Net income attributable to Humana was $2.5 billion, or $20.00 per diluted common share, and $2.8 billion, or $22.08 per diluted common share, in 2023 and 2022, respectively.

This comparison was significantly impacted by the gain on sale of Gentiva Hospice, put/call valuation adjustments associated with non-consolidating minority interest investments, transaction and integration costs, the change in the fair market value of publicly-traded equity securities, an accrued charge related to certain litigation expenses, charges associated with value creation initiatives, and impairment charges.

The impact of these adjustments to our consolidated income before income taxes and equity in net earnings and diluted earnings per common share was as follows for the 2023 and 2022 periods:

(in millions)

Consolidated income before income taxes and equity in net (losses) earnings:

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

Gain on sale of KAH Hospice (237) —

Charges associated with productivity initiatives related to the previously disclosed $1 billion value creation plan 473 —

Gain on sale of Gentiva Hospice $ — $ (237)

Put/call valuation adjustments associated with our non-consolidating minority interest investments 320 68

Transaction and integration costs (48) 105

Change in the fair value of publicly-traded equity securities 123 341

Change in fair market value of publicly-traded equity securities (1) 123

Accrued charge related to certain anticipated litigation expenses 105 —

Value creation initiatives 436 473

Impairment charges 91 —

Total $ 903 $ 532

Diluted earnings per common share:

Gain on Kindred at Home equity method investment $ — $ (8.73)

Gain on sale of KAH Hospice (1.86) —

Charges associated with productivity initiatives related to the previously disclosed $1 billion value creation plan 3.72 —

Gain on sale of Gentiva Hospice $ — $ (1.86)

Put/call valuation adjustments associated with our non-consolidating minority interest investments 2.57 0.53

Transaction and integration costs (0.38) 0.83

Change in the fair value of publicly-traded equity securities 0.97 2.63

Tax impact of all transactions (1.52) (1.93)

$ 2.67 $ (2.42)

Health Care Reform

Change in fair market value of publicly-traded equity securities (0.01) 0.97

Accrual charge related to certain anticipated litigation expenses 0.84 —

Value creation initiatives 3.50 3.72

Impairment charges 0.73 —

Net tax impact of transactions (1.67) (1.52)

Total $ 5.58 $ 2.67

Regulatory Environment

We are and will continue to be regularly subject to new laws and regulations, changes to existing laws and regulations, and judicial determinations that impact the interpretation and applicability of those laws and regulations.

The Health Care Reform Law, the Families First Act, the CARES Act, and the Inflation Reduction Act, and related regulations, are examples of laws which have enacted significant reforms to various aspects of the U.S.

health insurance industry, including, among others, mandated coverage requirements, mandated benefits and guarantee issuance associated with commercial medical insurance, rebates to policyholders based on minimum benefit ratios, adjustments to Medicare Advantage premiums, the establishment of federally facilitated or state-based exchanges coupled with programs designed to spread risk among insurers, and the introduction of plan designs based on set actuarial values, and changes to the Part D prescription drug benefit design .

It is reasonably possible that these laws and regulations, as well as other current or future legislative, judicial or regulatory changes (including further legislative or regulatory action taken in response to COVID-19) including restrictions on our ability to manage our provider network or otherwise operate our business, or restrictions on profitability, including reviews by regulatory bodies that may compare our Medicare Advantage profitability to our non-Medicare Advantage business profitability, or compare the profitability of various products within our Medicare Advantage business, and require that they remain within certain ranges of each other, increases in member benefits or changes to member eligibility criteria without corresponding increases in premium payments to us, or increases in regulation of our prescription drug benefit businesses, in the aggregate may have a material adverse effect on our results of operations (including restricting revenue, enrollment and premium growth in certain products and market segments, restricting our ability to expand into new markets, increasing our medical and operating costs, further lowering our Medicare payment rates and increasing our expenses associated with assessments);

health insurance industry, including, among others, mandated coverage requirements, mandated benefits and guarantee issuance associated with insurance products, rebates to policyholders based on minimum benefit ratios, adjustments to Medicare Advantage premiums, the establishment of federally facilitated or state-based exchanges coupled with programs designed to spread risk among insurers, and the introduction of plan designs based on set actuarial values, and changes to the Part D prescription drug benefit design .

It is reasonably possible that these laws and regulations, as well as other current or future legislative, judicial or regulatory changes including restrictions on our ability to manage our provider network, manage and sell our products, or otherwise operate our business, or restrictions on profitability, including reviews by regulatory bodies that may compare our Medicare Advantage profitability to our non-Medicare Advantage business profitability, or compare the profitability of various products within our Medicare Advantage business, and require that they remain within certain ranges of each other, increases in member benefits or changes to member eligibility criteria without corresponding increases in premium payments to us, increases in regulation of our prescription drug benefit businesses, or changes to the Part D prescription drug benefit design (and uncertainty arising from the implementation of these changes) in the aggregate may have a material adverse effect on our results of operations (including restricting revenue, enrollment and premium growth in certain products and market segments, restricting our ability to expand into new markets, increasing our medical and operating costs, further lowering our Medicare payment rates and increasing our expenses associated with assessments);

our financial position (including our ability to maintain the value of our goodwill);

1 unchanged sentence

We intend for the discussion of our financial condition and results of operations that follows to assist in the understanding of our financial statements and related changes in certain key items in those financial statements from year to year, including the primary factors that accounted for those changes.

Transactions between reportable segments primarily consist of sales of services rendered by our CenterWell segment, primarily pharmacy, provider services, and home solutions, to our Insurance segment customers and are described in Note 18 to the audited Consolidated Financial Statements included in Item 8.

– Financial Statements and Supplementary Data in this 2022 Form 10-K.

Transactions between reportable segments primarily consist of sales of services rendered by our CenterWell segment, primarily pharmacy solutions, primary care, and home solutions, to our Insurance segment customers and are described in Note 18 to the audited Consolidated Financial Statements included in Part II, Item 8, "Financial Statements and Supplementary Data" of this Form 10-K.

Comparison of Results of Operations for 2023 and 2022

Certain financial data on a consolidated basis and for our segments was as follows for the years ended December 31, 2022 and 2021:

The following discussion primarily details our results of operations for the year ended December 31, 2023, or the 2023 period, and the year ended December 31, 2022, or the 2022 period.

2023 2022 Dollars Percentage

1 unchanged sentence

common share results)

Insurance $ 87,712 $ 79,822 $ 7,890 9.9 %

Total premiums revenue 87,712 79,822 7,890 9.9 %

Insurance premiums $ 101,272 $ 87,712 $ 13,560 15.5 %

Insurance 1,000 850 150 17.6 %

9 unchanged sentences

Income from operations 4,013 3,800 213 5.6 %

Gain on sale of KAH Hospice (237) — 237 100.0 %

Gain on sale of Gentiva Hospice — (237) (237) (100.0) %

Interest expense 493 401 92 22.9 %

Other expense (income), net 68 (532) 600 112.8 %

Income before income taxes and equity in net (losses) earnings 3,568 3,354 214 6.4 %

Other expense, net 137 68 69 101.5 %

Income before income taxes and equity in net losses 3,383 3,568 (185) (5.2) %

Provision for income taxes 836 762 74 9.7 %

Equity in net (losses) earnings (4) 65 (69) (106.2) %

Equity in net losses (63) (4) 59 1475.0 %

Net income $ 2,484 $ 2,802 $ (318) (11.3) %

6 unchanged sentences

Premiums Revenue

Consolidated premiums revenue increased $7.9 billion, or 9.9%, from $79.8 billion in the 2021 period to $87.7 billion in the 2022 period primarily due to individual Medicare Advantage and state-based contracts membership growth and higher per member individual Medicare Advantage and commercial fully-insured medical premiums, partially offset by declining year-over-year membership associated with the group commercial medical products and the phase-out of COVID-19 sequestration relief in the 2022 period.

Consolidated premiums revenue increased $13.6 billion, or 15.5%, from $87.7 billion in the 2022 period to $101.3 billion in the 2023 period primarily due to individual Medicare Advantage and state-based contracts membership growth and higher per member individual Medicare Advantage premiums.

These factors were partially offset by the year-over-year decline in membership associated with group commercial medical, group Medicare Advantage and stand-alone PDP products, as well as the phase-out of COVID-19 sequestration relief in 2022.

Services Revenue

Consolidated services revenue increased $1.7 billion, or 56.3%, from $3.1 billion in the 2021 period to $4.8 billion in the 2022 period primarily due to the impact of our home solutions revenues which reflect the acquisition of the remaining 60% interest in KAH during August 2021 partially offset by the divestiture of the 60% ownership interest in KAH Hospice during August 2022.

Consolidated services revenue decreased $0.7 billion, or 15.6%, from $4.8 billion in the 2022 period to $4.0 billion in the 2023 period primarily due to the divestiture of the 60% ownership of Gentiva Hospice in August 2022.

Investment Income

Investment income increased $195 million, or 104.3%, from $187 million in the 2021 period to $382 million in the 2022 period p rimarily due to lower mark to market losses on our publicly traded equity securities during the 2022 period compared to the 2021 period.

Investment income increased $0.7 billion, or 179.8%, from $0.4 billion in the 2022 period to $1.1 billion in the 2023 period primarily due to increase in interest income on our debt securities as well as the net unfavorable mark to market impact of our publicly-traded equity securities during the 2022 period.

Benefits Expense

Consolidated benefits expense increased $12.7 billion, or 16.8%, from $75.7 billion in the 2022 period to $88.4 billion in the 2023 period.

The consolidated benefit ratio decreased 40 basis points from 86.7% in the 2021 period to 86.3% in the 2022 period primarily due to higher per member individual Medicare Advantage premiums and lower inpatient utilization associated with the individual Medicare Advantage business.

These factors were partially offset by lower favorable prior-period medical claims reserve development.

Further, the 2022 period ratio reflects a shift in line of business mix, with continued growth in certain government programs, which carry a higher benefits expense ratio, combined with a decline in Medicare stand-alone PDP, which has a lower benefits expense ratio.

The consolidated benefit ratio increased 100 basis points from 86.3% in the 2022 period to 87.3% in the 2023 period primarily due to investments in the benefit design of our Medicare Advantage products for 2023, higher than anticipated Medicare Advantage utilization trends, which further increased in the fourth quarter of 2023, driven by inpatient utilization, primarily for the months of November and December, and non-inpatient trends, predominately in the categories of physician, outpatient surgeries and supplemental benefits, as well as the impact of continued individual Medicare Advantage growth following the 2023 Annual Election Period, or AEP, including a high proportion of age-ins, which typically have a higher benefits expense ratio initially than the average new member.

These increases were partially offset by increased individual Medicare Advantage premiums, decreased average unit costs given the additional 20% payment on COVID-19 admissions during the Public Health Emergency, which expired on May 11, 2023, as well as higher favorable prior-period development in 2023.

Further, the 2023 ratio continues to reflect a shift in line of business mix, with growth in individual Medicare Advantage and state-based contracts and other membership, which can carry a higher benefits expense ratio.

Consolidated benefits expense included $872 million of favorable prior-period medical claims reserve development in the 2023 period and $415 million of favorable prior-period medical claims reserve development in the 2022 period.

5 unchanged sentences

Consolidated operating costs increased $0.5 billion, or 4.1%, from $12.7 billion in the 2022 period to $13.2 billion in the 2023 period.

The consolidated operating cost ratio increased 150 basis points from 12.2% in the 2021 period to 13.7% in the 2022 period.

The ratio increase was primarily due to the impact of the consolidation of KAH operations, which have a significantly higher operating cost ratio than our historical consolidated operating cost ratio, the net impact of charges associated with initiatives undertaken associated with our value creation initiatives, as well as the impact of higher marketing spend in 2022 to support individual Medicare Advantage growth.

These increases were partially offset by scale efficiencies associated with growth in individual Medicare Advantage membership.

The consolidated operating cost ratio decreased 120 basis points from 13.7% in the 2022 period to 12.5% in the 2023 period.

The ratio decrease was primarily due to the divestiture of the 60% ownership of Gentiva Hospice in August 2022, which carried a significantly higher operating cost ratio compared to the historical consolidated operating cost ratio, scale efficiencies associated with growth in individual Medicare Advantage membership, administrative cost efficiencies as a result of our value creation initiatives, as well as the impact of significantly reduced compensation accruals in 2023 for the annual incentive plan offered to employees across all levels of the company, in accordance with plan requirements, as our 2023 performance was negatively impacted by the previously-discussed higher Medicare Advantage utilization trends.

These factors were partially offset by an

increase in commissions for brokers related to the individual Medicare Advantage membership growth in 2023, the impact of accelerated charges related to value creation initiatives in 2023 compared to 2022, impairment charges expensed in 2023, the phase-out of COVID-19 sequestration relief in 2022, and an accrual recorded in 2023 related to certain anticipated litigation expenses.

Depreciation and Amortization

1 unchanged sentence

Interest Expense

Interest expense increased $75 million, or 23.0%, from $326 million in the 2021 period to $401 million in the 2022 period primarily due to higher average borrowings outstanding partially offset by lower interest rates.

Interest expense increased $92 million, or 22.9%, from $401 million in the 2022 period to $493 million in the 2023 period primarily due to higher average interest cost on outstanding borrowings.

Our effective tax rate during 2023 was 25.2% compared to the effective tax rate of 21.4% in 2022.

The year-over-year increase in the effective income tax rates is primarily due to the impact of the August 2021 acquisition of the remaining 60% interest in KAH.

In that period, we recognized a $1.1 billion mark-to-market gain related to our previously held 40% investment in KAH.

This unrealized gain was not taxable, thereby reducing the effective income tax rate for the 2021 period.

The increase is partially offset by the August 2022 disposition of our 60% interest in KAH Hospice, which resulted in an increase to our tax basis in both the shares sold and the shares retained, thereby reducing the effective income tax rate for the 2022 period.

The year-over-year increase in the effective income tax rates is primarily due to the favorable adjustment in relation to tax basis over book basis for the sale of Gentiva Hospice recognized in 2022, which resulted in book income in excess of taxable gain, an increase in our federal and state audit reserves for 2023, as well as a reduction in the recognized value of certain net operating losses.

For a complete reconciliation of the federal statutory rate to the effective tax rate, refer to Note 12 to the audited Consolidated Financial Statements included in Part II, Item 8, "Financial Statements and Supplementary Data" of this Form 10-K.

7 unchanged sentences

Commercial fully-insured 338,700 556,300 (217,600) (39.1) %

Total fully-insured 869,900 1,006,500 (136,600) (13.6) %

Medicaid and other 1,137,300 940,100 197,200 21.0 %

State-based contracts and other 1,228,800 1,137,300 91,500 8.0 %

Military services 5,960,200 5,959,900 300 — %

ASO 430,100 495,500 (65,400) (13.2) %

Commercial ASO 255,300 430,100 (174,800) (40.6) %

Total Medical Membership 16,857,800 17,079,200 (221,400) (1.3) %

7 unchanged sentences

Total Medicare 87,895 75,157 12,738 16.9 %

Medicare Supplement 743 731 12 1.6 %

Commercial fully-insured 3,527 4,389 (862) (19.6) %

Total fully-insured 4,476 5,002 (526) (10.5) %

Medicaid and other 6,376 5,109 1,267 24.8 %

Specialty 1,703 1,731 (28) (1.6) %

Specialty benefits 1,007 1,047 (40) (3.8) %

Medicare Supplement 735 743 (8) (1.1) %

State-based contracts and other 8,108 6,376 1,732 27.2 %

Total premiums revenue 101,272 87,712 13,560 15.5 %

Commercial ASO 237 300 (63) (21.0) %

Military services and other 763 550 213 38.7 %

Services revenue 1,000 850 150 17.6 %

4 unchanged sentences

Income from operations

Insurance segment income from operations increased $0.6 billion, or 25.3%, from $2.4 billion in the 2021 period to $3.0 billion in the 2022 period primarily due to the same factors impacting the segment's lower benefit ratio offset by the same factors impacting the segment's higher operating cost ratio as more fully described below.

Individual Medicare Advantage membership increased 156,500 members, or 3.5%, from 4,409,100 members as of December 31, 2021 to 4,565,600 members as of December 31, 2022 primarily due to membership additions associated with the 2022 Annual Election Period, or AEP.

The year-over-year growth was further impacted by continued enrollment resulting from special elections, age-ins, and Dual Eligible Special Need Plans, or D-SNP, membership.

Insurance segment income from operations decreased $0.4 billion, or 12.2%, from $3.0 billion in the 2022 period to $2.6 billion in the 2023 period primarily due to the same factors impacting the segment's higher benefit ratio partially offset by the segment's lower operating cost ratio as more fully described below.

Individual Medicare Advantage membership increased 843,300 members, or 18.5%, from 4,565,600 members as of December 31, 2022 to 5,408,900 members as of December 31, 2023 primarily due to membership additions associated with the 2023 AEP and continued growth in 2023.

The year-ov er-year growth was further impacted by continued enrollment resulting from special elections, age-ins, and Dual Eligible Special Need Plans, or D-SNP, membership.

I ndividual Medicare Advantage membership includes 871,300 D-SNP members as of December 31, 2023, a net increase of 202,400 members, or 30.3%, from 668,900 members as of December 31, 2022.

For the full year 2023, we anticipate a net membership growth in our individual Medicare Advantage offerings of at least 625,000 members.

Group Medicare Advantage membership increased 4,500 members, or 0.8% , from 560,600 members as of December 31, 2021 to 565,100 members as of December 31, 2022 reflectin g smaller account sales and organic growth in concurrent accounts with no large accounts won or lost for the period.

For the full year 2023, we anticipate a net membership decline in our group Medicare Advantage offerings of approximately 60,000 members.

For the full year 2024, we anticipate a net membership growth in our individual Medicare Advantage offerings of approximately 100,000 members.

Group Medicare Advantage mem bership decreased 55,500 members, or 9.8%, from 565,100 members as of December 31, 2022 to 509,600 members as of December 31, 2023 reflecting the net loss of certain large accounts partially offset by continued growth in small group accounts.

For the full year 2024 , we anticipate a net membership growth in our group Medicare Advantage offerings of approximately 45,000 members.

Medic are stand-alone PDP membership decreased 702,200 members, or 19.8% , from 3,551,300 members as of December 31, 2022 to 2,849,100 members as of December 31, 2023 primarily due to continued intensified competition for Medicare stand-alone PDP offerings.

For the full year 2024 , we anticipate a net membership decline in our Medicare stand-alone PDP offerings of approximately 650,000 members.

Medicaid and other membership increased 197,200 members, or 21.0%, from 940,100 members as of December 31, 2021 to 1,137,300 members as of December 31, 2022 reflecting the suspension of state eligibility redetermination efforts due to the currently enacted public health emergency, or PHE .

For the full year 2023, we anticipate a net membership growth in our state-based contracts of approximately 25,000 to 100,000 members.

Commercial fully-insured medical membership decreased 118,300 members, or 17.5%, from 674,600 members as of December 31, 2021 to 556,300 members as of December 31, 2022 reflecting the impact of pricing discipline to address COVID-19 and improve profitability.

ASO commercial medical membership decreased 65,400 members, or 13.2%, from 495,500 members as of December 31, 2021 to 430,100 members as of December 31, 2022 reflecting continued intensified competition for small group accounts, partially offset by strong retention among large group accounts.

For the full year 2023, we anticipate a net membership decline in our group commercial medical offerings, which includes fully-insured and ASO, of approximately 300,000 members.

Military services membership decreased 89,100 members, or 1.5%, from 6,049,000 members as of December 31, 2021 to 5,959,900 members as of December 31, 2022.

Membership includes military service members, retirees, and their families to whom we are providing healthcare services under the current TRICARE East Region contract.

Specialty membership decreased 99,500 members, or 1.9%, from 5,294,300 members as of December 31, 2021 to 5,194,800 members as of December 31, 2022 primarily due to the loss of dental and vision groups cross-sold with medical, as reflected in the loss of group fully-insured commercial medical membership above.

In addition, current membership reflects the economic impact of the COVID-19 pandemic.

Premiums revenue

Insurance segment premiums revenue increased $7.9 billion, or 9.9%, from $79.8 billion in the 2021 period to $87.7 billion in the 2022 period primarily due to individual Medicare Advantage and state-based contracts membership growth and higher per member individual Medicare Advantage and commercial fully-insured medical premiums, partially offset by declining year-over-year membership associated with the group commercial medical products and the phase-out of COVID-19 sequestration relief in the 2022 period.

Services revenue

Insurance segment services revenue decreased $3 million, or 0.4%, from $853 million in the 2021 period to $850 million in the 2022 period.

Benefits expense

The Insurance segment benefit ratio decreased 60 basis points from 87.2% in the 2021 period to 86.6% in the 2022 period primarily due to higher per member individual Medicare Advantage premiums and lower inpatient utilization associated with the individual Medicare Advantage business.

These factors were partially offset by lower favorable prior-period medical claims reserve development.

The Insurance segment benefits expense included $415 million of favorable prior-period medical claims reserve development in the 2022 period and $825 million of favorable prior-period medical claims reserve development in the 2021 period.

Prior-period medical claims reserve development decreased the Insurance's segment benefit ratio by approximately 50 basis points in the 2022 period and decreased the Insurance's segment benefit ratio by approximately 100 basis points in the 2021 period.

Operating costs

The Insurance segment operating cost ratio increased 10 basis points from 10.3% in the 2021 period to 10.4% in the 2022 period primarily due to strategic investments to position the segment for long-term success, including the impact of higher marketing spend in the 2022 period to support individual Medicare Advantage growth.

These factors were partially offset by scale efficiencies associated with growth in the individual Medicare Advantage membership.

CenterWell Segment

2022 2021 Dollars Percentage

(in millions)

Home solutions $ 2,333 $ 1,166 $ 1,167 100.1 %

Pharmacy 1,025 623 402 64.5 %

Provider services 568 413 155 37.5 %

Total services revenue 3,926 2,202 1,724 78.3 %

Intersegment revenues:

Home solutions 553 352 201 57.1 %

Pharmacy 9,841 9,024 817 9.1 %

Provider services 2,979 2,476 503 20.3 %

Total intersegment revenues 13,373 11,852 1,521 12.8 %

Total services and intersegment revenues $ 17,299 14,054 3,245 23.1 %

Income from operations $ 1,291 $ 938 $ 353 37.6 %

Operating cost ratio 91.5 % 92.3 % (0.8) %

Income from operations

CenterWell segment income from operations increased $353 million, or 37.6%, from $938 million in the 2021 period to $1.3 billion in the 2022 period primarily due primarily due to the same factors impacting the increase in services revenue and intersegment revenues as well as the same factors impacting the segment's lower operating cost ratio in the 2022 period as more fully described below.

Services revenue

CenterWell segment services revenue increased $1.7 billion, or 78.3%, from $2.2 billion in the 2021 period to $3.9 billion in the 2022 period primarily due to the impact of our home solutions revenues which reflect the acquisition of the remaining 60% interest in KAH during August 2021 partially offset by the divestiture of the 60% ownership interest in KAH Hospice during August 2022.

Intersegment revenues

CenterWell segment intersegment revenues increased $1.5 billion, or 12.8%, from $11.9 billion in the 2021 period to $13.4 billion in the 2022 period primarily due to individual Medicare Advantage membership growth, combined with the impact of greater mail-order pharmacy penetration for Medicare Advantage members, which lead to higher pharmacy revenues, as well as higher revenues associated with growth in our provider business.

Operating costs

The CenterWell segment operating cost ratio decreased 80 basis points from 92.3% in the 2021 period to 91.5% in the 2022 period primarily represents the consolidation of KAH operations for the entire 2022 period compared to the partial 2021 period due to timing of the previously disclosed transaction.

The KAH operations have a lower operating cost ratio than other businesses within the segment.

The year-over-year favorability was further impacted by our pharmacy operations partially offset by investments in KAH to abate the pressures of the current nursing labor environment as well as the divestiture of the 60% interest in KAH Hospice during August 2022.

Comparison of Results of Operations for 2021 and 2020

Certain financial data on a consolidated basis and for our segments reflect our segment realignment and are recast as follows for the years ended December 31, 2021 and 2020:

2021 2020 Dollars Percentage

(dollars in millions, except per

common share results)

Insurance $ 79,822 $ 73,584 $ 6,238 8.5 %

Corporate — 602 (602) (100.0) %

Total premiums revenue 79,822 74,186 5,636 7.6 %

Insurance 853 813 40 4.9 %

CenterWell 2,202 1,002 1,200 119.8 %

Total services revenue 3,055 1,815 1,240 68.3 %

Investment income 187 1,154 (967) (83.8) %

Total revenues 83,064 77,155 5,909 7.7 %

Operating expenses:

Benefits 69,199 61,628 7,571 12.3 %

Operating costs 10,121 10,052 69 0.7 %

Depreciation and amortization 596 489 107 21.9 %

Total operating expenses 79,916 72,169 7,747 10.7 %

Income from operations 3,148 4,986 (1,838) (36.9) %

Interest expense 326 283 43 15.2 %

Other (income) expense, net (532) 103 635 616.5 %

Income before income taxes and equity in net earnings 3,354 4,600 (1,246) (27.1) %

Provision for income taxes 485 1,307 (822) (62.9) %

Equity in net earnings 65 74 (9) (12.2) %

Net income $ 2,934 $ 3,367 $ (433) (12.9) %

Diluted earnings per common share $ 22.67 $ 25.31 $ (2.64) (10.4) %

Benefit ratio (a) 86.7 % 83.1 % 3.6 %

Operating cost ratio (b) 12.2 % 13.2 % (1.0) %

Effective tax rate 14.2 % 28.0 % (13.8) %

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

(b) Represents total operating costs, excluding depreciation and amortization, as a percentage of total revenues less investment income.

Premiums Revenue

Consolidated premiums increased $5.6 billion, or 7.6%, from $74.2 billion in the 2020 period to $79.8 billion in the 2021 period primarily due to higher premium revenues from Medicare Advantage and state-based contracts membership growth, higher per member Medicare Advantage premiums as a result of the improving CMS benchmark rate for 2021, net of Medicare Risk Adjustment (MRA) headwinds resulting from COVID-19 related utilization disruption in 2020, as well as the additional quarter impact of Medicare sequestration relief in 2021 that was not enacted until the second quarter of 2020.

These increases were partially offset by declining stand-alone PDP, group commercial medical, and group Medicare Advantage membership, as well as the 2020 impact of the receipt of commercial risk corridor receivables previously written off.

Services Revenue

Consolidated services revenue increased $1.2 billion, or 68.3%, from $1.8 billion in the 2020 period to $3.1 billion in the 2021 period primarily due to higher home solutions revenues associated with consolidation of Kindred at Home earnings.

Investment Income

Investment income decreased $967 million, or 83.8%, from $1.2 billion in the 2020 period to $187 million in the 2021 period p rimarily due to a significant decrease in the fair value of our publicly-traded equity securities investments.

Benefits Expense

Consolidated benefits expense increased $7.6 billion, or 12.3%, from $61.6 billion in the 2020 period to $69.2 billion in the 2021 period.

The consolidated benefit ratio increased 360 basis points from 83.1% in the 2020 period to 86.7% in the 2021 period.

These increases reflect the termination in 2021 of the non-deductible health insurance industry fee which, along with a portion of the related tax benefit, was contemplated in the pricing and benefit design of our products, and COVID-19 impacts, including the impact of the deferral of non-essential care, net of meaningful COVID-19 treatment and testing costs, our pandemic relief efforts in 2020, as well as 2021 MRA headwinds resulting from this COVID-19 related utilization disruption in 2020.

The year over year increase further reflects the 2020 impact of the receipt of commercial risk corridor receivables that were previously written off, and the 2021 impact a ssociated with the competitive nature of the group Medicare Advantage business, particularly in large group accounts that were recently procured, as well as in the stand-alone PDP business.

These factors were partially offset by higher favorable prior-period medical claims reserve development in 2021.

The higher favorable prior-period medical claims reserve development was primarily attributable to the reversal of actions taken in 2020, including the suspension of certain financial recovery programs for a period of time impacting our claim payment patterns.

The suspension during 2020 was intended to provide financial and administrative relief for providers facing unprecedented strain as a result of the COVID-19 pandemic.

The favorable prior-period medical claims reserve development decreased the consolidated benefit ratio by approximately 100 basis points in the 2021 period versus approximately 40 basis points in the 2020 period.

Operating Costs

Our segments incur both direct and shared indirect operating costs.

We allocate the indirect costs shared by the segments primarily as a function of revenues.

As a result, the profitability of each segment is interdependent.

Consolidated operating costs increased $0.07 billion, or 0.7%, from $10.05 billion in the 2020 period to $10.12 billion in the 2021 period.

The consolidated operating cost ratio decreased 100 basis points from 13.2% in the 2020 period to 12.2% in the 2021 period.

The ratio decrease was primarily due to the termination of the non-deductible health insurance industry fee in 2021, as well as lower COVID-19 related administrative costs in 2021 compared to 2020.

Administrative costs in 2020 included costs associated with personal protective equipment, member response efforts, and the build-out of infrastructure necessary to support employees working remotely.

The decrease was

further impacted by scale efficiencies associated with growth in our individual Medicare Advantage membership, operating cost efficiencies in 2021 from previously implemented productivity initiatives, as well as the impact of a $200 million contribution to the Humana Foundation in the first half of 2020 to support communities served by the Company, particularly those with social and health disparities.

These factors were partially offset by the consolidation of Kindred at Home operations as the business has a significantly higher operating cost ratio than our historical consolidated operating cost ratio, continued strategic and technology modernization investments made to position us for long-term success, transaction and integration costs associated with the Kindred at Home transaction, as well as the 2020 impact of the receipt of the commercial risk corridor receivables that were previously written off.

The non-deductible health insurance industry fee impacted the operating cost ratio by 160 basis points in the 2020 period.

Depreciation and Amortization

Depreciation and amortization increased $107 million, or 21.9%, from $489 million in the 2020 period to $596 million in the 2021 period primarily due to capital expenditures.

Interest Expense

Interest expense increased $43 million, or 15.2%, from $283 million in the 2020 period to $326 million in the 2021 period from borrowings to fund the KAH acquisition.

Our effective tax rate during 2021 was 14.2% compared to the effective tax rate of 28.0% in 2020.

The change was primarily due to the non-taxable gain we recognized on our previously held Kindred at Home equity method investment from our acquisition of the remaining ownership interest in the business in August 2021 and the termination of the non-deductible health insurance industry fee in 2021.

Insurance Segment

2021 2020 Members %

Individual Medicare Advantage 4,409,100 3,962,700 446,400 11.3 %

Group Medicare Advantage 560,600 613,200 (52,600) (8.6) %

Medicare stand-alone PDP 3,606,200 3,866,700 (260,500) (6.7) %

Total Medicare 8,575,900 8,442,600 133,300 1.6 %

Medicare Supplement 331,900 335,600 (3,700) (1.1) %

Commercial fully-insured 674,600 777,400 (102,800) (13.2) %

Total fully-insured 1,006,500 1,113,000 (106,500) (9.6) %

Medicaid and other 940,100 772,400 167,700 21.7 %

Military services 6,049,000 5,998,700 50,300 0.8 %

ASO 495,500 504,900 (9,400) (1.9) %

Total Medical Membership 17,067,000 16,831,600 235,400 1.4 %

Total Specialty Membership 5,294,300 5,310,300 (16,000) (0.3) %

2021 2020 $ %

(in millions)

Premiums and Services Revenue:

Individual Medicare Advantage $ 58,654 $ 51,697 $ 6,957 13.5 %

Group Medicare Advantage 6,955 7,774 (819) (10.5) %

Medicare stand-alone PDP 2,371 2,742 (371) (13.5) %

Total Medicare 67,980 62,213 5,767 9.3 %

Medicare Supplement 731 688 43 6.3 %

Commercial fully-insured 4,271 4,761 (490) (10.3) %

Total fully-insured 5,002 5,449 (447) (8.2) %

Medicaid and other 5,109 4,223 886 21.0 %

Specialty 1,731 1,699 32 1.9 %

Total premiums revenue 79,822 73,584 6,238 8.5 %

Services revenue 853 813 40 4.9 %

Total premiums and services revenue $ 80,675 $ 74,397 $ 6,278 8.4 %

Income from operations $ 2,412 $ 3,120 $ (708) (22.7) %

Benefit ratio 87.2 % 84.1 % 3.1 %

Operating cost ratio 10.3 % 12.3 % (2.0) %

Income from operations

Insurance segment income from operations decreased $0.7 billion, or 22.7%, from $3.1 billion in the 2020 period to $2.4 billion in the 2021 period primarily due to the same factors impacting the segment's higher benefit ratio offset by the same factors impacting the segment's lower operating cost ratio as more fully described below.

Individual Medicare Advantage membership increased 446,400 members, or 11.3%, from 3,962,700 members as of December 31, 2020 to 4,409,100 members as of December 31, 2021 primarily due to membership additions associated with the previous Annual Election Period, or AEP, and Open Election Period, or OEP, for Medicare beneficiaries.

The membership growth was further impacted by continued enrollment resulting from special elections, age-ins, and Dual Eligible Special Need Plans, or D-SNP, members.

The OEP sales period, which ran from January 1 to March 31, 2021 added approximately 36,000 members compared to the 2020 OEP that added approximately 30,000 members.

I ndividual Medicare Advantage membership includes 576,100 D-SNP members as of December 31, 2021, a net increase of 170,000 members, or 42%, from 406,100 members as of December 31, 2020.

Group Medicare Advantage membership decreased 52,600 members, or 8.6% , from 613,200 members as of December 31, 2020 to 560,600 members as of December 31, 2021 primarily due to the net loss of certain large accounts in January 2021, partially offset by continued growth in small group accounts.

Medic are stand-alone PDP membership decreased 260,500 members, or 6.7% , from 3,866,700 members as of December 31, 2020 to 3,606,200 members as of December 31, 2021 primarily due to anticipated declines as a result of the Walmart Value plan no longer being the low cost leader in 2021.

Medicaid and other membership increased 167,700 members, or 21.7%, from 772,400 members as of December 31, 2020 to 940,100 members as of December 31, 2021 primarily reflecting additional enrollment as a result of the suspension of state eligibility redetermination efforts due to the currently-enacted Public Health Emergency, as well as our acquisition of the remaining 50% ownership interest in Wisconsin health care company iCare.

Commercial fully-insured medical membership decreased 102,800 members, or 13.2%, from 777,400 members as of December 31, 2020 to 674,600 members as of December 31, 2021 reflecting lower small group quoting activity and sales attributable to depressed economic activity from the COVID-19 pandemic, partially offset by higher retention of existing customers, particularly in larger groups.

The portion of commercial fully-insured medical membership in small group accounts was approximately 50% at December 31, 2021 and 54% at December 31, 2020.

ASO commercial medical membership decreased 9,400 members, or 1.9%, from 504,900 members as of December 31, 2020 to 495,500 members as of December 31, 2021.

S mall group membership comprised 43% of ASO commercial medical membership at December 31, 2021 and 45% at December 31, 2020.

The membership change reflects intensified competition for small group accounts, partially offset by strong retention among large group accounts.

Military services membership increased 50,300 members, or 0.8%, from 5,998,700 members as of December 31, 2020 to 6,049,000 members as of December 31, 2021.

Membership includes military service members, retirees, and their families to whom we are providing healthcare services under the current TRICARE East Region contract.

Specialty membership decreased 16,000 members, or 0.3%, from 5,310,300 members as of December 31, 2020 to 5,294,300 members as of December 31, 2021 primarily due to the loss of dental and vision groups cross-sold with medical, as reflected in the loss of commercial fully-insured medical membership described above.

The decrease also reflects the impact of the economic downturn driven by the COVID-19 pandemic.

State-based contracts and other membership increased 91,500 members, or 8.0%, from 1,137,300 members as of December 31, 2022 to 1,228,800 members as of December 31, 2023 reflecting the impact of membership additions associated with the implementation of the Louisiana and Ohio contracts effective January 2023 and February 2023, respectively, partially offset by ending the suspension of state eligibility redetermination efforts previously enacted as part of the Public Health Emergency.

For the full year 2024 , we anticipate a net membership growth in our state-based contracts of approximately 250,000 members.

Commercial fully-insured medical membership decreased 217,600 members, or 39.1%, from 556,300 members as of December 31, 2022 to 338,700 members as of December 31, 2023 and commercial ASO medical membership decreased 174,800 members, or 40.6%, from 430,100 members as of December 31, 2022 to 255,300 members as of December 31, 2023.

These decreases reflect our planned exit of the Employer Group Commercial Medical Products business, which includes all fully insured, self-funded and Federal Employee Health Benefit medical plans, as well as associated wellness and rewards programs.

The exit from this line of business will be phased over the 18 to 24 months following our February 2023 announcement.

Specialty membership decreased 326,500 members, or 6.3%, from 5,194,800 members as of December 31, 2022 to 4,868,300 members as of December 31, 2023 reflecting the decline in membership associated with our Optional Supplemental Benefit products as a result of enhanced mandatory dental and vision supplemental benefits on Medicare Advantage plans.

In addition, the decline reflects loss of dental and vision individuals due to terminations as well as loss of dental and vision groups cross-sold with commercial medical products.

Premiums revenue

Insurance segment premiums increased $6.2 billion, or 8.5%, from $73.6 billion in the 2020 period to $79.8 billion in the 2021 period primarily due to higher premium revenues from Medicare Advantage and state-based contracts membership growth, higher per member Medicare Advantage premiums as a result of the improving CMS benchmark rate for 2021, net of Medicare Risk Adjustment (MRA) headwinds resulting from COVID-19 related

utilization disruption in 2020, as well as the additional quarter impact of Medicare sequestration relief in 2021 that was not enacted until the second quarter of 2020.

These increases were partially offset by declining Medicare stand-alone PDP, commercial fully insured, and group Medicare Advantage membership.

Insurance segment premiums revenue increased $13.6 billion, or 15.5%, from $87.7 billion in the 2022 period to $101.3 billion in the 2023 period primarily due to individual Medicare Advantage and state-based contracts membership growth and higher per member individual Medicare Advantage premiums.

Services revenue

Insurance segment services revenue increased $40 million, or 4.9%, from $813 million in the 2020 period to $853 million in the 2021 period primarily due to higher TRICARE services revenue partially offset by lower ASO membership described previously.

Insurance segment services revenue increased $0.15 billion, or 17.6%, from $0.85 billion in the 2022 period to $1 billion in the 2023 period.

Benefits expense

The Insurance segment benefit ratio increased 310 basis points from 84.1% in the 2020 period to 87.2% in the 2021 period.

This increase reflects the termination in 2021 of the non-deductible health insurance industry fee which, along with a portion of the related tax benefit, was contemplated in the pricing and benefit design of our products, and COVID-19 impacts, including the impact of the deferral of non-essential care, net of meaningful COVID-19 treatment and testing costs, our pandemic relief efforts in 2020, as well as 2021 MRA headwinds resulting from this COVID-19 related utilization disruption in 2020.

The year over year increase further reflects the 2021 impact associated with the competitive nature of the group Medicare Advantage business, particularly in large group accounts that were recently procured, as well as in the stand-alone PDP business.

These factors were partially offset by higher favorable prior-period medical claims reserve development in 2021.

The Insurance segment benefit ratio increased 140 basis points from 86.6% in the 2022 period to 88.0% in the 2023 period primarily due to investments in the benefit design of our Medicare Advantage products for 2023, higher than anticipated Medicare Advantage utilization trends, which further increased in the fourth quarter of 2023, driven by inpatient utilization, primarily for the months of November and December, and non-inpatient trends, predominately in the categories of physician, outpatient surgeries and supplemental benefits, as well as the impact of continued individual Medicare Advantage growth following the 2023 Annual Election Period, or AEP, including a high proportion of age-ins, which typically have a higher benefits expense ratio initially than the average new member.

The Insurance segment benefits expense included $872 million of favorable prior-period medical claims reserve development in the 2023 period and $415 million of favorable prior-period medical claims reserve development in the 2022 period.

Prior-period medical claims reserve development decreased the Insurance's segment benefit ratio by approximately 100 basis points in the 2021 period and decreased the Insurance's segment benefit ratio by approximately 40 basis points in the 2020 period.

The suspension during 2020 was intended to provide financial and administrative relief for providers facing unprecedented strain as a result of the COVID-19 pandemic.

Prior-period medical claims reserve development decreased the Insurance segment benefit ratio by approximately 90 basis points in the 2023 period and decreased the Insurance segment benefit ratio by approximately 50 basis points in the 2022 period.

Operating costs

The Insurance segment operating cost ratio decreased 200 basis points from 12.3% in the 2020 period to 10.3% in the 2022 period primarily due to the termination of the non-deductible health insurance industry fee in 2021, lower COVID-19 related administrative costs, as previously discussed, scale efficiencies associated with growth in our individual Medicare Advantage membership, as well as operating cost efficiencies driven by previously implemented productivity initiatives.

These improvements were partially offset by continued strategic investments made in 2021 to position us for long-term success.

The non-deductible health insurance industry fee impacted the operating cost ratio by 160 basis points in the 2020 period.

The Insurance segment operating cost ratio decreased 20 basis points from 10.4% in the 2022 period to 10.2% in the 2023 period primarily due to scale efficiencies associated with growth in individual Medicare Advantage membership, administrative cost efficiencies as a result of our value creation initiatives, as well as the impact of significantly reduced compensation accruals in 2023 for the annual incentive plan offered to employees across all levels of the company, in accordance with plan requirements, as our 2023 performance was negatively impacted by the previously-discussed higher Medicare Advantage utilization trends.

These factors were partially offset by an increase in commissions for brokers related to the individual Medicare Advantage membership growth in 2023, the phase-out of COVID-19 sequestration relief in 2022 and an accrual recorded in 2023 related to certain anticipated litigation expenses.

CenterWell Segment

2 unchanged sentences

Home solutions $ 1,342 $ 2,333 $ (991) (42.5) %

Pharmacy 623 567 56 9.9 %

Provider services 413 328 85 25.9 %

Pharmacy solutions 849 1,025 (176) (17.2) %

Primary care 842 568 274 48.2 %

Total services revenue 3,033 3,926 (893) (22.7) %

1 unchanged sentence

Home solutions 1,589 553 1,036 187.3 %

Pharmacy 9,024 7,928 1,096 13.8 %

Provider services 2,476 2,268 208 9.2 %

Pharmacy solutions 10,451 9,841 610 6.2 %

Primary care 3,332 2,979 353 11.8 %

Total intersegment revenues 15,372 13,373 1,999 14.9 %

3 unchanged sentences

Income from operations

CenterWell segment income from operations increased $314 million, or 50.3%, from $624 million in the 2020 period to $938 million in the 2021 period primarily due to consolidation of Kindred at Home earnings, individual Medicare Advantage and state-based contracts membership growth leading to higher pharmacy revenues, higher revenues associated with growth in our provider business, as well as the factors that drove the segment declining operating cost ratio as more fully described below.

CenterWell segment income from operations increased $0.1 billion, or 8.8%, from $1.3 billion in the 2022 period to $1.4 billion in the 2023 period.

Services revenue

CenterWell segment services revenue increased $1.2 billion, or 119.8%, from $1.0 billion in the 2020 period to $2.2 billion in the 2021 period primarily due to consolidation of Kindred at Home earnings.

The 2021 period further reflects higher revenue from growth in the number of primary care clinics serving third party payors, and additional pharmacy revenues associated with the acquisition of Enclara which was closed during the first quarter of 2020.

CenterWell segment services revenue decreased $0.9 billion, or 22.7%, from $3.9 billion in the 2022 period to $3.0 billion in the 2023 period primarily due to the divestiture of the 60% ownership of Gentiva Hospice in August 2022.

Intersegment revenues

CenterWell segment intersegment revenues increased $1.4 billion, or 13.1%, from $10.5 billion in the 2020 period to $11.9 billion in the 2021 period primarily due to individual Medicare Advantage and state-based contracts membership growth, as well as higher revenues associated with our provider business.

These increases were partially offset by the loss of intersegment revenues associated with the decline in stand-alone PDP and group Medicare Advantage membership as previously discussed.

CenterWell segment intersegment revenues increased $2.0 billion, or 14.9%, from $13.4 billion in the 2022 period to $15.4 billion in the 2023 period primarily due to individual Medicare Advantage membership growth, which led to higher pharmacy solutions revenues, higher revenues associated with growth in the primary care business, and greater revenues associated with the home solutions business as a result of the expansion of the value-based care home model in 2023 compared to 2022.

Operating costs

The CenterWell segment operating cost ratio decreased 100 basis points from 93.3% in the 2020 period to 92.3% in the 2021 period primarily due to consolidation of Kindred at Home operations which have a lower operating cost ratio than other businesses within the segment, the 2020 impact associated with COVID-19 administrative related costs, including expenses associated with additional safety measures taken for our pharmacy, provider, and home solutions teams who continued to provide services to members throughout the crisis, as well as operational improvements in our provider services business, largely related to Conviva, along with operating cost efficiencies driven by previously implemented productivity initiatives in 2021.

The decrease further reflects the impact of additional investments in the segment's provider business during 2020 related to marketing and AEP initiatives.

These decreases were partially offset by increased administrative costs in the pharmacy operations as a result of incremental spend to accelerate growth within the business, increased utilization levels in our provider business in 2021 compared to levels in 2020 amid the COVID-19 pandemic, as well as increased pharmacy labor-related overtime costs due to weather disruptions occurring in the first quarter of 2021.

The CenterWell segment operating cost ratio decreased 30 basis points from 91.5% in the 2022 period to 91.2% in the 2023 period primarily due to an improving ratio in the primary care business driven by year-over-year medical costs favorability, administrative cost efficiencies related to the pharmacy solutions business, as well as the impact of significantly reduced compensation accruals in 2023 for the annual incentive plan offered to employees across all levels of the company, in accordance with plan requirements, as our 2023 performance was negatively impacted by the previously-discussed higher Medicare Advantage utilization trends.

These factors were partially offset by the divestiture of the 60% ownership of Gentiva Hospice in August 2022, which carried a lower operating cost ratio compared to other businesses within the segment, the expansion of the value-based care model within the home solutions business, which carries a higher operating cost ratio compared to the core fee-for-service business, along with growth in Medicare Advantage episodes in the core fee-for-service business, as well as continued investments within the home solutions business to abate the pressures of the current nursing labor environment.

Historically, our primary sources of cash have included receipts of premiums, services revenue, and investment and other income, as well as proceeds from the sale or maturity of our investment securities, and borrowings.

6 unchanged sentences

Our use of cash flows derived from our non-insurance subsidiaries, such as in our CenterWell segment, is generally not restricted by state departments of insurance (or comparable state regulators).

For additional information on our liquidity risk, please refer to Item 1A.

– Risk Factors in this 2022 Form 10-K.

Cash and cash equivalents increased to $5.1 billion at December 31, 2022 from $3.4 billion at December 31, 2021.

For additional information on our liquidity risk, please refer to Part I, Item 1A, "Risk Factors" of this Form 10-K.

Cash and cash equivalents decreased to $4.7 billion at December 31, 2023 from $5.1 billion at December 31, 2022.

The change in cash and cash equivalents for the years ended December 31, 2023, 2022 and 2021 is summarized as follows:

4 unchanged sentences

Net cash (used in) provided by financing activities (856) (1,914) 3,015

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

(Decrease) increase in cash and cash equivalents $ (367) $ 1,667 $ (1,279)

Cash Flow from Operating Activities

Cash flows provided by operations of $4.6 billion in the 2022 period increased $2.3 billion from cash flows provided by operations of $2.3 billion in the 2021 period primarily due to higher earnings in 2022, exclusive of the gain on the sale of KAH Hospice recognized in the 2022 period and the gain on the KAH equity method investment recognized in the 2021 period, combined with positive working capital impacts in 2022, and the 2021 period impact associated with the pay down of claims inventory and capitation for provider surplus amounts earned in 2020 and additional provider support.

Cash flows provided by operations of $4.0 billion in the 2023 period decreased $606 million from cash flows provided by operations of $4.6 billion in the 2022 period primarily due to lower earnings in the 2023 period compared to the 2022 period combined with the unfavorable impact of working capital changes.

The most significant drivers of changes in our working capital are typically the timing of payments of benefits expense and receipts for premiums.

10 unchanged sentences

Reconciliation to cash flow statement:

Change in receivables from disposition (acquisition) of business 194 (396)

Change in receivables per cash flow statement resulting in

cash used by operations

Receivables (acquired) disposed (24) 194

Change in receivables per cash flow statement $ 337 $ 54

The changes in Medicare receivables for both the 2023 period and the 2022 period reflect individual Medicare Advantage membership growth and the typical pattern caused by the timing of accruals and related collections associated with the CMS risk-adjustment model.

The decrease in Commercial and other receivables and the allowance for doubtful accounts for 2022 primarily relates to the KAH Hospice disposition.

The increase in Commercial and other receivables in 2021 primarily relates to the Kindred at Home acquisition.

The increase in Commercial and other receivables for the 2023 period is primarily related to Medicaid membership growth.

The decrease in Commercial and other receivables for 2022 primarily relates to the Gentiva Hospice disposition.

Cash Flow from Investing Activities

During 2022, we acquired various businesses totaling to approximately $337 million, net of cash received.

During the 2022 period, we completed the sale of a 60% interest of Gentiva Hospice to CD&R for cash proceeds of approximately $2.7 billion , net of cash disposed, including debt repayments from Gentiva 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 was reported as a gain on sale of Gentiva Hospice in the accompanying consolidated statement of income for the year ended December 31, 2022.

During the 2023 period and 2022 period, we acquired various businesses for approximately $233 million and $337 million, respectively, net of cash and cash equivalents received.

During 2021, we acquired Kindred at Home and other primary care businesses for cash consideration of approximately $4.2 billion, net of cash received.

During 2020, we acquired Enclara Healthcare, a hospice, pharmacy and benefit provider, for cash consideration of approximately $709 million, net of cash received.

During 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.

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

Total capital expenditures, excluding acquisitions, were $1.1 billion, $1.3 billion and $964 million in the 2022, 2021 and 2020 periods, respectively.

Net purchases of investment securities were $2.3 billion, $1.1 billion, $1.4 billion in the 2022, 2021 and 2020 periods, respectively.

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

Net capital expenditures, excluding acquisitions, were $794 million, $1.1 billion and $1.3 billion in the 2023, 2022 and 2021 periods, respectively.

Net purchases of investment securities were $2.5 billion, $2.3 billion and $1.1 billion in the 2023, 2022 and 2021 periods, respectively.

Cash Flow from Financing Activities

2 unchanged sentences

Settlement of the reinsurance and low-income cost subsidies is based on a reconciliation made approximately 9 months after the close of each calendar year.

Receipts from CMS associated with Medicare Part D claim subsidies for which we do not assume risk were higher than claim payments by $2 billion in the 2022 period and claim payments were higher than receipts from CMS associated with Medicare Part D claim subsidies for which we do not assume risk by $261 million and $938 million in the 2021 and 2020 periods, respectively.

Our net payable from CMS for subsidies and brand name prescription drug discounts was $540 million at December 31, 2022 compared to a net receivable of $1.4 billion at December 31, 2021.

Under our administrative services only TRICARE contract, reimbursements from the federal government exceeded health care costs payments for which we do not assume risk by $25 million in the 2022 period and health care costs payments for which we do not assume risk exceeded reimbursements from the federal government by $45 million and $1 million in the 2021 and 2020 periods, respectively.

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.

Receipts from CMS associated with Medicare Part D claim subsidies for which we do not assume risk were higher than claim payments by $771 million and $2 billion in the 2023 and 2022 periods, respectively, and claim payments were higher than receipts from CMS associated with Medicare Part D claim subsidies for which we do not assume risk by $261 million in the 2021 period.

Our net payable from CMS for subsidies and brand name prescription drug discounts was $1.3 billion at December 31, 2023 compared to a net payable of $540 million at December 31, 2022.

Under our administrative services only TRICARE contract, reimbursements from the federal government exceeded health care costs payments for which we do not assume risk by $57 million and $25 million in the 2023 and 2022 periods, respectively, and health care costs payments for which we do not assume risk exceeded reimbursements from the federal government by $45 million in the 2021 period.

In November 2023, we issued $500 million of 5.750% unsecured senior notes due December 1, 2028 and $850 million of 5.950% unsecured senior notes due March 15, 2034.

Our net proceeds, reduced for the underwriters' discounts and commissions paid, were $1.3 billion.

In March 2023, we issued $500 million of 5.700% unsecured senior notes due March 13, 2026 and $750 million of 5.500% unsecured senior notes due March 15, 2053.

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

We used the net proceeds to repay outstanding amounts under our $500 million Delayed Draw Term Loan.

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

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.

3 unchanged sentences

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.

Our net proceeds, reduced for the underwriters' discounts and commissions paid, were $2,984 million.

In December 2020, we repaid $400 million aggregate principal amount of our 2.500% senior notes due on their maturity date of December 15, 2020.

In March 2020, we issued $600 million of 4.500% senior notes due April 1, 2025 and $500 million of 4.875% senior notes due April 1, 2030.

Our net proceeds, reduced for the underwriters' discounts and commissions and offering expenses paid, were $1,088 million.

Our net proceeds, reduced for the underwriters' discounts and commissions paid, were $3.0 billion.

In August 2023, we entered into a Rule 10b5-1 Repurchase Plan to repurchase a portion of our $750 million aggregate principal amount of 1.350% senior notes maturing in February 2027, our $600 million aggregate principal amount of 3.950% senior notes maturing in March 2027, our $750 million aggregate principal amount of 3.700% senior notes maturing in March 2029, and our $500 million aggregate principal amount of 3.125% senior notes maturing in August 2029 during the period beginning on August 7, 2023 and ending on November 15, 2023.

For the year ended December 31, 2023, we repurchased $339 million principal amount of these senior notes for approximately $310 million cash.

In March 2023, we entered into a Rule 10b5-1 Repurchase Plan to repurchase a portion of our $1.5 billion aggregate principal amount of 0.650% senior notes maturing in August 2023 and our $600 million aggregate principal amount of 3.850% senior notes maturing in October 2024 during the period beginning on March 13, 2023 and ending on July 21, 2023.

For the year ended December 31, 2023, we repurchased $361 million principal amount

of these senior notes for approximately $358 million cash.

We repaid the remaining $1.2 billion aggregate principal amount of our 0.650% senior notes due on their maturity date of August 3, 2023.

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.

We entered into a commercial paper program in October 2014.

Net proceeds from issuance of commercial paper were $211 million in 2023 and the maximum principal amount outstanding at any one time during 2023 was $3.3 billion.

Net repayments from the issuance of commercial paper were $376 million in 2022 and the maximum principal amount outstanding at any one time during 2022 was $1.5 billion.

Net proceeds from issuance of commercial paper were $352 million in 2021 and the maximum principal amount outstanding at any one time during 2021 was $1.2 billion.

We received a short-term cash advance of $100 million from FHLB with certain of our marketable securities as collateral and subsequently repaid the outstanding balance in December 2023.

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

In October 2021, we entered into a $2.0 billion term loan agreement and applied the proceeds to finance the repayment in full of the outstanding assumed Kindred at Home debt.

In August 2021, we borrowed $500 million under the delayed draw term loan agreement, which was used, in combination with other debt financing, to fund the approximate $5.8 billion transaction price of Kindred at Home.

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

We entered into a commercial paper program in October 2014.

Net repayments from issuance of commercial paper were $376 million in 2022 and the maximum principal amount outstanding at any one time during 2022 was $1.5 billion.

Net proceeds from the issuance of commercial paper were $352 million in 2021 and the maximum principal amount outstanding at any one time during 2021 was $1.2 billion.

Net proceeds from issuance of commercial paper were $295 million in 2020 and the maximum principal amount outstanding at any one time during 2020 was $600 million.

We repurchased common shares for $2.10 billion, $79 million and $1.82 billion in 2022, 2021 and 2020, respectively, under share repurchase plans authorized by the Board of Directors and in connection with employee stock plans.

We repurchased common shares for $1.6 billion, $2.1 billion and $79 million in 2023, 2022 and 2021, respectively, under share repurchase plans authorized by the Board of Directors and in connection with employee stock plans.

We paid dividends to stockholders of $431 million in 2023, $392 million in 2022, and $354 million in 2021.

The remainder of the cash used in or provided by financing activities in 2022, 2021, and 2020 primarily resulted from debt issuance costs, proceeds from stock option exercises and the change in book overdraft.

Future Sources and Uses of Liquidity

4 unchanged sentences

Liquidity Requirements

We believe our cash balances, investment securities, operating cash flows, and funds available under our credit agreement and our commercial paper program or from other public or private financing sources, taken together, provide adequate resources to fund ongoing operating and regulatory requirements, acquisitions, future expansion opportunities, and capital expenditures for at least the next twelve months, as well as to refinance or repay debt, and repurchase shares.

opportunities, and capital expenditures for at least the next twelve months, as well as to refinance or repay debt, and repurchase shares.

Adverse changes in our credit rating may increase the rate of interest we pay and may impact the amount of credit available to us in the future.

6 unchanged sentences

Cash, cash equivalents, and short-term investments at the parent company decreased to $0.5 billion at December 31, 2023 from $0.9 billion at December 31, 2022.

This decrease primarily reflects common stock repurchases, repayment of the October 2021 Term Loan Agreement, repayment of maturing senior notes, capital expenditures, repayment of borrowings under the commercial paper program, capital contributions to certain subsidiaries, cash dividends to shareholders and acquisitions, partially offset by net proceeds from the senior notes, proceeds from the sale of investment securities, dividends from insurance subsidiaries, and cash from certain non-insurance subsidiaries within our CenterWell segment.

This decrease primarily reflects common stock repurchases, repayment of maturing senior notes, capital expenditures, capital contributions to certain subsidiaries, cash dividends to shareholders and acquisitions, partially offset by net proceeds from the senior notes, dividends from insurance subsidiaries, and cash from certain non-insurance subsidiaries within our CenterWell segment.

Our use of operating cash derived from our non-insurance subsidiaries, such as our CenterWell segment, is generally not restricted by regulators.

12 unchanged sentences

Government Contracts

For a detailed discussion of our government contracts, including our Medicare, Military, and Medicaid and state-based contracts, please refer to Note 17 to the audited Consolidated Financial Statements included in Part II, Item 8, "Financial Statements and Supplementary Data" of this Form 10-K.

For a detailed discussion of our government contracts, including our Medicare, military services, and Medicaid and state-based contracts, please refer to Note 17 to the audited Consolidated Financial Statements included in Part II, Item 8, "Financial Statements and Supplementary Data" of this Form 10-K.

Critical Accounting Policies and Estimates

33 unchanged sentences

The following table provides a historical perspective regarding the accrual and payment of our benefits payable.

Components of the total incurred claims for each year include amounts accrued for current year estimated benefits expense as well as adjustments to prior year estimated accruals.

Refer to Note 11 to the audited Consolidated Financial Statements included in Part II, Item 8, "Financial Statements and Supplementary Data" of this Form 10-K for 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.

Components of the total incurred claims for each year include amounts accrued for current year estimated benefits

expense as well as adjustments to prior year estimated accruals.

Refer to Note 11 to the audited Consolidated Financial Statements included in Part II, Item 8, "Financial Statements and Supplementary Data" of this Form 10-K for information about incurred and paid claims development as of December 31, 2023 as well as cumulative claim frequency and the total of IBNR included within the net incurred claims amounts.

2023 2022 2021

1 unchanged sentence

Balances at January 1 $ 9,264 $ 8,289 $ 8,143

Reinsurance recoverables — — (68)

Balances at January 1, net 8,289 8,143 5,936

Acquisitions 62 — 42

7 unchanged sentences

Total paid (87,479) (74,715) (69,095)

Reinsurance recoverable — — —

Balances at December 31 $ 10,241 $ 9,264 $ 8,289

16 unchanged sentences

The favorable medical claims reserve development for 2023, 2022, and 2021 primarily reflects the consistent application of trend and completion factors estimated using an assumption of moderately adverse conditions.

In addition, the higher prior year favorable development for the year ended December 31, 2021 was primarily attributable to the reversal of actions taken in 2020, including the suspension of certain financial recovery programs for a period of time impacting our claim payment patterns.

The suspension during 2020 was intended to provide financial and administrative relief for providers facing unprecedented strain as a result of the COVID-19 pandemic.

Our favorable development for each of the years presented above is discussed further in Note 11 to the audited Consolidated Financial Statements included in Item 8.

– Financial Statements and Supplementary Data.

The favorable development recognized in 2023 and 2021 primarily resulted from trend factors developing more favorably than originally expected as well as for 2021 completion factors developing faster than expected.

The favorable development recognized in 2022 resulted primarily from completion factors remaining largely unchanged, resulting in lower overall development as compared to 2023 and 2021.

Our favorable development for each of the years presented above is discussed further in Note 11 to the audited Consolidated Financial Statements included in Part II, Item 8, "Financial Statements and Supplementary Data" of this Form 10-K.

We continually adjust our historical trend and completion factor experience with our knowledge of recent events that may impact current trends and completion factors when establishing our reserves.

Because our reserving practice is to consistently recognize the actuarial best point estimate using an assumption of moderately adverse

conditions as required by actuarial standards, there is a reasonable possibility that variances between actual trend and completion factors and those assumed in our December 31, 2022 estimates would fall towards the middle of the ranges previously presented in our sensitivity table.

Because our reserving practice is to consistently recognize the actuarial best point estimate using an assumption of moderately adverse conditions as required by actuarial standards, there is a reasonable possibility that variances between actual trend and completion factors and those assumed in our December 31, 2023 estimates would fall towards the middle of the ranges previously presented in our sensitivity table.

Revenue Recognition

44 unchanged sentences

Approximately 97% of our debt securities were investment-grade quality, with a weighted average credit rating of AA- by S&P at December 31, 2023.

Most of the debt securities that were below investment-grade were rated BB-, the higher end of the below investment-grade rating scale.

Most of the debt securities that were below investment-grade were rated B+, the higher end of the below investment-grade rating scale.

Tax-exempt municipal securities were diversified among general obligation bonds of states and local municipalities in the United States as well as special revenue bonds issued by municipalities to finance specific public works projects such as utilities, water and sewer, transportation, or education.

Our general obligation bonds are diversified across the United States with no individual

state exceeding 1% of our total debt securities.

Our general obligation bonds are diversified across the United States with no individual state

exceeding approximately 1% of our total debt securities.

Our investment policy limits investments in a single issuer and requires diversification among various asset types.

13 unchanged sentences

Total debt securities $ 3,621 $ (28) $ 11,046 $ (1,300) $ 14,667 $ (1,328)

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.

Under the current expected credit losses model, or CECL, 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 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.

12 unchanged sentences

The expected credit loss cannot exceed the full difference between the amortized cost basis and the fair value.

The risks inherent in assessing the impairment of an investment include the risk that market factors may differ from our expectations, facts and circumstances factored into our assessment may change with the passage of time, or

we may decide to subsequently sell the investment.

The determination of whether a decline in the value of an investment is related to a credit event requires us to exercise significant diligence and judgment.

The discovery of new information and the passage of time can significantly change these judgments.

The status of the general economic environment and significant changes in the national securities markets influence the determination of fair value and the assessment of investment impairment.

The status of the general

economic environment and significant changes in the national securities markets influence the determination of fair value and the assessment of investment impairment.

There is a continuing risk that declines in fair value may occur and additional material realized losses from sales or expected credit loss impairments may be recorded in future periods.

5 unchanged sentences

At December 31, 2023, goodwill, indefinite-lived and other long-lived assets represented 30% of total assets and 87% of total stockholders’ equity, compared to 33% and 92%, respectively, at December 31, 2022.

The decrease in goodwill, indefinite-lived and other long-lived assets is primarily attributable to our August 2022 sale of KAH Hospice.

The decrease in goodwill, indefinite-lived and other long-lived assets as a percentage of total assets is primarily attributable to the increase in investment securities.

For goodwill, 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.

12 unchanged sentences

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

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.

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 primary care reporting units, which accounted for $4.4 billion and $1.2 billion of goodwill, respectively.

Impairment tests completed for 2023, 2022, and 2021 did not result in an impairment loss.

Indefinite-lived intangible assets relate to Certificate of Needs (CON) and Medicare licenses acquired in connection with our August 2021 KAH acquisition with a carrying value of $1.4 billion at December 31, 2023.

goodwill, we are required to test at least annually for impairment and more frequently if adverse events or changes in circumstances indicate that the asset may be impaired.

Like goodwill, we are required to test at least annually for impairment and more frequently if adverse events or changes in circumstances indicate that the asset may be impaired.

These tests are performed, at a minimum, annually in the fourth quarter.

If the carrying amount of an indefinite-lived intangible asset exceeds its fair value, an impairment loss is recognized.

If the carrying amount of an indefinite-lived intangible asset exceeds its fair value, an impairment

loss is recognized.

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

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

Impairment tests completed for 2023 and 2022 did not result in material impairment losses.

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

7 unchanged sentences

If these estimates or their related assumptions change in the future, we may be required to record impairment losses or change the useful life, including accelerating depreciation or amortization for these assets.

Other than the $248 million of asset impairment charges as a result of our value creation initiatives as described in Footnote 2 to the audited Consolidated Financial Statements included in Part II, Item 8, "Financial Statements and Supplementary Data" of this Form 10-K, there were no other impairment losses in the last three years.

Other than the impairment charges as described in Footnote 2 to the audited Consolidated Financial Statements included in Part II, Item 8, "Financial Statements and Supplementary Data" of this Form 10-K, there were no other impairment losses in the last three years.

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 7. Management’s Discussion and Analysis