What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2024-02-15 compared with 2023-02-16 · 317 added, 308 removed, 1319 unchanged (32% of the section changed)

35 unchanged sentences

Retained earnings 27,540 25,492

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

Accumulated other comprehensive loss ( 999 ) ( 1,304 )

Treasury stock, at cost, 76,465,862 shares at December 31, 2023

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Income from operations 4,013 3,800 3,148

Gain on sale of KAH Hospice ( 237 ) — —

Gain on sale of Gentiva Hospice — ( 237 ) —

Interest expense 493 401 326

Other expense (income), net 137 68 ( 532 )

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

Income before income taxes and equity in net earnings 3,383 3,568 3,354

Provision for income taxes 836 762 485

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Other comprehensive income (loss):

Change in gross unrealized investment (losses) gains ( 1,819 ) ( 356 ) 393

Change in gross unrealized investment gains (losses) 372 ( 1,819 ) ( 356 )

Effect of income taxes ( 85 ) 418 81

Total change in unrealized investment

(losses) gains, net of tax ( 1,401 ) ( 275 ) 304

gains (losses), net of tax 287 ( 1,401 ) ( 275 )

Reclassification adjustment for net realized

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Total reclassification adjustment, net of tax 18 55 ( 80 )

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

Other comprehensive income (loss), net of tax 305 ( 1,346 ) ( 355 )

Comprehensive income attributable to equity method

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(dollars in millions, share amounts in thousands)

Balances, January 1, 2020 198,630 33 2,820 17,483 156 ( 8,455 ) 12,037 — 12,037

Balances, December 31, 2020 198,649 33 2,705 20,517 391 ( 9,918 ) 13,728 — 13,728

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

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

Other comprehensive income 235 235 235

Acquisition 22 22

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

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

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

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

Sale of Gentiva Hospice — ( 11 ) ( 11 )

Acquisition — 52 52

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Net income 2,489 2,489 ( 5 ) 2,484

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

Sale of KAH Hospice — ( 11 ) ( 11 )

Distribution from noncontrolling interest holders, net — 7 7

Acquisition — ( 5 ) ( 5 )

Other comprehensive loss ( 1,346 ) ( 1,346 ) ( 1,346 )

Other comprehensive income 305 305 305

Common stock repurchases — — ( 1,586 ) ( 1,586 ) ( 1,586 )

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

Gain on sale of KAH Hospice ( 237 ) — —

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

Gain on sale of Gentiva Hospice — ( 237 ) —

Loss on investment securities, net 54 205 130

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

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Impairment of property and equipment 206 248 —

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

Impairment of intangible assets 55 — —

Deferred income taxes ( 167 ) ( 100 ) 15

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

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Cash flows from investing activities

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

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

Acquisitions, net of cash and cash equivalents acquired ( 233 ) ( 337 ) ( 4,187 )

Purchases of property and equipment, net ( 1,120 ) ( 1,316 ) ( 964 )

Purchases of property and equipment ( 1,004 ) ( 1,137 ) ( 1,342 )

Proceeds from sale of property and equipment 210 17 26

Purchases of investment securities ( 7,552 ) ( 6,049 ) ( 7,197 )

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Repayment of senior notes ( 1,832 ) ( 1,000 ) —

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

Proceeds (repayments) from issuance of commercial paper, net 211 ( 376 ) 352

Proceeds from short-term borrowings 100 — —

Repayment of short-term borrowings ( 100 ) — —

Proceeds from term loan — — 2,500

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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 and cash equivalents at beginning of period 5,061 3,394 4,673

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Nature of Operations

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.

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.

References throughout these notes to consolidated financial statements to “we,” “us,” “our,” “Company,” and “Humana,” mean Humana Inc.

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

Business Segment Realignment

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

Insurance and CenterWell.

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

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

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

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

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

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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

These estimates are based

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

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

Value Creation Initiatives

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

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

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

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

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

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-

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

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

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.

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

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

Health Care Reform

The Patient Protection and Affordable Care Act and The Health Care and Education Reconciliation Act of 2010 (which we collectively refer to as the Health Care Reform Law) enacted significant reforms to various aspects of the U.S.

health insurance industry.

Certain of these reforms became effective January 1, 2014, including an annual insurance industry premium-based fee.

The Continuing Resolution bill, H.R.

195, enacted on January 22, 2018, included a one year suspension in 2019 of the health insurance industry fee, but the fee resumed in calendar year 2020.

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

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

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

We recorded the liability for the health insurance industry fee in trade accounts payable and accrued expenses and recorded the deferred cost in other current assets in our consolidated financial statements.

We paid the health insurance industry fee in September or October of each year.

We paid the federal government $ 1.18 billion for the annual health insurance industry fee attributed to calendar year 2020.

On November 2, 2017, we filed suit against the United States of America in the United States Court of Federal Claims, on behalf of our health plans seeking recovery from the federal government of approximately $ 611 million in payments under the risk corridor premium stabilization program established under Health Care Reform, for years 2014, 2015 and 2016.

On April 27, 2020, the U.S.

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

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

to the judgement issued by the Court of Federal Claims on July 7, 2020.

The $ 609 million payment received from the U.S Government and approximately $ 31 million in related fees and expenses are reflected in Premiums revenue and Operating costs, respectively, in our consolidated statements of income for the year ended December 31, 2020 and reported in the Corporate segment.

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.

Cash and Cash Equivalents

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For the purpose of determining gross gains and losses for equity securities, changes in fair value at the reporting date are included as a component of investment income in the consolidated statements of income.

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.

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adverse conditions specifically related to the industry, geographic area or financial condition of the issuer or underlying collateral of a debt security;

changes in the quality of the debt security's credit enhancement;

changes in the quality of the debt

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security's credit enhancement;

payment structure of the debt security;

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Our Medicare contracts with CMS renew annually.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

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

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Variances exceeding certain thresholds may result in CMS making additional payments to us or require us to refund to CMS a portion of the premiums we received.

As risk corridor provisions are considered in our overall annual bid process, we estimate and recognize an adjustment to premiums revenue related to these provisions based upon pharmacy claims experience.

As risk corridor provisions are considered in our overall annual bid process, we estimate

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

and recognize an adjustment to premiums revenue related to these provisions based upon pharmacy claims experience.

We record a receivable or payable at the contract level and classify the amount as current or long-term in our consolidated balance sheets based on the timing of expected settlement.

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

We account for these subsidies

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

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

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

2023 2022 2021

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We continue to revise our estimates with respect to the risk corridor provisions based on subsequent period pharmacy claims data.

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

Services Revenue

For additional information regarding amounts recorded to our consolidated balance sheets related to the risk corridor settlement and subsidies from CMS with respect to the Medicare Part D program, refer to Note 7 to the audited Consolidated Financial Statements included in Part II, Item 8, "Financial Statements and Supplementary Data" in this Form 10-K.

Patient services revenue

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

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

Patient services include services related to pharmacy solutions, primary care, and home solutions and other services and capabilities to promote wellness and advance population health.

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

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

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

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Our primary care business recognizes revenues for certain value-based arrangements.

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

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Administrative services fees

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Net reimbursements (payments) $ 57 $ 25 $ ( 45 )

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

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

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Other Current Assets

Other current assets include amounts associated with Medicare Part D as discussed above and in Note 7, rebates due from pharmaceutical manufacturers and other amounts due within one year.

Other current assets include amounts associated with Medicare Part D, rebates due from pharmaceutical manufacturers and other amounts due within one year.

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

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The balance of pharmaceutical rebates receivable was $ 2.3 billion and $ 2.0 billion at December 31, 2023 and 2022, respectively.

For additional information regarding amounts associated with Medicare Part D, refer to Note 7 to the audited Consolidated Financial Statements included in Part II, Item 8, "Financial Statements and Supplementary Data" in this Form 10-K.

Policy Acquisition Costs

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Judgment regarding the level of influence over each equity method investment includes considering key factors such as our ownership interest, representation on the board of directors, organizational structure, participation in policy-making decisions and material intra-entity transactions.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

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

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An impairment that is other-than-temporary is recognized in the period identified.

Additional detail regarding our equity method investments is included in Note 4.

For additional information regarding our equity method investments, refer to Note 4 to the audited Consolidated Financial Statements included in Part II, Item 8, "Financial Statements and Supplementary Data" in this Form 10-K.

Goodwill and Intangible Assets

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

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

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

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.

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

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

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

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 no t result in an impairment loss.

Intangible assets with indefinite lives relate to Certificate of Needs (CON) and Medicare licenses acquired as part of our acquisition of Kindred at Home, or KAH, and are included within other long-term assets in the consolidated balance sheet at December 31, 2023 and December 31, 2022.

See Note 3 for further information.

For additional information regarding our acquisition of KAH, refer to Note 3 to the audited Consolidated Financial Statements included in Part II, Item 8, "Financial Statements and Supplementary Data" in this Form 10-K.

We are required to annually compare the fair values of other indefinite-lived intangible assets to their carrying amounts.

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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.

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

Definite-lived intangible assets are amortized over the useful life generally using the straight-line method.

Definite-lived intangible assets are amortized over the

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useful life generally using the straight-line method.

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

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

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

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Changes in patterns of claim overpayment recoveries can be unpredictable and result in completion factor volatility, as they often impact older dates of service.

The receipt cycle time measures the average length of time between when a medical claim was initially incurred and when the claim form was received.

The receipt cycle time measures the average length of time between when a medical claim was initially incurred and

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when the claim form was received.

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

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The drivers of medical cost trends include increases in the utilization of hospital facilities, physician services, new higher priced technologies and medical procedures, and new prescription drugs and therapies, as well as the inflationary effect on the cost per unit of each of these expense components.

Other external factors such as government-mandated benefits or other regulatory changes, the tort liability system, increases in medical services capacity, direct to consumer advertising for prescription drugs and medical services, an aging population, lifestyle changes including diet and smoking, catastrophes, public health emergencies, epidemics and pandemics (such as the spread of COVID-19) also may impact medical cost trends.

Internal factors such as system conversions, claims processing cycle times, changes in medical management practices and changes in provider contracts also may impact our ability to accurately predict estimates of historical completion factors or medical cost trends.

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Each of these factors requires significant judgment by management.

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

We establish a premium deficiency reserve in current operations to the extent that the sum of expected future costs, claim adjustment expenses, and maintenance costs exceeds related future premiums under contracts without consideration of investment income.

For purposes of determining premium deficiencies, contracts are grouped in a manner consistent with our method of acquiring, servicing, and measuring the profitability of such contracts.

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Future policy benefits payable includes liabilities for long-duration insurance policies primarily related to certain blocks of insurance assumed in acquisitions, primarily life and annuities in run-off status, and are included in our consolidated balance sheet within other long-term liabilities.

Most of these policies are subject to reinsurance as detailed in Note 19.

Most of these policies are subject to reinsurance.

For additional information regarding reinsurance, refer to Note 19 to the audited Consolidated Financial Statements included in Part II, Item 8, "Financial Statements and Supplementary Data" in this Form 10-K.

Book Overdraft

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We recognize an asset or liability for the deferred tax consequences of temporary differences between the tax bases of assets or liabilities and their reported amounts in the consolidated financial statements.

These temporary differences will result in taxable or deductible amounts in future years when the reported amounts of the assets or liabilities are recovered or settled.

These temporary differences will result in taxable or deductible amounts in future years when the reported amounts of the assets or

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liabilities are recovered or settled.

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

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

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

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

Stock-Based Compensation

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We estimate the grant-date fair value of stock options using the Black-Scholes option-pricing model.

Additional detail regarding our stock-based compensation plans is included in Note 14.

For additional information regarding our stock-based compensation plans, refer to Note 14 to the audited Consolidated Financial Statements included in Part II, Item 8, "Financial Statements and Supplementary Data" in this Form 10-K.

Earnings Per Common Share

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Diluted earnings per common share is computed on the basis of the weighted-average number of unrestricted common shares outstanding plus the dilutive effect of outstanding employee stock options and restricted shares, or units, using the treasury stock method.

Additional detail regarding earnings per common share is included in Note 15.

For additional information regarding our earnings per share, refer to Note 15 to the audited Consolidated Financial Statements included in Part II, Item 8, "Financial Statements and Supplementary Data" in this Form 10-K.

Assets and liabilities measured at fair value are categorized into a fair value hierarchy based on whether the inputs to valuation techniques are observable or unobservable.

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The fair value hierarchy includes three levels of inputs that may be used to measure fair value as described below.

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Level 1 – Quoted prices in active markets for identical assets or liabilities.

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

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

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

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

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

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Recently Issued Accounting Pronouncements

Accounting Pronouncements Effective in Future Periods

Recently Adopted Accounting Pronouncements

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

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

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

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

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

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

The adoption of the new standard in 2023 did not have a material impact on our consolidated results of operations, financial position and cash flows.

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

The new guidance, limited to our Medicare Supplement product which represents less than 1 % of consolidated premiums and services revenue, became effective for us

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

beginning January 1, 2023 and was applied to contracts in force on the basis of their existing carrying value amounts at the beginning of the earliest period presented.

The adoption of the new standard in 2023 did not have a material impact on our consolidated results of operations, financial position or cash flows.

Accounting Pronouncements Effective in Future Periods

In December 2023, the FASB issued Accounting Standards Update No.

2023-07, Segment Reporting — Improvements to Reportable Segment Disclosures.

The new guidance requires incremental disclosures related to a public entity’s reportable segments but does not change the definition of a segment, the method for determining segments, or the criteria for aggregating operating segments into reportable segments.

The new guidance requires a public entity to disclose its significant segment expense categories and amounts for each reportable segment.

The new guidance will be effective for us beginning with our annual 2024 year-end financial statements.

We are currently evaluating the impact on our segment information footnote disclosures.

In December 2023, the FASB issued Accounting Standards Update No.

2023-09 — Income Taxes (Topic 740):

Improvements to Income Tax Disclosures.

The new guidance requires significant additional disclosures about income taxes, primarily focused on the disclosure of income taxes paid and the rate reconciliation table.

The new guidance requires prospective application (with retrospective application permitted).

The new guidance will be effective for us beginning with our annual 2025 year-end financial statements, with early adoption permitted.

We are currently evaluating the impact on our income tax footnote disclosures.

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

ACQUISITIONS AND DIVESTITURES

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

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

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

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

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

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

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

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

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

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

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

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

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

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

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

(in millions)

Cash and cash equivalents $ 278

Receivables 381

Other current assets 61

Property and equipment 74

Goodwill 5,771

Other intangible assets 2,312

Other long-term assets 172

Total assets acquired $ 9,049

Current liabilities $ 410

Long term debt 2,078

Other long-term liabilities 369

Total liabilities assumed $ 2,857

Noncontrolling interests 22

Net assets acquired $ 6,170

During 2023, 2022, and 2021, we acquired other health and wellness related businesses which other than the impacts to goodwill, individually or in the aggregate, have not had a material impact on our results of operations, financial condition, or cash flows.

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

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

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

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

Balance sheet December 31, 2022

We completed the sale of a 60 % interest in Gentiva Hospice on August 11, 2022 and we account for our remaining minority ownership in Gentiva Hospice using the equity method of accounting.

At December 31, 2023 and 2022 we owned 35 % and 40 %, respectively.

This investment was reflected in equity method investments in our December 31, 2023 and 2022 consolidated balance sheets, with our share of income or loss reported as equity in net (losses) earnings in our consolidated statements of income.

The summarized balance sheets and statements of income at December 31, 2023 and 2022 of Gentiva Hospice were as follows:

Balance sheet December 31, 2023 December 31, 2022

(in millions)

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Statements of income

August 11, 2022 through December 31, 2022

For the year ended December 31, 2023 August 11, 2022 through December 31, 2022

(in millions)

Revenues $ 1,850 $ 654

Other insignificant equity method investments

Expenses 1,873 652

Net income ( 23 ) 2

Other equity method investments

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

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

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

As of December 31, 2023, there were 108 primary care clinics operating under the partnership and we have capacity to open or acquire up to approximately 60 additional centers through the existing partnership agreements.

In addition, the agreements include a series of put and call options through which WCAS may require us to purchase their interest in the entity, and through which we may acquire WCAS’s interest, over the next 2 to 9 years.

We have the option to purchase the first cohort of clinics in 2025 for approximately $ 550 million to $ 650 million based on current projections.

All existing cohorts can be called by us from 2025 to 2030 and could require $ 2.0 billion to $ 3.0 billion based on current projections.

These estimates are dependent on multiple factors including the actual timing of when the put or call options are exercised, expected revenue growth at each center within the respective cohort and future capital contributions, among other factors.

For additional information on inputs relevant to these put and call options, refer to Note 6 to the audited Consolidated Financial Statements included in Part II, Item 8, "Financial Statements and Supplementary Data" of this Form 10-K.

We have several individually immaterial equity method investments, including our strategic partnership with WCAS as described above, included within equity method investments in our consolidated balance sheets as of December 31, 2023 and 2022 with our share of income or loss reported as equity in net (losses) earnings in our consolidated statements of income for the years ended December 31, 2023, 2022 and 2021.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

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

We own certain corporate debt securities of Gentiva Hospice.

The book value and fair value are $ 379 million and $ 398 million, respectively, at December 31, 2023.

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

Gross unrealized losses and fair values aggregated by investment category and length of time that individual debt securities have been in a continuous unrealized loss position were as follows at December 31, 2023 and 2022, respectively:

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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.

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

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

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

Our unrealized loss from all debt securities was generated from approximately 1,560 positions out of a total of approximately 2,060 positions at December 31, 2023.

All issuers of debt securities we own that were trading at an unrealized loss at December 31, 2023 remain current on all contractual payments.

After taking into account these and other factors previously described, we believe these unrealized losses primarily were caused by an increase in market interest rates in the current markets since the time the debt securities were purchased.

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Gross losses on equity securities — ( 174 ) ( 364 )

Net recognized (losses) gains on investment securities $ ( 205 ) $ ( 130 ) $ 838

Net recognized losses on investment securities $ ( 54 ) $ ( 205 ) $ ( 130 )

The gains and losses related to equity securities for the years ended December 31, 2023, 2022 and 2021 was as follows:

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(in millions)

Net (losses) gains recognized on equity securities during the period $ ( 123 ) $ ( 341 ) $ 746

Net losses recognized on equity securities sold during the period ( 105 ) ( 13 ) —

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

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

Net gains (losses) recognized on equity securities during the period $ 1 $ ( 123 ) $ ( 341 )

Net gains (losses) recognized on equity securities sold during the period 1 ( 105 ) ( 13 )

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

The contractual maturities of debt securities available for sale at December 31, 2023, regardless of their balance sheet classification, are shown below.

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Settlements — —

Transfers Out ( 8 ) —

Transfers In 7 —

Balance at December 31 $ 218 $ 101

Interest Rate Swaps

During 2023, we entered into interest-rate swap agreements with major financial institutions to convert our interest-rate exposure on our $ 750 million of 5.875 % senior notes, our $ 750 million of 5.500 % senior notes, our $ 500 million of 3.950 % senior notes and our $ 850 million of 5.950 % from fixed rates to variable rates to align interest costs more closely with floating interest rates received on our cash equivalents and investment securities.

Our swap agreements, which are considered derivative instruments, exchange the fixed interest rate under our 5.875 %, 5.500 %, 3.950 % and 5.950 % senior notes for a variable interest rate based on SOFR.

Interest rate swaps with notional amounts of $ 650 million, maturing September 1, 2032, $ 300 million, maturing March 15, 2033, $ 450 million maturing August 15, 2049 and $ 400 million, maturing March 15, 2034, were outstanding on our 5.875 %, 5.500 %, 3.950 % and 5.950 % senior notes, respectively, at December 31, 2023.

These swap agreements were qualified and designated as a fair value hedge.

Our interest rate swaps are recognized in other assets or other liabilities, as appropriate, in our consolidated balance sheets at fair value as of the reporting date.

Our interest rate swaps are highly effective at reflecting the fair value of our hedged fixed rate senior notes payable.

We utilize market-based financing rates, forward yield curves and discount rates in determining fair value of these swaps at each reporting date, a Level 2 measure within the fair value hierarchy.

The swap asset, included within other long-term assets on our consolidated balance sheet, was approximately $ 68 million at December 31, 2023.

We include the gain or loss on the swap agreements in interest expense on our consolidated statement of income, the same line item as the offsetting loss or gain on the related senior notes.

The gain or loss due to hedge ineffectiveness was not material for the year ended December 31, 2023.

Financial Liabilities

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The fair value of our senior note debt is determined based on Level 2 inputs, including quoted market prices for the same or similar debt, or if no quoted market prices are available, on the current prices estimated to be available to us for debt with similar terms and remaining maturities.

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

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

Carrying value approximates

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

fair value for our term loans and commercial paper borrowings.

The commercial paper borrowings were $ 0.9 billion at December 31, 2023 and the term loan and commercial paper borrowings were $ 1.1 billion at December 31, 2022.

Put and Call Options Measured at Fair Value

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The table below presents the assumptions used for December 31, 2023 and 2022, respectively:

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

December 31, 2023 December 31, 2022

Annualized volatility 16.1 % - 17.8 %

16.7 % to 20.8 %

Credit spread 0.9 % - 1.1 %

1.3 % to 1.5 %

Revenue exit multiple 1.5 x - 2.5 x

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Weighted average cost of capital 11.0 % - 12.5 %

11.5 % to 12.5 %

Long term growth rate 3.0 % 3.0 %

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

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

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

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

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

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

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

The amount of

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

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

Additionally, as disclosed in Note 3, we completed our acquisitions of certain health and wellness related businesses during 2023, 2022, and 2021.

The values of net tangible assets acquired and the resulting goodwill and other intangible assets were recorded at fair value using Level 3 inputs.

The majority of the related tangible assets acquired and liabilities assumed were recorded at their carrying values as of the respective dates of acquisition, as their carrying values approximated their fair values due to their short-term nature.

The fair values of goodwill and other intangible assets acquired in these acquisitions were internally estimated primarily based on the income approach.

The income approach estimates fair value based on the present value of the cash flows that the assets are expected to generate in the future.

We developed internal estimates for the expected cash flows and discount rates in the present value calculations.

Other than assets acquired and liabilities assumed in these acquisitions, there were no material assets or liabilities measured at fair value on a nonrecurring basis during 2023, 2022, or 2021.

MEDICARE PART D

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

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

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

For additional information regarding our prescription drug benefits coverage in accordance with Medicare Part D, refer to Note 2 to the audited Consolidated Financial Statements included in Part II, Item 8, "Financial Statements and Supplementary Data" of this Form 10-K.

Settlement CMS

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Trade accounts payable and accrued expenses ( 232 ) ( 1,825 ) ( 166 ) ( 1,236 )

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

Net current (liability) asset ( 8 ) ( 1,311 ) 74 ( 540 )

Other long-term assets 17 — 19 —

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Net long-term liability ( 60 ) — ( 59 ) —

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

Total net (liability) asset $ ( 68 ) $ ( 1,311 ) $ 15 $ ( 540 )

PROPERTY AND EQUIPMENT, NET

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Property and equipment, net $ 3,030 $ 3,221

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Depreciation expense was $ 831 million in 2023, $ 749 million in 2022, and $ 640 million in 2021, including amortization expense for capitalized internally developed and purchased software of $ 589 million in 2023, $ 525 million in 2022, and $ 443 million in 2021.

GOODWILL AND OTHER INTANGIBLE ASSETS

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

There was no impairment.

Changes in the carrying amount of goodwill for our reportable segments for the years ended December 31, 2023 and 2022 were as follows:

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Acquisitions 182 199 381

Dispositions — ( 2,331 ) ( 2,331 )

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

Acquisitions 191 217 408

Dispositions — ( 2,331 ) ( 2,331 )

Balance at December 31, 2023 $ 2,663 $ 6,887 $ 9,550

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The following table presents details of our other intangible assets included in other long-term assets in the accompanying consolidated balance sheets at December 31, 2023 and 2022:

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Amortization expense for other intangible assets was approximately $ 67 million in 2023, $ 81 million in 2022, and $ 65 million in 2021.

During 2023 we recorded impairment charges of $ 55 million relating to indefinite-lived intangibles.

The following table presents our estimate of amortization expense for each of the five next succeeding fiscal years:

(in millions)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

We determine if a contract contains a lease by evaluating the nature and substance of the agreement.

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Operating lease liabilities included within trade accounts payable and accrued expenses in our consolidated balance sheets were $ 149 million and $ 152 million at December 31, 2023 and December 31, 2022, respectively.

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

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

Additionally, operating lease liabilities included within other long-term liabilities in our consolidated balance sheets were $ 444 million and $ 456 million at December 31, 2023 and December 31, 2022, respectively.

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

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For the years ended December 31, 2023, 2022 and 2021, sublease rental income was $ 66 million, $ 52 million and $ 43 million, respectively, and is included within operating costs in our consolidated statements of income.

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

The weighted average remaining lease term is 5.4 years at December 31, 2023 and December 31, 2022.

The weighted average discount rate is 3.9 % and 3.2 % at December 31, 2023 and December 31, 2022, respectively.

For the years ended December 31, 2023, 2022 and 2021, cash paid for amounts included in the measurement of lease liabilities included within our operating cash flows was $ 166 million, $ 191 million and $ 165 million, respectively.

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Present value of lease liabilities $ 593

As most of our leases do not provide an implicit rate, we use our incremental borrowing rate, as adjusted for collateralized borrowings, based on the information available at date of adoption or commencement date in determining the present value of lease payments.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

BENEFITS PAYABLE

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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

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incurred claims amounts.

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

At December 31, 2023 and 2022, benefits payable included IBNR of approximately $ 6.6 billion and $ 5.7 billion, primarily associated with claims incurred in each respective year.

The cumulative number of reported claims as of December 31, 2023 was approximately 200.0 million for claims incurred in 2023, 182.4 million for claims incurred in 2022, and 173.7 million for claims incurred in 2021.

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The 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.

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.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Incurred and Paid Claims Development

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The information about incurred and paid claims development for the years ended December 31, 2022 and 2021 is presented as supplementary information.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

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

8 unchanged sentences

(in millions)

2020 $ 61,941 $ 61,258 $ 61,224

2021 & Prior $ 70,066 $ 69,698 $ 69,484

2022 76,105 75,447

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(in millions)

2020 $ 54,003 $ 60,886 $ 61,224

2021 & Prior $ 62,149 $ 69,252 $ 69,484

2022 67,287 74,989

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Non-taxable KAH gain — — ( 264 )

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

Health insurance industry fee — — 268

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

Unrecognized Tax Benefits 37 — —

Other, net 24 8 ( 17 )

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Prepaid expenses ( 156 ) ( 132 )

Investment securities — ( 98 )

Other ( 16 ) ( 6 )

Total deferred income tax liabilities ( 814 ) ( 878 )

Total net deferred income tax liabilities $ ( 27 ) $ ( 698 )

All deferred tax liabilities and assets are classified as noncurrent in our consolidated balance sheets as other long-term liabilities at December 31, 2022 and 2021.

At December 31, 2022, we had approximately $ 68 million of federal net operating losses and approximately $ 1.6 billion of state and Puerto Rico net operating losses to carry forward.

Total net deferred income tax assets (liabilities) $ 48 $ ( 27 )

All deferred tax assets and liabilities are classified as noncurrent in our consolidated balance sheets as other long-term assets and liabilities at December 31, 2023 and 2022, respectively.

At December 31, 2023, we had approximately $ 7 million of federal net operating losses and approximately $ 1.2 billion of pre-apportioned state and Puerto Rico net operating losses to carry forward.

A portion of these loss carryforwards, if not used to offset future taxable income, will expire from 2024 through 2041.

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

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

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

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

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Senior notes:

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

$ 600 million, 3.15 % due December 1, 2022

$ 400 million, 2.90 % due December 15, 2022

$ 600 million, 3.850 % due October 1, 2024

$ 1.5 billion, 0.650 % due August 3, 2023

Total senior notes 572 1,497

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Senior notes:

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

$ 600 million, 3.850 % due October 1, 2024

$ 600 million, 4.500 % due April 1, 2025

$ 500 million, 5.700 % due March 13, 2026

$ 750 million, 1.350 % due February 3, 2027

1 unchanged sentence

$ 500 million, 5.750 % due March 1, 2028

$ 500 million, 5.750 % due December 1, 2028

$ 750 million, 3.700 % due March 23, 2029

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$ 750 million, 5.875 % due March 1, 2033

$ 850 million, 5.950 % due March 15, 2034

$ 250 million, 8.150 % due June 15, 2038

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$ 500 million, 3.950 % due August 15, 2049

Term loan, due October 29, 2023 — 2,000

$ 750 million, 5.500 % due March 15, 2053

Total senior notes 10,213 8,534

Delayed draw term loan, due May 28, 2024 — 500

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

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

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

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

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

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

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

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

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

Delayed Draw Term Loan Credit Agreement

In May 2021, we entered into a $ 500 million unsecured delayed draw term loan credit agreement.

Under the term loan credit agreement, loans bear interest at either LIBOR plus a spread or the base rate plus a spread.

The loans under the term loan credit agreement mature on the third anniversary of the funding date.

The LIBOR spread, currently 125 basis points, varies depending on our credit ratings ranging from 100.0 to 162.5 basis points.

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

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.

The term loan credit agreement contains customary restrictive covenants and a financial covenant regarding maximum debt to capitalization of 60 %, as well as customary events of default.

We are in compliance with this financial covenant, with actual debt to capitalization of 42.0 % as measured in accordance with the term loan credit agreement as of December 31, 2022.

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

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 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.

During 2023, we entered into interest rate swap agreements to exchange the fixed interest rate under our 5.875 %, 5.500 %, 3.950 % and 5.950 % senior notes for a variable interest rate based on SOFR, as further described in Note 6.

As a result, the carrying value of these senior notes has been adjusted to reflect changes in value caused by an increase or decrease in interest rates.

The cumulative, aggregate adjustment to the carrying value of the 5.875 %, 5.500 %, 3.950 % and 5.950 % senior notes was $ 9 million, $ 13 million, $ 36 million and $ 10 million respectively, at December 31, 2023.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

October 2021 Term Loan Agreement

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

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

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

Revolving Credit Agreements

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

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

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

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

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

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

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

In June 2023, we entered into an amended and restated 5-year , $ 2.5 billion unsecured revolving credit agreement (replacing the 5-year , $ 2.5 billion unsecured revolving credit agreement entered in June 2021) and entered into a 364-day $ 1.5 billion unsecured revolving credit agreement (replacing the 364-day $ 1.5 billion unsecured revolving credit agreement entered into in June 2022, which expired in accordance with its terms).

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

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

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

The LIBOR spread, currently 110.0 basis points under the 5 -year revolving credit agreements and the SOFR spread, currently 115.0 basis points under the 364 -day revolving credit agreement, varies depending on our credit ratings ranging from 91.0 to 140.0 basis points under the 5 -year revolving credit agreement and from 94.0 to 135.0 basis points under the 364 -day revolving credit agreement.

The SOFR spread, currently 103.5 basis points under the 5-year revolving credit agreement and 105.5 basis points under the 364-day revolving credit agreement, varies depending on our credit ratings ranging from 92.0 to 130.0 basis points under the 5-year revolving credit agreement and from 94.0 to 135.0 basis points under the 364-day revolving credit agreement.

We also pay an annual facility fee regardless of utilization.

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

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

At December 31, 2023, we had no borrowings and approximately $ 18 million of letters of credit outstanding under the revolving credit agreements.

Accordingly, as of December 31, 2023, we had $ 2.482 billion of remaining borrowing capacity under the 5-year revolving credit agreement and $ 1.5 billion of remaining borrowing capacity under the 364-day revolving credit agreement (which excludes the uncommitted $ 750 million of incremental loan facilities), none of which would be restricted by our financial covenant compliance requirement.

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Under our commercial paper program we may issue short-term, unsecured commercial paper notes privately placed on a discount basis through certain broker dealers at any time.

On February 10, 2022, we increased the size of our commercial paper program to permit the issuance of commercial paper notes in an aggregate principal amount not to exceed $ 4 billion compared to the prior amount not to exceed $ 2 billion.

Amounts available under the program may be borrowed, repaid and re-borrowed from time to time.

The net proceeds of issuances have been and are expected to be used for general corporate purposes.

The maximum principal amount outstanding at any one time during the year ended December 31, 2022 was $ 1,450 million, with $ 595 million outstanding at December 31, 2022 compared to $ 955 million outstanding at December 31, 2021.

The maximum principal amount outstanding at any one time during the year ended December 31, 2023 was $ 3.3 billion, with $ 871 million outstanding at December 31, 2023 compared to $ 595 million outstanding at December 31, 2022.

The outstanding commercial paper at December 31, 2023 had a weighted average annual interest rate of 5.68 %.

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

We received a short-term cash advance of $ 100 million from FHLB with certain of our marketable securities as

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

collateral and subsequently repaid the outstanding balance in December 2023.

As of December 31, 2023 and December 31, 2022, we had no outstanding short-term FHLB borrowings.

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

Our equity award program includes a retirement provision that generally treats employees with a combination of age and years of services with the Company totaling 65 or greater, with a minimum required age of

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

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

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

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The actual tax benefit realized in our tax return is based on the intrinsic value, or the excess of the market value over the exercise or purchase price, of stock options exercised and restricted stock vested during the period, subject to limitations on the deductibility of annual compensation in excess of $500,000 per employee as mandated by the Health Care Reform Law.

The actual tax benefit realized for the deductions taken on our tax returns from option exercises and restricted stock vesting totaled $ 31 million in 2022, $ 28 million in 2021, and $ 32 million in 2020.

The actual tax benefit realized for the deductions taken on our tax returns from option exercises and restricted stock vesting totaled

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

$ 30 million in 2023, $ 31 million in 2022, and $ 28 million in 2021.

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

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

2011 Stock Incentive Plan, or 2011 Plan, and 15.3 million shares reserved for stock award plans under the Humana Inc.

At December 31, 2023, there were approximately 11.0 million shares reserved for stock award plans under the Humana Inc.

2011 Stock Incentive Plan, or 2011 Plan, and approximately 14.8 million shares reserved for stock award plans under the Humana Inc.

2019 Stock Incentive Plan, or 2019 Plan.

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Restricted Stock

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The weighted-average fair value of each option granted during 2023, 2022, and 2021 is provided below.

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

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

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

EARNINGS PER COMMON SHARE COMPUTATION

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excluded from computation 207 205 216

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

STOCKHOLDERS’ EQUITY

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On December 22, 2020, we entered into separate accelerated stock repurchase agreements, the December 2020 ASR Agreements, with Citibank, N.A., or Citi, and JPMorgan Chase Bank, or JPM, to repurchase $ 1.75 billion of our common stock as part of the $ 3 billion repurchase program authorized by the Board of Directors on July 30,

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

On December 23, 2020, in accordance with the December 2020 ASR Agreements, we made a payment of $ 1.75 billion ($ 875 million to Citi and $ 875 million to JPM) and received an initial delivery of 3.8 million shares of our common stock ( 1.9 million shares each from Citi and JPM).

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

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

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

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

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

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

On February 15, 2023, the Board of Directors replaced the previous share repurchase authorization of up to $ 3 billion (of which approximately $ 1 billion remained unused) with a new authorization for repurchases of up to $ 3 billion of our common shares exclusive of shares repurchased in connection with employee stock plans, expiring as of February 15, 2026.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

During the year ended December 31, 2023, we repurchased 3.1 million common shares in open market transactions for $ 1.5 billion at an average price of $ 482.27 under the current share repurchase authorization.

During the years ended December 31, 2022 and December 31, 2021, we did not repurchase shares in open market transactions.

Effective February 16, 2024, the Board of Directors replaced the February 2023 repurchase authorization (of which approximately $ 824 million remained unused) with a new share repurchase authorization for repurchases of up to $ 3 billion of our common shares exclusive of shares repurchased in connection with employee stock plans, expiring as of February 15, 2027, which we refer to as the 2024 repurchase authorization.

Excluding shares acquired in connection with employee stock plans, share repurchases were as follows during the years ended December 31, 2023, 2022 and 2021:

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February 2023 3,000 3.1 $ 1,500 — $ — — $ —

July 2019 3,000 — — — — 3.80 1,750

February 2021 3,000 — $ — 4.3 $ 2,000 — $ —

Total repurchases 3.1 $ 1,500 4.3 $ 2,000 — $ —

In connection with employee stock plans, we acquired 0.2 million common shares for $ 73 million in 2023, 0.2 million common shares for $ 96 million in 2022, and 0.2 million common shares for $ 79 million in 2021.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

For additional information regarding our stockholders' equity, refer to Note 16 to the audited Consolidated Financial Statements included in Part II, Item 8, "Financial Statements and Supplementary Data" in our 2022 Form 10-K.

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Actual dividends that were paid to our parent company were approximately $ 1.8 billion in 2023, $ 1.3 billion in 2022, and $ 1.6 billion in 2021.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

COMMITMENTS, GUARANTEES AND CONTINGENCIES

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

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

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

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

The CMS risk-adjustment model uses the diagnosis data, collected from providers, to calculate the health status-related risk-adjusted premium

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

payment to MA plans, which CMS further adjusts for coding pattern differences between the health plans and the government fee-for-service (FFS) program.

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

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

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

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

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

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

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

We believe that the Final RADV Rule fails to address adequately the statutory requirement of actuarial equivalence and violates the Administrative Procedure Act (“APA”).

CMS failed to meet its legal obligations in the federal rulemaking process to give a reasoned justification for the rule or provide a meaningful opportunity for public comment.

They also chose to apply the rule retroactively rather than prospectively, as required by law.

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

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

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

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

On September 1, 2023, Humana Inc.

and Humana Benefit Plan of Texas, Inc.

filed suit against the United States Department of Health and Human Services, and Xavier Becerra in his official capacity as Secretary, in the United States District Court, Northern District of Texas, Fort Worth Division seeking a determination that the Final RADV Rule violates the APA and should be set aside.

We remain committed to working alongside CMS to promote the integrity of the MA program as well as affordability and cost certainty for our members.

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

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Our military services business, which accounted for approximately 1 % of our total premiums and services revenue for the year ended December 31, 2023, primarily consisted of the TRICARE T2017 East Region contract.

The T2017 East Region contract comprises 32 states and approximately six million TRICARE beneficiaries, under which delivery of health care services commenced on January 1, 2018.

The T2017 East Region contract comprises 32 states and approximately 6.0 million TRICARE beneficiaries, under which delivery of health care services commenced on January 1, 2018.

The T2017 East Region contract, which was originally set to expire on December 31, 2022, was subsequently extended by the DoD and is currently scheduled to expire on December 31, 2024, unless further extended.

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

The contract is expected to go into effect in 2024.

Until then the T2017 contract remains in place.

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

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

The loss of any of the contracts above or significant changes in these programs as a result of legislative or regulatory action, including reductions in premium payments to us, regulatory restrictions on profitability, including reviews by regulatory bodies that may compare our Medicare Advantage profitability to our non-Medicare Advantage business profitability, or compare the profitability of various products within our Medicare Advantage business, and require that they remain within certain ranges of each other, or increases in member benefits or

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

member eligibility criteria without corresponding increases in premium payments to us, may have a material adverse effect on our results of operations, financial position, and cash flows.

In December 2022, we were awarded the next generation of TRICARE Managed Care Support Contracts, or T-5, for the updated TRICARE East Region by the Defense Health Agency of the DoD.The T-5 East Region contract comprises 24 states, and Washington D.C., and covers approximately 4.6 million beneficiaries.

The transition period for the T-5 contract began in January 2024 and will overlap the final year of the T2017 contract.

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

Legal Proceedings and Certain Regulatory Matters

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Steven Scott v.

Humana, Inc., in United States District Court, Central District of California, Western Division.

, currently pending in United States District Court, Western District of Kentucky, Louisville Division.

The complaint alleges certain civil violations by us in connection with the actuarial equivalence of the plan benefits under Humana’s Basic PDP plan, a prescription drug plan offered by us under Medicare Part D.

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Government that it was not intervening at that time.

On January 29, 2018, the suit was transferred to the United States District Court, Western District of Kentucky, Louisville Division.

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

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

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

We take seriously our obligations to comply with applicable CMS

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

requirements and actuarial standards of practice, and continue to vigorously defend against these allegations.

During 2023, we have accrued certain anticipated expenses in connection with this matter.

On September 1, 2023, Humana Inc.

and Humana Benefit Plan of Texas, Inc.

There is no assurance that we will prevail in the lawsuit.

See “Government Contracts” in this Note 17 for additional information regarding this matter.

Other Lawsuits and Regulatory Matters

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

Qui tam litigation is filed

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

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

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

If the government does not intervene, the individual may continue to prosecute the action on his or her own, on behalf of the government.

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No estimate of the possible loss or range of loss in excess of amounts accrued, if any, can be made at this time regarding the matters specifically described above because of the inherently unpredictable nature of legal proceedings, which also may be exacerbated by various factors, including:

(i) the damages sought in the proceedings are unsubstantiated or indeterminate;

(i) the damages sought in the proceedings are unsubstantiated or

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

indeterminate;

(ii) discovery is not complete;

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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.

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

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.

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The Insurance segment consists of Medicare benefits, marketed to individuals or directly via group Medicare accounts, as well as our contract with CMS to administer the Limited Income Newly Eligible Transition, or LI-NET, prescription drug plan program and contracts with various states to provide Medicaid, dual eligible demonstration, and Long-Term Support Services benefits, which we refer to collectively as our state-based contracts.

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

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

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

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.

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.

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

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

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As a result, the cost of providing benefits to our members, whether provided via a third party provider or internally through a stand-alone subsidiary, is classified as benefits expense and excludes the portion of the cost for which the health plans do not bear responsibility, including member co-share amounts and government subsidies of $ 20.7 billion in 2023, $ 19.7 billion in 2022, and $ 18.1 billion in 2021.

In addition, depreciation and amortization expense associated with certain businesses delivering benefits to our members, primarily associated with our provider services and pharmacy operations, are included with benefits expense.

In addition, depreciation and amortization expense associated with certain businesses delivering benefits to our members, primarily associated with our primary care and pharmacy operations, are included with benefits expense.

The amount of this expense was $ 138 million in 2023, $ 122 million in 2022, and $ 108 million in 2021.

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

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

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.

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

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Total Medicare 87,895 — — 87,895

Fully-insured 4,476 — — 4,476

Specialty 1,703 — — 1,703

Medicaid and other 6,376 — — 6,376

Commercial fully-insured 3,527 — — 3,527

Specialty benefits 1,007 — — 1,007

Medicare Supplement 735 — — 735

State-based contracts and other 8,108 — — 8,108

Total premiums 101,272 — — 101,272

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Home solutions — 1,342 — 1,342

Provider — 568 — 568

ASO and other 850 — — 850

Pharmacy — 1,025 — 1,025

Primary care — 842 — 842

Commercial ASO 237 — — 237

Military services and other 763 — — 763

Pharmacy solutions — 849 — 849

Total services revenue 1,000 3,033 — 4,033

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Income (loss) from operations 2,654 1,404 ( 45 ) 4,013

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

Interest expense — 3 490 493

Other income, net — — 68 68

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

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

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

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

Other expense, net — — 137 137

Income (loss) before income taxes and equity in net losses 2,654 1,401 ( 672 ) 3,383

Equity in net losses ( 6 ) ( 57 ) — ( 63 )

Segment earnings (loss) $ 2,648 $ 1,344 $ ( 672 ) $ 3,320

Net loss (income) attributable to noncontrolling interests 6 ( 1 ) — 5

Segment earnings (loss) attributable to Humana $ 2,654 $ 1,343 $ ( 672 ) $ 3,325

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Total Medicare 75,157 — — 75,157

Fully-insured 5,002 — — 5,002

Specialty 1,731 — — 1,731

Medicaid and other 5,109 — — 5,109

Commercial fully-insured 4,389 — — 4,389

Specialty benefits 1,047 — — 1,047

Medicare Supplement 743 — — 743

State-based contracts and other 6,376 — — 6,376

Total premiums 87,712 — — 87,712

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Home solutions — 2,333 — 2,333

Provider — 413 — 413

ASO and other 853 — — 853

Pharmacy — 623 — 623

Primary care — 568 — 568

Commercial ASO 300 — — 300

Military services and other 550 — — 550

Pharmacy solutions — 1,025 — 1,025

Total services revenue 850 3,926 — 4,776

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

Investment income (loss) 214 4 ( 31 ) 187

Investment income 223 8 151 382

Total revenues 88,841 17,307 ( 13,278 ) 92,870

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

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

Interest expense — — 401 401

Other income, net — — ( 532 ) ( 532 )

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

Equity in net earnings — 65 — 65

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

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

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

Other expense, net — — 68 68

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

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

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

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

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

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Total Medicare 67,980 — — 67,980

Fully-insured 5,449 — 602 6,051

Specialty 1,699 — — 1,699

Medicaid and other 4,223 — — 4,223

Commercial fully-insured 4,950 — — 4,950

Specialty benefits 1,052 — — 1,052

Medicare Supplement 731 — — 731

State-based contracts and other 5,109 — — 5,109

Total premiums 79,822 — — 79,822

1 unchanged sentence

Home solutions — 1,166 — 1,166

Provider — 328 — 328

ASO and other 813 — — 813

Pharmacy — 567 — 567

Primary care — 413 — 413

Commercial ASO 306 — — 306

Military services and other 547 — — 547

Pharmacy solutions — 623 — 623

Total services revenue 853 2,202 — 3,055

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

Investment income 171 13 970 1,154

Investment income (loss) 214 4 ( 31 ) 187

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

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Total operating expenses 78,518 13,120 ( 11,722 ) 79,916

Income from operations 3,120 624 1,242 4,986

Income (loss) from operations 2,412 938 ( 202 ) 3,148

Interest expense — — 326 326

Other expense, net — — 103 103

Other income, net — — ( 532 ) ( 532 )

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

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

Net income attributable to noncontrolling interest — ( 1 ) — ( 1 )

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

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Reinsurance recoverables represent the portion of future policy benefits payable and benefits payable that are covered by reinsurance.

Reinsurance recoverables, included in other current and long-term assets, were $ 181 million at December 31, 2022 and $ 188 million at December 31, 2021.

Reinsurance recoverables, included in other long-term assets, were $ 173 million at December 31, 2023 and $ 181 million at December 31, 2022.

The amount of these reinsurance recoverables resulting from 100 % coinsurance agreements was approximately $ 173 million at December 31, 2023 and approximately $ 181 million at December 31, 2022.

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Developing the independent estimate involved developing independent completion factors and per member per month claims trends assumptions using management’s data, testing the completeness and accuracy of data provided by management, and evaluating the reasonableness of management’s assumptions.

Goodwill Impairment Assessments – Provider and Home Solutions Reporting Units

As described in Notes 2 and 9 to the consolidated financial statements, the Company’s consolidated goodwill balance was $9.1 billion as of December 31, 2022, and the goodwill associated with the Provider and Home Solutions Reporting Units was $1.1 billion and $4.3 billion, respectively.

Goodwill Impairment Assessments – Home Solutions and Primary Care Reporting Units

As described in Notes 2 and 9 to the consolidated financial statements, the Company’s consolidated goodwill balance was $9.6 billion as of December 31, 2023, and the goodwill associated with the Home Solutions and Primary Care Reporting Units was $4.4 billion and $1.2 billion, respectively.

Management conducts an impairment test in the fourth quarter of each year and more frequently if adverse events or changes in circumstances indicate that the asset may be impaired.

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Key assumptions in management’s cash flow projections, including revenue growth rates, medical and operating cost trends, and projected operating income, are supported with management’s long-range business plan and annual planning process.

The principal considerations for our determination that performing procedures relating to the goodwill impairment assessments of the Provider and Home Solutions reporting units is a critical audit matter are the significant judgment by management when determining the fair value of the reporting units, which in turn led to a high degree of auditor judgment, subjectivity, and effort in performing procedures and evaluating management’s significant assumptions related to the revenue and terminal growth rates, projected operating income, and the discount rates.

The principal considerations for our determination that performing procedures relating to the goodwill impairment assessments of the Home Solutions and Primary Care reporting units is a critical audit matter are the significant judgment by management when determining the fair value of the reporting units, which in turn led to a high degree of auditor judgment, subjectivity, and effort in performing procedures and evaluating management’s significant assumptions related to the revenue and terminal growth rates, projected operating income, and the discount rates.

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

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

These procedures included testing the effectiveness of controls relating to management’s goodwill impairment assessments, including controls over the significant assumptions used in the valuation of the Provider and Home Solutions reporting units.

These procedures also included, among others, testing management's process for determining the fair value estimate of the reporting units;

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

What changed 10-K

Item 8. Financial Statements and Supplementary Data