Humana Inc. Reports First Quarter 2006 Financial Results of $0.50 Earnings per Share

-- 2006 EPS outlook raised to $2.82 to $2.88

-- Consolidated revenues increase $1.32 billion, or 39 percent year over year

-- Medical membership up 32 percent year over year and 31 percent sequentially

-- New Medicare PDP business impacts quarterly earnings pattern

-- GAAP cash flows from operations of $1.01 billion

-- Non-GAAP cash flows from operations of $233.3 million

Humana Inc. (NYSE: HUM) today reported $0.50 in diluted earningsper common share (EPS) for the quarter ended March 31, 2006 (1Q06),within the range of the company's guidance for 1Q06 EPS of $0.50 to$0.55. As expected, the change in the quarterly pattern of 2006earnings resulting from the introduction of the company's stand-aloneMedicare Prescription Drug Plans (PDPs), combined with higher Medicaresales, marketing, and service infrastructure costs versus a year ago,resulted in a year-over-year decline in 1Q06 EPS, while driving anincrease in Medicare revenues of over $1.25 billion, or 127 percent.EPS for the quarter ended March 31, 2005 (1Q05) of $0.65 (a) was $0.15higher than 1Q06 EPS.

The company estimates EPS for the year ending December 31, 2006(FY06E) will be in the range of $2.82 to $2.88 versus $1.79 (a) forthe year ended December 31, 2005 (FY05), a growth rate ofapproximately 60 percent.

"This is a transformative year for Humana, and we're on track toachieve the objectives that will produce 2006 growth in both earningsand revenues of more than 50 percent," said Michael B. McCallister,Humana's president and chief executive officer. "Better-than-expectedMedicare membership growth and good progress in our Commercialbusiness during the first quarter has led us to raise our guidancethis morning for full-year earnings per share. By maximizing thisyear's opportunities, we're also establishing a strong foundation forrobust growth in 2007 and beyond."

The company also evaluates its earnings performance on a non-GAAPbasis. See management's explanation under item (b) of the "Footnotes"section of this news release. Below is a reconciliation of GAAP tonon-GAAP results for 1Q06 and FY06E.


Year-over-
1Q06 Consolidated Results Year
of Operations Pretax Pretax Net Change
($ in thousands except EPS) Income Margin Income EPS in EPS(a)
---------------------------------------------------------------------
GAAP results $131,208 2.8% $83,715 $0.50 (23%)
---------------------------------------------------------------------
Excess net realized
capital gains(c) (29,113) (0.6%) (18,167) (0.11)
---------------------------------------------------------------------
Non-GAAP results(b) $102,095 2.2% $65,548 $0.39 (24%)(e)
---------------------------------------------------------------------



EPS Growth
FY06E Consolidated Results of Operations EPS Rate(a)
----------------------------------------------------------------------
GAAP results $2.82 to $2.88 58% to 61%
----------------------------------------------------------------------
Excess net realized capital gains(c) (0.11)
----------------------------------------------------------------------
Non-GAAP results(b) $2.71 to $2.77 34% to 37%(f)
----------------------------------------------------------------------

Revenues - 1Q06 consolidated revenues rose 39 percent to $4.70billion from $3.39 billion in 1Q05, with total premium andadministrative services fees up 37 percent compared to the prioryear's quarter. These substantial increases are primarily the resultof significantly higher enrollment in the company's Medicare Advantageplans and the implementation of stand-alone PDPs for Medicarebeneficiaries on January 1, 2006.

Medical costs - The company's medical expense ratio (medicalexpenses as a percent of premium revenue or MER) of 83.7 percent in1Q06 was unchanged from that for 1Q05 as significant year-over-yearimprovement in this metric for the Commercial Segment was offset by ahigher Government Segment MER. The higher MER in the GovernmentSegment results from the inclusion of stand-alone PDP results in thecurrent period.

Selling, general, & administrative (SG&A) expenses - As expected,the company's consolidated SG&A expense ratio (SG&A expenses as apercent of premiums plus administrative services fees or SG&A expenseratio) increased to 16.1 percent for 1Q06 from 14.3 percent (a) in1Q05 due to the increase in SG&A expenses associated with the Medicareexpansion coupled with a substantial increase in the percentage ofCommercial medical members in ASO accounts. The increase in SG&Arelated to Medicare results from the build out of infrastructure andsupport functions in advance of the anticipated escalation inenrollment and from sales and marketing costs associated with the moreconcentrated 2006 Medicare selling season.

Acquisition - Effective May 1, 2006, the company completed itsacquisition of CHA Health, a Kentucky-based health plan, addingapproximately 92,500 Commercial medical members for cash considerationof approximately $65.0 million.

Government Segment Results Summary



1Q06 Government Segment Results
($ in thousands) Pretax Income Pretax Margin
----------------------------------------------------------------------
GAAP results $21,572 0.7%
----------------------------------------------------------------------
Excess net realized capital gains(c) (1,872) -
----------------------------------------------------------------------
Non-GAAP results(b) $19,700 0.7%
----------------------------------------------------------------------

Pretax results:

-- Government Segment pretax earnings were $21.6 million in 1Q06 compared to $70.5 million (a) in 1Q05. This decline was anticipated as the company's Medicare stand-alone PDP offerings change its quarterly pattern of earnings for 2006.

Enrollment:

-- Medicare Advantage membership rose to 741,200 at March 31, 2006, an increase of 291,300 (65 percent) from March 31, 2005 and 183,400 (33 percent) from December 31, 2005. The company's expanded participation in various Medicare programs and markets combined with the company's increased sales and marketing efforts for these programs led to the higher membership level.

-- Membership in the company's Medicare Advantage plans continued to rise in the second quarter and approximated 800,000 in April 2006 with May 2006 expected to approximate 860,000 upon completion of the standard monthly enrollment reconciliations with the Centers for Medicare and Medicaid Services (CMS). The company continues to expect Medicare Advantage membership in the range of 900,000 to 1.1 million by December 31, 2006.

-- Membership in the company's stand-alone PDPs totaled 1,959,000 at March 31, 2006. PDP sales momentum continues to be strong with April 2006 membership of approximately 2.2 million and May 2006 expected to approximate 2.6 million. The company now anticipates PDP membership in the range of 2.7 million to 2.9 million by the end of 2006.

-- As expected, TRICARE membership of 2,874,000 at March 31, 2006 was essentially unchanged from December 31, 2005. The company also anticipates no material change in TRICARE membership during 2006.

-- Medicaid membership of 427,000 at March 31, 2006 declined 50,200 from March 31, 2005 and 30,900 from December 31, 2005 due to the non-renewal of the Illinois Medicaid contract in the third quarter of 2005 and a shift of eligible Puerto Rico Medicaid members to the Medicare program.

Revenues:

-- Medicare Advantage premiums of $1.72 billion in 1Q06 increased 75 percent compared to $983.1 million in 1Q05, the result of substantially higher enrollment, increases in per-member premiums, and the impact of changes in the geographic mix of the related membership. Medicare Advantage premiums per member increased 6 percent year over year during 1Q06.

-- Medicare PDP premiums added $515.2 million in new revenues in 1Q06.

-- TRICARE premiums and administrative services fees during 1Q06 of $611.9 million compare to $575.7 million in 1Q05. The year-over-year increase primarily reflects a higher premium for the second option period which began April 1, 2005.

-- Investment income for the quarter included a capital gain of approximately $6.4 million associated with the sale of a venture capital investment.

Medical Expenses:

-- The Government Segment MER increased 50 basis points to 85.6 percent in 1Q06 compared to 85.1 percent in the prior year's quarter. The increase is primarily the result of the establishment of the stand-alone PDPs in January 2006 (MER of 96.4 percent in 1Q06) partially offset by improvement in the MER for Medicare Advantage plans year over year during 1Q06.

-- The MER for stand-alone PDP offerings over each of the interim reporting periods is impacted by the recognition of benefit costs as incurred under each plan's provisions. Different PDP designs offered by the company result in varying levels of coverage through each of the different layers of beneficiary cost responsibility as specified under the Standard PDP, as defined by statute. The company anticipates an MER for the full year for its stand-alone PDPs in the range of 85 percent to 88 percent, with MER improvement expected in each sequential quarter throughout the year. Variables that may impact the quarterly MER for the stand-alone PDPs include: (1) the timing of member enrollment, (2) the PDP offering chosen by the member, and (3) the speed with which members move through their deductibles.

SG&A Expenses:

-- The Government Segment's SG&A expense ratio for 1Q06 of 13.8 percent was 290 basis points higher than that for 1Q05 of 10.9 percent (a) driven by expenses associated with the infrastructure build out of the company's expanded Medicare offerings. In particular, marketing expenses and service costs per member were significantly higher year over year. The company anticipates that its SG&A expense ratio will improve as marketing expenses decline substantially during the Medicare Advantage lock-in period beginning July 1, 2006 and the average membership associated with the Medicare expansion increases throughout the year, providing more leverage against administrative costs.

Commercial Segment Results Summary



1Q06 Commercial Segment Results
($ in thousands) Pretax Income Pretax Margin
----------------------------------------------------------------------
GAAP results $109,636 6.4%
----------------------------------------------------------------------
Excess net realized capital gains(c) (27,241) (1.5%)
----------------------------------------------------------------------
Non-GAAP results(b) $82,395 4.9%
----------------------------------------------------------------------

Pretax results:

-- Results for the Commercial Segment during 1Q06 reflect pretax income of $109.6 million compared to $46.2 million(a) in 1Q05. Non-GAAP pretax income for the segment of $82.4 million increased $36.2 million compared to 1Q05. Commercial Segment operating earnings in 1Q06 reflect year-over-year improvements in utilization trends and the timing of the benefit of capital gains.

-- The company now projects 2006 pretax earnings in its Commercial Segment of between $180 million and $220 million, driven by improving medical costs trends combined with disciplined pricing.

Enrollment:

-- Commercial Segment medical membership of 3,259,400 at March 31, 2006 increased approximately 40,000 (1 percent) from March 31, 2005 and 88,600 (3 percent) from December 31, 2005. The sequential increase in Commercial Segment medical membership was attributable to higher administrative services only (ASO) membership partially offset by a decline in fully insured group membership.

-- ASO medical membership of 1,395,200 at March 31, 2006 accounted for approximately 43 percent of the company's Commercial medical membership, a growth rate in enrollment of 18 percent year over year and 19 percent since December 31, 2005.

-- Membership in the company's Smart plans and other consumer offerings increased to 421,200 at March 31, 2006, representing approximately 13 percent of Commercial medical membership compared to 12 percent at March 31, 2005.

Revenues:

-- Premiums and administrative services fees for the Commercial Segment decreased 2 percent to $1.62 billion in 1Q06 compared to $1.66 billion in the prior year's quarter, as an increase in administrative services fees resulting from an 18 percent increase in ASO membership was more than offset by lower premiums due to declines in at-risk enrollment.

-- Commercial Segment medical premiums for fully insured groups increased approximately 7 percent on a per-member basis during 1Q06 compared to 1Q05. This increase includes the effect of a greater percentage of the company's fully-insured group block being weighted towards small groups, as its large group business becomes more weighted towards ASO. Premium yield and medical cost trends for small group business currently include a higher level of benefit buydowns versus larger employers. The company anticipates FY06 commercial premiums for fully insured group membership to increase at least equal to the expected rise in per-member medical costs.

-- As disclosed in the company's fourth quarter 2005 earnings press release, investment income for 1Q06 included a capital gain of approximately $45.3 million associated with the sale of a venture capital investment. The company has historically recorded substantial capital gains from such investments each year, though the timing has not been historically consistent as to the quarters in which such gains occur.

Medical Expenses:

-- In 1Q06, the Commercial Segment MER of 80.1 percent was 210 basis points lower than the 1Q05 MER of 82.2 percent, reflecting improving medical cost utilization trends and an improving customer risk profile.

-- Per-member medical costs for commercial fully insured group accounts are now forecasted to rise in the range of 6 to 7 percent during 2006, including the effect of a greater percentage of our fully-insured groups being weighted towards small employers, as discussed above. Commercial group "same store" medical cost trends are now expected to be approximately 50 to 75 basis points lower than the company's previous forecast.

-- Individual components of Commercial medical cost trend for 2006 are anticipated to approximate as follows: inpatient hospital utilization - flat to 1 percent; inpatient and outpatient hospital rates - upper single digits; outpatient hospital utilization - low to mid single digits; physician - mid single digits; and pharmacy - high single digits to low double digits.

SG&A Expenses:

-- The Commercial Segment SG&A expense ratio of 20.4 percent for 1Q06 compares to 17.8 percent (a) in 1Q05, the result of lower average fully-insured medical enrollment and an increase in the percentage of commercial medical membership related to ASO to 43 percent in 1Q06 versus 37 percent in the prior year.

Cash Flows from Operations

Cash flows provided by operations for 1Q06 of $1.01 billioncompared to $95.6 million (a) in 1Q05. The company also evaluatesoperating cash flows on a non-GAAP basis, as described in footnote (d)of the "Footnotes" section of this news release.

Cash flows from operations
($ in millions) 1Q06 1Q05(a)
----------------------------------------------------------------------
GAAP cash flows provided by operations $1,008.0 $95.6
----------------------------------------------------------------------
Timing of premium payment from CMS(d) (774.7) 19.8
----------------------------------------------------------------------
Non-GAAP cash flows provided by
operations(b)(d) $233.3 $115.4
----------------------------------------------------------------------

Non-GAAP cash flows provided by operations increased to $233.3million in 1Q06 from $115.4 million (a) in 1Q05 driven by growth inthe company's Medicare operations. The company continues to expectthat cash flows from operations for 2006 will be in the range of $750million to $850 million driven by expected higher earnings.
Footnotes

(a) In accordance with Generally Accepted Accounting Principles
(GAAP), Humana adopted the retrospective method for implementing
new stock option accounting rules on January 1, 2006.
Consequently, prior period results in this news release reflect
the restatement for the expensing of stock options.

(b) The Company has included certain financial measures that are
not in accordance with GAAP in its summary of financial results
and earnings projections within this news release. The company
believes that these non-GAAP measures, when presented in
conjunction with comparable GAAP measures, are useful to both
management and its investors in analyzing the company's ongoing
business and operating performance. Internally, management uses
these non-GAAP financial measures as indicators of business
performance, as well as for operational planning and decision
making purposes. Non-GAAP financial measures should be considered
in addition to, but not as a substitute for, or superior to,
financial measures prepared in accordance with GAAP.

(c) During 1Q06 the company realized a gain on the sale of an
investment totaling approximately $52 million (pretax) or $0.19 in
EPS, which is $34 million (pretax) or $0.13 per share higher than
the capital gains assumed in the company's 2006 non-GAAP EPS
guidance and $34 million (pretax) higher than the capital gains
realized in 2005. The company, in turn, donated $0.02 per share of
the excess gains to the Humana Foundation.

(d) When reviewing and analyzing Humana's operating cash flows,
company management applies the CMS premium payment in each month
to match the corresponding disbursements. To do otherwise distorts
meaningful analysis of the company's operating cash flow.
Therefore, decisions such as management's forecasting and business
plans regarding cash flow use this non-GAAP financial measure.

(e) Computed by comparing 1Q06 non-GAAP EPS to 1Q05 non-GAAP EPS
of $0.51. 1Q05 GAAP EPS of $0.65 included the realization of a tax
gain contingency of $0.14 per share.

(f) Computed by comparing FY06E non-GAAP EPS to FY05 non-GAAP EPS
of $2.02. FY05 GAAP EPS of $1.79 included expenses associated with
a class action litigation settlement of $0.27 per share, expenses
related to Hurricane Katrina of $0.10 per share, and the benefit
from the realization of a tax gain contingency of $0.14 per share.

Conference Call & Virtual Slide Presentation

Humana will host a conference call, as well as a virtual slidepresentation, at 9:00 a.m. eastern time today to discuss its financialresults for the quarter and the company's expectations for futureearnings.

A live virtual presentation (audio with slides) may be accessedvia Humana's Investor Relations page at www.humana.com. The companysuggests web participants sign on approximately 15 minutes in advanceof the call. The company also suggests web participants visit the sitewell in advance of the call to run a system test and to download anyfree software needed to view the presentation.

All parties interested in the audio-only portion of the conferencecall are invited to dial 888-625-7430. No password is required. Thecompany suggests participants dial in approximately ten minutes inadvance of the call. For those unable to participate in the liveevent, the virtual presentation archive will be available in thePresentations section of the Investor Relations page atwww.humana.com.

Cautionary Statement

This news release contains forward-looking statements. Theforward-looking statements herein are made pursuant to the safe harborprovisions of the Private Securities Litigation Reform Act of 1995.Forward-looking statements may be significantly impacted by certainrisks and uncertainties described in the company's Form 10-K for theyear ended December 31, 2005, as filed by Humana with the Securitiesand Exchange Commission.

About Humana

Humana Inc., headquartered in Louisville, Ky., is one of thenation's largest publicly traded health benefits companies, withapproximately 9.3 million medical members. Humana offers a diversifiedportfolio of health insurance products and related services - throughtraditional and consumer-choice plans - to employer groups,government-sponsored plans, and individuals.

Over its 45-year history, Humana has consistently seizedopportunities to meet changing customer needs. Today, the company is aleader in consumer engagement, providing guidance that leads to lowercosts and a better health plan experience throughout its diversifiedcustomer portfolio.

More information regarding Humana is available to investors viathe Investor Relations page of the company's web site athttp://www.humana.com, including copies of:

-- Annual report to stockholders;

-- Securities and Exchange Commission filings;

-- Most recent investor conference presentation;

-- Quarterly earnings news releases;

-- Replay of most recent earnings release conference call;

-- Calendar of events (includes upcoming earnings conference call dates, times, and access number, as well as planned interaction with research analysts and institutional investors);

-- Corporate Governance information.
Humana Inc.
GAAP Earnings Guidance Points
For the year ending December 31, 2006
As of May 1, 2006


Diluted earnings per common share FY06: $2.82 to $2.88
2Q06: $0.31 to $0.36
----------------------------------------------------------------------
Revenues Consolidated: $21 billion to $22
billion
Medicare Advantage: $8.5 billion to
$10.2 billion
Medicare stand-alone PDPs: $2.6
billion to $2.7 billion
TRICARE: $2.5 billion to $2.9
billion
Commercial: $6.5 billion to $7.0
billion
----------------------------------------------------------------------
Year-end medical membership Medicare Advantage: 900,000 to 1.1
million
Medicare stand-alone PDPs: 2.7
million to 2.9 million
TRICARE: No material change from
prior year
Medicaid: Down approximately 40,000
Commercial: No material change from
prior year
----------------------------------------------------------------------
Medical costs Medicare - stand-alone PDPs: MER in
the range of 85% to 88%
Commercial: Medical cost trends in
the range of 6% to 7%; premium
yields at least in line with
medical cost trends
----------------------------------------------------------------------
Selling, general & Consolidated SG&A expense ratio of
administrative expenses 13% to 14%
----------------------------------------------------------------------
Pretax results Medicare Advantage: 3% to 5% pretax
(1) excluding allocation of margin(1)
investment and other Medicare stand-alone PDPs: 1% to 3%
income and interest pretax margin(1)
expense TRICARE: Approximately 3% to 4%
pretax margin(1)
Commercial Segment: $180 million to
$220 million
----------------------------------------------------------------------
Cash flows from operations $750 million to $850 million
----------------------------------------------------------------------
Capital expenditures $125 million to $135 million
----------------------------------------------------------------------
Effective tax rate Approximately 35% to 37%
----------------------------------------------------------------------
Weighted average shares Approximately 168 million
outstanding used to compute
diluted earnings per common
share
----------------------------------------------------------------------



Humana Inc.
Statistical Schedules
And
Supplementary Information
1Q06 Earnings Release


Humana Inc. S-2
Statistical Schedules and Supplementary Information
1Q06 Earnings Release

Contents

Page Description
---- -----------

S-3 Consolidated Statements of Income
S-4 Consolidated Balance Sheets
S-5 Consolidated Statements of Cash Flows
S-6 2005 Quarters Restated to Include Stock Options Expense
S-7 2003 Through 2005 Restated to Include Stock Options
Expense
S-8 Key Income Statement Ratios and Segment Operating Results
S-9 Premiums and Administrative Services Fees Detail
S-10 Membership Detail
S-11 Percentage of Ending Membership under Capitation
Arrangements
S-12 Detail of Medical and Other Expenses Payable Balance and
Year-to-Date Changes
S-13-14 Medical Claims Reserves Statistics
S-15 Footnotes




Humana Inc. S-3
Consolidated Statements of Income
In thousands, except per share results


----------------------
Three Months Ended
March 31,
---------------------- Dollar Percentage
2006 2005(A) Change Change
---------------------- ---------------------
Revenues:
Premiums $4,521,486 $3,290,815 $1,230,671 37.4%
Administrative services
fees 78,678 63,513 15,165 23.9%
Investment income 98,902 30,211 68,691 227.4%
Other income 5,299 2,686 2,613 97.3%
---------------------- -----------
Total revenues 4,704,365 3,387,225 1,317,140 38.9%
---------------------- -----------
Operating expenses:
Medical 3,783,926 2,753,733 1,030,193 37.4%
Selling, general and
administrative 740,886 479,040 261,846 54.7%
Depreciation 29,852 24,806 5,046 20.3%
Other intangible
amortization 5,054 4,443 611 13.8%
---------------------- -----------
Total operating
expenses 4,559,718 3,262,022 1,297,696 39.8%
---------------------- -----------
Income from operations 144,647 125,203 19,444 15.5%
Interest expense 13,439 8,523 4,916 57.7%
---------------------- -----------
Income before income taxes 131,208 116,680 14,528 12.5%
Provision for income taxes 47,493 9,945 37,548 377.6%
---------------------- -----------
Net income $83,715 $106,735 ($23,020) -21.6%
====================== ===========

Basic earnings per
common share $0.51 $0.66 ($0.15) -22.7%
Diluted earnings per
common share $0.50 $0.65 ($0.15) -23.1%

Shares used in computing
basic earnings per common
share 163,116 160,911
Shares used in computing
diluted earnings per
common share 167,325 164,496







Humana Inc. S-4
Consolidated Balance Sheets
Dollars in thousands, except par values


March 31, Dec. 31, Dollar Percentage
2006 2005(A) Change Change
---------------------- ---------------------
Assets
Current assets:
Cash and cash
equivalents $1,843,405 $732,016
Investment securities 2,623,009 2,354,904
Receivables, net:
Premiums 763,061 723,190
Administrative
services fees 21,652 15,462
Securities lending
collateral 250,322 47,610
Other 517,877 333,004
----------------------
Total current assets 6,019,326 4,206,186 $1,813,140 43.1%
Property and equipment 498,267 484,412
Other assets:
Long-term investment
securities 374,583 391,035
Goodwill 1,265,176 1,264,575
Other 540,668 523,406
----------------------
Total other assets 2,180,427 2,179,016
----------------------
Total assets $8,698,020 $6,869,614 $1,828,406 26.6%
======================

Liabilities and
Stockholders' Equity
Current liabilities:
Medical and other
expenses payable $2,169,489 $1,909,682
Trade accounts payable
and accrued expenses 871,231 560,550
Book overdraft 275,587 280,005
Securities lending
payable 250,322 47,610
Unearned revenues 920,678 120,489
Current portion of
long-term debt 300,231 301,254
----------------------
Total current
liabilities 4,787,538 3,219,590 $1,567,948 48.7%
Long-term debt 601,225 513,790
Other long-term
liabilities 741,498 627,360
----------------------
Total liabilities 6,130,261 4,360,740 $1,769,521 40.6%
----------------------
Commitments and
contingencies
Stockholders' equity:
Preferred stock, $1 par;
10,000,000 shares
authorized, none issued - -
Common stock, $0.16 2/3
par; 300,000,000 shares
authorized; 180,496,685
issued at March 31, 2006 30,085 29,843
Capital in excess of
par value 1,264,161 1,235,888
Retained earnings 1,505,390 1,421,675
Accumulated other
comprehensive (loss)
income (28,408) 24,832
Treasury stock, at cost,
15,848,413 shares at
March 31, 2006 (203,469) (203,364)
----------------------
Total stockholders'
equity 2,567,759 2,508,874 $58,885 2.3%
----------------------
Total liabilities and
stockholders' equity $8,698,020 $6,869,614 $1,828,406 26.6%
======================

Debt to total
capitalization ratio 26.0% 24.5%





Humana Inc. S-5
Consolidated Statements of Cash Flows
Dollars in thousands

--------------------
Three Months Ended
March 31,
-------------------- Dollar Percentage
2006 2005(A) Change Change
-------------------- -------------------
Cash flows from operating
activities
Net income $83,715 $106,735
Adjustments to reconcile
net income to net cash
provided by operating
activities:
Depreciation and
amortization 34,906 29,249
Stock compensation 6,580 6,724
(Benefit) provision for
deferred income taxes (3,705) 8,062
Changes in operating
assets and liabilities
excluding the effects
of acquisitions:
Receivables (46,061) (6,425)
Other assets (185,250) (8,360)
Medical and other
expenses payable 259,807 86,665
Other liabilities 114,752 (103,957)
Unearned revenues 800,189 (22,416)
Other (56,960) (704)
--------------------
Net cash provided by
operating activities 1,007,973 95,573 $912,400 954.7%
--------------------

Cash flows from investing
activities
Acquisitions, net of cash
acquired (113)(348,099)
Purchases of property and
equipment (45,261) (36,193)
Proceeds from sales of
property and equipment 2,138 8
Purchases of investment
securities (1,663,658)(714,371)
Proceeds from maturities
of investment securities 910,108 261,665
Proceeds from sales of
investment securities 559,830 434,506
Change in securities
lending collateral (202,712) (48,838)
--------------------
Net cash used in investing
activities (439,668)(451,322) $11,654 2.6%
--------------------

Cash flows from financing
activities
Receipts from CMS contract
deposits 494,194 -
Withdrawals from CMS
contract deposits (273,444) -
Borrowings under credit
agreement 100,000 294,000
Repayments under credit
agreement - (25,000)
Change in book overdraft (4,418) 681
Change in securities
lending payable 202,712 48,838
Common stock repurchases (105) (1,376)
Tax benefit from stock
compensation 8,404 3,655
Proceeds from stock option
exercises and other 15,741 15,136
--------------------
Net cash provided by
financing activities 543,084 335,934 $207,150 61.7%
--------------------

Increase (decrease) in
cash and cash equivalents 1,111,389 (19,815)
Cash and cash equivalents
at beginning of period 732,016 580,079
--------------------

Cash and cash equivalents
at end of period $1,843,405 $560,264
====================




Humana Inc. S-6
2005 Quarters Restated to Include Stock Options Expense
In thousands, except per share results


----------------------- -----------------------
1Q05 2Q05
----------------------- -----------------------

Reported Restated(A) Reported Restated(A)
----------- ----------- ----------- -----------

Revenues $3,387,225 $3,387,225 $3,546,361 $3,546,361

Pretax income (loss):
Government $72,224 $70,472 $104,092 $102,531
Commercial 49,463 46,208 25,215 22,317
----------- ----------- ----------- -----------
Consolidated $121,687 $116,680 $129,307 $124,848

Net income $109,795 $106,735 $84,137 $81,412

Diluted earnings per
common share $0.67 $0.65 $0.51 $0.49

Shares used in computing
diluted earnings per
common share 164,179 164,496 164,908 165,149


SG&A expense ratio:
Government 10.8% 10.9% 10.6% 10.6%
Commercial 17.6% 17.8% 17.5% 17.7%
Consolidated 14.1% 14.3% 13.8% 14.0%

Total assets $6,149,593 $6,149,593 $6,277,907 $6,277,907
Total liabilities $3,949,788 $3,916,471 $3,961,719 $3,927,862
Total stockholders'
equity $2,199,805 $2,233,122 $2,316,188 $2,350,045

Net cash provided by
(used in) operating
activities $99,228 $95,573 $181,857 $179,287
Net cash used in
investing activities ($451,322) ($451,322) ($59,909) ($59,909)
Net cash provided by
(used in) financing
activities $332,279 $335,934 ($78,422) ($75,852)





----------------------- -----------------------
3Q05 4Q05
----------------------- -----------------------

Reported Restated(A) Reported Restated(A)
----------- ----------- ----------- -----------

Revenues $3,821,461 $3,821,461 $3,663,080 $3,663,080

Pretax income (loss):
Government $89,557 $87,868 $57,395 $55,805
Commercial (18,053) (21,190) 41,821 38,869
----------- ----------- ----------- -----------
Consolidated $71,504 $66,678 $99,216 $94,674

Net income $49,944 $46,807 $64,607 $61,776

Diluted earnings per
common share $0.30 $0.28 $0.39 $0.37

Shares used in computing
diluted earnings per
common share 166,037 166,076 166,371 166,521

SG&A expense ratio:
Government 13.1% 13.2% 15.5% 15.6%
Commercial 20.0% 20.2% 18.1% 18.3%
Consolidated 16.2% 16.3% 16.7% 16.9%

Total assets $6,832,421 $6,832,421 $6,869,614 $6,869,614
Total liabilities $4,466,451 $4,432,166 $4,395,509 $4,360,740
Total stockholders'
equity $2,365,970 $2,400,255 $2,474,105 $2,508,874

Net cash provided by
(used in) operating
activities $591,039 $586,006 ($246,497) ($250,784)
Net cash used in
investing activities ($96,395) ($96,395) ($159,650) ($159,650)
Net cash provided by
(used in) financing
activities ($119,498) ($114,465) $159,227 $163,514






Humana Inc. S-7
2003 Through 2005 Restated to Include Stock Options Expense
In thousands, except per share results

------------------------- -------------------------
For the year ended For the year ended
December 31, 2005 December 31, 2004
------------------------- -------------------------
Reported Restated(A) Reported Restated(A)
------------ ------------ ------------ ------------

Revenues $14,418,127 $14,418,127 $13,104,325 $13,104,325

Pretax income:
Government $323,268 $316,676 $273,840 $269,063
Commercial 98,446 86,204 142,010 130,315
------------ ------------ ------------ ------------
Consolidated $421,714 $402,880 $415,850 $399,378

Net income $308,483 $296,730 $280,012 $269,947

Diluted earnings per
common share $1.87 $1.79 $1.72 $1.66

Shares used in
computing diluted
earnings per
common share 165,374 165,560 162,456 162,905

SG&A expense ratio:
Government 12.6% 12.7% 12.2% 12.3%
Commercial 18.3% 18.5% 16.4% 16.5%
Consolidated 15.3% 15.4% 14.5% 14.6%

Total assets $6,869,614 $6,869,614 $5,657,617 $5,657,617
Total liabilities $4,395,509 $4,360,740 $3,567,493 $3,533,369
Total stockholders'
equity $2,474,105 $2,508,874 $2,090,124 $2,124,248

Net cash provided
by operating
activities $625,627 $610,082 $347,809 $344,061
Net cash used in
investing
activities ($767,276) ($767,276) ($624,081) ($624,081)
Net cash provided
by (used in)
financing
activities $293,586 $309,131 ($75,053) ($71,305)






---------------------------
For the year ended
December 31, 2003
---------------------------
Reported Restated (A)
------------ --------------

Revenues $12,226,311 $12,226,311

Pretax income:
Government $223,706 $221,240
Commercial 121,010 114,973
------------ --------------
Consolidated $344,716 $336,213

Net income $228,934 $223,739

Diluted earnings per
common share $1.41 $1.38

Shares used in
computing diluted
earnings per
common share 161,960 162,406

SG&A expense ratio:
Government 13.4% 13.5%
Commercial 16.9% 17.0%
Consolidated 15.4% 15.4%

Total assets $5,379,814 $5,379,814
Total liabilities $3,543,865 $3,510,842
Total stockholders'
equity $1,835,949 $1,868,972

Net cash provided
by operating
activities $413,140 $397,921
Net cash used in
investing
activities ($382,837) ($382,837)
Net cash provided
by (used in)
financing
activities $179,744 $194,963






Humana Inc. S-8
Key Income Statement Ratios and Segment Operating Results
Dollars in thousands

------------------
Three Months Ended
March 31,
------------------
Percentage
2006 2005(A) Difference Change
------------------ ----------------------
Medical expense ratio
Government Segment 85.6% 85.1% 0.5%
Commercial Segment 80.1% 82.2% -2.1%
Consolidated 83.7% 83.7% 0.0%

Selling, general, and
administrative expense ratio
Government Segment 13.8% 10.9% 2.9%
Commercial Segment 20.4% 17.8% 2.6%
Consolidated 16.1% 14.3% 1.8%


Detail of Pretax Income
Government Segment $21,572 $70,472 ($48,900) -69.4%
Commercial Segment 109,636 46,208 63,428 137.3%
------------------ ----------
Consolidated $131,208 $116,680 $14,528 12.5%
================== ==========

Detail of Pretax Margins
Government Segment 0.7% 4.2% -3.5%
Commercial Segment 6.4% 2.7% 3.7%
Consolidated 2.8% 3.4% -0.6%






Humana Inc. S-9
Premiums and Administrative Services Fees Detail
Dollars in thousands, except PMPM



-------------------------
Three Months Ended
March 31,
------------------------- Dollar Percentage
2006 2005 Change Change
------------------------- --------------------
Premium revenues
Government Segment:
Medicare Advantage $1,720,843 $983,141 $737,702 75.0%
Medicare -
Stand-alone PDPs 515,157 - 515,157 100.0%
------------------------- -----------
Total Medicare 2,236,000 983,141 1,252,859 127.4%
TRICARE insured(C) 600,754 562,328 38,426 6.8%
Medicaid 129,467 134,414 (4,947) -3.7%
------------------------- -----------
Total Government
Segment premiums 2,966,221 1,679,883 1,286,338 76.6%
------------------------- -----------
Commercial Segment:
Fully insured
medical 1,453,932 1,517,394 (63,462) -4.2%
Specialty 101,333 93,538 7,795 8.3%
------------------------- -----------
Total Commercial
Segment premiums 1,555,265 1,610,932 (55,667) -3.5%
------------------------- -----------
Total premium
revenues $4,521,486 $3,290,815 $1,230,671 37.4%
========================= ===========


Administrative
services fees
Government segment
(TRICARE-related)(C) $11,191 $13,402 ($2,211) -16.5%
Commercial segment 67,487 50,111 17,376 34.7%
------------------------- -----------
Total administrative
services fees $78,678 $63,513 $15,165 23.9%
========================= ===========





-------------------------
Per Member per Month(B)
Three Months Ended
March 31,
------------------------- Dollar Percentage
2006 2005 Change Change
------------------------- -------------------
Premium revenues
Government Segment:
Medicare Advantage $830 $786 $44 5.5%
Medicare - Stand-alone
PDPs 99 - 99 100.0%
Total Medicare 308 786 (478) -60.8%
TRICARE insured (C) 116 106 9 8.9%
Medicaid 99 94 6 5.9%
Total Government
Segment premiums 216 210 5 2.5%
Commercial Segment:
Fully insured medical 259 245 13 5.5%
Specialty 21 20 1 6.5%
Total Commercial
Segment premiums 158 157 1 0.4%
Total premium revenues $191 $180 $11 6.1%



Administrative services
fees
Government segment
(TRICARE-related)(C) $3 $4 ($1) -19.5%
Commercial segment 12 10 2 18.4%
Total administrative
services fees $9 $8 $1 13.0%







Humana Inc. S-10
Membership Detail
In thousands


Ending Ending
Average March 31, March 31,
- 1Q06 2006 2005
--------------------------------
Medical Membership:
Government Segment:
Medicare Advantage - HMO 439.2 443.7 412.4
Medicare Advantage - PPO 28.3 35.4 2.3
Medicare Advantage - PFFS 223.7 262.1 35.2
--------------------------------
Total Medicare Advantage 691.2 741.2 449.9
--------------------------------
Medicare - PDP - Standard 1,193.6 1,289.2 -
Medicare - PDP - Enhanced 329.9 421.0 -
Medicare - PDP - Complete 203.8 248.8 -
--------------------------------
Total Medicare - Stand-
alone PDPs 1,727.3 1,959.0 -
--------------------------------
Total Medicare 2,418.5 2,700.2 449.9
--------------------------------
TRICARE insured 1,733.5 1,724.7 1,723.4
TRICARE ASO 1,145.5 1,149.3 1,148.4
--------------------------------
Total TRICARE 2,879.0 2,874.0 2,871.8
Medicaid 434.3 427.0 477.2
--------------------------------
Total Government Segment 5,731.8 6,001.2 3,798.9
--------------------------------
Commercial Segment:
Fully insured medical:
Group 1,705.6 1,695.1 1,902.8
Individual 161.1 163.1 133.6
Medicare supplement 5.7 6.0 2.9
--------------------------------
Total fully insured
medical 1,872.4 1,864.2 2,039.3
ASO 1,399.2 1,395.2 1,180.1
--------------------------------
Total Commercial Segment 3,271.6 3,259.4 3,219.4
--------------------------------

Total medical membership 9,003.4 9,260.6 7,018.3
================================


Specialty Membership
(all Commercial Segment)
Dental - fully insured 951.3 950.6 874.6
Dental - ASO 494.0 494.7 488.0
--------------------------------
Total dental 1,445.3 1,445.3 1,362.6
Group life 422.2 421.3 444.9
Short-term disability 15.9 15.7 16.6
--------------------------------
Total specialty membership 1,883.4 1,882.3 1,824.1
================================





------------------- -------------------
Year-over-year Sequential
------------------- -------------------
Ending
Percentage Dec. 31, Percentage
Difference Change 2005 Difference Change
------------------ ------- -------------------
Medical Membership:
Government Segment:
Medicare Advantage
- HMO 31.3 7.6% 427.9 15.8 3.7%
Medicare Advantage
- PPO 33.1 1439.1% 8.6 26.8 311.6%
Medicare Advantage
- PFFS 226.9 644.6% 121.3 140.8 116.1%
--------- -------- ---------
Total Medicare
Advantage 291.3 64.7% 557.8 183.4 32.9%
--------- -------- ---------
Medicare - PDP
- Standard 1,289.2 100.0% - 1,289.2 100.0%
Medicare - PDP
- Enhanced 421.0 100.0% - 421.0 100.0%
Medicare - PDP
- Complete 248.8 100.0% - 248.8 100.0%
--------- -------- ---------
Total Medicare -
Stand-alone PDPs 1,959.0 100.0% - 1,959.0 100.0%
--------- -------- ---------
Total Medicare 2,250.3 500.2% 557.8 2,142.4 384.1%
--------- -------- ---------
TRICARE insured 1.3 0.1% 1,750.9 (26.2) -1.5%
TRICARE ASO 0.9 0.1% 1,138.2 11.1 1.0%
--------- -------- ---------
Total TRICARE 2.2 0.1% 2,889.1 (15.1) -0.5%
Medicaid (50.2) -10.5% 457.9 (30.9) -6.7%
--------- -------- ---------
Total Government
Segment 2,202.3 58.0% 3,904.8 2,096.4 53.7%
--------- -------- ---------
Commercial Segment:
Fully insured medical:
Group (207.7) -10.9% 1,836.9 (141.8) -7.7%
Individual 29.5 22.1% 158.1 5.0 3.2%
Medicare supplement 3.1 106.9% 4.8 1.2 25.0%
--------- -------- ---------
Total fully insured
medical (175.1) -8.6% 1,999.8 (135.6) -6.8%
ASO 215.1 18.2% 1,171.0 224.2 19.1%
--------- -------- ---------
Total Commercial
Segment 40.0 1.2% 3,170.8 88.6 2.8%
--------- -------- ---------

Total medical
membership 2,242.3 31.9% 7,075.6 2,185.0 30.9%
========= ======== =========


Specialty Membership
(all Commercial
Segment)
Dental - fully insured 76.0 8.7% 960.5 (9.9) -1.0%
Dental - ASO 6.7 1.4% 496.0 (1.3) -0.3%
--------- -------- ---------
Total dental 82.7 6.1% 1,456.5 (11.2) -0.8%
Group life (23.6) -5.3% 429.2 (7.9) -1.8%
Short-term disability (0.9) -5.4% 16.4 (0.7) -4.3%
--------- -------- ---------
Total specialty
membership 58.2 3.2% 1,902.1 (19.8) -1.0%
========= ======== =========






Humana Inc. S-11
Percentage of Ending Membership under Capitation Arrangements


-----------------------------------------------
Government Segment
-----------------------------------------------

Medicare - Total
Medicare stand-alone Govt.
March 31, 2006 Advantage PDPs TRICARE Medicaid Segment
-------------- -----------------------------------------------

Capitated HMO hospital
system based(D) 4.5% - - - 0.6%
Capitated HMO physician
group based(D) 3.2% - - 35.5% 2.9%
Risk-sharing(E) 31.9% - - 59.6% 8.2%
All other membership 60.4% 100.0% 100.0% 4.9% 88.3%
-----------------------------------------------
Total medical
membership 100.0% 100.0% 100.0% 100.0% 100.0%
===============================================

March 31, 2005
--------------

Capitated HMO hospital
system based(D) 8.1% - - 3.3% 1.4%
Capitated HMO physician
group based(D) 0.9% - - 35.2% 4.5%
Risk-sharing(E) 52.5% - - 53.0% 12.9%
All other membership 38.5% - 100.0% 8.5% 81.2%
-----------------------------------------------
Total medical
membership 100.0% - 100.0% 100.0% 100.0%
===============================================





-------------------------------
Commercial Segment
-------------------------------


Fully Total Comm. Total Medical
March 31, 2006 insured ASO Segment Membership
-------------- ---------------------------------------------

Capitated HMO hospital
system based(D) 2.0% - 1.1% 0.8%
Capitated HMO physician
group based(D) 1.8% - 1.0% 2.2%
Risk-sharing(E) 2.3% - 1.3% 5.8%
All other membership 93.9% 100.0% 96.6% 91.2%
---------------------------------------------
Total medical
membership 100.0% 100.0% 100.0% 100.0%
=============================================

March 31, 2005
--------------

Capitated HMO hospital
system based(D) 2.7% - 1.7% 1.5%
Capitated HMO physician
group based(D) 2.5% - 1.6% 3.2%
Risk-sharing(E) 2.6% - 1.6% 7.7%
All other membership 92.2% 100.0% 95.1% 87.6%
---------------------------------------------
Total medical
membership 100.0% 100.0% 100.0% 100.0%
=============================================




Humana Inc. S-12
Detail of Medical and Other Expenses Payable Balance
and Year-to-Date Changes
Dollars in thousands

March 31, Dec. 31, Dollar Percentage
2006 2005 Change Change
----------------------- -------------------
Detail of medical and other
expenses payable
IBNR and other medical
expenses payable(F) $1,313,806 $1,125,205 $188,601 16.8%
TRICARE IBNR(G) 346,774 409,413 (62,639) -15.3%
TRICARE other medical
expenses payable(H) 90,073 88,443 1,630 1.8%
Unprocessed claim
inventories(I) 185,300 148,200 37,100 25.0%
Processed claim
inventories(J) 83,945 83,635 310 0.4%
Payable to pharmacy
benefit administrator
(K) 149,591 54,786 94,805 173.0%
----------------------- ---------
Total medical and other
expenses payable $2,169,489 $1,909,682 $259,807 13.6%
======================= =========

Three Months
Ended Year Ended
March 31, December 31,
2006 2005
-----------------------
Year-to-date changes in
medical and other expenses
payable

Balances at January 1 $1,909,682 $1,422,010

Acquisitions - 37,375

Incurred related to:
Current year 3,964,706 11,765,662
Prior years -
non-TRICARE(L) (125,469) (72,868)
Prior years -
TRICARE(L)(M) (59,207) (41,324)
-----------------------
Total incurred 3,780,030 11,651,470
-----------------------

Paid related to:
Current year (2,640,214) (9,979,449)
Prior years (880,009) (1,221,724)
-----------------------
Total paid (3,520,223)(11,201,173)
-----------------------

Balances at end
of period $2,169,489 $1,909,682
=======================




Humana Inc. S-13
Medical Claims Reserves Statistics


Receipt Cycle Time(N)
Percentage
2006 2005 Change Change
----------------------------------
1st Quarter Average 16.1 16.6 (0.5) -3.0%
2nd Quarter Average - 15.9 N/A N/A
3rd Quarter Average - 16.7 N/A N/A
4th Quarter Average - 16.9 N/A N/A
-----------------------
Full Year Average 16.1 16.5 (0.4) -2.4%
========================

Unprocessed Claims Inventories



Estimated Claim Number
Valuation Item of Days
Date (000's) Counts on Hand
-------------------------------------------------------------
3/31/2004 $94,800 400,900 3.9
6/30/2004 $98,100 387,000 3.7
9/30/2004 $122,300 453,300 4.4
12/31/2004 $115,300 394,400 3.7
3/31/2005 $111,200 393,200 3.6
6/30/2005 $119,500 443,600 4.0
9/30/2005 $136,700 512,800 4.7
12/31/2005 $148,200 498,400 4.6
3/31/2006 $185,300 683,900 5.6






Humana Inc. S-14
Medical Claims Reserves Statistics (Continued)


Days in Claims Payable(O)(Q)

Days in
Claims DCP
Payable Annual Percentage Excluding Annual Percentage
Quarter Ended (DCP) Change Change Capitation Change Change
----------------------------------------------------------------------
3/31/2004 47.4 0.9 1.9% 54.3 (0.4) -0.7%
6/30/2004 47.4 (0.5) -1.0% 54.1 (2.1) -3.7%
9/30/2004 51.8 4.6 9.7% 59.1 4.6 8.4%
12/31/2004 49.5 3.3 7.1% 54.8 1.6 3.0%
3/31/2005 50.5 3.1 6.5% 56.1 1.8 3.3%
6/30/2005 52.8 5.4 11.4% 58.6 4.5 8.3%
9/30/2005 54.0 2.2 4.2% 60.8 1.7 2.9%
12/31/2005 60.3 10.8 21.8% 66.6 11.8 21.5%
3/31/2006 59.1 8.6 17.0% 65.5 9.4 16.8%

Year-to-Date Change in Days in
Claims Payable(P)(Q)
2006 2005
---------------------
DCP - 4th quarter of prior year 60.3 49.5
Components of year-to-date change in DCP:
Change in claims receipt cycle time (1.3) 0.2
Change in unprocessed claims inventories 1.0 1.0
Change in processed claims inventories - (0.4)
Change in TRICARE reserve balances (4.3) 3.9
Change in pharmacy payment cutoff (0.2) 1.5
Growth in Medicare PFFS membership 3.4 1.2
Growth in individual membership 1.1 0.9
Change in provider payables under risk
arrangements 0.7 1.4
All other (1.6) 1.1
---------------------
DCP - current quarter 59.1 60.3
=====================





Humana Inc. S-15
Footnotes to Statistical Schedules and Supplementary Information
1Q06 Earnings Release

Footnote
--------

(A) Restated to include stock-based compensation expense. Under
SFAS 123R, which the company adopted effective January 1, 2006
using the modified retrospective method, stock-based compensation
expense is recognized based on the grant date fair value over the
vesting period.

(B) Computed based on average membership for the period (i.e.,
monthly ending membership during the period divided by the number
of months in the period).

(C) TRICARE revenues are not contracted on a per member basis.

(D) In a limited number of circumstances, the company contracts
with hospitals and physicians to accept financial risk for a
defined set of HMO membership. In transferring this risk, the
company prepays these providers a monthly fixed-fee per member to
coordinate substantially all of the medical care for their
capitated HMO membership, including some health benefit
administrative functions and claims processing. For these
capitated HMO arrangements, the company generally agrees to
reimbursement rates that target a medical expense ratio ranging
from 82% to 89%. Providers participating in hospital-based
capitated HMO arrangements generally receive a monthly payment for
all of the services within their system for their HMO membership.
Providers participating in physician-based capitated HMO
arrangements generally have subcontracted specialist physicians
and are responsible for reimbursing such hospitals and physicians
for services rendered to their HMO membership.

(E) In some circumstances, the company contracts with physicians
under risk-sharing arrangements whereby physicians have assumed
some level of risk for all or a portion of the medical costs of
their HMO membership. Although these arrangements do include
capitation payments for services rendered, the company processes
substantially all of the claims under these arrangements.

(F) IBNR represents an estimate of medical expenses payable for
claims incurred but not reported (IBNR) at the balance sheet date.
The level of IBNR is primarily impacted by membership levels,
medical claim trends and the receipt cycle time, which represents
the length of time between when a claim is initially incurred and
when the claim form is received (i.e. a shorter time span results
in lower reserves for claims IBNR). Other medical expenses payable
includes amounts payable to providers under capitation
arrangements.

(G) TRICARE IBNR decreased due to favorable development as more
fully discussed in Footnote M below.

(H) TRICARE other medical expenses payable may include liabilities
to subcontractors and/or risk share payables to the Department of
Defense. The level of these balances may fluctuate from period to
period due to the timing of payment (cutoff) and whether or not
the balances are payables or receivables (receivables from the
Department of Defense are classified as receivables in the
company's balance sheet).

(I) Unprocessed claim inventories represent the estimated
valuation of claims received but not yet fully processed. TRICARE
claim inventories are not included in this amount as an
independent third party administrator processes all TRICARE
medical claims on the company's behalf. Reserves for TRICARE
unprocessed claims inventory are included in TRICARE IBNR.

(J) Processed claim inventories represent the estimated valuation
of processed claims that are in the post-claim-adjudication
process, which consists of administrative functions such as audit
and check batching and handling.

(K) The balance due to the company's pharmacy benefit
administrator fluctuates due to bi-weekly payments made three
times a month and the month-end cutoff.

(L) The impact of any change in "incurred related to prior years"
claims may be offset as the company re-establishes the "incurred
related to current year". The company's reserving practice is to
consistently recognize the actuarial best estimate of our ultimate
liability for our claims within a level of confidence required to
meet actuarial standards. Thus, only when the release of a prior
year reserve is not offset with the same level of conservatism in
estimating the current year reserve will the redundancy reduce
medical expense. We have consistently applied this methodology in
determining our best estimate for unpaid claims liability in each
period.

(M) Changes in estimates of TRICARE incurred claims for prior
years recognized during 2006 and 2005 resulted primarily from
claim costs and utilization levels developing favorably from the
levels originally estimated for the second half of the prior year.
As a result of substantial risk-sharing provisions with the
Department of Defense and with subcontractors, any resulting
impact on operations from the change in estimates of incurred
related to prior years is substantially reduced, whether positive
or negative.

(N) The receipt cycle time measures the average length of time
between when a claim was initially incurred and when the claim
form was received. Receipt cycle time data for our largest claim
processing platforms representing approximately 87% of the
company's fully insured claims volume. Pharmacy claims are
excluded from this measurement.

(O) A common metric for monitoring medical claim reserve levels
relative to the medical claims expense is days in claims payable,
or DCP, which represents the medical claim liabilities at the end
of the period divided by average medical expenses per day in the
quarterly period. Since the company has some providers under
capitation payment arrangements (which do not require a medical
claim IBNR reserve), the company has also summarized this metric
excluding capitation expense.

(P) DCP fluctuates due to a number of issues, the more significant
of which are detailed in the rollforward of DCP from the fourth
quarter of the prior year. Growth in certain product lines can
also impact DCP for the quarter since a provision for claims would
not have been recorded for members that had not yet enrolled
earlier in the quarter, yet those members would have a provision
and corresponding reserve recorded upon enrollment later in the
quarter.

(Q) Excludes the impact of Medicare stand-alone PDPs.