The Government Segment benefit ratio decreased 220 basis points to 81.9 percent in 3Q09 compared to 84.1 percent in the prior year ™s quarter, primarily driven by a 340 basis point decline in the Medicare benefit ratio with decreases in both the Medicare Advantage and stand-alone PDP benefit ratios.

SG&A Expenses:

The Government Segment ™s SG&A expense ratio of 10.2% remained unchanged from 3Q08.

Commercial Segment Results

Pretax results:

The Commercial Segment had a pretax loss of $5.2 million in 3Q09 compared to pretax income of $11.2 million in 3Q08 primarily driven by higher benefit expenses as a percent of premiums and lower average medical membership, partially offset by higher investment income.

Enrollment:

Commercial Segment medical membership declined to 3,426,900 at September 30, 2009, a decrease of 127,100, or 4 percent, from 3,554,000 at September 30, 2008 and a decline of 193,900, or 5 percent, from 3,620,800 at December 31, 2008. The decline during 2009 primarily reflected the impact of the economic recession and increased unemployment across various of the company ™s fully-insured group medical lines of business as well as the loss of two large ASO accounts totaling approximately 95,400 members on January 1, 2009. The company ™s individual product line has continued to grow steadily, with membership of 358,800, up 13 percent at September 30, 2009 compared to 316,800 at September 30, 2008 and up 10 percent from 325,100 at December 31, 2008. Membership in Commercial Segment specialty products (a) of 7,262,900 at September 30, 2009 increased 8 percent from 6,727,400 at September 30, 2008 and 7 percent from 6,817,000 at December 31, 2008.

Premiums and administrative services fees:

Premiums and administrative services fees for the Commercial Segment decreased 1 percent to $1.87 billion in 3Q09 compared to $1.88 billion in the prior year ™s quarter, reflecting a 4 percent decline in average medical membership year over year. Commercial Segment medical premiums for fully-insured group accounts increased approximately 5 percent on a per-member basis during 3Q09 compared to 3Q08.

Benefit Expenses:

In 3Q09, the Commercial Segment benefits ratio of 82.7 percent increased 250 basis points versus the 3Q08 benefit ratio of 80.2 percent, as an increase in per-member premiums was more than offset by higher utilization primarily associated with the general economy (aging of small group membership, higher utilization prior to termination, and increased COBRA participation) as well as the impact of the H1N1 virus.

SG&A Expenses:

The Commercial Segment SG&A expense ratio of 24.0 percent for 3Q09 compares to 23.0 percent in 3Q08, primarily driven by increases in certain of the segment ™s businesses that carry a higher administrative expense load such as mail-order pharmacy and individual medical products.

Balance Sheet

At September 30, 2009, the company had cash, cash equivalents, and investment securities of $8.67 billion, up 17 percent from $7.41 billion in such assets at June 30, 2009. Debt-to-total capitalization at September 30, 2009 was 23.2 percent, down 180 basis points from 25.0 percent at June 30, 2009 due primarily to the favorable operating results during 3Q09.

Cash Flows from Operations

Cash flows provided by operations for 3Q09 of $940.1 million compared to cash flows provided by operations of $577.3 million in 3Q08 with the increase primarily due to higher net income as well as the positive impact of changes in working capital accounts.

Share Repurchase Program

In the third quarter of 2008, the company ™s Board of Directors authorized the repurchase of up to $250 million of the company ™s common shares exclusive of shares repurchased in connection with employee stock plans. Due to volatility in the financial markets, the company has not repurchased any shares under the third quarter 2008 authorization. The share repurchase program expires on December 31, 2009.

Source: Humana Inc.