This excerpt taken from the HUM 10-K filed Mar 2, 2005.
Over the last several years, we have developed and offered various commercial products designed to provide options and choices to employers that are annually facing substantial premium increases driven by double-digit medical cost inflation. These consumer-directed products, which can be offered on either a fully insured or self-funded basis, provided coverage to approximately 282,000 members at December 31, 2004, representing approximately 8.5% of our total commercial medical membership. These products are often offered to employer groups as bundles, where the subscribers are offered various HMO and PPO options, with various employer contribution strategies as determined by the customer.
Paramount to our consumer-directed product strategy, we have developed a group of innovative consumer products, styled as Smart products, that we believe will be a long-term solution for employers. This new generation of products provides more (1) choices for the individual consumer, (2) transparency of provider costs, and (3) benefit designs that engage consumers in the costs and effectiveness of health care choices. Innovative tools and technology are available to assist consumers with these decisions, including the trade-offs between higher premiums and point-of-service costs at the time consumers choose their plans, and to suggest ways in which the consumers can maximize their individual benefits at the point they use their plans. We believe that when consumers can make informed choices about the cost and effectiveness of their health care, a sustainable long term solution for employers can be realized. In late 2004, we introduced a Smart product option on a fully-insured basis only to small businesses to allow them to experience the same advantages as the larger groups in lowering health benefits costs. Smart products, which accounted for approximately 62.8% of enrollment in all of our consumer-directed plans, only are sold to employers with Humana as the sole carrier.
Some employers have selected other types of consumer-directed products, such as, (1) a product with a high deductible, (2) a catastrophic coverage plan, or (3) ones that offer a spending account option in conjunction with more traditional medical coverage or as a stand alone plan. Unlike our Smart products, these products, while valuable in helping employers deal with near-term cost increases by shifting costs to employees, are not considered long-term comprehensive solutions to the employers cost dilemma by us, although we view this as an initial interim step.