BENEFITS PAYABLE

On a consolidated basis, activity in benefits payable, excluding military services, was as follows for the years ended December 31, 2017, 2016 and 2015:



	2017			2016			2015
	(in millions)
Balances at January 1	$	4,563		$	4,976		$	4,475
Less: Premium deficiency reserve	—			(176		)	—
Less: Reinsurance recoverables	(76		)	(85		)	(78		)
Balances at January 1, net	4,487			4,715			4,397
Incurred related to:
Current year	44,001			45,318			44,397
Prior years	(483		)	(582		)	(236		)
Total incurred	43,518			44,736			44,161
Paid related to:
Current year	(39,496		)	(40,852		)	(39,802		)
Prior years	(3,911		)	(4,112		)	(4,041		)
Total paid	(43,407		)	(44,964		)	(43,843		)
Premium deficiency reserve	—			—			176
Reinsurance recoverable	70			76			85
Balances at December 31	$	4,668		$	4,563		$	4,976

Amounts incurred related to prior years vary from previously estimated liabilities as the claims ultimately are settled. Negative amounts reported for incurred related to prior years result from claims being ultimately settled for amounts less than originally estimated (favorable development).

As previously discussed, our reserving practice is to consistently recognize the actuarial best estimate of our ultimate liability for claims. Actuarial standards require the use of assumptions based on moderately adverse experience, which generally results in favorable reserve development, or reserves that are considered redundant. We experienced favorable medical claims reserve development related to prior fiscal years of $483 million in 2017, $582 million in 2016, and $236 million in 2015. The table below details our favorable medical claims reserve development related to prior fiscal years by segment for 2017, 2016, and 2015.



	Favorable Medical Claims Reserve Development
	2017			2016			2015

Retail Segment	$	(386	)	$	(429	)	$	(248	)
Group and Specialty Segment	(40		)	(46		)	(7		)
Individual Commercial Segment	(56		)	(106		)	20
Other Businesses	(1		)	(1		)	(1		)
Total	$	(483	)	$	(582	)	$	(236	)

The favorable medical claims reserve development for 2017, 2016, and 2015 primarily reflects the consistent application of trend and completion factors estimated using an assumption of moderately adverse conditions. Favorable prior period development in 2017 and 2016 primarily resulted from our Medicare Advantage and individual commercial medical businesses. The favorable prior period development in 2015 was impacted primarily by lower financial claim recoveries due in part to our gradual implementation during 2014 of inpatient authorization review prior to admission as opposed to post adjudication, as well as higher than expected flu associated claims from the fourth quarter of 2014 and continued volatility in claims associated with individual commercial medical products.

Benefits expense excluded from the previous table was as follows for the years ended December 31, 2017, 2016 and 2015:



	2017			2016			2015
	(in millions)
Premium deficiency reserve for short-duration policies	$	—		$	(176	)	$	176
Military services	—			8			12
Future policy benefits	(22		)	439			(80		)
Total	$	(22	)	$	271		$	108

In the fourth quarter of 2015, we recognized a premium deficiency reserve for our individual commercial medical business compliant with the Health Care Reform Law associated with the 2016 coverage year as discussed in more detail in Note 7.

Military services benefits expense for each year in the table above reflect expenses associated with our contracts with the Veterans Administration.

The higher benefits expense associated with future policy benefits payable during 2016 primarily relates to reserve strengthening for our closed block of long-term care insurance policies acquired in connection with the 2007 KMG acquisition as more fully described in Note 18. Benefits expense associated with future policy benefits payable in 2015 primarily reflects the release of reserves as individual commercial medical members transitioned to plans compliant with the Health Care Reform Law.

Incurred and Paid Claims Development

The following discussion provides information about incurred and paid claims development for our segments as of December 31, 2017, net of reinsurance, as well as cumulative claim frequency and the total of IBNR included within the net incurred claims amounts. The information about incurred and paid claims development for the years ended December 31, 2015 and 2016 is presented as supplementary information.

Claims frequency is measured as medical fee-for-service claims for each service encounter with a unique provider identification number. Our claims frequency measure includes claims covered by deductibles as well as claims under capitated arrangements. Claim counts may vary based on product mix and the percentage of delegated capitation arrangements.

Retail Segment

Activity in benefits payable for our Retail segment was as follows for the years ended December 31, 2017, 2016 and 2015:



	2017			2016			2015
	(in millions)
Balances at January 1	$	3,506		$	3,600		$	3,428
Less: Reinsurance recoverables	(76		)	(85		)	(78		)
Balances at January 1, net	3,430			3,515			3,350
Incurred related to:
Current year	38,604			37,212			36,299
Prior years	(386		)	(429		)	(248		)
Total incurred	38,218			36,783			36,051
Paid related to:
Current year	(34,781		)	(33,784		)	(32,874		)
Prior years	(2,974		)	(3,084		)	(3,012		)
Total paid	(37,755		)	(36,868		)	(35,886		)
Reinsurance recoverable	70			76			85
Balances at December 31	$	3,963		$	3,506		$	3,600

At December 31, 2017, benefits payable for our Retail segment included IBNR of approximately $2.5 billion, primarily associated with claims incurred in 2017. The cumulative number of reported claims as of December 31, 2017 was approximately 97.8 million for claims incurred in 2017, 96.0 million for claims incurred in 2016, and 93.9 million for claims incurred in 2015.

The following tables provide information about incurred and paid claims development for the Retail segment as of December 31, 2017, net of reinsurance.



	Incurred Claims, Net of Reinsurance
	For the Years Ended December 31,
Claims Incurred Year	2015 Unaudited		2016 Unaudited		2017
	(in millions)
2015	$	36,299	$	35,928	$	35,877
2016			37,212		36,891
2017					38,604
Total					$	111,372



	Cumulative Paid Claims, Net of Reinsurance
	For the Years Ended December 31,
Claims Incurred Year	2015 Unaudited		2016 Unaudited		2017
	(in millions)
2015	$	32,874	$	35,918	$	35,857
2016			33,784		36,841
2017					34,781
Total					$	107,479
All outstanding benefit liabilities before 2015, net of reinsurance					N/A
Benefits payable, net of reinsurance					$	3,893

Group and Specialty Segment

Activity in benefits payable for our Group and Specialty segment, excluding military services, was as follows for the years ended December 31, 2017, 2016 and 2015:



	2017			2016			2015
	(in millions)
Balances at January 1	$	579		$	616		$	603
Less: Reinsurance recoverables	—			—			—
Balances at January 1, net	579			616			603
Incurred related to:
Current year	5,403			5,271			5,377
Prior years	(40		)	(46		)	(7		)
Total incurred	5,363			5,225			5,370
Paid related to:
Current year	(4,843		)	(4,700		)	(4,774		)
Prior years	(531		)	(562		)	(583		)
Total paid	(5,374		)	(5,262		)	(5,357		)
Balances at December 31	$	568		$	579		$	616

At December 31, 2017, benefits payable for our Group and Specialty segment included IBNR of approximately $500 million, primarily associated with claims incurred in 2017. The cumulative number of reported claims as of December 31, 2017 was approximately 10.6 million for claims incurred in 2017, 12.8 million for claims incurred in 2016, and 13.4 million for claims incurred in 2015.

The following tables provide information about incurred and paid claims development for the Group and Specialty segment as of December 31, 2017, net of reinsurance.



	Incurred Claims, Net of Reinsurance
	For the Years Ended December 31,
Claims Incurred Year	2015 Unaudited		2016 Unaudited		2017
	(in millions)
2015	$	5,377	$	5,333	$	5,333
2016			5,271		5,234
2017					5,403
Total					$	15,970



	Cumulative Paid Claims, Net of Reinsurance
	For the Years Ended December 31,
Claims Incurred Year	2015 Unaudited		2016 Unaudited		2017
	(in millions)
2015	$	4,774	$	5,327	$	5,333
2016			4,700		5,226
2017					4,843
Total					$	15,402
All outstanding benefit liabilities before 2015, net of reinsurance					N/A
Benefits payable, net of reinsurance					$	568

Individual Commercial Segment

Activity in benefits payable for our Individual Commercial segment, was as follows for the years ended December 31, 2017, 2016 and 2015:



	2017			2016			2015
	(in millions)
Balances at January 1	$	454		$	741		$	424
Less: Premium deficiency reserve	—			(176		)	—
Balances at January 1, net	454			565			424
Incurred related to:
Current year	669			3,677			3,512
Prior years	(56		)	(106		)	20
Total incurred	613			3,571			3,532
Paid related to:
Current year	(583		)	(3,233		)	(2,966		)
Prior years	(383		)	(449		)	(425		)
Total paid	(966		)	(3,682		)	(3,391		)
Premium deficiency reserve	—			—			176
Balances at December 31	$	101		$	454		$	741

At December 31, 2017, benefits payable for our Individual Commercial segment included IBNR of approximately $85 million, primarily associated with claims incurred in 2017. The cumulative number of reported claims as of December 31, 2017 was approximately 2.2 million for claims incurred in 2017, 9.5 million for claims incurred in 2016, and 11.0 million for claims incurred in 2015.

The following tables provide information about incurred and paid claims development for the Individual Commercial segment as of December 31, 2017, net of reinsurance.



	Incurred Claims, Net of Reinsurance
	For the Years Ended December 31,
Claims Incurred Year	2015 Unaudited		2016 Unaudited		2017

2015	$	3,512	$	3,412	$	3,412
2016			3,677		3,621
2017					669
Total					$	7,702



	Cumulative Paid Claims, Net of Reinsurance
	For the Years Ended December 31,
Claims Incurred Year	2015 Unaudited		2016 Unaudited		2017
	(in millions)
2015	$	2,966	$	3,400	$	3,412
2016			3,233		3,606
2017					583
Total					$	7,601
All outstanding benefit liabilities before 2015, net of reinsurance					N/A
Benefits payable, net of reinsurance					$	101

Reconciliation to Consolidated

The reconciliation of the net incurred and paid claims development tables to benefits payable in the consolidated statement of financial position is as follows:



	December 31, 2017
Net outstanding liabilities
Retail	$	3,893
Group and Specialty	568
Individual Commercial	101
Other insurance lines	36
Benefits payable, net of reinsurance	4,598
Reinsurance recoverable on unpaid claims
Retail	70
Group and Specialty	—
Individual Commercial	—
Other insurance lines	—
Total reinsurance recoverable on unpaid claims	70
Total benefits payable, gross	$	4,668