Health Care Costs Payable

12 Months Ended

Dec. 31, 2019

The following is information about incurred and cumulative paid health care claims development as of December 31, 2019, net of reinsurance, and the total IBNR liabilities plus expected development on reported claims included within the net incurred claims amounts. See Note 1 ‘‘Significant Accounting Policies’’ for information on how the Company estimates IBNR reserves and health care costs payable as well as changes to those methodologies, if any. The Company’s estimate of IBNR liabilities is primarily based on trend and completion factors. Claim frequency is not used in the calculation of the Company’s liability. In addition, it is impracticable to disclose claim frequency information for health care claims due to the Company’s inability to gather consistent claim frequency information across its multiple claims processing systems. Any claim frequency count disclosure would not be comparable across the Company’s different claim processing systems and would not be consistent from period to period based on the volume of claims processed through each system. As a result, health care claim count frequency is not included in the disclosures below.

The Company acquired Aetna on November 28, 2018. The information about incurred and cumulative paid health care claims development in the table below is presented on a retrospective basis, under which the Company included Aetna’s historical development of health care claims for all years presented in the table. The information about incurred and paid health care claims development for the year ended December 31, 2018 is presented as required unaudited supplemental information.



In millions	Incurred Health Care Claims, Net of Reinsurance For the Years Ended December 31,
Date of Service	2018		2019
	(Unaudited)
2018	$	44,962	$	44,621
2019			51,426
	Total		$	96,047

In millions	Cumulative Paid Health Care Claims, Net of Reinsurance For the Years Ended December 31,
Date of Service	2018		2019
	(Unaudited)
2018	$	39,440	$	44,373
2019			44,987
	Total		$	89,360
All outstanding liabilities for health care costs payable prior to 2018, net of reinsurance			56
Total outstanding liabilities for health care costs payable, net of reinsurance			$	6,743

At December 31, 2019, the Company’s liabilities for IBNR plus expected development on reported claims totaled approximately $5.0 billion. Substantially all of the Company’s liabilities for IBNR plus expected development on reported claims at December 31, 2019 related to the current calendar year.

The reconciliation of the December 31, 2019 health care net incurred and paid claims development tables to the health care costs payable liability on the consolidated balance sheet is as follows:



In millions	December 31, 2019
Short-duration health care costs payable, net of reinsurance	$	6,743
Reinsurance recoverables	5
Premium deficiency reserve	4
Insurance lines other than short duration	127
Total health care costs payable	$	6,879

Prior to the Aetna Acquisition on November 28, 2018, the Company’s health care costs payable balance was immaterial and related to unpaid pharmacy claims for its SilverScript PDP. Accordingly, the Company has not provided disclosures for health care costs payable for periods prior to 2018. The following table shows the components of the change in health care costs payable during 2019 and 2018:



In millions	2019			2018
Health care costs payable, beginning of the period	$	6,147		$	5
Less: Reinsurance recoverables	4			—
Health care costs payable, beginning of the period, net	6,143			5
Acquisitions, net	—			5,357
Reclassification from pharmacy claims and discounts payable ⁽¹⁾	—			776
Add: Components of incurred health care costs
Current year	52,723			6,594
Prior years	(524		)	(42		)
Total incurred health care costs ⁽²⁾	52,199			6,552
Less: Claims paid
Current year	46,158			6,303
Prior years	5,314			260
Total claims paid	51,472			6,563
Add: Premium deficiency reserve	4			16
Health care costs payable, end of period, net	6,874			6,143
Add: Reinsurance recoverables	5			4
Health care costs payable, end of period	$	6,879		$	6,147

^{_____________________________________________}


(1)	As of the Aetna Acquisition Date, the Company reclassified $776 million of the Pharmacy Services segment’s unpaid retail pharmacy claims to third parties from pharmacy claims and discounts payable to health care costs payable as the third party liability was incurred to support the Health Care Benefits segment’s insured members.

(2)

Total incurred health care costs for the year ended December 31, 2019 and 2018 in the table above exclude (i) $4 million and $16 million, respectively, related to a premium deficiency reserve related to the Company’s Medicaid products, (ii) $41 million and $4 million, respectively, of benefit costs recorded in the Health Care Benefits segment that are included in other insurance liabilities on the consolidated balance sheets and (iii) $285 million and $22 million, respectively, of benefit costs recorded in the Corporate/Other segment that are included in other insurance liabilities on the consolidated balance sheets.

The Company’s estimates of prior years’ health care costs payable decreased by $524 million in 2019 because claims were settled for amounts less than originally estimated (i.e., the amount of claims incurred was lower than originally estimated), primarily due to lower health care cost trends as well as the actual claim submission time being faster than originally assumed (i.e., the Company’s completion factors were higher than originally assumed) in estimating health care costs payable at the end of the prior year. This development does not directly correspond to an increase in the Company’s operating results as these reductions were offset by estimated current period health care costs when the Company established the estimate of the current year health care costs payable.