Health Care Costs Payable

12 Months Ended

Dec. 31, 2020

The following is information about incurred and cumulative paid health care claims development as of December 31, 2020, 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 information about incurred and paid health care claims development for the year ended December 31, 2019 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	2019		2020
	(Unaudited)
2019	$	51,426	$	51,056
2020			54,529
	Total		$	105,585

In millions	Cumulative Paid Health Care Claims, Net of Reinsurance For the Years Ended December 31,
Date of Service	2019		2020
	(Unaudited)
2019	$	44,987	$	50,394
2020			47,567
	Total		$	97,961
All outstanding liabilities for health care costs payable prior to 2019, net of reinsurance			144
Total outstanding liabilities for health care costs payable, net of reinsurance			$	7,768

At December 31, 2020, the Company’s liabilities for IBNR plus expected development on reported claims totaled approximately $6.1 billion. Substantially all of the Company’s liabilities for IBNR plus expected development on reported claims at December 31, 2020 related to the current calendar year.

The reconciliation of the December 31, 2020 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, 2020
Short-duration health care costs payable, net of reinsurance	$	7,768
Reinsurance recoverables	10
Premium deficiency reserve	11
Insurance lines other than short duration	147
Total health care costs payable	$	7,936

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. The following table shows the components of the change in health care costs payable during the years ended December 31, 2020, 2019 and 2018:


In millions	2020		2019		2018
Health care costs payable, beginning of period	$	6,879	$	6,147	$	5
Less: Reinsurance recoverables	5		4		—
Health care costs payable, beginning of period, net	6,874		6,143		5
Acquisitions, net	414		—		5,357
Reclassification from pharmacy claims and discounts payable (1)	—		—		776
Add: Components of incurred health care costs
Current year	55,835		52,723		6,594
Prior years	(429)		(524)		(42)
Total incurred health care costs (2)	55,406		52,199		6,552
Less: Claims paid
Current year	48,770		46,158		6,303
Prior years	6,009		5,314		260
Total claims paid	54,779		51,472		6,563
Add: Premium deficiency reserve	11		4		16
Health care costs payable, end of period, net	7,926		6,874		6,143
Add: Reinsurance recoverables	10		5		4
Health care costs payable, end of period	$	7,936	$	6,879	$	6,147

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(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 years ended December 31, 2020, 2019 and 2018 in the table above exclude (i) $11 million, $4 million and $16 million, respectively, for a premium deficiency reserve related to the Company’s Medicaid products, (ii) $41 million, $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) $221 million, $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 $429 million and $524 million in 2020 and 2019, respectively, 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.