Accounting policy. The Company uses actuarial principles and assumptions that are consistently applied each reporting period and recognizes the actuarial best estimate of the ultimate liability along with a margin for adverse deviation. This approach is consistent with actuarial standards of practice that the liabilities be adequate under moderately adverse conditions.

This liability is primarily calculated using “completion factors” developed by comparing the claim incurral date to the date claims were paid. Completion factors are impacted by several key items including changes in: 1) electronic (auto-adjudication) versus manual claim processing, 2) provider claims submission rates, 3) membership and 4) the mix of products. The Company uses historical completion factors combined with an analysis of current trends and operational factors to develop current estimates of completion factors. The Company estimates the liability for claims incurred in each month by applying the current estimates of completion factors to the current paid claims data. This approach implicitly assumes that historical completion rates will be a useful indicator for the current period.

For more recent months, the Company relies more heavily on medical cost trend analysis that reflects expected claim payment patterns and other relevant operational considerations. Medical cost trend is primarily impacted by medical service utilization and unit costs that are affected by changes in the level and mix of medical benefits offered, including inpatient, outpatient and pharmacy, the impact of copays and deductibles, changes in provider practices and changes in consumer demographics and consumption behavior.

For each reporting period, the Company compares key assumptions used to establish the medical costs payable to actual experience. When actual experience differs from these assumptions, medical costs payable are adjusted through current period shareholders' net income. Additionally, the Company evaluates expected future developments and emerging trends that may impact key assumptions. The process used to determine this liability requires the Company to make critical accounting estimates that involve considerable judgment, reflecting the variability inherent in forecasting future claim payments. These estimates are highly sensitive to changes in the Company's key assumptions, specifically completion factors and medical cost trends.

Liability balance details. The liability for Global Health Care medical costs payable as of December 31 is comprised of the following:

(In millions)	2016		2015
Incurred but not reported	$	1,858	$	1,757
Reported claims in process		556		470
Physician incentives and other medical care expense and services payable		118		128
Medical costs payable	$	2,532	$	2,355

(In millions)	2016		2015		2014
Balance at January 1,	$	2,355	$	2,180	$	2,050
Less: Reinsurance and other amounts recoverable		243		252		194
Balance at January 1, net		2,112		1,928		1,856
Incurred costs related to:
Current year		19,087		18,564		16,853
Prior years		(78)		(210)		(159)
Total incurred		19,009		18,354		16,694
Paid costs related to:
Current year		17,052		16,588		14,966
Prior years		1,812		1,582		1,656
Total paid		18,864		18,170		16,622
Balance at December 31, net		2,257		2,112		1,928
Add: Reinsurance and other amounts recoverable		275		243		252
Balance at December 31,	$	2,532	$	2,355	$	2,180

Reinsurance and other amounts recoverable reflect amounts due from reinsurers and policyholders to cover incurred but not reported and pending claims for certain business where the Company administers the plan benefits but the right of offset does not exist. See Note 9 for additional information on reinsurance.

For the years ended December 31, variances in incurred costs related to prior years' medical costs payable that resulted from the differences between actual experience and the Company's key assumptions were as follows:

($ in millions)	2016			2015
		$	%⁽¹⁾		$	%⁽²⁾
Actual completion factors	$	59	0.3%	$	62	0.4%
Medical cost trend		27	0.1%		115	0.7%
Other ⁽³⁾		(8)	0.0%		33	0.2%
Total favorable (unfavorable) variance	$	78	0.4%	$	210	1.3%

(1) Percentage of current year incurred costs as reported for 2015.
(2) Percentage of current year incurred costs as reported for 2014.
(3) In 2015, the other balance primarily relates to an increase in the 2014 reinsurance reimbursement rate from CMS under the Health Care Reform Act.

Incurred costs related to prior years in the table above, although adjusted through shareholders' net income, do not directly correspond to an increase or decrease to shareholders' net income. The primary reason for this difference is that decreases to prior year incurred costs pertaining to the portion of the liability established for moderately adverse conditions are not considered as impacting shareholders' net income if they are offset by increases in the current year provision for moderately adverse conditions.

The net impact of prior year development on shareholders' net income was not significant for the year ended December 31, 2016 compared with a $60 million increase for the year ended December 31, 2015. Favorable prior year development implies primarily lower than expected utilization of medical services and vice versa while amounts close to zero imply utilization of medical services that are consistent with expectations.

The table below depicts the incurred and paid claims development as of December 31, 2016 (net of reinsurance), claims frequency metrics and incurred but not reported liabilities for Cigna's Global Health Care medical costs payable. The information about incurred and paid claims development for the year ended December 31, 2015 is presented as supplementary information and is unaudited.

($ in millions, except for claims frequency)
	Incurred Costs
Incurral Year	2015 (Unaudited)		2016		Medical Costs Payable		Claims Frequency
2015	$	18,564	$	18,487	$	182		2.5 million
2016				19,087	$	2,035		2.9 million
Cumulative incurred costs for the periods presented			$	37,574

	Cumulative Paid Costs
Incurral Year	2015 (Unaudited)		2016
2015	$	16,588	$	18,305
2016				17,052
Cumulative paid costs for the periods presented			$	35,357

Outstanding liabilities prior to 2015				40
Net outstanding liabilities for Global Health Care medical costs payable				2,257
Reinsurance and other amounts recoverable				275
Total liability for Global Health Care medical costs payable			$	2,532

More than 95% of health claims for an accident year are paid within one year of their incurred date.

There is no single or common claim frequency metric used in the health care industry. The Company believes a relevant metric for the Global Health Care segment is the number of customers for whom an insured medical claim was paid. This metric will generally be consistent and comparable over time.