Global Health Care Medical Costs Payable

6 Months Ended

Jun. 30, 2017

Liability For Unpaid Claims And Claims Adjustment Expense [Line Items]

Global Health Care Medical Costs Payable

Note 6 — Global Health Care Medical Costs Payable

Medical costs payable for the Global Health Care segment reflects estimates of the ultimate cost of claims that have been incurred but not reported, including expected development on reported claims, those that have been reported but not yet paid (reported claims in process), and other medical care expenses and services payable that are primarily comprised of accruals for incentives and other amounts payable to health care professionals and facilities. See Note 7 to the Consolidated Financial Statements in the Company’s 2016 Form 10-K for further information about the assumptions and estimates used to establish this liability.

Activity in medical costs payable was as follows:

	Three Months Ended				Six Months Ended
	June 30,		June 30,		June 30,		June 30,
(In millions)	2017		2016		2017		2016
Beginning balance	$	2,770	$	2,646	$	2,532	$	2,355
Less: Reinsurance and other amounts recoverable		256		207		275		243
Beginning balance, net		2,514		2,439		2,257		2,112
Incurred costs related to:
Current year		4,986		4,796		10,147		9,621
Prior years		(62)		(19)		(238)		(83)
Total incurred		4,924		4,777		9,909		9,538
Paid costs related to:
Current year		4,674		4,595		7,893		7,580
Prior years		175		252		1,684		1,701
Total paid		4,849		4,847		9,577		9,281
Ending balance, net		2,589		2,369		2,589		2,369
Add: Reinsurance and other amounts recoverable		259		208		259		208
Ending balance	$	2,848	$	2,577	$	2,848	$	2,577

Reinsurance and other amounts recoverable includes 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 8 for additional information on reinsurance.

The total of incurred but not reported liabilities plus expected development on reported claims, including reported claims in process, was $2.7 billion at June 30, 2017 and $2.4 billion at June 30, 2016. The remaining balance in both periods reflects amounts due for physician incentives and other medical care expenses and services payable.

For the periods ended June 30, incurred costs related to prior years were attributable to the following factors:

	Three Months Ended
(Dollars in millions)	June 30, 2017			June 30, 2016
		$	%⁽¹⁾			$	%⁽²⁾
Actual completion factors	$	30	0.2	%	$	12	0.1	%
Medical cost trend		23	0.1			-	-
Other⁽³⁾		9	-			7	-
Total favorable (unfavorable) variance	$	62	0.3	%	$	19	0.1	%
	Six Months Ended
(Dollars in millions)	June 30, 2017			June 30, 2016
		$	%⁽¹⁾			$	%⁽²⁾
Actual completion factors	$	108	0.6	%	$	63	0.3	%
Medical cost trend		121	0.6			28	0.1
Other⁽³⁾		9	-			(8)	-
Total favorable (unfavorable) variance	$	238	1.2	%	$	83	0.4	%

(1) Percentage of current year incurred costs as reported for the year ended December 31, 2016.
(2) Percentage of current year incurred costs as reported for the year ended December 31, 2015.
(3) Other amounts in 2017 primarily related to an increase in the 2016 reinsurance reimbursement rate from the Centers for Medicare and Medicaid Services ("CMS") under the Patient Protection and Affordable Care Act (the "Health Care Reform Act”). Other amounts in 2016 primarily related to increased medical costs in the Government segment resulting from additional provider risk sharing.

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 a $36 million increase for the three months and a $97 million increase for the six months ended June 30, 2017. The net impact of prior year development for the three months and six months ended June 30, 2016 was not significant. Favorable prior year development for the three months and six months ended June 30, 2017 was attributed almost equally between medical cost trend and completion factors, resulting from lower than expected utilization of medical services.