Global Health Care Medical Costs Payable

9 Months Ended

Sep. 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				Nine Months Ended
	September 30,		September 30,		September 30,		September 30,
(In millions)	2017		2016		2017		2016
Beginning balance	$	2,848	$	2,577	$	2,532	$	2,355
Less: Reinsurance and other amounts recoverable		259		208		275		243
Beginning balance, net		2,589		2,369		2,257		2,112
Incurred costs related to:
Current year		4,910		4,697		15,057		14,318
Prior years		(30)		(5)		(268)		(88)
Total incurred		4,880		4,692		14,789		14,230
Paid costs related to:
Current year		4,901		4,705		12,794		12,285
Prior years		46		82		1,730		1,783
Total paid		4,947		4,787		14,524		14,068
Ending balance, net		2,522		2,274		2,522		2,274
Add: Reinsurance and other amounts recoverable		261		276		261		276
Ending balance	$	2,783	$	2,550	$	2,783	$	2,550

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 $2.6 billion at September 30, 2017 and $2.4 billion at September 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 September 30, incurred costs related to prior years were attributable to the following factors:

	Three Months Ended
(Dollars in millions)	September 30, 2017			September 30, 2016
		$	%⁽¹⁾			$	%⁽²⁾
Actual completion factors	$	20	0.1	%	$	2	-	%
Medical cost trend		10	0.1			3	-
Total favorable (unfavorable) variance	$	30	0.2	%	$	5	-	%
	Nine Months Ended
(Dollars in millions)	September 30, 2017			September 30, 2016
		$	%⁽¹⁾			$	%⁽²⁾
Actual completion factors	$	128	0.7	%	$	65	0.3	%
Medical cost trend		131	0.7			31	0.2
Other⁽³⁾		9	-			(8)	-
Total favorable (unfavorable) variance	$	268	1.4	%	$	88	0.5	%

(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 sharing of additional risk adjustment revenue with providers.

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.

Favorable prior year development increased shareholders’ net income by $19 million for the three months and $116 million for the nine months ended September 30, 2017. Attribution of this development was divided almost equally between medical cost trend and completion factors, resulting from lower than expected utilization of medical services. For the three months and nine months ended September 30, 2016 prior year development was not significant.