Global Health Care Medical Costs Payable

6 Months Ended

Jun. 30, 2018

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 2017 Form 10-K for further information about the assumptions and estimates used to establish this liability.

Activity in medical costs payable was as follows:

	Six Months Ended
	June 30,		June 30,
(In millions)	2018		2017
Beginning balance	$	2,719	$	2,532
Less: Reinsurance and other amounts recoverable		265		275
Beginning balance, net		2,454		2,257
Incurred costs related to:
Current year		10,906		10,077
Prior years		(168)		(238)
Total incurred		10,738		9,839
Paid costs related to:
Current year		8,557		7,823
Prior years		1,873		1,684
Total paid		10,430		9,507
Ending balance, net		2,762		2,589
Add: Reinsurance and other amounts recoverable		243		259
Ending balance	$	3,005	$	2,848

Reinsurance and other amounts recoverable in the above table 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 $2.9 billion at June 30, 2018 and $2.7 billion at June 30, 2017. 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:

	Six Months Ended
(Dollars in millions)	June 30, 2018			June 30, 2017
		$	%⁽¹⁾			$	%⁽²⁾
Actual completion factors	$	93	0.5	%	$	108	0.6	%
Medical cost trend		66	0.3			121	0.6
Other		9	-			9	-
Total favorable (unfavorable) variance	$	168	0.8	%	$	238	1.2	%

(1) Percentage of current year incurred costs as reported for the year ended December 31, 2017.
(2) Percentage of current year incurred costs as reported for the year ended December 31, 2016.

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 $66 million for the six months ended June 30, 2018 compared with $97 million for the six months ended June 30, 2017. This development was attributed to both medical cost trend and completion factors resulting from lower than expected utilization of medical services in both periods.