Global Health Care Medical Costs Payable

9 Months Ended

Sep. 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:

	Nine Months Ended
	September 30,		September 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		16,287		14,952
Prior years		(189)		(268)
Total incurred		16,098		14,684
Paid costs related to:
Current year		13,915		12,689
Prior years		1,925		1,730
Total paid		15,840		14,419
Ending balance, net		2,712		2,522
Add: Reinsurance and other amounts recoverable		243		261
Ending balance	$	2,955	$	2,783

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 for which 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 $ 2.8 billion at September 30, 2018 and $ 2.6 billion at September 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 September 30, incurred costs related to prior years were attributable to the following factors:

	Nine Months Ended
(Dollars in millions)	September 30, 2018			September 30, 2017
		$	%⁽¹⁾			$	%⁽²⁾
Actual completion factors	$	114	0.6	%	$	128	0.7	%
Medical cost trend		66	0.3			131	0.7
Other		9	-			9	-
Total favorable (unfavorable) variance	$	189	0.9	%	$	268	1.4	%

(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 $85 million for the nine months ended September 30, 2018 compared with $116 million for the nine months ended September 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.