Medical Claims Payable

A reconciliation of the beginning and ending balances for medical claims payable, by segment (see Note 19, "Segment Information"), for the year ended December 31, 2016 is as follows:



	Commercial & Specialty Business			Government Business			Total
Gross medical claims payable, beginning of year	$	3,396.1		$	4,173.7		$	7,569.8
Ceded medical claims payable, beginning of year	(635.7		)	(9.9		)	(645.6		)
Net medical claims payable, beginning of year	2,760.4			4,163.8			6,924.2
Net incurred medical claims:
Current year	27,797.3			38,574.1			66,371.4
Prior years redundancies	(466.5		)	(383.9		)	(850.4		)
Total net incurred medical claims	27,330.8			38,190.2			65,521.0
Net payments attributable to:
Current year medical claims	25,119.3			34,037.3			59,156.6
Prior years medical claims	2,226.2			3,708.9			5,935.1
Total net payments	27,345.5			37,746.2			65,091.7
Net medical claims payable, end of year	2,745.7			4,607.8			7,353.5
Ceded medical claims payable, end of year	521.3			17.8			539.1
Gross medical claims payable, end of year	$	3,267.0		$	4,625.6		$	7,892.6

A reconciliation of the beginning and ending balances for medical claims payable, by segment, for the year ended December 31, 2015 is as follows:



	Commercial & Specialty Business			Government Business			Total
Gross medical claims payable, beginning of year	$	3,541.4		$	3,319.8		$	6,861.2
Ceded medical claims payable, beginning of year	(762.5		)	(4.9		)	(767.4		)
Net medical claims payable, beginning of year	2,778.9			3,314.9			6,093.8
Business combinations and purchase adjustments	—			121.8			121.8
Net incurred medical claims:
Current year	26,798.5			33,909.9			60,708.4
Prior years redundancies	(480.3		)	(319.9		)	(800.2		)
Total net incurred medical claims	26,318.2			33,590.0			59,908.2
Net payments attributable to:
Current year medical claims	24,145.7			29,922.0			54,067.7
Prior years medical claims	2,191.0			2,940.9			5,131.9
Total net payments	26,336.7			32,862.9			59,199.6
Net medical claims payable, end of year	2,760.4			4,163.8			6,924.2
Ceded medical claims payable, end of year	635.7			9.9			645.6
Gross medical claims payable, end of year	$	3,396.1		$	4,173.7		$	7,569.8

A reconciliation of the beginning and ending balances for medical claims payable, by segment, for the year ended December 31, 2014 is as follows:



	Commercial & Specialty Business			Government Business			Total
Gross medical claims payable, beginning of year	$	3,129.9		$	2,997.3		$	6,127.2
Ceded medical claims payable, beginning of year	(21.7		)	(1.7		)	(23.4		)
Net medical claims payable, beginning of year	3,108.2			2,995.6			6,103.8
Net incurred medical claims:
Current year	27,708.1			28,597.7			56,305.8
Prior years redundancies	(239.5		)	(302.4		)	(541.9		)
Total net incurred medical claims	27,468.6			28,295.3			55,763.9
Net payments attributable to:
Current year medical claims	25,016.9			25,337.0			50,353.9
Prior years medical claims	2,781.0			2,639.0			5,420.0
Total net payments	27,797.9			27,976.0			55,773.9
Net medical claims payable, end of year	2,778.9			3,314.9			6,093.8
Ceded medical claims payable, end of year	762.5			4.9			767.4
Gross medical claims payable, end of year	$	3,541.4		$	3,319.8		$	6,861.2

Amounts incurred related to prior years vary from previously estimated liabilities as the claims are ultimately settled. Liabilities at any period end are continually reviewed and re-estimated as information regarding actual claims payments, or runout, becomes known. This information is compared to the originally established year end liability. Negative amounts reported for incurred medical claims related to prior years result from claims being settled for amounts less than originally estimated. The prior year redundancy of $850.4 shown above for the year ended December 31, 2016 represents an estimate based on paid claim activity from January 1, 2016 to December 31, 2016. Medical claim liabilities are usually described as having a “short tail,” which means that they are generally paid within twelve months of the member receiving service from the provider. Accordingly, the majority of the $850.4 redundancy relates to claims incurred in calendar year 2015.

The following table provides a summary of the two key assumptions having the most significant impact on our incurred but not paid liability estimates for the years ended December 31, 2016, 2015 and 2014, which are the completion and trend factors. These two key assumptions can be influenced by utilization levels, unit costs, mix of business, benefit plan designs, provider reimbursement levels, processing system conversions and changes, claim inventory levels, claim processing patterns, claim submission patterns and operational changes resulting from business combinations.



	Favorable Developments by Changes in Key Assumptions
	2016			2015			2014
Assumed trend factors	$	(591.3	)	$	(467.9	)	$	(399.5	)
Assumed completion factors	(259.1		)	(332.3		)	(142.4		)
Total	$	(850.4	)	$	(800.2	)	$	(541.9	)

The favorable development recognized in 2016 and 2015 resulted primarily from trend factors in late 2015 and late 2014, respectively, developing more favorably than originally expected as well as a smaller but significant contribution from completion factor development. The favorable development recognized in 2014 was driven by trend factors in late 2013 developing more favorably than originally expected.

The reconciliation of net incurred medical claims to benefit expense included in the consolidated statements of income is as follows:



	Years Ended December 31
	2016		2015		2014
Net incurred medical claims:
Commercial & Specialty Business	$	27,330.8	$	26,318.2	$	27,468.6
Government Business	38,190.2		33,590.0		28,295.3
Total net incurred medical claims	65,521.0		59,908.2		55,763.9
Quality improvement and other claims expense	1,313.4		1,208.7		1,091.0
Benefit expense	$	66,834.4	$	61,116.9	$	56,854.9

Incurred and paid claims development, net of reinsurance, for the Commercial & Specialty Business for the years ended December 31, 2016, 2015 and 2014 is as follows:



Commercial & Specialty Business	Cumulative Incurred Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance
Claim Year	2014		2015		2016
2014 & Prior	$	30,576.8	$	30,096.5	$	30,121.8
2015			26,798.5		26,306.6
2016					27,797.3
Total					$	84,225.7



Commercial & Specialty Business	Cumulative Paid Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance
Claim Year	2014		2015		2016
2014 & Prior	$	27,797.9	$	29,988.9	$	30,095.6
2015			24,145.7		26,265.1
2016					25,119.3
Total					$	81,480.0

At December 31, 2016, the total of incurred but not reported liabilities plus expected development on reported claims for the Commercial & Specialty Business was $26.2, $41.5 and $2,678.0 for the claim years 2014 and prior, 2015 and 2016, respectively.

At December 31, 2016, the cumulative number of reported claims for the Commercial & Specialty Business was 131.6, 118.6 and 111.2 for the claims years 2014 and prior, 2015 and 2016, respectively.

Incurred and paid claims development, net of reinsurance, for the Government Business as of and for the years ended December 31, 2016, 2015 and 2014 is as follows:



Government Business	Cumulative Incurred Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance
Claim Year	2014		2015		2016
2014 & Prior	$	31,290.9	$	30,971.0	$	30,911.5
2015			33,909.9		33,585.6
2016					38,574.1
Total					$	103,071.2



Government Business	Cumulative Paid Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance
Claim Year	2014		2015		2016
2014 & Prior	$	27,976.0	$	30,916.9	$	30,906.0
2015			29,800.3		33,520.2
2016					34,037.2
Total					$	98,463.4

At December 31, 2016, the total of incurred but not reported liabilities plus expected development on reported claims for the Government Business was $5.5, $65.4 and $4,536.9 for the claim years 2014 and prior, 2015 and 2016, respectively.

At December 31, 2016, the cumulative number of reported claims for the Government Business was 193.0, 189.0 and 193.6 for the claims years 2014 and prior, 2015 and 2016, respectively.

The information about incurred and paid claims development for the years ended December 31, 2014 and 2015, for both the Commercial & Specialty Business and Government Business, is presented as supplementary information.

The cumulative number of reported claims for each claim year for both the Commercial & Specialty Business and Government Business have been developed using historical data captured by our claim payment systems. The provided claim amounts are not a precise tool for understanding utilization of medical services. They could be impacted by a variety of factors including changes in provider billing practices, provider reimbursement arrangements, mix of services, benefit design or processing systems. The cumulative number of reported claims has been provided to comply with FASB accounting standards and is not used by management in its claims analysis. Our cumulative number of reported claims may not be comparable to similar measures reported by other health benefits companies.

The reconciliation of the Commercial & Specialty Business and Government Business incurred and paid claims development information, reflected in the tables above, to the consolidated ending balance for medical claims payable, as of December 31, 2016, is as follows:



	Commercial & Specialty Business		Government Business		Total
Cumulative incurred claims and allocated claim adjustment expenses, net of reinsurance	$	84,225.7	$	103,071.2	$	187,296.9
Less: cumulative paid claims and allocated claim adjustment expenses, net of reinsurance	81,480.0		98,463.4		179,943.4
Net medical claims payable, end of year	2,745.7		4,607.8		7,353.5
Ceded medical claims payable, end of year	521.3		17.8		539.1
Gross medical claims payable, end of year	$	3,267.0	$	4,625.6	$	7,892.6