Medical claims payable for the Health Care segment reflects estimates of the ultimate cost of claims that have been incurred but not yet reported, those that have been reported but not yet paid (reported claims in process) and other medical expense payable, that primarily comprises accruals for incentives and other amounts payable to health care professionals and facilities. Incurred but not yet reported is the majority of the reserve balance as follows:

	September 30,		December 31,
(In millions)	2012		2011
Incurred but not yet reported	$	1,372	$	952
Reported claims in process		132		129
Physician incentives and other medical expense payable		77		14
Medical claims payable	$	1,581	$	1,095

	For the period ended
	September 30,		December 31,
(In millions)	2012		2011
Balance at January 1,	$	1,095	$	1,246
Less: Reinsurance and other amounts recoverable		194		236
Balance at January 1, net		901		1,010


Acquired HealthSpring balances, net		504		-
Incurred claims related to:
Current year		9,875		8,308
Prior years		(164)		(126)
Total incurred		9,711		8,182
Paid claims related to:
Current year		8,555		7,450
Prior years		1,166		841
Total paid		9,721		8,291
Ending Balance, net		1,395		901
Add: Reinsurance and other amounts recoverable		186		194
Ending Balance	$	1,581	$	1,095

Reinsurance and other amounts recoverable reflect amounts due from reinsurers and policyholders to cover incurred but not reported and pending claims for minimum premium products and certain administrative services only business where the right of offset does not exist. See Note 12 for additional information on reinsurance. For the nine months ended September 30, 2012, actual experience differed from the Company's key assumptions resulting in favorable incurred claims related to prior years' medical claims payable of $164 million, or 2.0% of the current year incurred claims as reported for the year ended December 31, 2011. Actual completion factors accounted for $76 million, or 0.9% of the favorability while actual medical cost trend resulted in the remaining $88 million, or 1.1%.

For the year ended December 31, 2011, actual experience differed from the Company's key assumptions, resulting in favorable incurred claims related to prior years' medical claims payable of $126 million, or 1.5% of the current year incurred claims as reported for the year ended December 31, 2010. Actual completion factors accounted for $87 million favorability while actual medical cost trend resulted in the remaining $39 million

The corresponding impact of prior year development on shareholders' net income, including HealthSpring, was $61 million for the nine months ended September 30, 2012 compared with $52 million for the nine months ended September 30, 2011. The favorable effect of prior year development on net income in 2012 and 2011 primarily reflects low utilization of medical services. The change in the amount of the incurred claims related to prior years in the medical claims payable liability does not directly correspond to an increase or decrease in the Company's shareholders' net income recognized for the following reasons:

First, the Company consistently recognizes the actuarial best estimate of the ultimate liability within a level of confidence, as required by actuarial standards of practice, that require the liabilities be adequate under moderately adverse conditions. As the Company establishes the liability for each incurral year, the Company ensures that its assumptions appropriately consider moderately adverse conditions. When a portion of the development related to the prior year incurred claims is offset by an increase determined appropriate to address moderately adverse conditions for the current year incurred claims, the Company does not consider that offset amount as having any impact on shareholders' net income.

Second, as a result of the adoption of the commercial minimum medical loss ratio (MLR) provisions of the Patient Protection and Affordable Care Act in 2011, changes in medical claim estimates due to prior year development may be offset by a change in the MLR rebate accrual.

Third, changes in reserves for the Company's retrospectively experience-rated business do not always impact shareholders' net income. For the Company's retrospectively experience-rated business only adjustments to medical claims payable on accounts in deficit affect shareholders' net income. An increase or decrease to medical claims payable on accounts in deficit, in effect, accrues to the Company and directly impacts shareholders' net income. An account is in deficit when the accumulated medical costs and administrative charges, including profit charges, exceed the accumulated premium received. Adjustments to medical claims payable on accounts in surplus accrue directly to the policyholder with no impact on the Company's shareholders' net income. An account is in surplus when the accumulated premium received exceeds the accumulated medical costs and administrative charges, including profit charges.

The determination of liabilities for Health Care medical claims payable requires the Company to make critical accounting estimates. See Note 2(N) to the Consolidated Financial Statements in the Company's 2011 Annual Report.