Aetna 2014 Annual Report Download - page 92

Annual Report- Page 86
Health Care and Other Insurance Liabilities
Health care costs payable
Health care costs payable consist principally of unpaid fee-for-service medical, dental and pharmacy claims,
capitation costs and other amounts due to health care providers pursuant to risk-sharing arrangements related to
Health Care’s POS, PPO, HMO, Indemnity, Medicare and Medicaid products. Unpaid health care claims include
our estimate of payments we will make on claims reported to us but not yet paid and for health care services
rendered to members but not yet reported to us as of the balance sheet date (collectively, “IBNR”). Also included
in these estimates is the cost of services that will continue to be rendered after the balance sheet date if we are
obligated to pay for such services in accordance with contractual or regulatory requirements. Such estimates are
developed using actuarial principles and assumptions which consider, among other things, historical and projected
claim submission and processing patterns, assumed and historical medical cost trends, historical utilization of
medical services, claim inventory levels, changes in membership and product mix, seasonality and other relevant
factors. We reflect changes in these estimates in health care costs in our operating results in the period they are
determined. Capitation costs represent contractual monthly fees paid to participating physicians and other medical
providers for providing medical care, regardless of the medical services provided to the member. Approximately
five percent of our health care costs related to capitated arrangements in each of the last three years. Amounts due
under risk-sharing arrangements are based on the terms of the underlying contracts with the providers and consider
claims experience under the contracts through the balance sheet date.
Future policy benefits
Future policy benefits consist primarily of reserves for limited payment pension and annuity contracts in the Large
Case Pensions business and long-duration group life and long-term care insurance contracts in the Group Insurance
business. Reserves for limited payment contracts are computed using actuarial principles that consider, among
other things, assumptions reflecting anticipated mortality, retirement, expense and interest rate experience. Such
assumptions generally vary by plan, year of issue and policy duration. Assumed interest rates on such contracts
ranged from .8% to 11.3% and 1.3% to 11.3% in 2014 and 2013, respectively. We periodically review mortality
assumptions against both industry standards and our experience. Reserves for long-duration group life and long-
term care contracts represent our estimate of the present value of future benefits to be paid to or on behalf of
policyholders less the present value of future net premiums. Assumed interest rates on such contracts ranged from
2.5% to 8.8% in both 2014 and 2013. Our estimate of the present value of future benefits under such contracts is
based upon mortality, morbidity and interest rate assumptions.
Unpaid claims
Unpaid claims consist primarily of reserves associated with certain short-duration group disability and term life
insurance contracts in the Group Insurance business, including an estimate for IBNR as of the balance sheet date.
Reserves associated with certain short-duration group disability and term life insurance contracts are based upon
our estimate of the present value of future benefits, which is based on assumed investment yields and assumptions
regarding mortality, morbidity and recoveries from the U.S. Social Security Administration. We develop our
estimate of IBNR using actuarial principles and assumptions which consider, among other things, contractual
requirements, claim incidence rates, claim recovery rates, seasonality and other relevant factors. We discount
certain claim liabilities related to group long-term disability and life insurance waiver of premium contracts. The
discounted unpaid claim liabilities were $2.0 billion and $1.9 billion at December 31, 2014 and 2013, respectively.
The undiscounted value of these unpaid claim liabilities was $2.7 billion and $2.6 billion at December 31, 2014
and 2013, respectively. The discount rates generally reflect our expected investment returns for the investments
supporting all incurral years of these liabilities and ranged from 3.0% to 6.0% in 2014 and 3.3% to 6.0% in 2013.
The discount rates for retrospectively-rated contracts are set at contractually specified levels. Our estimates of
unpaid claims are subject to change due to changes in the underlying experience of the insurance contracts,
changes in investment yields or other factors, and these changes are recorded in current and future benefits in our
statements of income in the period they are determined.
Policyholders’ funds
Policyholders’ funds consist primarily of reserves for pension and annuity investment contracts in the Large Case
Pensions business and customer funds associated with group life and health contracts in the Health Care and Group