Aetna 2015 Annual Report Download - page 101

Annual Report- Page 95
The assets of each account are legally segregated and are not subject to claims arising from our other businesses.
Deposits, withdrawals, net investment income and net realized and net unrealized capital gains and losses on
Separate Accounts assets are not reflected in our statements of income or cash flows. Management fees charged to
contract holders are included in fees and other revenue and recognized over the period earned.
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 Insured Commercial, 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 four percent of
our health care costs related to capitated arrangements in 2015, and approximately five percent of our health care
costs related to capitated arrangements in each of 2014 and 2013. 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% in both 2015 and 2014. 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
2015 and 2014. 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 approximately $2.0 billion at both December 31, 2015 and 2014. The
undiscounted value of these unpaid claim liabilities was approximately $2.7 billion at both December 31, 2015
and 2014. The discount rates generally reflect our expected investment returns for the investments supporting all
incurral years of these liabilities and ranged from 3.5% to 6.0% in 2015 and 3.0% to 6.0% in 2014. 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