Aetna 2015 Annual Report Download - page 28

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During 2015 and 2014 we observed an increase in our completion factors relative to those assumed at the prior year
end. After considering the claims paid in 2015 and 2014 with dates of service prior to the fourth quarter of the
previous year, we observed the assumed weighted average completion factors were 140 and 60 basis points higher,
respectively, than previously estimated, resulting in a reduction of $282 million and $145 million in 2015 and in
2014, respectively, in health care costs payable that related to the prior year. We have considered the pattern of
changes in our completion factors when determining the completion factors used in our estimates of IBNR at
December 31, 2015. However, based on our historical claim experience, it is reasonably possible that our estimated
weighted average completion factor may vary by approximately plus or minus 17 basis points from our assumed
rates, which could impact health care costs payable by approximately plus or minus $181 million pretax.
Also during 2015 and 2014, we observed that our health care cost trend rates for claims with claim incurred dates of
three months or less before the financial statement date were lower than previously estimated. Specifically, after
considering the claims paid in 2015 and 2014 with claim incurred dates for the fourth quarter of the previous year,
we observed health care cost trend rates that were 6.5% and 4.9%, respectively, lower than previously estimated,
resulting in a reduction of $559 million in 2015 and $436 million in 2014 in health care costs payable that related to
the prior year.
We consider historical health care cost trend rates together with our knowledge of recent events that may impact
current trends when developing our estimates of current health care cost trend rates. When establishing our reserves
at December 31, 2015, we increased our assumed health care cost trend rates for the most recent three months by
6% from health care cost trend rates recently observed. However, based on our historical claim experience, it is
reasonably possible that our estimated health care cost trend rates may vary by plus or minus 3.5% from our
assumed rates, which could impact health care costs payable by plus or minus $287 million pretax.
Health care costs payable as of December 31, 2015 and 2014 consisted of the following products:
(Millions) 2015 2014
Commercial $ 3,251.9 $ 3,100.8
Government 3,053.8 2,520.3
Total health care costs payable $ 6,305.7 $ 5,621.1
Other Insurance Liabilities
We establish insurance liabilities other than health care costs payable for benefit claims primarily related to our
Group Insurance segment. We refer to these liabilities as other insurance liabilities. These liabilities primarily
relate to our life, disability and long-term care products.
Life and Disability
The liabilities for our life and disability products reflect benefit claims that have been reported to us but not yet
paid, estimates of claims that have been incurred but not yet reported to us, and future policy benefits earned under
insurance contracts. We develop these reserves and the related benefit expenses using actuarial principles and
assumptions that consider, among other things, discount, resolution and mortality rates. Completion factors are also
evaluated when estimating our reserves for claims incurred but not yet reported for life products. We also consider
the benefit payments from the U.S. Social Security Administration for which our disability members may be
eligible and which may offset our liability for disability claims (this is known as the Social Security offset). Each
period, we estimate these factors, to the extent relevant, based primarily on historical data, and use these estimates
to determine the assumptions underlying our reserve calculations. Given the extensive degree of judgment and
uncertainty used in developing these estimates, it is possible that our estimates could develop either favorably or
unfavorably.
The discount rate is the interest rate at which future benefit cash flows are discounted to determine the present value
of those cash flows. The discount rate we select is a critical estimate, because higher discount rates result in lower
reserves. We determine the discount rate based on the current and estimated future yield of the asset portfolio
supporting our life and disability reserves. If the discount rate we select in estimating our reserves is lower (higher)