Cigna 2008 Annual Report Download - page 119

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Note 5 — Health Care Medical Claims Payable
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 which have been reported but not yet paid (reported claims in process) and other medical expense payable, which
primarily comprises accruals for provider incentives and other amounts payable to providers. Incurred but not yet reported comprises
the majority of the reserve balance as follows:
(In millions) 2008 2007
Incurred but not yet reported $ 782 $ 786
Reported claims in process 114 145
Other medical expense payable 28 44
Medical claims payable $ 924 $ 975
Activity in medical claims payable was as follows:
(In millions) 2008 2007 2006
Balance at January 1, $ 975 $ 960 $ 1,165
Less: Reinsurance and other amounts recoverable 258 250 342
Balance at January 1, net 717 710 823
Acquired April 1, net 90 - -
Incurred claims related to:
Current year 7,312 6,878 6,284
Prior years (60) (80) (173)
Total incurred 7,252 6,798 6,111
Paid claims related to:
Current year 6,716 6,197 5,615
Prior years 630 594 609
Total paid 7,346 6,791 6,224
Balance at December 31, net 713 717 710
Add: Reinsurance and other amounts recoverable 211 258 250
Balance at December 31, $ 924 $ 975 $ 960
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 8 for additional information on reinsurance. For the year ended December 31, 2008, actual experience differed
from the Company’s key assumptions resulting in favorable incurred claims related to prior years’ medical claims payable of $60
million, or 0.9% of the current year incurred claims as reported for the year ended December 31, 2007. Actual completion factors
resulted in a reduction in medical claims payable of $29 million, or 0.4% of the current year incurred claims as reported for the year
ended December 31, 2007 for the insured book of business. Actual medical cost trend resulted in a reduction in medical claims
payable of $31 million, or 0.5% of the current year incurred claims as reported for the year ended December 31, 2007 for the insured
book of business.
For the year ended December 31, 2007, actual experience differed from the Company's key assumptions, resulting in favorable
incurred claims related to prior years’ medical claims payable of $80 million, or 1.3% of the current year incurred claims as reported
for the year ended December 31, 2006. Actual completion factors resulted in a reduction of the medical claims payable of $46
million, or 0.7% of the current year incurred claims as reported for the year ended December 31, 2006 for the insured book of
business. Actual medical cost trend resulted in a reduction of the medical claims payable of $34 million, or 0.6% of the current year
incurred claims as reported for the year ended December 31, 2006 for the insured book of business.
The favorable impact in 2008 and 2007 relating to completion factor and medical cost trend variances is primarily due to the release of
the provision for moderately adverse conditions, which is a component of the assumptions for both completion factors and medical
cost trend, established for claims incurred related to prior years. This release was substantially offset by the establishment of the
provision for moderately adverse conditions established for claims incurred related to the current year.