Cigna 2011 Annual Report Download - page 103

81CIGNA CORPORATION2011 Form10K
PART II
ITEM 8 Financial Statements and Supplementary Data
NOTE 5 Health Care Medical Claims Payable
Medical claims payable for the Health Care segment reects 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) 2011 2010
Incurred but not yet reported $ 952 $ 1,067
Reported claims in process 129 164
Other medical expense payable 14 15
MEDICAL CLAIMS PAYABLE $ 1,095 $ 1,246
Activity in medical claims payable was as follows:
(In millions) 2011 2010 2009
Balance at January1, $ 1,246 $ 921 $ 924
Less: Reinsurance and other amounts recoverable 236 206 211
Balance at January1, net 1,010 715 713
Incurred claims related to:
Current year 8,308 8,663 6,970
Prior years (126) (93) (43)
Total incurred 8,182 8,570 6,927
Paid claims related to:
Current year 7,450 7,682 6,278
Prior years 841 593 647
Total paid 8,291 8,275 6,925
Balance at December31, net 901 1,010 715
Add: Reinsurance and other amounts recoverable 194 236 206
Balance at December31, $ 1,095 $ 1,246 $ 921
Reinsurance and other amounts recoverable reect 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 oset does
not exist.See Note7 for additional information on reinsurance. For
the year ended December31,2011, actual experience diered 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 resulted in a reduction
in medical claims payable of $87million, or 1.0% of the current year
incurred claims as reported for the year ended December31,2010
for the insured book of business. Actual medical cost trend resulted
in a reduction in medical claims payable of $39million, or 0.5%
of the current year incurred claims as reported for the year ended
December31,2010 for the insured book of business.
For the year ended December31,2010, actual experience diered
from the Company’s key assumptions, resulting in favorable incurred
claims related to prior years’ medical claims payable of $93million, or
1.3% of the current year incurred claims as reported for the year ended
December31,2009.Actual completion factors resulted in a reduction
of the medical claims payable of $51million, or 0.7% of the current
year incurred claims as reported for the year ended December31,2009
for the insured book of business.Actual medical cost trend resulted
in a reduction of the medical claims payable of $42million, or 0.6%
of the current year incurred claims as reported for the year ended
December31,2009 for the insured book of business.
e corresponding impact of prior year development on shareholders’
net income was $53million for the year ended December31,2011
compared with $26million for the year ended December31,2010.
e favorable eects of prior year development on net income in 2011
and 2010 primarily reect low medical services utilization trend. e
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 condence, as required by
actuarial standards of practice, which require that 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 oset by an increase determined appropriate to address
moderately adverse conditions for the current year incurred claims, the
Company does not consider that oset amount as having any impact
on shareholders’ net income.
Second, while changes in reserves for the Company’s guaranteed
cost products do directly aect shareholders’ net income, 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 decit aect shareholders’ net income.
An increase or decrease to medical claims payable on accounts in decit,
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