Cigna 2015 Annual Report Download - page 100

PART II
ITEM 8. Financial Statements and Supplementary Data
A premium stabilization program is comprised of two components: these performance guarantees. Approximately 12% of ASO fees
1) a permanent component that reallocates funds from insurers with reported for the year ended December 31, 2015 were at risk, with
lower risk populations to insurers with higher risk populations based reimbursements estimated to be approximately 1%.
on the relative risk scores of participants in non-grandfathered plans Revenue for investment-related products is recognized as follows:
in the individual and small group markets, both on and off the
exchanges. We estimate our receivable or payable based on the risk Investment income on assets supporting investment-related
of our members compared to the risk of other members in the same products is recognized in net investment income as earned.
state and market, considering data obtained from industry studies Contract fees based upon related administrative expenses are
and HHS; and 2) a temporary (2014-2016) component designed to recognized in fees and other revenues as they are earned ratably over
limit insurer gains and losses by comparing allowable medical costs the contract period.
to a target amount as defined by HHS. This program applies to
individual and small group qualified health plans, operating on and Benefits and expenses for investment-related products consist
off the exchanges. Variances from the target amount exceeding primarily of income credited to policyholders in accordance with
certain thresholds may result in amounts due to or due from HHS. contract provisions.
For the premium stabilization program, the Company records Mail order pharmacy revenues and the cost of prescriptions are
receivables or payables as adjustments to premium revenue based on recognized as each prescription is shipped. Mail order pharmacy
our year-to-date experience when the amounts are reasonably revenues are presented net of pharmaceutical manufacturer rebates
estimable and collection is reasonably assured. Final revenue payable to clients. Mail order pharmacy costs include the cost of
adjustments are determined by HHS in the year following the policy prescriptions sold and other costs to operate this business including
year. supplies, shipping and handling, net of pharmaceutical rebates from
manufacturers.
Premiums for individual life, accident and supplemental health
insurance and annuity products, excluding universal life and
investment-related products, are recognized as revenue when due.
T. Stock Compensation
Benefits and expenses are matched with premiums. The Company records compensation expense for stock awards and
Revenue for universal life products is recognized as follows: options over their vesting periods primarily based on the estimated fair
value at the grant date. For stock options, fair value is estimated using
Investment income on assets supporting universal life products is an option-pricing model, whereas for restricted stock grants and units,
recognized in net investment income as earned. fair value is equal to the market price of the Company’s common stock
Charges for mortality, administration and policy surrender are on the date of grant. Compensation expense for strategic performance
recognized in premiums as earned. Administrative fees are shares is recorded over the performance period. For strategic
considered earned when services are provided. performance shares with payment dependent on a market condition,
fair value is determined at the grant date using a Monte Carlo
Benefits and expenses for universal life products consist of benefit simulation model and not subsequently adjusted regardless of the final
claims in excess of policyholder account balances. Expenses are outcome. For strategic performance shares with payment dependent
recognized when claims are incurred, and income is credited to on performance conditions, expense is initially accrued based on the
policyholders in accordance with contract provisions. most likely outcome, but evaluated for adjustment each period for
The unrecognized portion of premiums received is recorded as updates in the expected outcome. At the end of the performance
unearned premiums. period, expense is adjusted to the actual outcome (number of shares
awarded times the share price at the grant date). See Note 20 for
additional information on the Company’s stock compensation plans.
S. Fees, Related Expenses and Mail Order
Pharmacy Revenues and Costs U. Participating Business
Contract fees for administrative services only (‘‘ASO’’) programs and The Company’s participating life insurance policies entitle
pharmacy programs and services are recognized in fees and other policyholders to earn dividends that represent a portion of the
revenues as services are provided, net of pharmaceutical manufacturer earnings of the Company’s life insurance subsidiaries. Participating
rebates payable to clients and estimated refunds under performance insurance accounted for approximately 1% of the Company’s total life
guarantees. Expenses associated with these programs and services are insurance in force at the end of 2015, 2014 and 2013.
recognized in other operating expenses as incurred, net of
pharmaceutical rebates from manufacturers. In some cases, the
Company provides performance guarantees associated with meeting
V. Income Taxes
certain service standards, clinical outcomes or financial metrics. If Deferred income tax assets and liabilities are recognized for differences
these service standards, clinical outcomes or financial metrics are not between the financial and income tax reporting bases of the
met, the Company may be financially at risk up to a stated percentage underlying assets and liabilities and established based upon enacted
of the contracted fee or a stated dollar amount. The Company tax rates and laws. Deferred income tax assets are recognized when
establishes deferred revenues for estimated payouts associated with available evidence indicates that realization is more likely than not.
70 CIGNA CORPORATION - 2015 Form 10-K
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