Health Net 2009 Annual Report Download - page 145

HEALTH NET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Note 15—Reserves for Claims and Other Settlements
Reserves for claims and other settlements include reserves for claims (IBNR claims and received but
unprocessed claims), and other liabilities including capitation payable, shared risk settlements, provider disputes,
provider incentives and other reserves for our health plan services. The table below provides a reconciliation of
changes in reserve for claims for the years ended December 31, 2009, 2008 and 2007.
Health Plan Services Year Ended
December 31,
2009 2008 2007
(Dollars in millions)
Reserve for claims (a), beginning of period ............................. $ 957.1 $ 838.7 $ 754.2
Incurred claims related to:
Current year .............................................. 6,422.8 6,372.2 5,790.7
Prior years (c) ............................................ (80.0) (8.3) 0.6
Total incurred (b) ............................................. 6,342.8 6,363.9 5,791.3
Paid claims related to:
Current year .............................................. 5,572.2 5,443.2 4,972.3
Prior years ............................................... 857.8 802.3 734.5
Total paid (b) ................................................. 6,430.0 6,245.5 5,706.8
Less divested businesses ............................................ (177.7) — —
Reserve for claims (a), end of period .................................. 692.2 957.1 838.7
Add:
Claims payable ................................................... 165.6 187.8 161.9
Claims-related remediations (e) ...................................... — 93.1 201.5
Reserve for provider disputes ........................................ — 3.9 2.2
Other (d) ........................................................ 93.9 96.2 96.1
Reserves for claims and other settlements, end of period ................... $ 951.7 $1,338.1 $1,300.4
(a) Consists of IBNR claims and received but unprocessed claims and reserves for loss adjustment expenses.
(b) Includes medical claims only. Capitation, pharmacy and other payments including provider settlements are
not included.
(c) This line represents the change in reserves attributable to the difference between the original estimate of
incurred claims for prior years and the revised estimate. In developing the revised estimate, there have been
no changes in the approach used to determine the key actuarial assumptions, which are the completion factor
and medical cost trend. Claims liabilities are estimated under actuarial standards of practice and GAAP. The
majority of the reserve balance held at each quarter-end is associated with the most recent months’ incurred
services because these are the services for which the fewest claims have been paid. The degree of
uncertainty in the estimates of incurred claims is greater for the most recent months’ incurred services.
Revised estimates for prior years are determined in each quarter based on the most recent updates of paid
claims for prior years. As of December 31, 2009, incurred claims related to prior years were estimated to be
$80.0 million lower than originally estimated at December 31, 2008. The majority of this amount was due to
adjustments to our reserves that related to variables and uncertainties associated with our assumptions. In
2009, as our reserve balance for older months of service decreased, and estimates of our incurred costs for
older dates of service became more certain and predictable, our estimates of incurred claims related to prior
periods were adjusted accordingly. Actual claim experience was more favorable than our estimate.
F-51