Humana 2015 Annual Report Download - page 116

Humana Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
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6. MEDICARE PART D
As discussed in Note 2, we cover prescription drug benefits in accordance with Medicare Part D under multiple
contracts with CMS. The accompanying consolidated balance sheets include the following amounts associated with
Medicare Part D as of December 31, 2015 and 2014. CMS subsidies/discounts in the table below include the reinsurance
and low-income cost subsidies funded by CMS for which we assume no risk as well as brand name prescription drug
discounts for Part D plan participants in the coverage gap funded by CMS and pharmaceutical manufacturers.
2015 2014
Risk
Corridor
Settlement
CMS
Subsidies/
Discounts
Risk
Corridor
Settlement
CMS
Subsidies/
Discounts
(in millions)
Other current assets $ 25 $ 2,082 $ 105 $ 1,690
Trade accounts payable and accrued expenses (47) (63)(36)(32)
Net current (liability) asset $ (22) $ 2,019 $ 69 $ 1,658
7. HEALTH CARE REFORM
Operating results for our individual commercial medical business compliant with the Health Care Reform Law
have been challenged primarily due to unanticipated modifications in the program subsequent to the passing of the
Health Care Reform Law, resulting in higher covered population morbidity and the ensuing enrollment and claims
issues causing volatility in claims experience. We took a number of actions in 2015 to improve the profitability of our
individual commercial medical business in 2016. These actions were subject to regulatory restrictions in certain
geographies and included premium increases for the 2016 coverage year related generally to the first half of 2015 claims
experience, the discontinuation of certain products as well as exit of certain markets for 2016, network improvements,
enhancements to claims and clinical processes and administrative cost control. Despite these actions, the deterioration
in the second half of 2015 claims experience together with 2016 open enrollment results indicating the retention of
many high-utilizing members for 2016 resulted in a probable future loss. As a result of our assessment of the profitability
of our individual medical policies compliant with the Health Care Reform Law, in the fourth quarter of 2015, we
recorded a provision for probable future losses (premium deficiency reserve) for the 2016 coverage year of $176 million
in benefits payable in our consolidated balance sheet with a corresponding increase in benefits expense in our
consolidated statement of income. The premium deficiency reserve includes the estimated benefit of approximately
$340 million associated with risk corridor provisions expected for the 2016 coverage year.
On June 30, 2015 we received notification from CMS of risk adjustment and reinsurance settlement amounts for
2014. We revised our 2014 coverage year estimates to reflect actual amounts and also made a corresponding adjustment
to our risk corridor estimate based on these results. The change in estimate for risk adjustment was substantially offset
by the corresponding change in estimate for risk corridor, both of which are reflected as changes in premiums revenue
in our consolidated statements of income. The change in estimate related to the 3Rs for the 2014 coverage year was a
decline in the estimated net receivable of approximately $43 million for the year ended December 31, 2015. In addition,
we revised our 3Rs estimates for the 2015 coverage year based on the data from CMS for 2014.
During the year ended December 31, 2015, we paid $186 million in risk adjustment charges and $1 million in risk
corridor charges associated with the 2014 coverage year. We received payments of $521 million for reinsurance
recoverables, $57 million for risk adjustment settlements, and $26 million for risk corridor settlements associated with
the 2014 coverage year during the year ended December 31, 2015. We expect to collect the remaining risk adjustment
receivable for the 2014 coverage year of approximately $4 million in 2016.
During 2015, we received our interim settlement associated with our risk corridor receivables for the 2014 coverage
year. The interim settlement, representing only 12.6% of risk corridor receivables for the 2014 coverage year, was
funded by HHS in accordance with previous guidance, utilizing funds HHS collected from us and other carriers under
the 2014 risk corridor program. As discussed in Note 2, HHS provided guidance under the three year risk corridor
program that future collections will first be applied to any shortfalls from previous coverage years before application