Humana 2015 Annual Report Download - page 120

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Humana Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
112
10. BENEFITS PAYABLE
Activity in benefits payable, excluding military services, was as follows for the years ended December 31, 2015,
2014 and 2013:
2015 2014 2013
(in millions)
Balances at January 1 $ 4,475 $ 3,893 $ 3,775
Less: Reinsurance recoverables (78) — —
Balances at January 1, net 4,397 3,893 3,775
Acquisitions — — 5
Incurred related to:
Current year 44,397 38,641 32,711
Prior years (236) (518)(474)
Total incurred 44,161 38,123 32,237
Paid related to:
Current year (39,802) (34,357)(29,103)
Prior years (4,041) (3,262)(3,021)
Total paid (43,843) (37,619)(32,124)
Premium deficiency reserve 176 — —
Reinsurance recoverable 85 78 —
Balances at December 31 $ 4,976 $ 4,475 $ 3,893
Amounts incurred related to prior years vary from previously estimated liabilities as the claims ultimately are
settled. Negative amounts reported for incurred related to prior years result from claims being ultimately settled for
amounts less than originally estimated (favorable development).
Actuarial standards require the use of assumptions based on moderately adverse experience, which generally results
in favorable reserve development, or reserves that are considered redundant. We experienced favorable medical claims
reserve development related to prior fiscal years of $236 million in 2015, $518 million in 2014, and $474 million in
2013. The favorable medical claims reserve development for 2015, 2014, and 2013 primarily reflects the consistent
application of trend and completion factors estimated using an assumption of moderately adverse conditions. The
decline in favorable prior period development in 2015 primarily was due to the impact of lower financial claim recoveries
due in part to our gradual implementation during 2014 of inpatient authorization review prior to admission as opposed
to post adjudication, as well as higher than expected flu associated claims from the fourth quarter of 2014 and continued
volatility in claims associated with individual commercial medical products. The higher favorable prior period
development during 2014 and 2013 resulted from increased membership, better than originally expected utilization
across most of our major business lines and increased financial recoveries. The increase in financial recoveries primarily
resulted from claim audit process enhancements as well as increased volume of claim audits and expanded audit
scope. All lines of business benefited from these improvements.