Humana 2015 Annual Report Download - page 62
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54
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. The
increase in benefits expense associated with the recognition of the premium deficiency reserve increased the
Retail segment benefit ratio by approximately 40 basis points in 2015.
• The Retail segment’s benefits expense for 2015 included the beneficial effect of $228 million in favorable
prior-year medical claims reserve development versus $488 million in 2014. This favorable prior-year medical
claims reserve development decreased the Retail segment benefit ratio by approximately 50 basis points in
2015 versus approximately 120 basis points in 2014. The year-over-year decline in prior-period medical claims
reserve development 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.
Operating costs
• The Retail segment operating cost ratio of 11.2% for 2015 decreased 40 basis points from 2014 primarily
reflecting administrative cost efficiencies associated with medical membership growth in the segment and
other discretionary cost reductions, partially offset by the increase in the non-deductible health insurance
industry fee. The non-deductible health insurance industry fee increased the operating cost ratio by
approximately 160 basis points in 2015 as compared to 120 basis points in 2014.
Group Segment
Change
2015 2014 Members Percentage
Membership:
Medical membership:
Fully-insured commercial group 1,178,300 1,235,500 (57,200) (4.6)%
ASO 710,700 1,104,300 (393,600) (35.6)%
Military services 3,074,400 3,090,400 (16,000) (0.5)%
Total group medical members 4,963,400 5,430,200 (466,800) (8.6)%
Group specialty membership (a) 6,068,700 6,502,700 (434,000) (6.7)%
(a) Specialty products include dental, vision, and other voluntary benefit products. Members included in these
products may not be unique to each product since members have the ability to enroll in multiple products.