Humana 2015 Annual Report Download - page 83

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based upon per member per month claims trends developed from our historical experience in the preceding months,
adjusted for known changes in estimates of recent hospital and drug utilization data, provider contracting changes,
changes in benefit levels, changes in member cost sharing, changes in medical management processes, product mix,
and weekday seasonality.
The completion factor method is used for the months of incurred claims prior to the most recent two months because
the historical percentage of claims processed for those months is at a level sufficient to produce a consistently reliable
result. Conversely, for the most recent two months of incurred claims, the volume of claims processed historically is
not at a level sufficient to produce a reliable result, which therefore requires us to examine historical trend patterns as
the primary method of evaluation. Changes in claim processes, including recoveries of overpayments, receipt cycle
times, claim inventory levels, outsourcing, system conversions, and processing disruptions due to weather or other
events affect views regarding the reasonable choice of completion factors. Claim payments to providers for services
rendered are often net of overpayment recoveries for claims paid previously, as contractually allowed. Claim
overpayment recoveries can result from many different factors, including retroactive enrollment activity, audits of
provider billings, and/or payment errors. Changes in patterns of claim overpayment recoveries can be unpredictable
and result in completion factor volatility, as they often impact older dates of service. The receipt cycle time measures
the average length of time between when a medical claim was initially incurred and when the claim form was received.
Increases in electronic claim submissions from providers decrease the receipt cycle time. If claims are submitted or
processed on a faster (slower) pace than prior periods, the actual claim may be more (less) complete than originally
estimated using our completion factors, which may result in reserves that are higher (lower) than required.
Medical cost trends potentially are more volatile than other segments of the economy. The drivers of medical cost
trends include increases in the utilization of hospital facilities, physician services, new higher priced technologies and
medical procedures, and new prescription drugs and therapies, as well as the inflationary effect on the cost per unit of
each of these expense components. Other external factors such as government-mandated benefits or other regulatory
changes, the tort liability system, increases in medical services capacity, direct to consumer advertising for prescription
drugs and medical services, an aging population, lifestyle changes including diet and smoking, catastrophes, and
epidemics also may impact medical cost trends. Internal factors such as system conversions, claims processing cycle
times, changes in medical management practices and changes in provider contracts also may impact our ability to
accurately predict estimates of historical completion factors or medical cost trends. All of these factors are considered
in estimating IBNR and in estimating the per member per month claims trend for purposes of determining the reserve
for the most recent two months. Additionally, we continually prepare and review follow-up studies to assess the
reasonableness of the estimates generated by our process and methods over time. The results of these studies are also
considered in determining the reserve for the most recent two months. Each of these factors requires significant judgment
by management.