Humana 2015 Annual Report Download - page 85

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77
The following table summarizes the changes in estimate for incurred claims related to prior years attributable to
our key assumptions. As previously described, our key assumptions consist of trend and completion factors estimated
using an assumption of moderately adverse conditions. The amounts below represent the difference between our original
estimates and the actual benefits expense ultimately incurred as determined from subsequent claim payments.
Favorable Development by Changes in Key Assumptions
2015 2014 2013
Amount
Factor
Change (a) Amount
Factor
Change (a) Amount
Factor
Change (a)
(dollars in millions)
Trend factors $ (145) (1.5)% $ (266) (3.7)% $ (233) (3.4)%
Completion factors (91) 0.4 % (252) 1.2 % (241) 1.2 %
Total $ (236) $ (518)$
(474)
(a) The factor change indicated represents the percentage point change.
As previously discussed, our reserving practice is to consistently recognize the actuarial best estimate of our ultimate
liability for claims. 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 table below details our favorable medical claims reserve development related to prior fiscal
years by segment for 2015, 2014, and 2013.
Favorable Medical Claims Reserve
Development Change
2015 2014 2013 2015 2014
(in millions)
Retail Segment $ (228) $ (488)$ (428) $ 260 $ (60)
Group Segment (7) (29)(42)22 13
Other Businesses (1) (1)(4)— 3
Total $ (236) $ (518)$ (474) $ 282 $ (44)
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.
We continually adjust our historical trend and completion factor experience with our knowledge of recent events
that may impact current trends and completion factors when establishing our reserves. Because our reserving practice
is to consistently recognize the actuarial best point estimate using an assumption of moderately adverse conditions as
required by actuarial standards, there is a reasonable possibility that variances between actual trend and completion
factors and those assumed in our December 31, 2015 estimates would fall towards the middle of the ranges previously
presented in our sensitivity table.