Cigna 2009 Annual Report Download - page 136

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Activity in medical claims payable was as follows:
(In millions) 2009 2008 2007
Balance at January 1, $ 924 $ 975 $ 960
Less: Reinsurance and other amounts recoverable 211 258 250
Balance at January 1, net 713 717 710
Acquired April 1, net - 90 -
Incurred claims related to:
Current year 6,970 7,312 6,878
Prior years (43) (60) (80)
Total incurred 6,927 7,252 6,798
Paid claims related to:
Current year 6,278 6,716 6,197
Prior years 647 630 594
Total paid 6,925 7,346 6,791
Balance at December 31, net 715 713 717
Add: Reinsurance and other amounts recoverable 206 211 258
Balance at December 31, $ 921 $ 924 $ 975
Reinsurance and other amounts recoverable reflect amounts due from reinsurers and policyholders to cover incurred but not reported
and pending claims for minimum premium products and certain administrative services only business where the right of offset does
not exist. See Note 8 for additional information on reinsurance. For the year ended December 31, 2009, actual experience differed
from the Company’s key assumptions resulting in favorable incurred claims related to prior years’ medical claims payable of $43
million, or 0.6% of the current year incurred claims as reported for the year ended December 31, 2008. Actual completion factors
resulted in a reduction in medical claims payable of $21 million, or 0.3% of the current year incurred claims as reported for the year
ended December 31, 2008 for the insured book of business. Actual medical cost trend resulted in a reduction in medical claims
payable of $22 million, or 0.3% of the current year incurred claims as reported for the year ended December 31, 2008 for the insured
book of business.
For the year ended December 31, 2008, actual experience differed from the Company's key assumptions, resulting in favorable
incurred claims related to prior years’ medical claims payable of $60 million, or 0.9% of the current year incurred claims as reported
for the year ended December 31, 2007. Actual completion factors resulted in a reduction of the medical claims payable of $29 million,
or 0.4% of the current year incurred claims as reported for the year ended December 31, 2007 for the insured book of business. Actual
medical cost trend resulted in a reduction of the medical claims payable of $31 million, or 0.5% of the current year incurred claims as
reported for the year ended December 31, 2007 for the insured book of business.
The favorable impacts in 2009 and 2008 relating to completion factors and medical cost trend variances are primarily due to the
release of the provision for moderately adverse conditions, which is a component of the assumptions for both completion factors and
medical cost trend, established for claims incurred related to prior years. This release was substantially offset by the provision for
moderately adverse conditions established for claims incurred related to the current year.
The corresponding impact of prior year development on shareholders’ net income was not material for the years ended December 31,
2009 and December 31, 2008. The change in the amount of the incurred claims related to prior years in the medical claims payable
liability does not directly correspond to an increase or decrease in the Company's shareholders’ net income recognized for the
following reasons:
First, due to the nature of the Company's retrospectively experience-rated business, only adjustments to medical claims payable on
accounts in deficit affect shareholders’ net income. An increase or decrease to medical claims payable on accounts in deficit, in effect,
accrues to the Company and directly impacts shareholders’ net income. An account is in deficit when the accumulated medical costs
and administrative charges, including profit charges, exceed the accumulated premium received. Adjustments to medical claims
payable on accounts in surplus accrue directly to the policyholder with no impact on the Company’s shareholders’ net income. An
account is in surplus when the accumulated premium received exceeds the accumulated medical costs and administrative charges,
including profit charges.