Health Net 2013 Annual Report Download - page 162

HEALTH NET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
F-58
Note 15—Reserves for Claims and Other Settlements
Reserves for claims and other settlements include reserves for claims (IBNR claims and received but unprocessed
claims), and other liabilities including capitation payable, shared risk settlements, provider disputes, provider incentives
and other reserves for our health plan services. The table below provides a reconciliation of changes in reserve for
claims for the years ended December 31, 2013, 2012 and 2011.
Health Plan Services Year Ended
December 31,
2013 2012 2011
(Dollars in millions)
Reserve for claims (a), beginning of period........................ $ 808.7 $ 720.8 $ 727.5
Incurred claims related to:
Current year (f)................................................. 4,666.0 4,950.9 4,733.0
Prior years (c)................................................... (56.2) 34.5 (96.5)
Total incurred (b)....................................................... 4,609.8 4,985.4 4,636.5
Paid claims related to:
Current year...................................................... 3,872.5 4,156.6 4,024.4
Prior years ........................................................ 738.6 740.9 618.8
Total paid (b).............................................................. 4,611.1 4,897.5 4,643.2
Reserve for claims (a), end of period .................................. 807.4 808.7 720.8
Add:
Claims and claims-related payable (d) ................................ 67.0 91.6 111.0
Other (e)............................................................................... 109.7 137.7 80.3
Reserves for claims and other settlements, end of period ... $ 984.1 $ 1,038.0 $ 912.1
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(a) Consists of IBNR claims and received but unprocessed claims and reserves for loss adjustment expenses.
(b) Includes medical claims only. Capitation, pharmacy and other payments (including, for example, provider
settlements) are not included.
(c) This line represents the change in reserves attributable to the difference between the original estimate of incurred
claims for prior years and the revised estimate. Negative amounts in this line represent favorable development in
estimated prior years’ health care costs. Positive amounts in this line represent unfavorable development in
estimated prior years’ health care costs. The favorable development related to prior years that was recorded in the
year ended December 31, 2013 and in 2011 resulted from claims being settled for amounts less than originally
estimated. In 2013, this was primarily due to the absence of moderately adverse conditions. In 2011, this was
primarily due to lower than expected health care cost trends. The favorable developments related to prior years
that were recorded in 2013 and 2011 do not directly correspond to an increase in our operating results for those
periods because any favorable prior period reserve development increases current period net income only to the
extent that the current period provision for adverse deviation (see footnote (f)) is less than the benefit recognized
from the prior period favorable development. The unfavorable development in estimated prior years' health care
costs for 2012 primarily resulted from significant delays in claims submissions for the fourth quarter of 2011
arising from issues related to a new billing format required by HIPAA combined with an unanticipated flattening
of commercial trends. See Note 2 under the heading "Health Plan Services Health Care Cost" for more
information.
(d) Includes claims payable, provider dispute reserve, and other claims-related liabilities.
(e) Includes accrued capitation, shared risk settlements, provider incentives and other reserve items.
(f) Our IBNR estimate also includes a provision for adverse deviation, which is an estimate for known environmental
factors that are reasonably likely to affect the required level of IBNR reserves. Such amounts were $53.4 million,
$53.4 million and $47.6 million as of December 31, 2013, 2012 and 2011, respectively.