Health Net 2014 Annual Report Download - page 170

HEALTH NET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
F-60
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, 2014, 2013 and 2012.
Health Plan Services Year Ended
December 31,
2014 2013 2012
(Dollars in millions)
Reserve for claims (a), beginning of period........................ $807.4 $808.7 $720.8
Incurred claims related to:
Current year (f)................................................. 5,613.0 4,666.0 4,950.9
Prior years (c)................................................... (14.6)(56.2) 34.5
Total incurred (b)....................................................... 5,598.4 4,609.8 4,985.4
Paid claims related to:
Current year...................................................... 4,443.2 3,872.5 4,156.6
Prior years ........................................................ 776.3 738.6 740.9
Total paid (b).............................................................. 5,219.5 4,611.1 4,897.5
Reserve for claims (a), end of period .................................. 1,186.3 807.4 808.7
Add:
Claims and claims-related payable (d) ................................ 175.4 67.0 91.6
Other (e)............................................................................... 534.3 109.7 137.7
Reserves for claims and other settlements, end of period ... $1,896.0 $984.1 $1,038.0
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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 net favorable development related to prior years that was recorded in the year
ended December 31, 2014 consisted of $36.6 million in unfavorable prior year development primarily due to
unanticipated benefit utilization in our commercial business arising from dates of service in the fourth quarter of
2013 as a result of an uncertain environment related to the ACA and a release of $51.2 million of the provision for
adverse deviation held at December 31, 2013. The favorable development related to prior years that was recorded
in the year ended December 31, 2013 resulted from claims being settled for amounts less than originally estimated.
In 2013, this was primarily due to the absence of moderately adverse conditions. The favorable developments related
to prior years that were recorded in 2014 and 2013 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 $77.7 million,