Health Net 2015 Annual Report Download - page 221

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, 2015, 2014 and 2013.
For the Year Ended December 31,
2015 2014 2013
(Dollars in millions)
Reserve for claims (a), beginning of period............................. $ 1,186.3 $ 807.4 $ 808.7
Incurred claims related to:
Current year (f)...................................................... 6,425.8 5,613.0 4,666.0
Prior years (c)........................................................ (107.4)(14.6)(56.2)
Total incurred (b)............................................................ 6,318.4 5,598.4 4,609.8
Paid claims related to:
Current year........................................................... 5,321.0 4,443.2 3,872.5
Prior years ............................................................. 1,058.5 776.3 738.6
Total paid (b)................................................................... 6,379.5 5,219.5 4,611.1
Reserve for claims (a), end of period....................................... 1,125.2 1,186.3 807.4
Add:
Claims and claims-related payable (d)..................................... 107.8 175.4 67.0
Other (e) ................................................................................... 260.4 534.3 109.7
Reserves for claims and other settlements, end of period........ $ 1,493.4 $ 1,896.0 $ 984.1
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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. For the year ended December 31, 2015, we had $107.4 million in favorable reserve
developments related to prior years. This reserve development for the year ended December 31, 2015 consisted of
$29.7 million in favorable prior year development and a release of $77.7 million of the provision for adverse deviation
held at December 31, 2014. We believe that the $29.7 million favorable development for the year ended December
31, 2015 was primarily due to the growth of the new Medicaid expansion population in 2014. For the year ended
December 31, 2014, we had $14.6 million in net favorable reserve developments related to prior years. This reserve
development for the year ended December 31, 2014 consisted of $36.6 million in unfavorable prior year development
primarily due to the existence of moderately adverse conditions and a release of $51.2 million of the provision for
adverse deviation held at December 31, 2013. We believe that the $36.6 million unfavorable development for the
year ended December 31, 2014 was 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.
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 do not directly correspond to
an increase in our operating results 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. See Note 2 under the heading "Health Plan
Services Health Care Cost" for more information.