United Healthcare 2012 Annual Report Download - page 78

For details on the Company’s Medicare Part D receivables see “Medicare Part D Pharmacy Benefits” below.
For details on the Company’s reinsurance receivable see “Future Policy Benefits and Reinsurance Receivable”
below.
Medicare Part D Pharmacy Benefits
The Company serves as a plan sponsor offering Medicare Part D prescription drug insurance coverage under
contracts with CMS. Under the Medicare Part D program, there are seven separate elements of payment received
by the Company during the plan year. These payment elements are as follows:
•CMS Premium. CMS pays a fixed monthly premium per member to the Company for the entire plan year.
•Member Premium. Additionally, certain members pay a fixed monthly premium to the Company for the
entire plan year.
•Low-Income Premium Subsidy. For qualifying low-income members, CMS pays some or all of the
member’s monthly premiums to the Company on the member’s behalf.
•Catastrophic Reinsurance Subsidy. CMS pays the Company a cost reimbursement estimate monthly to fund
the CMS obligation to pay approximately 80% of the costs incurred by individual members in excess of the
individual annual out-of-pocket maximum. A settlement is made with CMS based on actual cost experience,
after the end of the plan year.
•Low-Income Member Cost Sharing Subsidy. For qualifying low-income members, CMS pays on the
member’s behalf some or all of a member’s cost sharing amounts, such as deductibles and coinsurance. The
cost sharing subsidy is funded by CMS through monthly payments to the Company. The Company
administers and pays the subsidized portion of the claims on behalf of CMS, and a settlement payment is
made between CMS and the Company based on actual claims and premium experience, after the end of the
plan year.
•CMS Risk-Share. Premiums from CMS are subject to risk corridor provisions that compare costs targeted in
the Company’s annual bids by product and region to actual prescription drug costs, limited to actual costs
that would have been incurred under the standard coverage as defined by CMS. Variances of more than 5%
above or below the original bid submitted by the Company may result in CMS making additional payments
to the Company or require the Company to refund to CMS a portion of the premiums it received. The
Company estimates and recognizes an adjustment to premium revenues related to the risk corridor payment
settlement based upon pharmacy claims experience to date. The estimate of the settlement associated with
these risk corridor provisions requires the Company to consider factors that may not be certain, including
estimates of eligible pharmacy costs and member eligibility status differences with CMS. The Company
records risk-share adjustments to Premium Revenues in the Consolidated Statements of Operations and
Other Policy Liabilities or Other Current Receivables in the Consolidated Balance Sheets.
•Drug Discount. Beginning in 2011, Health Reform Legislation mandated a consumer discount of 50% on
brand name prescription drugs for Part D plan participants in the coverage gap. This discount is funded by
CMS and pharmaceutical manufacturers while the Company administers the application of these funds.
Amounts received are not reflected as premium revenues, but rather are accounted for as deposits. The
Company records a liability when amounts are received from CMS and a receivable when the Company
bills the pharmaceutical manufacturers. Related cash flows are presented as Customer Funds Administered
within financing activities in the Consolidated Statements of Cash Flows.
The CMS Premium, the Member Premium, and the Low-Income Premium Subsidy represent payments for the
Company’s insurance risk coverage under the Medicare Part D program and, therefore, are recorded as Premium
Revenues in the Consolidated Statements of Operations. Premium revenues are recognized ratably over the
period in which eligible individuals are entitled to receive prescription drug benefits. The Company records
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