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HEALTH CARE REFORM | 6 Months Ended
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Jun. 30, 2017
Insurance [Abstract] |
HEALTH CARE REFORM | HEALTH CARE REFORM The Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act of 2010 (which we collectively refer to as the Health Care Reform Law) established risk spreading premium stabilization programs effective January 1, 2014, including a permanent risk adjustment program and temporary risk corridor and reinsurance programs, which we collectively refer to as the 3Rs. The 3Rs are applicable to certain of our commercial medical insurance products as further discussed in Note 2 to our 2016 Form 10-K. Operating results for our Individual Commercial medical business compliant with the Health Care Reform Law have been challenged primarily due to unanticipated modifications in the program subsequent to the passing of the Health Care Reform Law, resulting in higher covered population morbidity and the ensuing enrollment and claims issues causing volatility in claims experience. We took a number of actions in 2015 to improve the profitability of our Individual Commercial medical business in 2016. These actions were subject to regulatory restrictions in certain geographies and included premium increases for the 2016 coverage year related generally to the first half of 2015 claims experience, the discontinuation of certain products as well as exit of certain markets for 2016, network improvements, enhancements to claims and clinical processes and administrative cost control. Despite these actions, the deterioration in the second half of 2015 claims experience together with 2016 open enrollment results indicating the retention of many high-utilizing members for 2016 resulted in a probable future loss. As a result of our then assessment of the profitability of our individual medical policies compliant with the Health Care Reform Law, in the fourth quarter of 2015, we recorded a provision for probable future losses (premium deficiency reserve, or PDR) for the 2016 coverage year of $176 million in benefits payable in our consolidated balance sheet with a corresponding increase in benefits expense in our consolidated statement of income. In the first quarter of 2016, we applied $13 million current period results to the PDR liability. During the second quarter of 2016 we increased the premium deficiency reserve for the 2016 coverage year and recorded a change in estimate of $208 million with a corresponding increase in benefits expense in our condensed consolidated statement of income for three months ended June 30, 2016. There is no premium deficiency reserve in 2017. On November 10, 2016, the U.S. Court of Federal Claims ruled in favor of the government in one of a series of cases filed by insurers, unrelated to us, against the U.S. Department of Health and Human Services, or HHS, to collect risk corridor payments, rejecting all of the insurer’s statutory, contract and Constitutional claims for payment. On November 18, 2016, HHS issued a memorandum indicating a significant funding shortfall for the 2015 coverage year, the second consecutive year of significant shortfalls. Given the successful challenge of the risk corridor provisions in court, Congressional inquiries into the funding of the risk corridor program, and significant funding shortfalls under the first two years of the program, during the fourth quarter of 2016 we wrote-off $583 million in risk corridor receivables outstanding as of September 30, 2016, including $415 million associated with the 2014 and 2015 coverage years. From inception of the risk corridor program through June 30, 2017, we collected approximately $38 million from CMS for risk corridor receivables associated with the 2014 coverage year funded by HHS in accordance with previous guidance, utilizing funds HHS collected from us and other carriers under the risk corridor program. On February 14, 2017, we announced we are exiting our Individual Commercial medical business commencing January 1, 2018. As discussed previously, we have worked over the past several years to address market and programmatic challenges in order to keep coverage options available wherever we could offer a viable product. This has included pursuing business changes, such as modifying networks, restructuring product offerings, reducing the company’s geographic footprint and increasing premiums. All of these actions were taken with the expectation that our Individual Commercial medical business would stabilize to the point where we could continue to participate in the program. However, based on our analysis of data associated with our healthcare exchange membership following the 2017 open enrollment period, we saw further signs of an unbalanced risk pool. Therefore, we decided that we cannot continue to offer this coverage and plan to exit this business commencing January 1, 2018. The accompanying condensed consolidated balance sheets include the following amounts associated with the 3Rs at June 30, 2017 and December 31, 2016. Amounts classified as long-term represent settlements that we expect to exceed 12 months at June 30, 2017.
| June 30, 2017 |  | December 31, 2016
| Risk Adjustment Settlement |  | Reinsurance Recoverables |  | Risk Adjustment Settlement |  | Reinsurance Recoverables
| (in millions)
Prior Coverage Years |  |  |  |  |  |  |
Premiums receivable | $ | 291 |  |  | $ | — |  |  | $ | 307 |  |  | $ | — |
Other current assets | — |  |  | 268 |  |  | — |  |  | 260 |
Trade accounts payable and accrued expenses | (150 | ) |  | — |  |  | (117 | ) |  | — |
Net current asset | 141 |  |  | 268 |  |  | 190 |  |  | 260 |
Other long-term assets | — |  |  | — |  |  | 6 |  |  | — |
Total prior coverage years' net asset | 141 |  |  | 268 |  |  | 196 |  |  | 260 |
Current Coverage Year |  |  |  |  |  |  |
Premiums receivable | 12 |  |  | — |  |  | — |  |  | — |
Net current asset | 12 |  |  | — |  |  | — |  |  | — |
Other long-term assets | 30 |  |  | — |  |  | — |  |  | — |
Other long-term liabilities | (40 | ) |  | — |  |  | — |  |  | — |
Net long-term liability | (10 | ) |  | — |  |  | — |  |  | — |
Total 2017 coverage year net asset | 2 |  |  | — |  |  | — |  |  | — |
Total net asset | $ | 143 |  |  | $ | 268 |  |  | $ | 196 |  |  | $ | 260 |
During the six months ended June 30, 2017, we received $60 million for reinsurance recoverables and $3 million for risk adjustment settlements, in each case associated with prior coverage years. During the six months ended June 30, 2016, we received $214 million for reinsurance recoverables and $8 million for risk adjustment and risk corridor settlements associated with prior coverage years. To the extent certain provisions of the Health Care Reform Law are successfully challenged in court or there are changes in legislation or the application of legislation, there can be no guarantee that receivables established under the reinsurance or risk adjustment provisions of the Health Care Reform Law will ultimately be collected. If we fail to effectively implement our operational and strategic initiatives with respect to the implementation of the Health Care Reform Law, our business may be materially adversely affected. Additionally, potential legislative changes, including activities to repeal or replace the Health Care Reform Law, creates uncertainty for our business, and we cannot predict when, or in what form, such legislative changes may occur. The annual health insurance industry fee has been suspended for calendar year 2017, but is scheduled to resume in calendar year 2018. In September 2016, we paid the federal government $916 million f or our portion of the annual health insurance industry fee attributed to calendar year 2016 in accordance with the Health Care Reform Law. This fee, fixed in amount by law and apportioned to insurance carriers based on market share, is not deductible for tax purposes. Each year on January 1, except for 2017, we record a liability for this fee in trade accounts payable and accrued expenses which we carry until the fee is paid. We record a corresponding deferred cost in other current assets in our condensed consolidated financial statements which is amortized ratably to expense over the calendar year. Amortization of the deferred cost was recorded in operating cost expense of approximately $229 million and $456 million for the three and six months ended June 30, 2016, respectively, resulting from the amortization of the 2016 annual health insurance industry fee.

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