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Income Taxes | 12 Months Ended
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Dec. 31, 2016
Income Tax Disclosure [Abstract] |
Income Taxes | Income Taxes The provision for income taxes is determined using an estimated annual effective tax rate, which is generally greater than the U.S. federal statutory rate primarily because of state taxes, nondeductible expenses such as the HIF, certain compensation, and other general and administrative expenses. The effective tax rate may be subject to fluctuations during the year, particularly as a result of the level of pretax earnings, and also as new information is obtained. Such information may affect the assumptions used to estimate the annual effective tax rate, including factors such as the mix of pretax earnings in the various tax jurisdictions in which we operate, valuation allowances against deferred tax assets, the recognition or the reversal of the recognition of tax benefits related to uncertain tax positions, and changes in or the interpretation of tax laws in jurisdictions where we conduct business. We recognize deferred tax assets and liabilities for temporary differences between the financial reporting basis and the tax basis of our assets and liabilities, along with net operating loss and tax credit carryovers. The provision for income taxes consisted of the following:
| Year Ended December 31,
| 2016 |  | 2015 |  | 2014
| (In millions)
Current: |  |  |  |  |
Federal | $ | 134 |  |  | $ | 172 |  |  | $ | 72 |
State | 3 |  |  | 8 |  |  | 3 |
Foreign | (6 | ) |  | 6 |  |  | — |
Total current | 131 |  |  | 186 |  |  | 75 |
Deferred: |  |  |  |  |
Federal | 19 |  |  | (10 | ) |  | — |
State | 2 |  |  | 4 |  |  | (2 | )
Foreign | 1 |  |  | (1 | ) |  | — |
Total deferred | 22 |  |  | (7 | ) |  | (2 | )
| $ | 153 |  |  | $ | 179 |  |  | $ | 73 |
A reconciliation of the U.S. federal statutory income tax rate to the combined effective income tax rate is as follows:
| Year Ended December 31,
| 2016 |  | 2015 |  | 2014
Statutory federal tax rate | 35.0 | % |  | 35.0 | % |  | 35.0 | %
State income taxes, net of federal benefit | 1.6 |  |  | 2.4 |  |  | 0.4 |
Change in unrecognized tax benefits | 0.5 |  |  | 0.9 |  |  | (0.1 | )
Nondeductible health insurer fee (HIF) | 37.0 |  |  | 17.0 |  |  | 22.9 |
Nondeductible compensation | 3.1 |  |  | 0.6 |  |  | (4.1 | )
Change in purchase agreement that increased tax basis in assets | (2.2 | ) |  | — |  |  | — |
Other | (0.2 | ) |  | (0.4 | ) |  | (0.3 | )
Effective tax rate | 74.8 | % |  | 55.5 | % |  | 53.8 | %
Our effective tax rate is based on expected income, statutory tax rates, and tax planning opportunities available to us in the various jurisdictions in which we operate. Significant management estimates and judgments are required in determining our effective tax rate. We are routinely under audit by federal, state, or local authorities regarding the timing and amount of deductions, nexus of income among various tax jurisdictions, and compliance with federal, state, foreign, and local tax laws. During 2014, the Internal Revenue Service (IRS) issued final regulations related to compensation deduction limitations applicable to certain health insurance issuers. Pursuant to these final regulations, we reversed amounts treated as nondeductible in 2013 and recognized a tax benefit during 2014. During 2016, 2015, and 2014, excess tax benefits from share-based compensation amounted to $2 million, $8 million, and $3 million, respectively. These amounts were recorded as a decrease to income taxes payable and an increase to additional paid-in capital. Deferred tax assets and liabilities are classified as non-current. Significant components of our deferred tax assets and liabilities as of December 31, 2016 and 2015 were as follows:
| December 31,
| 2016 |  | 2015
| (In millions)
Accrued expenses | $ | 22 |  |  | $ | 37 |
Reserve liabilities | 28 |  |  | 14 |
Other accrued medical costs | 5 |  |  | 5 |
Net operating losses | 13 |  |  | 7 |
Unrealized losses | 1 |  |  | 2 |
Unearned premiums | 27 |  |  | 21 |
Lease financing obligation | 38 |  |  | 35 |
Deferred compensation | 6 |  |  | 8 |
Tax credit carryover | 7 |  |  | 8 |
Valuation allowance | (16 | ) |  | (9 | )
Total deferred income tax assets, net of valuation allowance | 131 |  |  | 128 |
Prepaid expenses | (9 | ) |  | (9 | )
Depreciation and amortization | (104 | ) |  | (83 | )
Basis in debt | (23 | ) |  | (18 | )
Total deferred income tax liabilities | (136 | ) |  | (110 | )
Net deferred income tax (liability) asset - long term | $ | (5 | ) |  | $ | 18 |
At December 31, 2016, we had state net operating loss carryforwards of $315 million, which begin expiring in 2018. At December 31, 2016, we had California enterprise zone tax credit carryovers of $11 million, which will begin to expire in 2024. We evaluate the need for a valuation allowance taking into consideration the ability to carry back and carry forward tax credits and losses, available tax planning strategies and future income, including reversal of temporary differences. We have determined that as of December 31, 2016, $16 million of deferred tax assets did not satisfy the recognition criteria due to uncertainty regarding the realization of some of our state net operating loss carryforwards. Therefore, we increased our valuation allowance by $7 million, from $9 million at December 31, 2015, to $16 million as of December 31, 2016. We recognize tax benefits only if the tax position is more likely than not to be sustained. We are subject to income taxes in the United States, Puerto Rico, and numerous state jurisdictions. Significant judgment is required in evaluating our tax positions and determining our provision for income taxes. During the ordinary course of business, there are many transactions and calculations for which the ultimate tax determination is uncertain. We establish reserves for tax-related uncertainties based on estimates of whether, and the extent to which, additional taxes will be due. These reserves are established when we believe that certain positions might be challenged despite our belief that our tax return positions are fully supportable. We adjust these reserves in light of changing facts and circumstances, such as the outcome of tax audits. The provision for income taxes includes the impact of reserve provisions and changes to reserves that are considered appropriate. The roll forward of our unrecognized tax benefits is as follows:
| Year Ended December 31,
| 2016 |  | 2015 |  | 2014
| (In millions)
Gross unrecognized tax benefits at beginning of period | $ | (9 | ) |  | $ | (3 | ) |  | $ | (8 | )
Increases in tax positions for current year | (1 | ) |  | (1 | ) |  | — |
Increases in tax positions for prior years | (1 | ) |  | (5 | ) |  | (1 | )
Settlements | — |  |  | — |  |  | 6 |
Gross unrecognized tax benefits at end of period | $ | (11 | ) |  | $ | (9 | ) |  | $ | (3 | )
The total amount of unrecognized tax benefits at December 31, 2016, 2015 and 2014 that, if recognized, would affect the effective tax rates is $9 million, $7 million and $2 million, respectively. We expect that during the next 12 months it is reasonably possible that unrecognized tax benefit liabilities may decrease by as much as $2 million due to the expiration of statutes of limitation. Our continuing practice is to recognize interest and/or penalties related to unrecognized tax benefits in income tax expense. Amounts accrued for the payment of interest and penalties as of December 31, 2016, 2015 and 2014 were insignificant. We are under examination by the IRS for calendar year 2011 and may be subject to examination for calendar years 2012 through 2015. We are under examination, or may be subject to examination, in Puerto Rico and certain state and local jurisdictions, with the major state jurisdictions being California, Michigan, and Illinois for the years 2009 through 2015.

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- Definition The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 235 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SX 210.4-08.(h)) -URI http://asc.fasb.org/extlink&oid=26873400&loc=d3e23780-122690 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 3 -URI http://asc.fasb.org/extlink&oid=65882285&loc=d3e32559-109319 Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 15 -URI http://asc.fasb.org/extlink&oid=65882285&loc=d3e32718-109319 Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 9 -URI http://asc.fasb.org/extlink&oid=65882285&loc=d3e32639-109319 Reference 5: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=65882285&loc=d3e32537-109319 + Details
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