Medical Claims and Benefits Payable

The following table provides the details of our medical claims and benefits payable (including amounts payable for the provision of long-term services and supports, or LTSS) as of the dates indicated:



	September 30, 2017		December 31, 2016
	(In millions)
Fee-for-service claims incurred but not paid (IBNP)	$	1,681	$	1,352
Pharmacy payable	125		112
Capitation payable	57		37
Other	615		428
	$	2,478	$	1,929

“Other” medical claims and benefits payable include amounts payable to certain providers for which we act as an intermediary on behalf of various government agencies without assuming financial risk. Such receipts and payments do not impact our consolidated statements of operations. Non-risk provider payables amounted to $403 million and $225 million as of September 30, 2017 and December 31, 2016, respectively.

Reinsurance recoverables of $16 million and $72 million as of September 30, 2017 and 2016, respectively, are included in “Receivables” in the accompanying consolidated balance sheets.

The following table presents the components of the change in our medical claims and benefits payable for the periods indicated. The amounts presented for “Components of medical care costs related to: Prior periods” represent the amounts by which our original estimate of medical claims and benefits payable at the beginning of the period were less (more) than the actual amount of the liability based on information (principally the payment of claims) developed since that liability was first reported.



	Nine Months Ended September 30,
	2017			2016
	(Dollars in millions)
Medical claims and benefits payable, beginning balance	$	1,929		$	1,685
Components of medical care costs related to:
Current period	12,813			11,120
Prior periods	9			(190		)
Total medical care costs	12,822			10,930

Change in non-risk provider payables	172			70

Payments for medical care costs related to:
Current period	10,944			9,536
Prior periods	1,501			1,278
Total paid	12,445			10,814
Medical claims and benefits payable, ending balance	$	2,478		$	1,871
Benefit from prior period as a percentage of:
Balance at beginning of period	(0.5		)%	11.3		%
Premium revenue, trailing twelve months	—		%	1.2		%
Medical care costs, trailing twelve months	(0.1		)%	1.3		%

Assuming that our initial estimate of IBNP is accurate, we believe that amounts ultimately paid would generally be between 8% and 10% less than the IBNP liability recorded at the end of the period as a result of the inclusion in that liability of the provision for adverse claims deviation and the accrued cost of settling those claims. Because the amount of our initial liability is merely an estimate (and therefore not perfectly accurate), we will always experience variability in that estimate as new information becomes available with the passage of time. Therefore, there can be no assurance that amounts ultimately paid out will fall within the range of 8% to 10% lower than the liability that was initially recorded. Furthermore, because our initial estimate of IBNP is derived from many factors, some of which are qualitative in nature rather than quantitative, we are seldom able to assign specific values to the reasons for a change in estimate—we only know when the circumstances for any one or more factors are out of the ordinary.

The differences between our original estimates and the amounts ultimately paid out (or now expected to be ultimately paid out) for the most part related to IBNP. While many related factors working in conjunction with one another serve to determine the accuracy of our estimates, we are seldom able to quantify the impact that any single factor has on a change in estimate. In addition, given the variability inherent in the reserving process, we will only be able to identify specific factors if they represent a significant departure from expectations. As a result, we do not expect to be able to fully quantify the impact of individual factors on changes in estimates.

Prior period development of our estimate as of December 31, 2016, through September 30, 2017, was unfavorable by $9 million, which is substantially less than the favorable prior period development of $190 million we recognized for the same period in the prior year. Further, the unfavorable development through September 30, 2017, was less than the 8% to 10% favorable development we typically expect.

We believe that the most significant uncertainties surrounding our IBNP estimates at September 30, 2017 are as follows:


•	At our Florida health plan, the inventory of unpaid claims increased significantly during the first two quarters of 2017, and then dropped in the third quarter. For this reason, the timing between the dates of service and the dates claims are paid will be impacted, making our liability estimates subject to more than the usual amount of uncertainty.


•	At our Illinois health plan, in 2017 we paid a large number of claims that had previously been denied and were subsequently disputed by providers. We have also established a liability for additional expected claims resulting from provider disputes. This has created some distortion in the claims payment patterns, making our liability estimates subject to more than the usual amount of uncertainty.


•	At our California health plan, we adjusted our inpatient authorization process. As a result, due to the expected increase in authorized inpatient stays, our liability estimates are subject to more than the usual amount of uncertainty.

•

At our Illinois and New York health plans, we implemented a new process for increased quality review of claims payments. While we do not anticipate this new process will impact the percentage of claims paid within the timely turnaround requirements, we believe it will have a minor impact on the timing of some paid claims. For this reason, our liability estimates in these two health plans are subject to more than the usual amount of uncertainty.


•	At our Puerto Rico health plan, Hurricane Maria had a significant impact on both utilization of services and our ability to process claims payments in Puerto Rico. For these reasons, we believe our liability estimates are subject to more than the usual amount of uncertainty.