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Income Taxes | 12 Months Ended
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Dec. 31, 2017
Income Tax Disclosure [Abstract] |
Income Taxes | Income Taxes The (benefit) provision for income taxes is determined using an estimated annual effective tax rate, which generally differs from the U.S. federal statutory rate primarily because of state taxes, nondeductible expenses such as the HIF, goodwill impairment, certain compensation, and other general and administrative expenses. The effective tax rate was not impacted by the HIF in 2017, given the 2017 HIF moratorium. 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 Tax Cuts and Jobs Act (TCJA) was enacted on December 22, 2017. The TCJA, in part, reduces the U.S. federal corporate tax rate from 35% to 21% effective January 1, 2018. TCJA’s change in the federal rate requires that we revalue deferred tax assets and liabilities based on the rates at which they are expected to reverse in the future, which is generally the new 21% federal corporate tax rate plus applicable state tax rate. At December 31, 2017, we have not completed our accounting for the tax effects of enactment of the TCJA; however, we have made a reasonable estimate of the effects on our existing deferred tax balances and we recognized a provisional deferred federal income tax expense of $54 million, which is included as a reduction of income tax benefit for the year ended December 31, 2017. We will continue to make and refine our calculations as additional analysis is completed. In addition, our estimates may also be affected as we gain a more thorough understanding of the tax law based on expected future guidance from the Internal Revenue Service and U.S. Treasury. The (benefit) provision for income taxes consisted of the following:
| Year Ended December 31,
| 2017 |  | 2016 |  | 2015
| (In millions)
Current: |  |  |  |  |
Federal | $ | (9 | ) |  | $ | 134 |  |  | $ | 172 |
State | 3 |  |  | 3 |  |  | 8 |
Foreign | — |  |  | (6 | ) |  | 6 |
Total current | (6 | ) |  | 131 |  |  | 186 |
Deferred: |  |  |  |  |
Federal | (85 | ) |  | 19 |  |  | (10 | )
State | (9 | ) |  | 2 |  |  | 4 |
Foreign | — |  |  | 1 |  |  | (1 | )
Total deferred | (94 | ) |  | 22 |  |  | (7 | )
| $ | (100 | ) |  | $ | 153 |  |  | $ | 179 |
In 2017, the income tax benefit of $100 million is net of $54 million in deferred income tax expense as a result of the revaluation of net deferred tax assets in connection with the TCJA. 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,
| 2017 |  | 2016 |  | 2015
Statutory federal tax (benefit) rate | (35.0 | )% |  | 35.0 | % |  | 35.0 | %
State income provision (benefit), net of federal | (0.7 | ) |  | 1.6 |  |  | 2.4 |
Nondeductible health insurer fee (HIF) | — |  |  | 37.0 |  |  | 17.0 |
Nondeductible compensation | 2.8 |  |  | 3.1 |  |  | 0.6 |
Nondeductible goodwill impairment | 6.6 |  |  | — |  |  | — |
Revaluation of net deferred tax assets | 8.8 |  |  | — |  |  | — |
Change in purchase agreement that increased tax basis in assets | — |  |  | (2.2 | ) |  | — |
Other | 1.1 |  |  | 0.3 |  |  | 0.5 |
Effective tax (benefit) rate | (16.4 | )% |  | 74.8 | % |  | 55.5 | %
Our effective tax rate is based on expected (loss) 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 2016, and 2015, excess tax benefits from share-based compensation amounted to $2 million and $8 million, respectively. These amounts were recorded as a decrease to income taxes payable and an increase to additional paid-in capital. Effective 2017, excess tax benefits are no longer recorded through additional paid-in capital but rather through the income statement as an income tax benefit pursuant to ASU 2016-09. Deferred tax assets and liabilities are classified as non-current. Significant components of our deferred tax assets and liabilities as of December 31, 2017 and 2016 were as follows:
| December 31,
| 2017 |  | 2016
| (In millions)
Accrued expenses | $ | 15 |  |  | $ | 22 |
Reserve liabilities | 11 |  |  | 28 |
Other accrued medical costs | 16 |  |  | 5 |
Net operating losses | 27 |  |  | 13 |
Fixed assets and intangibles | 23 |  |  | — |
Unrealized losses | 2 |  |  | 1 |
Unearned premiums | 19 |  |  | 27 |
Lease financing obligation | 30 |  |  | 38 |
Deferred compensation | 1 |  |  | 6 |
Tax credit carryover | 15 |  |  | 7 |
Valuation allowance | (41 | ) |  | (16 | )
Total deferred income tax assets, net of valuation allowance | 118 |  |  | 131 |
Prepaid expenses | (6 | ) |  | (9 | )
Fixed assets and intangibles | — |  |  | (104 | )
Basis in debt | (9 | ) |  | (23 | )
Total deferred income tax liabilities | (15 | ) |  | (136 | )
Net deferred income tax asset (liability) | $ | 103 |  |  | $ | (5 | )
At December 31, 2017, we had state net operating loss carryforwards of $578 million, which begin expiring in 2018. At December 31, 2017, we had California research and development and enterprise zone tax credit carryovers of $14 million, which will begin to expire in 2024. In 2017, we generated federal research and development and other tax credit carryovers of $4 million, which will expire in 2038. 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, 2017, $41 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 and credit carryforwards. Therefore, we increased our valuation allowance by $25 million, from $16 million at December 31, 2016, to $41 million as of December 31, 2017. 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,
| 2017 |  | 2016 |  | 2015
| (In millions)
Gross unrecognized tax benefits at beginning of period | $ | (11 | ) |  | $ | (9 | ) |  | $ | (3 | )
Increases in tax positions for current year | (1 | ) |  | (1 | ) |  | (1 | )
Increases in tax positions for prior years | (4 | ) |  | (1 | ) |  | (5 | )
Decreases in tax positions for prior years | 3 |  |  | — |  |  | — |
Gross unrecognized tax benefits at end of period | $ | (13 | ) |  | $ | (11 | ) |  | $ | (9 | )
The total amount of unrecognized tax benefits at December 31, 2017, 2016 and 2015 that, if recognized, would affect the effective tax rates is $12 million, $9 million, and $7 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, 2017, 2016 and 2015 were insignificant. We may be subject to federal examination for calendar years 2014 through 2016. 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 2016.

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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 740 -URI http://asc.fasb.org/topic&trid=2144680 + Details
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