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Fair Value Measurements | 12 Months Ended
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Dec. 31, 2020
Fair Value Disclosures [Abstract] |
Fair Value Measurements | Fair Value Measurements We consider the carrying amounts of current assets and current liabilities to approximate their fair values because of the relatively short period of time between the origination of these instruments and their expected realization or payment. For our financial instruments measured at fair value on a recurring basis, we prioritize the inputs used in measuring fair value according to a three-tier fair value hierarchy as follows: Level 1 — Observable Inputs. Level 1 financial instruments are actively traded and therefore the fair value for these securities is based on quoted market prices for identical securities in active markets. Level 2 — Directly or Indirectly Observable Inputs. Fair value for these investments is determined using a market approach based on quoted prices for similar securities in active markets or quoted prices for identical securities in inactive markets. Level 3 — Unobservable Inputs. Level 3 financial instruments are valued using unobservable inputs that represent management’s best estimate of what market participants would use in pricing the financial instrument at the measurement date. As of December 31, 2020, our Level 3 financial instruments consisted of contingent consideration liabilities. As of December 31, 2019, our Level 3 financial instruments consisted of derivative financial instruments. The net changes in fair value of Level 3 financial instruments are reported in “Other” operating expenses in our consolidated statements of income. In the year ended December 31, 2020, we recognized a loss of $6 million, primarily for the increase in the fair value of the contingent consideration liability described below, because the opening 2021 enrollment for our Kentucky health plan was higher than our estimate as of September 30, 2020. In the year ended December 31, 2019, the net changes in fair value of Level 3 financial instruments were insignificant to our results of operations. Our financial instruments measured at fair value on a recurring basis at December 31, 2020, were as follows:
| Total |  | Level 1 |  | Level 2 |  | Level 3
| (In millions)
Corporate debt securities | $ | 1,256 |  |  | $ | — |  |  | $ | 1,256 |  |  | $ | — |
Mortgage-backed securities | 392 |  |  | — |  |  | 392 |  |  | — |
Asset-backed securities | 132 |  |  | — |  |  | 132 |  |  | — |
Municipal securities | 68 |  |  | — |  |  | 68 |  |  | — |
U.S. Treasury notes | 27 |  |  | — |  |  | 27 |  |  | — |
Total assets | $ | 1,875 |  |  | $ | — |  |  | $ | 1,875 |  |  | $ | — |
Contingent consideration liabilities | $ | 46 |  |  | $ | — |  |  | $ | — |  |  | $ | 46 |
Total liabilities | $ | 46 |  |  | $ | — |  |  | $ | — |  |  | $ | 46 |
Our financial instruments measured at fair value on a recurring basis at December 31, 2019, were as follows:
| Total |  | Level 1 |  | Level 2 |  | Level 3
| (In millions)
Corporate debt securities | $ | 1,178 |  |  | $ | — |  |  | $ | 1,178 |  |  | $ | — |
Mortgage-backed securities | 420 |  |  | — |  |  | 420 |  |  | — |
Asset-backed securities | 127 |  |  | — |  |  | 127 |  |  | — |
Municipal securities | 78 |  |  | — |  |  | 78 |  |  | — |
U.S. Treasury notes | 86 |  |  | — |  |  | 86 |  |  | — |
Government-sponsored enterprise securities (“GSEs”) | 49 |  |  | — |  |  | 49 |  |  | — |
Certificate of deposit | 1 |  |  | — |  |  | 1 |  |  | — |
Other | 7 |  |  | — |  |  | 7 |  |  | — |
Subtotal | 1,946 |  |  | — |  |  | 1,946 |  |  | — |
Call option derivative asset | 29 |  |  | — |  |  | — |  |  | 29 |
Total assets | $ | 1,975 |  |  | $ | — |  |  | $ | 1,946 |  |  | $ | 29 |
Conversion option derivative liability | $ | 29 |  |  | $ | — |  |  | $ | — |  |  | $ | 29 |
Total liabilities | $ | 29 |  |  | $ | — |  |  | $ | — |  |  | $ | 29 |
Contingent Consideration Liabilities As of December 31, 2020, our Level 3 financial instruments recorded at fair value on a recurring basis included contingent consideration liabilities of $46 million, in connection with the Kentucky acquisition described in Note 4, “Business Combinations.” As of December 31, 2020, the contingent consideration fair value was estimated primarily based on an amount we expect to pay the seller for members enrolled in our Kentucky health plan as of January 1, 2021, over a minimum threshold. Half this amount is payable later in 2021, with the remainder payable in early 2022, subject to review and agreement among us and the seller. The second half payment is contingent upon the outcome of certain legal challenges. The current portion is reported in “Accounts payable, accrued liabilities and other,” and the non-current portion is reported in “Other long-term liabilities,” in the accompanying consolidated balance sheets. Contingent consideration liabilities are remeasured to fair value each quarter until the contingencies are resolved with fair value adjustments, if any, recorded to operations. Derivatives The following table summarizes the fair values and the presentation of our derivative financial instruments in the accompanying consolidated balance sheets:
|  |  | December 31,
| Balance Sheet Location |  | 2020 |  | 2019
|  |  | (In millions)
Derivative asset: |  |  |  |  |
Call Option | Current assets: Prepaid expenses and other current assets |  | $ | — |  |  | $ | 29 |
Derivative liability: |  |  |  |  |
Conversion Option | Current liabilities: Accounts payable, accrued liabilities and other |  | $ | — |  |  | $ | 29 |
Our derivative financial instruments did not qualify for hedge treatment. Gains and losses for our derivative financial instruments are presented individually in the accompanying consolidated statements of cash flows, “Supplemental cash flow information.” In the year ended December 31, 2020, we received $27 million for the settlement of the call option derivative asset, and we paid $39 million to settle the outstanding $12 million principal amount of the 1.125% Convertible Notes, and settle the related conversion option. For more information, refer to Notes 11, “Debt,” and 13 “Stockholders' Equity.” Fair Value Measurements – Disclosure Only The carrying amounts and estimated fair values of our notes payable are classified as Level 2 financial instruments. Fair value for these securities is determined using a market approach based on quoted market prices for similar securities in active markets or quoted prices for identical securities in inactive markets.
| December 31, 2020 |  | December 31, 2019
| Carrying Amount |  | Fair Value |  | Carrying Amount |  | Fair Value
| (In millions)
4.375% Notes | $ | 789 |  |  | $ | 843 |  |  | $ | — |  |  | $ | — |
5.375% Notes | 697 |  |  | 742 |  |  | 696 |  |  | 745 |
3.875% Notes | 641 |  |  | 691 |  |  | — |  |  | — |
4.875% Notes (1) | — |  |  | — |  |  | 327 |  |  | 340 |
Term Loan Facility (1) | — |  |  | — |  |  | 220 |  |  | 220 |
1.125% Convertible Notes (1) | — |  |  | — |  |  | 12 |  |  | 42 |
Total | $ | 2,127 |  |  | $ | 2,276 |  |  | $ | 1,255 |  |  | $ | 1,347 |
_______________________________ (1) For more information on debt repayments, refer to Note 11, “Debt.”

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- Definition The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information. + References Reference 1: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 820 -SubTopic 10 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=117815213&loc=d3e19207-110258 + Details
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