Humana 2007 Annual Report Download - page 64

The following table provides a historical perspective regarding the accrual and payment of our benefits
payable, excluding military services. Components of the total incurred claims for each year include amounts
accrued for current year estimated benefit expenses as well as adjustments to prior year estimated accruals.
2007 2006 2005
(in thousands)
Balances at January 1 .................................... $ 1,979,733 $ 1,334,716 $ 1,074,310
Acquisitions ............................................ 41,029 21,198 37,375
Incurred related to:
Current year ........................................ 18,015,247 15,374,855 9,635,435
Prior years ......................................... (242,922) (178,998) (72,868)
Total incurred .................................. 17,772,325 15,195,857 9,562,567
Paid related to:
Current year ........................................ (16,012,828) (13,532,139) (8,392,628)
Prior years ......................................... (1,424,798) (1,039,899) (946,908)
Total paid ...................................... (17,437,626) (14,572,038) (9,339,536)
Balances at December 31 ................................. $ 2,355,461 $ 1,979,733 $ 1,334,716
Amounts incurred related to prior years vary from previously estimated liabilities as the claims ultimately
are settled. Negative amounts reported for incurred related to prior years result from claims being ultimately
settled for amounts less than originally estimated (favorable development).
As summarized in the previous table, claim reserve balances at December 31, 2006 ultimately settled during
2007 for $242.9 million less than the amounts originally estimated. During 2006, claim reserve balances at
December 31, 2005 ultimately settled for $179.0 million less than the amounts originally estimated. The $63.9
million change in the amounts incurred related to prior years for 2007 as compared to 2006 primarily relates to
favorable development experienced in our Medicare operations. As previously described, our key assumptions
consist of trend factors and completion factors using an assumption of moderately adverse conditions. In our
Medicare operations, both our trend factor and completion factor assumptions at December 31, 2006 ultimately
developed favorable versus our original estimate primarily due to changes in estimates associated with our 2006
Medicare Part D reconciliation and the growth in our Medicare business. First year Medicare Part D enrollment
and eligibility issues in 2006 led to actual claim settlements with other health plans and states during 2007 for
amounts less than originally estimated. Similar adjustments in the future are not expected to be as significant due
to the program’s operational improvement in 2007.
During 2006, claim reserve balances at December 31, 2005 ultimately settled during 2006 for $179.0
million less than the amounts originally estimated. During 2005, claim reserve balances at December 31, 2004
ultimately settled for $72.9 million less than the amounts originally estimated. This $106.1 million change in the
amounts incurred related to prior years for 2006 as compared to 2005 primarily was attributable to both our
Medicare and commercial lines of business. In each of these lines of business, both our trend factor and
completion factor assumptions at December 31, 2005 ultimately developed favorable versus our original estimate
primarily due to (1) the utilization of hospital and physician services during the latter half of 2005 ultimately
being lower than estimated, (2) the impact of hurricanes in Florida and Louisiana in the second half of 2005 on
both utilization of services and claims processing, (3) significant growth in our Medicare PFFS product,
(4) reductions in receipt cycle times driven by an increase in electronic claims submissions, and (5) an increase in
claim overpayment recovery levels versus our historical overpayment recovery rate.
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