Humana 2014 Annual Report Download - page 71

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an administrative services fee only agreement. As such, beginning April 1, 2012, payments of the federal government’s
claims and related reimbursements for the current TRICARE South Region contract are classified with receipts
(withdrawals) from contract deposits as a financing item in our consolidated statements of cash flows.
The detail of benefits payable was as follows at December 31, 2014, 2013 and 2012:
Change
2014 2013 2012 2014 2013 2012
(in millions)
IBNR (1) $ 3,254 $ 2,586 $ 2,552 $ 668 $ 34 $ 496
Reported claims in process (2) 475 381 315 94 66 (61)
Military services benefits payable (3) — — 4 — (4)(335)
Other benefits payable (4) 746 926 908 (180)18(75)
Total benefits payable $ 4,475 $ 3,893 $ 3,779 582 114 25
Payables from acquisition — (5)(66)
Change in benefits payable per cash
flow statement resulting in cash
from operations $ 582 $ 109 $ (41)
(1) IBNR represents an estimate of benefits payable for claims incurred but not reported (IBNR) and claims
received but not processed at the balance sheet date. The level of IBNR is primarily impacted by
membership levels, medical claim trends and the receipt cycle time, which represents the length of time
between when a claim is initially incurred and when the claim form is received (i.e. a shorter time span
results in a lower IBNR).
(2) Reported claims in process represents the estimated valuation of processed claims that are in the post claim
adjudication process, which consists of administrative functions such as audit and check batching and handling,
as well as amounts owed to our pharmacy benefit administrator which fluctuate due to bi-weekly payments and
the month-end cutoff.
(3) Military services benefits payable primarily represents the run-out of the claims liability associated with our
previous TRICARE South Region contract that expired on March 31, 2012. A corresponding receivable for
reimbursement by the federal government is included in the military services receivable in the previous
receivables table.
(4) Other benefits payable include amounts owed to providers under capitated and risk sharing arrangements.
The increase in benefits payable in 2014 primarily was due to an increase in IBNR, primarily as a result of
Medicare Advantage and individual commercial membership growth, and an increase in the amount of processed but
unpaid claims due to our pharmacy benefit administrator, which fluctuate due to month-end cutoff. These items were
partially offset by a decrease in amounts owed to providers under capitated and risk sharing arrangements primarily
related to the disbursement of a portion of our Medicare risk adjustment collections under our contractual obligations
associated with our risk sharing arrangements. The increase in benefits payable in 2013 primarily was due to an increase
in the amount of processed but unpaid claims due to our pharmacy benefit administrator, which fluctuate due to month-
end cutoff, and an increase in IBNR, primarily as a result of Medicare Advantage membership growth. The increase
in benefits payable in 2012 primarily was due to an increase in IBNR, primarily as a result of Medicare Advantage
membership growth, partially offset by a $335 million decrease in the military services benefits payable due to the run-
out of claims under the previous TRICARE South Region contract that expired on March 31, 2012, a decrease in the
amounts owed to providers under capitated and risk sharing arrangements, and a decrease in the amounts due to our
pharmacy benefit administrator which fluctuate due to month-end cutoff. Under the current TRICARE South Region
contract effective April 1, 2012, the federal government retains the risk of the cost of health benefits and related benefit
obligation as further described in Note 2 to the consolidated financial statements included in Item 8. – Financial
Statements and Supplementary Data.
Many provisions of the Health Care Reform Law became effective in 2014, including the commercial risk
adjustment, risk corridor, and reinsurance provisions as well as the non-deductible health insurance industry fee. As
discussed previously, the timing of payments and receipts associated with these provisions impacted our operating cash