Humana 2014 Annual Report Download - page 78
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70
each of these expense components. Other external factors such as government-mandated benefits or other regulatory
changes, the tort liability system, increases in medical services capacity, direct to consumer advertising for prescription
drugs and medical services, an aging population, lifestyle changes including diet and smoking, catastrophes, and
epidemics also may impact medical cost trends. Internal factors such as system conversions, claims processing cycle
times, changes in medical management practices and changes in provider contracts also may impact our ability to
accurately predict estimates of historical completion factors or medical cost trends. All of these factors are considered
in estimating IBNR and in estimating the per member per month claims trend for purposes of determining the reserve
for the most recent three months. Additionally, we continually prepare and review follow-up studies to assess the
reasonableness of the estimates generated by our process and methods over time. The results of these studies are also
considered in determining the reserve for the most recent three months. Each of these factors requires significant
judgment by management.
The completion and claims per member per month trend factors are the most significant factors impacting the
IBNR estimate. The portion of IBNR estimated using completion factors for claims incurred prior to the most recent
three months is generally less variable than the portion of IBNR estimated using trend factors. The following table
illustrates the sensitivity of these factors assuming moderate adverse experience and the estimated potential impact on
our operating results caused by reasonably likely changes in these factors based on December 31, 2014 data:
Completion Factor (a): Claims Trend Factor (b):
Factor
Change (c)
Decrease in
Benefits Payable
Factor
Change (c)
Decrease in
Benefits Payable
(dollars in millions)
1.40% $(357) (4.00)% $(381)
1.20% $(306) (3.50)% $(333)
1.00% $(255) (3.00)% $(286)
0.80% $(204) (2.50)% $(238)
0.60% $(153) (2.25)% $(214)
0.40% $(102) (2.00)% $(190)
0.20% $(51) (1.50)% $(143)
(a) Reflects estimated potential changes in benefits payable at December 31, 2014 caused by changes in completion
factors for incurred months prior to the most recent three months.
(b) Reflects estimated potential changes in benefits payable at December 31, 2014 caused by changes in annualized
claims trend used for the estimation of per member per month incurred claims for the most recent three months.
(c) The factor change indicated represents the percentage point change.