Centene Corporation Annual report pursuant to Section 13 and 15(d)

Annual report pursuant to Section 13 and 15(d)

Medical Claims Liability

Medical Claims Liability

12 Months Ended

Dec. 31, 2012

The change in medical claims liability is summarized as follows:



	Year Ended December 31,
	2012			2011			2010
Balance, January 1,	$	607,985		$	456,765		$	470,932
Incurred related to:
Current year	7,499,437			4,390,123			3,652,521
Prior years	(53,400		)	(65,377		)	(68,069		)
Total incurred	7,446,037			4,324,746			3,584,452

Paid related to:
Current year	6,535,537			3,788,808			3,203,585
Prior years	550,708			384,718			395,034
Total paid	7,086,245			4,173,526			3,598,619

Less: Premium deficiency reserve	41,475			—			—

Balance, December 31,	$	926,302		$	607,985		$	456,765

Changes in estimates of incurred claims for prior years are primarily attributable to reserving under moderately adverse conditions. In addition, claims processing initiatives yielded increased claim payment recoveries and coordination of benefits related to prior year dates of service. Changes in medical utilization and cost trends and the effect of medical management initiatives may also contribute to changes in medical claim liability estimates. While the Company has evidence that medical management initiatives are effective on a case by case basis, medical management initiatives primarily focus on events and behaviors prior to the incurrence of the medical event and generation of a claim. Accordingly, any change in behavior, leveling of care, or coordination of treatment occurs prior to claim generation and as a result, the costs prior to the medical management initiative are not known by the Company. Additionally, certain medical management initiatives are focused on member and provider education with the intent of influencing behavior to appropriately align the medical services provided with the member's acuity. In these cases, determining whether the medical management initiative changed the behavior cannot be determined. Because of the complexity of its business, the number of states in which it operates, and the volume of claims that it processes, the Company is unable to practically quantify the impact of these initiatives on its changes in estimates of IBNR. Excluding the impact of the medical costs related to the retroactive assignment of members in our Kentucky health plan, the amount of "Incurred related to: Prior years" shown for 2012 in the table above would have been $(61,733).

The Company had reinsurance recoverables related to medical claims liability of $9,668 and $5,313 at December 31, 2012 and 2011, respectively, included in premium and related receivables.

The Company periodically reviews actual and anticipated experience compared to the assumptions used to establish medical costs. The Company establishes premium deficiency reserves if actual and anticipated experience indicates that existing policy liabilities together with the present value of future gross premiums will not be sufficient to cover the present value of future benefits, settlement and maintenance costs.

In October 2012, the Company notified the Kentucky Cabinet for Health and Family Services that it is exercising a contractual right that it believes allows Kentucky Spirit to terminate its Medicaid managed care contract with the Commonwealth of Kentucky effective July 5, 2013. As a result, the Company recorded a premium deficiency reserve included in Medical costs expense of $41,475 for its Kentucky contract in the year ended December 31, 2012. The premium deficiency reserve encompasses the contract period from January 1, 2013 through July 5, 2013.