SG&A expense ratio measures selling, general and administrative expense as a percentage of total premium revenue, excluding premium taxes and Medicaid ACA industry fee reimbursements, and does not include depreciation and amortization expense for purposes of determining the ratio. The ratio also excludes the effect of investigation-costs for all years presented, and Sterling divestiture, Iowa SG&A and pharmacy benefit manager ("PBM") transitory costs for the year ended December 31, 2015.
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with Item 6 - Selected Financial Data and our consolidated financial statements and related notes appearing elsewhere in this 2015 Form 10-K. The following discussion contains forward-looking statements that involve risks, uncertainties and assumptions that could cause our actual results to differ materially from management's expectations. Factors that could cause such differences include those set forth under Part I, Item 1 - Business and Part I, Item 1A - Risk Factors, as well as Forward-Looking Statements discussed earlier in this 2015 Form 10-K.
Membership decreased 8.5% in 2015, mainly driven by a decline in PDP membership due to our bid positioning for the 2015 plan year, as well as a decline in our Medicare Health Plans membership due to bid actions, market withdrawals and the divestiture of our Medicare Supplement business. Medicaid Health Plans membership increased 78,000, or 3.4% year-over-year, primarily from organic growth in our Florida and Kentucky plans.
Premiums increased $959.3 million, or 7.4%, in 2015, reflecting organic membership growth in our Medicaid Health Plans segment, primarily Florida and Kentucky, and increased ACA industry fee reimbursement from our Medicaid customers, partially offset by the effect of lower membership in our Medicare Health Plans and Medicare PDPs segments.
Presented below are key developments and accomplishments relating to progress on our business strategy that occurred or affected results of operations, financial condition and cash flows during 2015, or occurred in 2016 prior to the filing of this 2015 Form 10-K.
In January 2016, we entered into a new $850.0 million senior unsecured revolving credit facility, replacing and terminating the previous senior unsecured credit facility. Upon closing, through a combination of $100.0 million in cash and $200.0 million borrowed as a revolving loan under the new credit facility, we repaid in full the $300.0 million term loan due in September 2016 (the "Term Loan") under the previous credit facility.
In January 2016, we received a notice that the Georgia Department of Community Health (“Georgia DCH”) intends to extend our current Georgia Medicaid contract, which currently expires on June 30, 2016, for up to twelve months through the addition of two six-month renewal periods. At this time, Georgia DCH anticipates extending the contract at least through December 31, 2016. In September 2015, we received a Notice of Intent to Award ("NOIA") a contract from Georgia DCH to continue serving Medicaid members in Georgia. Services under the new contract are expected to commence on January 1, 2017, with an initial six-month term and five additional one-year renewal options at Georgia DCH's discretion. Three other plans also received a NOIA, which will increase the total number of participating plans from three to four. As of December 31, 2015, we served approximately 585,000 Medicaid members in Georgia.
In July 2015, we divested Sterling Life Insurance Company ("Sterling"), our Medicare Supplement business that we acquired as part of the Windsor Health Group, Inc. ("Windsor") transaction in January 2014. The Sterling transaction closed on July 1, 2015 and did not have a material effect on our results of operations or financial position.
In June 2015, our Kentucky Medicaid plan was selected by the Kentucky Cabinet for Health and Family Services to continue serving the Commonwealth's Medicaid Managed Care program in all eight of the program's regions. The new contract, which included a rate decrease, commenced on July 1, 2015 and is for one year. The new contract can be renewed for up to four additional one-year terms upon the mutual agreement of the parties, potentially extending it through June 30, 2020. As of December 31, 2015, we served approximately 440,000 Medicaid members in Kentucky.
In June 2015, we completed the offering and sale of $300.0 million aggregate principal amount of our 5.75% unsecured senior notes due 2020 (the "Senior Notes") pursuant to a reopening of our existing series of such notes. We received net proceeds of $308.9 million from the issuance, which we are using for general corporate purposes, including organic growth and working capital.
Please refer to Part I, Item 1 - Business, General Economic and Political Environment Affecting our Business and Health Care Reform for a further discussion of the current economic and political environment that is affecting our business,
Refer to the risks and uncertainties related to health care reform as discussed in Part I, Item 1A - Risk Factors - Future changes in health care law present challenges for our business that could have a material adverse effect on our results of operations and cash flows.
In October 2015, we signed a contract with the Iowa Department of Human Services ("DHS") to serve Iowa’s Medicaid Managed Care program statewide effective January 1, 2016. In December 2015, CMS delayed the implementation of Iowa's Medicaid Managed Care program until March 1, 2016. Additionally, in December 2015, Iowa's Department of Administrative Services ruled to exclude the Company from participating in Iowa's Medicaid Managed Care program, which the Company disputes and is currently appealing. Accordingly, in 2015, the Company's selling, general and administrative ("SG&A") expenses include non-recurring expenses of $11.9 million related to the readiness costs, certain wind-down costs of WellCare's Iowa operations and certain legal costs incurred in the fourth quarter of 2015.
The following table sets forth condensed data from our consolidated statements of operations data, as well as other key data used in our results of operations discussions for the years ended December 31, 2015, 2014 and 2013. The historical results are not necessarily indicative of results to be expected for any future period.
Medicaid Health Plans. Membership increased by 78,000, or 3.4%, compared to December 31, 2014, primarily driven by organic growth in the Florida, Kentucky and Missouri programs, partially offset by a decrease in membership in our Georgia Medicaid market due to statewide eligibility recertifications.
Medicare PDPs. Membership decreased by 367,000, or 26.4%, compared to December 31, 2014. The decrease was primarily due to bid positioning for the 2015 plan year, in which our plans were below the benchmarks in 13 of the 33 CMS regions for which we submitted bids and in the de minimis range in nine regions compared to our 2014 bids, in which we were below the benchmark in 30 out of 33 regions, and in the de minimis range in two other regions. PDP members who had been auto-assigned to us in 2014 in regions where our plans were not below or within the de minimis range for 2015 were assigned to other plans effective January 1, 2015.
Medicaid Health Plans. Membership increased by approximately 551,000 compared to December 31, 2013, primarily driven by organic membership growth in our Florida, Georgia and Kentucky Medicaid programs. Florida membership increased mainly due to our participation in the Managed Medical Assistance ("MMA") program, which commenced implementation on May 1, 2014, while Kentucky membership increased mainly due to Kentucky's participation in the 2014 Medicaid expansion. Additionally, 42,000 members were transferred to our Medicaid plan in New Jersey as a result of the Healthfirst Health Plans of New Jersey, Inc., ("Healthfirst NJ") acquisition.
Medicare Health Plans. Membership increased approximately 127,000 compared to December 31, 2013, primarily from the Windsor acquisition, which contributed approximately 37,000 MA and 43,000 Medicare Supplement program members as of December 31, 2014, as well as an increase resulting from the 2014 annual election period due to increased dual-eligible beneficiaries and expansions into new counties.
Total medical benefits expense for the year ended December 31, 2015 increased $523.3 million, or 4.6%, compared with the same period in 2014, primarily due to the increased Medicaid membership. The increase was partially offset by favorable prior year reserve development of $78.1 million recognized in 2015, compared with unfavorable prior year development of $48.1 million recognized in 2014, and lower membership in our Medicare Health Plans and Medicare PDPs segments resulting from our 2015 bid positioning. The increase in medical benefits expense for 2015 also reflects a full year of expense related to our Healthfirst NJ acquisition.
(2) Adjusted SG&A expense, as a percentage of total premium revenue, excluding Medicaid premium taxes and Medicaid ACA industry fee reimbursements.
Our SG&A expense for the year ended December 31, 2015 increased approximately $114.1 million, or 11.2%, compared to the same period in 2014. Our Adjusted SG&A expense for year ended December 31, 2015 increased approximately $89.3 million, or 9.1%, compared to the same period in 2014. The increase was primarily due to normal operating costs associated with the 2015 growth in Medicaid membership, continued investments in our medical cost initiatives and the effect of lower compensation expense in 2014 resulting from lower management incentive compensation. The increases were partially offset by lower membership in our Medicare PDPs segment and continued improvements in operating efficiency. Our SG&A ratio and Adjusted SG&A ratio for the year ended December 31, 2015 increased compared to the same period in 2014, primarily reflecting lower compensation expense in 2014 related to lower management incentive compensation, partially offset by continued improvements in operating efficiency in 2015.
Interest expense for the year ended December 31, 2015 increased approximately $14.8 million compared to the same period in 2014, primarily driven by the higher average debt levels during 2015, resulting from the issuance of the Term Loan in September 2014 and the additional $300.0 million issuance of Senior Notes in June 2015.
Interest expense for the year ended December 31, 2014 increased by $27.5 million compared to 2013, primarily driven by higher average debt levels during 2014 due to the Term Loan funded in September 2014 and the initial issuance of $600 million of the Senior Notes in November 2013.
Income tax expense for the year ended December 31, 2015 was $217.5 million, or 64.7% of pre-tax income, compared to $114.1 million, or 64.2% of pre-tax income, for the year ended December 31, 2014. The higher 2015 income tax expense is a result of higher income before income taxes as the effective tax rate is consistent as compared to the prior year.
Income tax expense for the year ended December 31, 2014 was $114.1 million, or 64.2% of pre-tax income, compared to $103.0 million, or 37.0% of pre-tax income, for the year ended December 31, 2013. The higher 2014 effective rate mainly reflected the effect of the non-deductible ACA industry fee. Additionally, the effective rate was lower in 2013 due to an issue resolution agreement reached with the IRS regarding the tax treatment of the investigation-related costs, resulting in approximately $7.6 million in additional tax benefit over what was recorded as of December 31, 2012. These unfavorable effects were partially offset by the favorable effect of the Windsor bargain purchase gain.
Other expenses includes selling, general and administrative expenses, Medicaid Premium taxes, depreciation and amortization, interest and impairment and other charges.
Our Medicaid Health Plans segment includes plans for beneficiaries of Temporary Assistance for Needy Families ("TANF"), Supplemental Security Income ("SSI"), Aged Blind and Disabled ("ABD") and other state-based programs that are not part of the Medicaid program, such as Children's Health Insurance Program ("CHIP") and Managed Long-Term Care ("MLTC") programs, including long-term services and supports. As of December 31, 2015, we operated Medicaid health plans in Florida, Georgia, Hawaii, Illinois, Kentucky, Missouri, New Jersey, New York and South Carolina. We began serving South Carolina members on February 1, 2013, Missouri Care members on April 1, 2013 and New Jersey members on January 1, 2014. As of July 1, 2013, we no longer provided Medicaid services in Ohio.
The following table sets forth the summarized results of operations and other relevant performance measures for our Medicaid segment for the years ended December 31, 2015, 2014 and 2013:
Excluding Medicaid premium taxes and Medicaid ACA industry fee reimbursements, Medicaid premium revenue for the year ended December 31, 2015 increased $1.2 billion, or 15.7%, compared to the same period in 2014. The increase was driven by increased membership in Florida due to organic growth and participation in the Florida MMA program, higher per member per month ("PMPM") rates related to the Florida MMA membership, growth in Kentucky from
Excluding Medicaid premium taxes and Medicaid ACA industry fee reimbursements, Medicaid premium revenue for the year ended December 31, 2014 increased $2.0 billion, or 35.6%, when compared to the same period in 2013. The increase in premium revenues was driven mainly by increased membership in Florida, due to organic growth and participation in the Florida MMA program, which commenced implementation on May 1, 2014. The increase in premium revenues is also attributable to Kentucky, primarily from our participation in the ACA Medicaid expansion and the additional members received following a competitor's exit from the Kentucky program in 2013. Also contributing to the increase in revenue was the net favorable effect of changes in the geographic and demographic mix of members, higher PMPM rates related to the Florida MMA membership and growth in New Jersey resulting from expansion and the Healthfirst acquisition. The increase for the year ended December 31, 2014 also reflects the benefit of a full year's membership from the South Carolina and Missouri Care Medicaid acquisitions completed during the first quarter of 2013. These increases were partially offset by our exit from the Ohio Medicaid program effective July 1, 2013.
Medicare Health Plans medical benefits expense for the year ended December 31, 2015 decreased $105.2 million, or 3.0%, compared to the same period in 2014, primarily driven by the decrease in membership discussed above and improved operational execution on medical expense initiatives launched in 2015. The Medicare Health Plans MBR decreased by 130 basis points compared to 2014, reflecting improved operating performance as a result of bid actions for the 2015 plan year as well as improved operational execution on medical expense initiatives launched in 2015.
Medicare Health Plans medical benefits expense for the year ended December 31, 2014 increased $847.4 million, or 31.9%, compared to the same period in 2013, primarily driven by the increase in membership discussed above. The Medicare Health Plans MBR increased by 190 basis points compared to 2013, resulting mainly from the effect of CMS rate decreases and the federal government's budget sequestration, which took effect in April 2013, as well as unfavorable prior year reserve development, partially offset by changes to plan benefit designs and cost sharing terms in 2014 compared with 2013, as well as our ongoing medical cost management initiatives.
The Medicare PDPs premium revenue increased 51.7% in 2014 when compared to 2013, primarily due to the increase in membership, which includes 103,000 members from the Windsor acquisition, partially offset by lower premium rates resulting from our 2014 bids. The Medicare PDPs MBR for the year ended December 31, 2014 increased 640 basis points over the same period in 2013 primarily driven by higher drug unit costs, increased utilization of branded and specialty medications, the outcome of our 2014 bids and CMS rate decreases and the federal government's budget sequestration, which took effect in April 2013.
Medicaid Health Plans - We expect premium revenue for our Medicaid Health Plans, excluding Medicaid premium taxes and the Medicaid ACA industry fee reimbursement, to be in the range of $8.75 billion to $8.90 billion for 2016, consistent with $8.8 billion reported for 2015. Medicaid Health Plans Adjusted MBR is expected to be in the range of 89.0% to 90.0% for 2016, slightly down from 89.8% reported for 2015 due to momentum from improved performance in 2015 and our improved pharmacy cost structure that went into effect on January 1, 2016.
ACA Industry Fee expense - We estimate that we will incur between $223.0 million and $233.0 million of ACA industry fee expense in 2016, consistent with 2015, as the total fee to be levied on the industry will remain at $11.3 billion.
Each of our existing and anticipated sources of cash is affected by operational and financial risks that influence the overall amount of cash generated and the capital available to us. Additionally, we operate as a holding company in a highly regulated industry. The parent and other non-regulated companies ("non-regulated subsidiaries") are dependent upon dividends and management fees from our regulated subsidiaries, most of which are subject to regulatory restrictions. For a further discussion of risks that can affect our liquidity and cash flows, see Part I - Item 1A - Risk Factors included in this 2015 Form 10-K.
selling, general and administrative costs directly incurred or paid through a management services agreement to one of our non-regulated administrative and management services subsidiaries; and
We refer collectively to the cash, cash equivalents and investment balances maintained by our regulated subsidiaries as "regulated cash and investments." Our regulated subsidiaries generally receive premiums in advance of payments of claims for medical and other health care services; however, regulated cash and cash equivalents can fluctuate significantly in a particular period depending on the timing of receipts for premiums from our government partners. Our unrestricted regulated cash, cash equivalents and investments was $1.9 billion at December 31, 2015, compared with $1.7 billion at December 31, 2014, due primarily to the Medicare Part D 2014 plan year settlement received in October 2015 (discussed further in Medicare Part D Funding and Settlements below), cash flows from operating activities and $120.3 million of capital contributions received from our non-regulated subsidiaries. These increases were partially offset by the $227.3 million ACA industry fee payment remitted to the IRS in September 2015, $152.0 million in dividends distributed to our non-regulated subsidiaries and a return of funding to certain non-regulated subsidiaries previously provided to support shortfalls resulting from Part D benefits paid for members on behalf of CMS, discussed above, for the Medicare Part D 2014 plan year.
We receive certain Part D prospective subsidy payments from CMS for our MA and PDP members as a fixed monthly per member amount, based on the estimated costs of providing prescription drug benefits over the plan year, as reflected in our bids. A discussion of the subsidy components under Part D is included in Note 2- Significant Accounting Policies to the Consolidated Financial Statements included in this 2015 Form 10-K. The benefits include the catastrophic reinsurance, premium and cost sharing for low income Part D members, for which CMS will fully reimburse these subsidies as part of its annual settlement process that occurs in the fourth quarter of the subsequent year.
As of December 31, 2015, $31.7 million of our long-term investments were comprised of municipal note securities with an auction reset feature ("auction rate securities"), which are issued by various state and local municipal entities for the purpose of financing student loans, public projects and other activities. Two auction rate securities with an aggregate fair value of $21.0 million have investment grade security credit ratings and one auction rate security with a fair value of $10.7 million has a credit rating below investment grade. Liquidity for these auction rate securities is typically provided by an auction process, which allows holders to sell their notes and resets the applicable interest rate at pre-determined intervals, usually every seven or 35 days. As of the date of this 2015 Form 10-K, auctions have failed for our auction rate securities and there is no assurance that auctions will succeed in the future. An auction failure means that the parties wishing to sell their securities could not be matched with an adequate volume of buyers. In the event that there is a failed auction, the indenture governing the security requires the issuer to pay interest at a contractually defined rate that is generally above market rates for other types of similar instruments. The securities for which auctions have failed will continue to accrue interest at the contractual rate and be auctioned every seven or 35 days until the auction succeeds, the issuer calls the securities, or they mature. As a result, our ability to liquidate and fully recover the carrying value of our remaining auction rate securities in the near term may be limited or non-existent. In addition, if the issuers are unable to successfully close future auctions and their credit ratings deteriorate, we may, in the future, be required to record an impairment charge on these investments.
Although auctions continue to fail, we believe we will be able to liquidate these securities without significant loss. There are government guarantees or municipal bond insurance in place and we have the ability and the present intent to hold these securities until maturity or market stability is restored. Accordingly, we do not believe our auction rate securities are impaired and as a result, we have not recorded any impairment losses for our auction rate securities. However, it could take until the final maturity of the underlying securities to realize our investments' recorded value. The final maturity as of December 31, 2015 of the underlying securities could be as long as 22 years. The weighted-average life of the underlying securities for our auction rate securities portfolio is 18 years.
Cash provided by operating activities for 2015 was $712.6 million compared to $299.3 million for 2014. The improvement in cash flow from operations primarily resulted from improved year-over-year operating performance across all segments and higher pharmacy rebates consistent with an improved pharmacy rebates management contract. The increase is also related to the timing of settlement of the current year Medicare Part D risk corridor payables due to CMS as compared to the Medicare Part D risk corridor net receivables in 2014. Net cash provided by operating activities was reduced by the $227.3 million ACA industry fee payment remitted to the IRS in September 2015, compared to $137.7 million remitted for such fee in September 2014.
Net cash used in investing activities for 2014 was $75.6 million compared to $290.5 million for 2013. The decrease in cash used in 2014 primarily resulted from a higher amount of cash used in acquisitions in 2013 relative to 2014, including $133.6 million advanced in December 2013 in connection with the Windsor acquisition, which closed in January 2014. Conversely, in 2014, cash flows reflect $48.0 million of net cash acquired from acquisitions. Excluding acquisitions, investment activities primarily reflect our investment in marketable securities and restricted investments, purchases of property and equipment and proceeds from maturities of marketable securities and restricted investments, which in combination, did not materially change year over year.
of default. If an event of default occurred and was continuing, we may have been required immediately to repay all amounts outstanding under the 2014 Credit Agreement. Lenders holding at least 50% of the loans and commitments under the 2014 Credit Agreement may have elected to accelerate the maturity of the loans and/or terminate the commitments under the 2014 Credit Agreement upon the occurrence and during the continuation of an event of default.
The 2016 Revolving Credit Facility includes negative and financial covenants that limit certain activities of us and our subsidiaries, including (i) restrictions on our ability to incur additional indebtedness; and (ii) financial covenants that require (a) the cash flow net leverage ratio not to exceed a maximum and (b) a minimum interest expense and principal payment coverage ratio. The 2016 Revolving Credit Facility also contains customary representations and warranties that must be accurate in order for us to borrow under the 2016 Revolving Credit Facility. In addition, the 2016 Revolving Credit Facility contains customary events of default. If an event of default occurs and is continuing, we may be required immediately to repay all amounts outstanding under the 2016 Revolving Credit Facility. Lenders holding at least 50% of the loans and commitments under the 2016 Revolving Credit Facility may elect to accelerate the maturity of the loans and/or terminate the commitments under the 2016 Revolving Credit Facility upon the occurrence and during the continuation of an event of default.
As of December 31, 2015, we were in compliance with all covenants under both the Senior Notes and the 2014 Credit Agreement. As of the date of this filing, we remain in compliance with all covenants under both the Senior Notes and the 2016 Revolving Credit Facility.
We may pursue alternatives to raise additional unregulated cash. Some of these initiatives may include, but are not limited to, obtaining dividends from certain of our regulated subsidiaries, provided sufficient capital in excess of regulatory requirements exists in these subsidiaries and/or accessing the debt and equity capital markets. However, we cannot provide any assurances that we will obtain applicable state regulatory approvals for additional dividends to our non-regulated subsidiaries by our regulated subsidiaries or be successful in accessing the capital markets if we determine to do so. We believe that we have sufficient capital, or sufficient access to capital, including through the 2016 Revolving Credit Facility, to meet our capital needs for at least the next twelve months.
At December 31, 2015, we did not have any off-balance sheet financing arrangements except for operating leases as described in the table above.
We earn premium revenue through our participation in Medicaid, Medicaid-related and Medicare programs. Our Medicaid contracts with state agencies generally are multi-year contracts subject to annual renewal provisions while our Medicare contracts with CMS renew annually. Our Medicare and Medicaid contracts establish fixed, monthly premium rates per member ("PMPM"), which are generally determined at the beginning of each new contract renewal period; however, premiums may be adjusted by CMS and state agencies throughout the terms of the contracts in certain cases. Premium rate changes are recognized in the period the change becomes effective, when the effect of the change in the rate is reasonably estimable, and collection is assured. Our contracts also have additional provisions as described in the sections below.
CMS provides risk-adjusted payments for MA Plans and PDPs based on the demographics and health severity of enrollees. The risk-adjusted premiums we receive are based on claims and encounter data that we submit to CMS within prescribed deadlines. We develop our estimates for risk-adjusted premiums utilizing historical experience, or other data, and predictive models as sufficient member risk score data becomes available over the course of each CMS plan year. We recognize periodic changes to risk-adjusted premiums as revenue when the amounts are determinable and collection is reasonably assured, which is possible as additional diagnosis code information is reported to CMS, when the ultimate adjustment settlements are received from CMS, or we receive notification of such settlement amounts. CMS adjusts premiums on two separate occasions on a retrospective basis. The first retrospective adjustment for a given plan year generally occurs during the third quarter of that year. This initial settlement represents the update of risk scores for the current plan year based on the severity of claims incurred in the prior plan year. CMS then issues a final retrospective risk adjusted premium settlement for that plan year in the following year. We develop our estimates for risk-adjusted premiums utilizing historical experience and predictive models as sufficient member risk score data becomes available over the course of each CMS plan year. We populate our models with available risk score data on our members and base risk premium adjustments on risk score data from the previous year. We are not privy to risk score data for members new to our plans in the current plan year; therefore we include assumptions regarding these members' risk scores. We periodically revise our estimates of risk-adjusted premiums as additional diagnosis code information is reported to CMS and adjust our estimates to actual amounts when the ultimate adjustment settlements are either received from CMS or we receive notification from CMS of such settlement amounts. As a result of the variability of factors that determine our estimates for risk-adjusted premiums, the actual amount of the CMS retroactive payment could be materially more or less than our estimates and could have a material effect on our results of operations, financial position and cash flows. We record any changes in estimates in current operations as adjustments to premium revenue. Historically, we have not experienced significant differences between our estimates and amounts ultimately received. The data provided to CMS to determine members' risk scores is subject to audit by CMS even after the annual settlements occur. An audit may result in the refund of premiums to CMS. While our experience to date has not resulted in a material refund, future refunds could materially reduce premium revenue in the year in which CMS determines a refund is required and could be material to our results of operations, financial position and cash flows.
We may be required to refund certain premium revenue to state agencies and CMS under various contractual and plan arrangements. We estimate the effect of these arrangements during each reporting period and reflect any adjustments to premium revenues in current operations. We report the estimated net amounts due to state agencies and CMS in other payables to government partners in the consolidated balance sheets.
Certain of our Medicaid contracts require us to expend a minimum percentage of premiums on eligible medical benefits expense. To the extent that we expend less than the minimum percentage of the premiums on eligible medical benefits, we are required to refund to the state all or some portion of the difference between the minimum and our actual allowable medical benefits expense. We estimate the amounts due to the state agencies as a return of premium based on the terms of our contracts with the applicable state agency.
(1) The components of net (payables) receivables to/from government partners are classified in the consolidated balance sheets as $172.7 million in current liabilities as of December 31, 2015, and $83.0 million and $14.3 million in current assets and current liabilities, respectively, as of December 31, 2014.
Low-Income Cost Sharing Subsidy ("LICS")- For qualifying low income members, CMS reimburses us for all or a portion of the low income member's deductible, coinsurance and co-payment amounts above the out-of-pocket threshold.
For a further description of the revenue elements related to our segments, see Part I - Item 1 - Business - OUR PRODUCT SEGMENTS.
Medical benefits payable represents amounts for claims fully adjudicated but not yet paid and estimates for IBNR. Our estimate of IBNR is the most significant estimate included in our consolidated financial statements. We determine our best estimate of the base liability for IBNR utilizing consistent standard actuarial methodologies based upon key assumptions, which vary by business segment. Our assumptions include current payment experience, trend factors, and completion factors. Trend factors in our standard actuarial methodologies include contractual requirements, historic utilization trends, the interval between the date services are rendered and the date claims are paid, denied claims activity, disputed claims activity, benefit changes, expected health care cost inflation, seasonality patterns, maturity of lines of business, changes in membership and other factors.
Many aspects of the managed care business are not predictable. Medical cost trends potentially are more volatile than other segments of the economy. Therefore, we must continually monitor our historical experience in determining our trend assumptions to reflect the ever-changing mix, needs and size of our membership. External factors such as government-mandated benefits or other regulatory changes, catastrophes and epidemics may affect medical cost trends. Other internal factors such as system conversions and claims processing changes may affect our ability to accurately predict estimates of historical completion factors or medical cost trends. We believe that the amount of medical benefits payable as of December 31, 2015 is adequate to cover our ultimate liability for unpaid claims as of that date; however, actual payments may differ from established estimates. If the completion factors we used in estimating our IBNR for the year ended December 31, 2015 were decreased by 1%, our medical benefits expense would increase by approximately $139.4 million. If the completion factors were increased by 1%, our medical benefits expense would decrease by approximately $136.3 million.
We consider the base actuarial model liability and the provision for moderately adverse conditions as part of our overall assessment of our IBNR estimate to properly reflect the complexity of our business, the number of states in which we operate, and the need to account for different health care benefit packages among those states.
Changes in medical benefits payable estimates are primarily the result of obtaining more complete claims information and medical expense trend data over time. Differences between actual experience and estimates used to establish the liability, which we refer to as prior year developments, are recorded in the period when such differences become known and have the effect of increasing or decreasing the reported medical benefits expense in such periods.
Medical benefits payable recorded at December 31, 2015, 2014 and 2013 developed favorably by approximately $211.0 million, $26.2 million and $74.6 million in 2015, 2014 and 2013, respectively. A portion of the prior year development was attributable to the release of the provision for moderately adverse conditions, which is included as part of the assumptions. The release of the provision for moderately adverse conditions was substantially offset by the provision for moderately adverse conditions established for claims incurred in the current year. Accordingly, the change in the amount of the incurred claims
related to prior years in the Medical benefits payable does not directly correspond to an increase in net income recognized during the period.
Excluding the prior year development related to the release of the provision for moderately adverse conditions, our estimates of medical benefits expense recorded at December 31, 2015 developed favorably (unfavorably) by approximately $78.1 million, $(48.1) million and $3.0 million in 2015, 2014 and 2013, respectively. Such amounts are net of the development relating to refunds due to government customers with minimum loss ratio provisions. The favorable development recognized in 2015 was primarily due to lower than expected utilization in our Medicaid Health Plans segment. The unfavorable development in 2014 was due to higher than expected medical services in our Medicaid Health Plans and Medicare Health Plan segments that were not discernible until the effect became clearer over time as claim payments were processed. The favorable development in 2013 was due mainly to the medical cost trend emerging favorably in our Medicaid Health Plans segment due to lower than expected utilization.