Aetna 2006 Annual Report Download - page 35

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Medicare
As a result of funding reforms contained in the Medicare Prescription Drug, Improvement, and Modernization Act
of 2003 (the "Medicare Act"), we elected to expand our participation in the Medicare Advantage program in
selected markets in 2005, 2006 and 2007. We are encouraged that these funding reforms will allow further
expansion within the Medicare Advantage program, although it is not possible to predict the longer term adequacy
of reimbursement under this program.
The Medicare Act also added out-patient pharmaceutical products as a benefit under Medicare starting in 2006 and
incorporated a number of other reforms to the Medicare program. Among other changes, the Medicare Act added
disease management and case management programs and preventive medicine coverage to Medicare, and
authorized HSAs for non-Medicare beneficiaries. We began to offer HSAs in connection with our consumer-
directed health plans beginning January 1, 2004. In September 2005, we began participating in a three year CMS-
sponsored pilot program in the Chicago, Illinois metropolitan area to provide disease management and case
management services to members in the Medicare Fee-for-Service program. In January 2006, we began offering
PDP products in all 34 CMS-designated regions. Beginning in 2007, we will offer PFFS Medicare plans in select
markets for individuals and nationally for employer groups. It is not possible to predict the long term adequacy of
reimbursement under these new Medicare programs.
Going forward, we expect Congress to closely scrutinize the Medicare program (including PDP) and possibly seek
to limit the private insurers’ role. For example, the federal government may seek to negotiate drug prices for the
PDP, a function we currently perform as a PDP participant. It is not possible to predict the outcome of this
Congressional oversight or any legislative activity, either of which could adversely affect us.
HMO and Insurance Holding Company Laws
A number of states, including Pennsylvania and Connecticut, regulate affiliated groups of HMOs and insurers such
as the Company under holding company statutes. These laws may require us and our subsidiaries to maintain
certain levels of equity. Holding company laws and regulations generally require insurance companies and HMOs
within an insurance holding company system to register with the insurance department of each state where they are
domiciled and to file reports with those states’ insurance departments regarding capital structure, ownership,
financial condition, intercompany transactions and general business operations. In addition, various notice or prior
regulatory approval requirements apply to transactions between insurance companies, HMOs and their affiliates
within an insurance holding company system, depending on the size and nature of the transactions. For information
regarding restrictions on certain payments of dividends or other distributions by HMO and insurance company
subsidiaries of our company, refer to Note 16 of Notes to Consolidated Financial Statements beginning on page 78.
The holding company laws for the states of domicile of Aetna and its subsidiaries also restrict the ability of any
person to obtain control of an insurance company or HMO without prior regulatory approval. Under those statutes,
without such approval (or an exemption), no person may acquire any voting security of an insurance holding
company (such as our parent company, Aetna Inc.) that controls an insurance company or HMO, or merge with
such a holding company, if as a result of such transaction such person would “control” the insurance holding
company. “Control” is generally defined as the direct or indirect power to direct or cause the direction of the
management and policies of a person and is presumed to exist if a person directly or indirectly owns or controls
10% or more of the voting securities of another person.
Guaranty Fund Assessments
Under guaranty fund laws existing in all states, insurers doing business in those states can be assessed (up to
prescribed limits) for certain obligations of insolvent insurance companies to policyholders and claimants.
Assessments generally are based on a formula relating to our premiums in the state compared to the premiums of
other insurers. While we historically have recovered more than half of guaranty fund assessments through
statutorily permitted premium tax offsets, significant increases in assessments could jeopardize future recovery of
these assessments. Some states have similar laws relating to HMOs.