Aetna 2008 Annual Report Download - page 34

Annual Report - Page 29
the community rating and other requirements under FEHB Program. The OPM may seek premium refunds or
institute other sanctions against health plans that participate in the program if the health plan is found to be non-
compliant with the program requirements.
Medicare
Our Medicare products are regulated by CMS. CMS has the right to audit our performance to determine compliance
with CMS contracts and regulations and the quality of care being given to Medicare beneficiaries. The regulations
and contractual requirements applicable to us and other participants in Medicare programs are complex and subject
to change. Although we have invested significant resources to comply with these standards and believe our
compliance efforts are adequate, our Medicare compliance efforts will continue to require significant resources. If
we fail to comply with the standards, CMS may prohibit us from continuing to market and/or enroll members in one
or more Medicare products.
As a result of funding and other reforms contained in the Medicare Prescription Drug, Improvement, and
Modernization Act of 2003 (the “Medicare Act”):
• In each year from 2005 through and including 2009, we elected to expand our participation in the Medicare
Advantage program in selected markets;
• In January 2006, we began offering PDP products in all 34 CMS designated regions; and
• In 2007, we began to offer PFFS plans in select markets for individuals and PFFS plans for employer
groups that can cover retirees nationwide.
• In 2008, we began to offer a Medicare Advantage Special Needs Plan in select markets to individuals who
are eligible for both Medicare and Medicaid benefits.
This expansion of the Medicare markets we serve and Medicare products we offer increases our exposure to changes
in government policy with respect to and/or regulation of the Medicare programs in which we participate, including
changes in the amounts payable to us under those programs. For example, on July 15, 2008, the U.S. Congress
overrode the President’ s veto and passed a Medicare funding bill that reduces amounts payable to health plans that
offer Medicare Advantage plans beginning in 2010, requires health plans that offer Medicare Advantage plans to
have contracts with the providers their members utilize beginning in 2011, and imposes new marketing requirements
for Medicare Advantage and Medicare Part D Prescription Drug plans beginning in 2009. In addition, the Obama
administration and various congressional leaders have signalled their interest in reducing payments to private plans
offering Medicare Advantage. Depending on the extent and phasing of these potential reductions, the number of
individuals participating in Medicare Advantage and the industry-wide earnings from these plans may fall.
However, although it is not possible to predict the longer term adequacy of payments we receive under these
programs and although there are economic and political pressures to continue to reduce spending on these programs,
we currently believe that the payments we receive and will receive in the near term are adequate to justify our
continued participation in these programs.
Going forward, we expect the U.S. Congress to closely scrutinize each component of 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 sponsor. It is not possible to predict
the outcome of this Congressional oversight or any legislative activity, either of which could adversely affect us.
Medicaid
In 2007, we substantially increased our Medicaid product offerings through our acquisition of Schaller
Anderson. As a result, we also increased our exposure to changes in government policy with respect to and/or
regulation of the various Medicaid programs in which we participate, including the amounts payable to us under
those programs. Medicaid premiums are paid by each state and differ from state to state. The federal government
and the states in which we have Medicaid business are presently considering proposals and legislation that would
implement certain Medicaid reforms or redesigns, including changes to reimbursement or payment levels or
eligibility criteria. Future levels of Medicaid funding and premium rates may be affected by continuing government
efforts to contain health care costs and may be further affected by state and federal budgetary constraints. In
addition, our Medicaid contracts with states are subject to cancellation by the state after a short notice period without
cause or in the event of insufficient state funding. Our Medicaid products are also regulated by CMS, which has the
right to audit our performance to determine compliance with CMS contracts and regulations. In addition, our