Aetna 2009 Annual Report Download - page 30

Annual Report – Page 24
Health Care Regulation
General
The federal, state and foreign governments have adopted laws and regulations that govern our business activities in
various ways. These laws and regulations restrict how we conduct our business and result in additional burdens and
costs to us. Areas of governmental regulation include:
 Licensure
 Premium rates and rating methodologies
 Medical benefit ratios
 Underwriting rules and procedures
 Policy forms, including plan design and disclosures
 Benefit mandates
 Market conduct
 Utilization review activities
 Payment of claims, including timeliness and accuracy of payment
 Member rights and responsibilities
 Sales and marketing activities
 Quality assurance procedures
 Disclosure of medical and other information
 In-network and out-of-network provider rates of payment
 General assessments
 Provider contract forms
 Pharmacy and pharmacy benefit management operations
 Required participation in coverage arrangements for high-risk insureds, either directly or through an
assessment or other risk-pooling mechanism
 Delegation of risk and other financial arrangements
 Producer licensing and compensation
 Financial condition (including reserves) and
 Corporate governance.
These laws and regulations are different in each jurisdiction.
States generally require health insurers and HMOs to obtain a certificate of authority prior to commencing operations.
To establish a new insurance company or an HMO in a state, we generally would have to obtain such a certificate. The
time necessary to obtain such a certificate varies from state to state. Each health insurer and HMO must file periodic
financial and operating reports with the states in which it does business. In addition, health insurers and HMOs are
subject to state examination and periodic license renewal. Applicable laws also restrict the ability of our regulated
subsidiaries to pay dividends. In addition, some of our business and related activities may be subject to PPO, managed
care organization, utilization review or third-party administrator-related regulations and licensure requirements. These
regulations differ from state to state, but may contain network, contracting, product and rate, financial and reporting
requirements. There also are laws and regulations that set specific standards for our delivery of services, payment of
claims, fraud prevention, protection of consumer health information and covered benefits and services. With the
amendment of the Annual Financial Reporting Model Regulation by the NAIC to incorporate elements of the
Sarbanes-Oxley Act of 2002, we expect states will continue to expand their regulation of the corporate governance and
internal control activities of HMOs and insurance companies.
Pricing and Underwriting Restrictions
Pricing and underwriting regulation by states limits our underwriting and rating practices and that of other health
insurers, particularly for small employer groups and individuals. These laws and regulations vary by state. In general,
they apply to certain business segments and limit our ability to set prices or renew business, or both based on specific
characteristics of the group or the group’ s prior claim experience. In some states, these laws and regulations restrict
our ability to price for the risk we assume and/or reflect reasonable costs in our pricing, including by specifying
minimum medical benefit ratios or requiring us to issue policies at specific prices to certain members. For example, on
July 8, 2008, the state of New Jersey enacted legislation mandating a minimum medical benefit ratio of 80% for