Aetna 2009 Annual Report Download - page 35

Annual Report – Page 29
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 imposed 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 signaled 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 continue 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 Medicaid products and State Children’ s Health Insurance
Program contracts are subject to federal and state regulations and oversight by state Medicaid agencies regarding the
services provided to Medicaid enrollees, payment for those services and other aspects of these programs. The
regulations and contractual requirements applicable to us and other participants in Medicaid 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 Medicaid 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 Medicaid products.
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. With the amendment of the Annual
Financial Reporting Model Regulation by the National Association of Insurance Commissioners to incorporate
elements of the Sarbanes-Oxley Act of 2002, we expect that the states in which our insurance and HMO subsidiaries
are licensed will continue to expand the regulation of corporate governance and internal control activities of HMOs
and insurance companies.