Aetna 2011 Annual Report Download - page 42

Annual Report- Page 36
Health Care Reform contains further significant reductions in the reimbursements we receive for our Medicare
Advantage members, including freezing 2011 rates based on 2010 levels, with additional reductions in future years
based on regionally adjusted benchmarks. Beginning in 2012, Health Care Reform also ties a portion of each
Medicare Advantage plan's reimbursement to the plan's “star rating.” The star rating system considers a variety of
measures adopted by CMS, including quality of preventative services, chronic illness management and overall
customer satisfaction. During 2011, our average star rating increased from 3.36 to 3.48, and 92% of our Medicare
Advantage members were in plans rated at least 3.5 stars. Beginning in 2012, those plans that receive a rating of
four or more stars are eligible for quality bonus payments. Plans with 3 or 3.5 stars are eligible for quality-based
payments in 2012, 2013 and 2014 under CMS’s Quality Bonus Payment Demonstration. As a result, our plans' star
ratings are likely to be a significant determinant of overall profitability for our Medicare Advantage plans.
Beginning with the 2014 contract year, Health Care Reform also requires minimum MLRs for Medicare Advantage
and Medicare Part D plans of 85%.
It is not possible to predict the longer term adequacy of payments we receive under the Medicare program. We
currently believe that the payments we receive and will receive in the near term are adequate to justify our
continued participation in the Medicare program, although there are economic and political pressures to continue to
reduce spending on the program, and this outlook could change.
Going forward, we expect the U.S. Congress to continue to closely scrutinize each component of the Medicare
program (including Medicare Part D drug benefits) and possibly seek to limit private insurers' role. For example,
the federal government may seek to negotiate drug prices for PDPs and Medicare Advantage-Prescription Drug
Plans, a function we currently perform as a plan sponsor or administrator. It is not possible to predict the outcome
of this Congressional oversight or any legislative activity, either of which could adversely affect us.
Medicaid
Since our 2007 acquisition of Schaller Anderson, we have more than doubled our Medicaid revenues and have
begun to serve the Aged, Blind and Disabled and Long Term Care Medicaid populations. 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 changes in the amounts payable to us under those programs.
In addition, Health Care Reform includes a significant expansion of Medicaid coverage in January 2014. Health
Care Reform also includes a “maintenance of effort” (“MOE”) provision that requires states to maintain their
eligibility rules for people covered by Medicaid until the Secretary of HHS determines that an insurance exchange
is operational in a given state. The MOE provision is intended to prevent states from reducing eligibility standards
or altering determination procedures as a way to remove adults above 133 percent of the federal poverty level from
Medicaid before implementation of expanded Medicaid coverage begins in January 2014. However, states with, or
projecting, a budget deficit may apply for an exception to the MOE provision. If states are successful in obtaining
MOE waivers and allow certain Medicaid programs to expire, we could experience reduced Medicaid enrollment.
The economic aspects of the Medicaid business vary from state to state and are subject to frequent change.
Medicaid premiums are paid by each state and differ from state to state. The federal government and various states
are also considering proposals and legislation for Medicaid program reforms or redesigns, including changes to
benefits, reimbursement or payment levels or eligibility criteria. Current Medicaid funding and premium revenue
may not be sustainable due to state and federal budgetary constraints, which have become particularly acute at the
state level in the past few years, and continuing efforts to reduce health care costs. In addition, our Medicaid
contracts with states are subject to cancellation by the state after a short notice period without cause (for example,
when a state discontinues a managed care program) or in the event of insufficient state funding.
Our Medicaid products also are regulated by CMS, which has the right to audit our performance to determine
compliance with CMS contracts and regulations. Our Medicaid products and State Children's Health Insurance
Program (“SCHIP”) contracts also are subject to federal and state regulations and oversight by state Medicaid
agencies regarding the services we provide to Medicaid enrollees, payment for those services and other aspects of
these programs, and by external review organizations which audit Medicaid plans on behalf of the state Medicaid