Aetna 2011 Annual Report Download - page 48

Annual Report- Page 42
We are subject to potential changes in public policy and Health Care Reform that can adversely affect the
markets for our products and services and our profitability. The federal and state governments continue to
enact and seriously consider many broad-based legislative and regulatory measures that have materially
impacted and will continue to materially impact various aspects of the health care system and our business.
The political environment in which we operate remains uncertain. It is not possible to predict with certainty or
eliminate the impact of additional fundamental public policy changes, including changes to Health Care Reform,
that could adversely affect us. Examples of these changes include policy changes that would fundamentally change
the dynamics of our industry, such as the federal or one or more state governments assuming a larger role in the
health and related benefits industry or managed care operations, fundamentally restructuring or reducing the
funding available for Medicare or Medicaid programs, or a repeal or significant alteration of Health Care Reform,
such as the elimination of the obligation to purchase health care coverage (the “individual mandate”) without the
elimination of our obligation to offer health insurance to each person who wants to purchase it ("guaranteed issue").
Our business and operating results could be materially and adversely affected by such changes even if we correctly
predict their occurrence. For more information on these matters, refer to “Regulatory Environment” beginning on
page 25.
In March 2010, Health Care Reform was enacted, legislating broad-based changes to the U.S. health care system.
Components of the legislation will be phased in over the next six years. While the federal government has issued a
number of regulations implementing Health Care Reform, many significant parts of Health Care Reform, including
health insurance exchanges ("Insurance Exchanges"), premium rate review, the scope of "essential health benefits",
employer penalties and the implementation of minimum MLRs, require further guidance and clarification at the
federal level and/or in the form of regulations and actions by state legislatures to implement the law. As a result,
many of the impacts of Health Care Reform will not be known until those regulations and related regulatory
guidance are issued and actions are taken, which is expected to occur over the next several years.
Health Care Reform imposes significant fees, assessments and taxes on us and other health insurers, health plans
and other industry participants. Health Care Reform imposes an annual industry-wide $8 billion health insurer fee
beginning in 2014 and increasing thereafter. This health insurer fee is not deductible for income tax purposes and
will be allocated pro rata among us and other industry participants based on net premiums written. Health Care
Reform also imposes industry-wide reinsurance assessments of $12 billion, $8 billion and $5 billion in 2014, 2015
and 2016, respectively, which will be allocated pro rata among us and other industry participants based on net
premiums written for insured business plus the fees received and cost of coverage administered for self-insured
business. As we are one of the nation's largest health care benefits companies, we expect our share of the Health
Care Reform assessments, fees and taxes to be significant. If the Health Care Reform assessments, fees and taxes
are imposed as enacted and we are unable to factor these assessments, fees and taxes into our premiums and fees or
otherwise adjust our business model to address them, these assessments, fees and taxes could have a material
adverse effect on our results of operations, financial position and/or cash flows.
In addition, at the state level, more than 40 states and the District of Columbia will hold regular legislative sessions
in 2012. In 2011, state legislatures focused on the impact of Health Care Reform and state budget deficits as well as
preliminary Insurance Exchange design and implementation. We expect state legislatures to focus on these issues
again in 2012. For more information on these matters, refer to “Regulatory Environment” beginning on page 25.
The U.S. Supreme Court has agreed to review the constitutionality of several aspects of Health Care Reform and is
expected to issue its decision in mid-2012. This review, as well as other pending litigation regarding the
constitutionality of Health Care Reform, increases the risk of significant alteration of Health Care Reform that
could materially and adversely affect our health care operations and/or financial results. For example, if the
Supreme Court were to find the individual mandate unconstitutional, but generally uphold the remainder of Health
Care Reform, particularly guaranteed issue, people with greater needs for health care services could make up an
increased portion of our Insured membership, which would adversely affect our operating earnings and medical
benefit ratios. These effects could be magnified if we are unable to obtain, or are delayed in obtaining, approval of
adequate premium rate increases for the risk we assume. These court proceedings, the 2012 presidential election
and pending efforts in the U.S. Congress to repeal, amend or restrict funding for various aspects of Health Care
Reform create additional uncertainty about the ultimate impact of the legislation on us.