Aetna 2012 Annual Report Download - page 36

Annual Report- Page 30
industry-wide fees, assessments and taxes. We are dedicating and will continue to be required to dedicate material
resources and incur material expenses during that time to implement and comply with Health Care Reform as well
as state level health care reform. While the federal government has issued a number of regulations implementing
Health Care Reform, many significant parts of Health Care Reform, including aspects of Insurance Exchanges,
Medicaid expansion, the scope of “essential health benefits”, employer penalties, assessments, taxes and fees,
community rating, reinsurance, risk transfer, risk adjustment and the implementation of Medicare 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 for
several years, and given the inherent difficulty of foreseeing how individuals and businesses will respond to the
choices afforded them by Health Care Reform, we cannot predict the full effect Health Care Reform will have on
us.
On June 28, 2012, the U.S. Supreme Court generally upheld the constitutionality of Health Care Reform. However,
federal budget negotiations, pending efforts in the U.S. Congress to amend or restrict funding for various aspects of
Health Care Reform and the possibility of additional litigation challenging aspects of the law continue to create
uncertainty about the ultimate impact of Health Care Reform. In addition, the federal and state governments
continue to enact and seriously consider many other broad-based legislative and regulatory proposals that have
impacted or could materially impact various aspects of the health care system. We cannot predict whether pending
or future federal or state legislation or court proceedings will change various aspects of the health care system or
Health Care Reform or the impact those changes will have on our business operations or financial results, but the
effect could be materially adverse.
The expansion of health care coverage contemplated by Health Care Reform will be funded in part by significant
fees, assessments and taxes on us and other health insurers, health plans and other market participants and
individuals beginning in 2014, as well as reductions to the reimbursements we and other health plans are paid by the
federal government for our Medicare members, among other sources. While not all-inclusive, the following are
some of the key provisions of Health Care Reform (assuming it continues to be implemented in its current form).
We continue to evaluate these provisions and the related regulations and regulatory guidance to determine the
impact that they will have on our business operations and financial results:
• The elimination of the remaining specified lifetime maximum and minimum annual coverage limits by
2014.
• The application of “essential health benefits” requirements to individual and small group customers in
2014.
• Closure of the gap in coverage for Medicare Part D prescription drug coverage (the so-called “donut hole”)
which began to close in 2010 and will incrementally close until the coverage gap is eliminated in 2020.
• Required minimum MLRs for insured plans of 85% for large group customers and 80% for the individual
and small group customers, which began January 1, 2011, with rebates issued to policyholders for the
amount under the minimum, which began in mid-2012. Required minimum MLRs for Medicare Advantage
and possibly Medicare Part D plans of 85% beginning with the 2014 contract year, with rebates for amounts
under the minimum MLR and contract penalties for ongoing failure to achieve minimum MLRs. In the
aggregate, these minimum MLR requirements limit the level of margin we can earn in our Commercial
Insured and Medicare Insured business while leaving us exposed to medical costs that are higher than those
reflected in our pricing.
• Enhanced premium rate review and disclosure processes by states and HHS. HHS has issued a final rule
providing that states that have “effective review processes” will perform rate reviews, and HHS will
perform reviews in all other states. Although HHS has determined that a significant majority of states have
an effective review process, HHS's final rule does not replace the current state premium rate approval
process. Instead it adds analysis and disclosure related to reasonableness of premium rate increases to the
state process. The federal rate review requirements which may impact state approval and further limit, delay
or otherwise affect our ability to price for the risk we assume.
• Freezing 2011 Medicare Advantage payment rates for payments to us at 2010 levels, with additional
reductions (we and other plans will ultimately receive a range of 95% of Medicare fee-for-service rates in