Aetna 2012 Annual Report Download - page 61

Annual Report- Page 55
enhanced rate filing requirements to prior approval requirements) has been introduced or enacted in more than half
the states as of the date of this Annual Report. Regulators or legislatures in a number of states also have conducted
hearings on proposed premium rate increases, which could result in substantial delay in implementing proposed rate
increases even if they ultimately are approved. In 2012, HHS began to issue determinations to plans that their rate
increases are unreasonable. Rate reviews create risk for us in the current political and regulatory environment and
could magnify the adverse impact on our operating margins and operating results of increases in utilization of
medical and/or other covered services, health care and other benefit costs and/or medical cost trend that exceed our
projections and Health Care Reform assessments, fees and taxes by restricting our ability to reflect updated
projections and/or these assessments, fees and taxes in our pricing.
In addition, our ability to reflect Health Care Reform assessments, fees and taxes in our Medicare, Medicaid and/or
SCHIP premium rates is likely to be limited due, among other things, to the budgetary pressures currently facing the
federal and many state governments. If we are not able to reflect these assessments, fees and taxes in our premium
rates, our Medicare and/or Medicaid operating margins and operating results may be adversely affected. In
addition, this adverse effect could magnify the adverse impact on our operating margins and operating results of
increases in utilization of medical and/or other covered services, health care and other benefit costs and/or medical
cost trends that exceed our projections.
The risk of higher than projected increases in utilization of medical and/or other covered services and/or medical
cost trend is particularly acute during and following periods when such utilization and/or trend are below recent
historical levels such as we experienced during 2010, 2011 and 2012. There is no guaranty that we will be able to
obtain rate increases that are actuarially justified or that are sufficient to make our policies profitable in any product
line or geography. During 2012, we experienced continued challenges to appropriate premium rate increases in
several states. Beginning in 2014, our plans may be excluded from participating in Insurance Exchanges if they are
deemed to have a history of “unreasonable” rate increases. In addition, we expect to request significant increases in
our premium rates in our individual and small group Health Care businesses for 2014 and beyond in order to
adequately price for projected medical cost trends, the expanded coverages and rating limits required by Health
Care Reform and the significant assessments, fees and taxes imposed by Health Care Reform. These significant
increases heighten the risks of adverse public and regulatory reaction and adverse selection and the likelihood that
our requested premium rate increases will be denied, reduced or delayed, which could lead to operating margin
compression. We anticipate continued regulatory or legislative action with respect to regulation of premium rates in
our Insured business, some of which could materially and adversely affect our operating margins and our ability to
earn adequate returns on Insured business in one or more states or cause us to withdraw from certain geographic
and/or product markets.
We will be adversely affected if we do not or cannot adequately implement Health Care Reform. We also 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 operating results. 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.
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 growing to $14.3 billion by 2018 and increasing annually 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. There is
some uncertainty whether we will be able to include all or a portion of these assessments, fees and taxes in our
premium rates. For example, our ability to reflect Health Care Reform assessments, fees and taxes in our Medicare,
Medicaid and/or SCHIP rates is likely to be limited due, among other things, to the budgetary pressures currently
facing the federal and many state governments. If the Health Care Reform assessments, fees and taxes are imposed