Aetna 2013 Annual Report Download - page 35

Annual Report- Page 29
The risks inherent in assessing the impairment of a debt security include the risk that market factors may differ from
our projections and the risk that facts and circumstances factored into our assessment may change with the passage
of time. Unexpected changes to market factors and circumstances that were not present in past reporting periods
are among the factors that may result in a current period decision to sell debt securities that were not impaired in
prior reporting periods.
Revenue Recognition and Allowance for Estimated Terminations and Uncollectible Accounts
Our revenue is principally derived from premiums and fees billed to customers in the Health Care and Group
Insurance businesses. In Health Care, revenue is recognized based on customer billings, which reflect contracted
rates per employee and the number of covered employees recorded in our records at the time the billings are
prepared. Billings are generally sent monthly for coverage during the following month. In Group Insurance,
premium for group life and disability products is recognized as revenue, net of allowances for uncollectible
accounts, over the term of coverage. Amounts received before the period of coverage begins are recorded as
unearned premiums.
Health Care billings may be subsequently adjusted to reflect enrollment changes due to terminations or other
factors. These adjustments are known as retroactivity adjustments. In each period, we estimate the amount of
future retroactivity and adjust the recorded revenue accordingly. In each period, we also estimate the amount of
uncollectible receivables and establish an allowance for uncollectible amounts. We base such estimates on
historical trends, premiums billed, the amount of contract renewal activity during the period and other relevant
information. As information regarding actual retroactivity and uncollectible amounts becomes known, we refine
our estimates and record any required adjustments to revenues in the period they arise. A significant difference in
the actual level of retroactivity or uncollectible amounts compared to our estimated levels would have a significant
effect on our operating results.
Additionally, premium revenue subject to the minimum MLR rebate requirements of Health Care Reform is
recorded net of the estimated minimum MLR rebates for the current calendar year. We estimate the minimum MLR
rebates by projecting MLRs for certain markets, as defined by Health Care Reform, for each state in which each of
our insurance entities operate. The claims and premiums used in estimating such rebates are modified for certain
adjustments allowed by Health Care Reform and include a statistical credibility adjustment for those states with a
number of members that is not statistically credible.
NEW ACCOUNTING STANDARDS
Refer to Note 2 of Notes to Consolidated Financial Statements, beginning on page 83, for a discussion of recently
issued accounting standards.
REGULATORY ENVIRONMENT
General
Our operations are subject to comprehensive United States federal, state and local and comparable multiple levels
of international regulation in the jurisdictions in which we do business. The laws and rules governing our business
and interpretations of those laws and rules continue to expand and become more restrictive each year and are
subject to frequent change. Health Care Reform has made and will continue to make extensive changes to the U.S.
health care system and significantly increases the regulation of our business. There also continues to be a
heightened review by federal, state and international regulators of the health and related benefits industry's business
and reporting practices.
We must obtain and maintain regulatory approvals to price and market many of our products. Supervisory agencies,
including CMS, and the Center for Consumer Information and Insurance Oversight (“CCIIO”), as well as state
health, insurance, managed care and Medicaid departments and state boards of pharmacy have broad authority to
take one or more of the following actions:
• Grant, suspend and revoke our licenses to transact business;
• Suspend or exclude us from participation in government programs;