Aetna 2013 Annual Report Download - page 46

Annual Report- Page 40
contract year. Any premium or fee refunds or adjustments resulting from regulatory audits, whether as a result of
RADV or other audits by CMS, the OIG or otherwise, could be material and could adversely affect our operating
results, financial position and cash flows.
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 with the 2014 contract year, Health Care Reform also requires
minimum MLRs for Medicare Advantage and Medicare Part D plans of 85%.
Since 2012, a portion of each Medicare Advantage plan's reimbursement has been tied to the plan's “star
ratings.” The star rating system considers a variety of measures adopted by CMS, including quality of preventative
services, chronic illness management and overall customer satisfaction. In 2013 and 2014, those plans that received
an overall star rating of three or more stars are eligible for a quality bonus in their basic premium rates. Beginning
in 2015, only Medicare Advantage plans with an overall star rating of four or more stars will be eligible for a
quality bonus. Our average star rating increased from 3.53 in 2013 to 4.04 in 2014, and for 2014 97% of our
Medicare Advantage members are in plans rated at least 3.5 stars and 62% of our Medicare Advantage members are
in plans rated at least 4.0 stars. CMS released updated stars ratings in October 2013 that were used to determine the
portion of our Medicare Advantage membership that will reside in plans with ratings of four stars or higher and
qualify for bonus payments in 2015. CMS will release updated stars ratings in October 2014 that will be used to
determine the portion of our Medicare Advantage membership that will reside in plans with ratings of four stars or
higher and qualify for bonus payments in 2016. Our Medicare Advantage plans' operating results from 2013
forward are likely to continue to be significantly determined by their star ratings. Despite our success in improving
our star ratings and other quality measures for 2014 and the continuation of our improvement efforts, there can be
no assurances that we will be successful in maintaining or improving our star ratings in future years. Accordingly,
our plans may not be eligible for full level quality bonuses, which could adversely affect the benefits such plans can
offer, reduce membership and/or reduce profit margins.
It is not possible to predict the longer term adequacy of payments we receive under the Medicare program. For
example, the Federal government may seek to impose restrictions on the configuration of pharmacy or other
provider networks for Medicare Advantage and/or PDP plans, or otherwise restrict the ability of these plans to alter
benefits, negotiate prices or establish other terms to improve affordability or maintain viability of products. 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 CMS and the U.S. Congress to continue to closely scrutinize each component of the
Medicare program (including Medicare Part D drug benefits), modify the terms and requirements of the program
and possibly seek to limit private insurers' role. It is not possible to predict the outcome of this Congressional or
regulatory activity, either of which could adversely affect us.
Medicaid
We significantly expanded our Medicaid business in 2013 as a result of the Coventry acquisition. We are seeking to
substantially grow our Medicaid and dual eligible businesses over the next several years. As a result, we also are
increasing our exposure to changes in government policy with respect to and/or regulation of the various Medicaid
and dual eligible programs in which we participate, including changes in the amounts payable to us under those
programs.
States may opt out of the elements of Health Care Reform requiring expansion of Medicaid coverage in January
2014 without losing their current federal Medicaid funding, and governors in over a dozen states have indicated that
they may not support Medicaid expansion. In addition, the Secretary of HHS has announced that HHS will not
permit a partial or phased-in Medicaid expansion. As a result, in order to receive the enhanced federal Medicaid
funding provided in Health Care Reform, states were required to expand their Medicaid programs effective January
1, 2014, to cover the full Medicaid expansion population specified by Health Care Reform.