Aetna 2013 Annual Report Download - page 50

Annual Report- Page 44
Guaranty Fund Assessments/Solvency Protection
Under guaranty fund laws existing in all states, insurers doing business in those states can be assessed (up to
prescribed limits) for certain obligations of insolvent insurance companies to policyholders and claimants. The
health insurance guaranty associations in which we participate that operate under these laws respond to insolvencies
of long-term care insurers as well as health insurers. Our assessments generally are based on a formula relating to
our premiums in the state compared to the premiums of other insurers. Certain states allow assessments to be
recovered as offsets to premium taxes. Some states have similar laws relating to HMOs. Refer to “Guaranty Fund
Assessments, Market Stabilization and Other Non-Voluntary Risk Sharing Pools” in Note 18 of Notes to
Consolidated Financial Statements beginning on page 130 for more information on the pending rehabilitation of
Penn Treaty Network America Insurance Company and one of its subsidiaries (collectively, “Penn Treaty”). It is
reasonably possible that in future reporting periods we may record a liability and expense relating to Penn Treaty or
other insolvencies which could have a material adverse effect on our operating results, financial position and cash
flows. While we have historically recovered more than half of guaranty fund assessments through statutorily
permitted premium tax offsets, significant increases in assessments could lead to legislative and/or regulatory
actions that may limit future offsets.
HMOs in certain states in which we do business are subject to assessments, including market stabilization and other
risk-sharing pools, for which we are assessed charges based on incurred claims, demographic membership mix and
other factors. We establish liabilities for these assessments based on applicable laws and regulations. In certain
states, the ultimate assessments we pay are dependent upon our experience relative to other entities subject to the
assessment and the ultimate liability is not known at the balance sheet date. While the ultimate amount of the
assessment is dependent upon the experience of all pool participants, we believe we have adequate reserves to cover
such assessments.
Regulation of Pharmacy Operations
CVS Caremark has provided certain PBM services to us and certain of our customers and members since January 1,
2011. As amended, our PBM agreement with CVS Caremark has a term ending in December 2022, although we
have certain termination rights beginning in January 2020.
Notwithstanding our contracting with our PBM services suppliers, we remain responsible to regulators and
members for the delivery of PBM services. In addition, we continue to operate two mail order pharmacy facilities
and one specialty pharmacy facility (our “Pharmacies”) and utilize certain pharmacies of our PBM services
suppliers. Our Pharmacies dispense pharmaceuticals throughout the U.S. and are participating providers in
Medicare, Medicare Part D and various Medicaid programs. The pharmacy practice is generally regulated at the
state level by state boards of pharmacy. Our Pharmacies are required to be licensed in the state where they are
located, as well as the states that require registration or licensure of mail order pharmacies with the state's board of
pharmacy or similar regulatory body. Our Pharmacies also must register with the U.S. Drug Enforcement
Administration and individual state controlled substance authorities in order to dispense controlled substances and
must comply with applicable Medicare, Medicaid and other provider rules and regulations, including the False
Claims Act, state false claims acts and federal and state anti-kickback laws. Our PBM services suppliers' owned and
contracted pharmacies are subject to these same licensing requirements and other laws and regulations. The loss or
suspension of any such licenses or registrations could have a material adverse effect on our ability to meet our
contractual obligations to our customers, which could, in turn, have a material adverse effect on our pharmacy
business and/or operating results.
Regulation of Pharmacy Benefit Management Operation
Our PBM services are regulated directly and indirectly at the federal and state levels, including being subject to the
False Claims Act and state false claims acts and federal and state anti-kickback laws. These laws and regulations
govern, and proposed legislation and regulations may govern, critical PBM practices, including disclosure, receipt
and retention of rebates and other payments received from pharmaceutical manufacturers; use of, administration of,
and/or changes to drug formularies, maximum allowable cost list pricing, average wholesale prices and/or clinical
programs; disclosure of data to third parties; drug utilization management practices; the level of duty a PBM owes
its customers; configuration of pharmacy networks; the operations of our Pharmacies (including audits of our
Pharmacies); disclosure of negotiated provider reimbursement rates; disclosure of fees associated with