Aetna 2013 Annual Report Download - page 58

Annual Report- Page 52
during and following periods (such as 2010-2013) when utilization has been below recent historical levels, as
members may have postponed necessary care or neglected to seek preventive care, thereby increasing the risk that
acute care will be needed. Further, our ability to reflect Health Care Reform assessments, fees and taxes in our
Medicare rates is limited; and our ability to reflect them in our Medicaid and/or SCHIP premium rates is likely to be
limited due, among other things, to the budgetary pressures currently facing many state governments. This could
magnify the adverse impact on our operating margins and operating results of increases in utilization of medical and
other covered services, health care and other benefit costs and/or medical cost trends that exceed our projections.
In 2013, HHS issued determinations to health plans that their rate increases were unreasonable, and we experienced
continued challenges to appropriate premium rate increases in several states. Regulators or legislatures in a number
of states have implemented or are considering limits on premium rate increases, whether by enforcing existing legal
requirements more stringently or proposing different regulatory standards. Regulators or legislatures in a number of
states also have conducted hearings on proposed premium rate increases, which could result in substantial delays in
implementing proposed rate increases even if they ultimately are approved. Beginning in 2014, our plans may be
excluded from participating in Public Exchanges if they are deemed to have a history of “unreasonable” rate
increases. We have requested significant increases in our premium rates in our individual and small group Health
Care businesses for 2014 and expect to continue to request significant increases in those rates for 2015 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 rate 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 and legislative action to increase regulation of premium rates in our Insured
business. There is no guarantee 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. If we are unable to obtain adequate rate
increases, it 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 geographies and/or products.
Minimum MLR rebate requirements limit the level of margin we can earn in our Commercial Insured and
Medicare Insured businesses while leaving us exposed to higher than expected medical costs. Challenges to our
minimum MLR rebate methodology and/or reports could adversely affect our operating results.
Health Care Reform requires us to pay minimum MLR rebates each year with respect to the prior year. These
minimum MLR rebate requirements limit the level of margin we can earn in our Commercial Insured and,
beginning in 2014, Medicare Insured business, while leaving us exposed to medical costs that are higher than those
reflected in our pricing. Refer to “Revenue Recognition” in Note 2 of Notes to Consolidated Financial Statements
beginning on page 83 for more information. The process supporting the management and determination of the
amount of rebates payable is complex and requires judgment, and the rebate reporting requirements are detailed. As
a result, challenges to our methodology and/or reports relating to minimum MLR rebates by federal and state
regulators and private litigants are reasonably possible. The outcome of these challenges could adversely affect our
operating results.
Our business activities are highly regulated. Our Medicare, Medicaid, mail order pharmacy and certain other
products are subject to particularly extensive and complex regulations. If we fail to comply with applicable laws
and regulations, we could be subject to significant adverse regulatory actions or suffer reputational harm which
may have a material adverse effect on our business.
Our business is subject to extensive regulation and oversight by state, federal and international governmental
authorities. The laws and regulations governing our operations and interpretations of those laws and regulations are
increasing in number and complexity, change frequently, can be inconsistent or conflicting and generally are
designed to benefit and protect members and providers rather than us or our investors. In addition, the governmental
authorities that administer our business have broad latitude to make, interpret and enforce the regulations that