Aetna 2014 Annual Report Download - page 36

Annual Report- Page 30
plans to price prospectively to specified minimum medical loss ratios and demonstrate that pricing in rate filings;
and imposing taxes on insurers and other health plans to finance Public Exchanges, Medicaid and other state
programs.
We cannot predict what provisions legislation or regulation will contain in any state or what effect legislation or
regulation will have on our business operations or financial results, but the effect could be materially adverse.
Health Care Regulation
General
Federal, state, local and foreign governments have adopted comprehensive laws and regulations that govern our
business activities in various ways. These laws and regulations, including Health Care Reform, restrict how we
conduct our business and result in additional burdens and costs to us.
In addition to the expanded regulation created by Health Care Reform discussed above, significant areas of
governmental regulation include premium rates and rating methodologies, underwriting rules and procedures,
required benefits, sales and marketing activities, health care provider rates of payment, restrictions on health plans’
ability to limit providers’ participation in their networks and/or remove providers from their networks, pharmacy
and pharmacy benefit management operations and financial condition (including reserves and minimum capital or
risk based capital requirements). These laws and regulations are different in each jurisdiction.
Each health insurer and HMO must file periodic financial and operating reports with the states in which it does
business. In addition, health insurers and HMOs are subject to state examination and periodic license
renewal. Applicable laws also restrict the ability of our regulated subsidiaries to pay dividends, and certain
dividends require prior regulatory approval. In addition, some of our business and related activities may be subject
to PPO, managed care organization, utilization review or third-party administrator-related licensure requirements
and regulations. These licensure requirements and regulations differ from state to state, but may contain health care
provider network, contracting, product and rate, financial and reporting requirements. There also are laws and
regulations that set specific standards for our delivery of services, payment of claims, fraud prevention, protection
of consumer health information, payment for covered benefits and services and escheatment of funds to states. Our
pharmacy benefit management (“PBM”) services suppliers, including CVS Health Corporation, also are subject to
extensive federal and state regulation, including many of the items described above.
Pricing and Underwriting Restrictions
Pricing and underwriting regulation by states limits our underwriting and rating practices and those of other health
insurers, particularly for small employer groups and individuals. Beginning in 2014, as a result of Health Care
Reform, health insurers cannot vary small group or individual premium rates based on individual members’
characteristics except for geography and limited variation for age and tobacco use. By 2016, as a result of Health
Care Reform, the small group rating category will be expanded to cover groups of up to 100 employees. States can
choose to implement these changes prior to 2016. Pricing and underwriting laws and regulations vary by state. In
general, they apply to certain customer segments and limit our ability to set prices for new or renewal business, or
both, based on specific characteristics of the group or the group’s prior claim experience. In some states, these laws
and regulations restrict our ability to price for the risk we assume and/or reflect reasonable costs in our pricing.
Health Care Reform expanded the premium rate review process by, among other things, requiring our rates to be
reviewed for “reasonableness” at either the state or the federal level. HHS established a federal premium rate
review process that generally applies to proposed premium rate increases equal to or exceeding 10% (or a state
specified threshold). HHS’s rate review process imposes additional public disclosure requirements as well as
additional review on filings requesting premium rate increases equal to or exceeding this “reasonableness”
threshold. These combined state and federal review requirements may prevent, further delay or otherwise affect our
ability to price for the risk we assume, which could adversely affect us particularly during periods of increased
utilization of medical services and/or medical cost trend or when such utilization and/or trend exceeds our
projections.