Aetna 2014 Annual Report Download - page 37

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Health Care Reform also specifies minimum MLRs of 85% for the large group commercial market, 80% for the
individual and small group commercial markets and 85% for Medicare Advantage and Medicare Part D
plans. Because Health Care Reform is structured as a “floor” for many of its requirements, states have the latitude
to enact more stringent rules governing its various restrictions. For commercial products, states may adopt higher
minimum MLR requirements, use more stringent definitions of “medical loss ratio,” incorporate minimum MLR
requirements into prospective premium rate filings, require prior approval of premium rates, or impose other
requirements related to minimum MLR. For example, Texas has expanded from 50 to 100 the maximum size of
“small groups” that are subject to its minimum MLR requirements, and New York, New Jersey and California all
have established state-specific minimum MLR requirements. State-specific minimum MLR requirements and
similar actions further limit the level of margin we can earn in our Insured business while leaving us exposed to
medical costs that are higher than those reflected in our pricing.
In addition, we requested significant increases in our premium rates in our individual and small group Health Care
businesses for 2014 and 2015 and expect to continue to request significant increases in those rates for 2016 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 increases heighten the risks of adverse public and regulatory action 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.
Many of these laws and regulations also limit the differentials in premium rates insurers and other carriers may
charge between new and renewal business, and/or between groups or individuals based on differing
characteristics. They may also require that carriers disclose to customers the basis on which the carrier establishes
new business and renewal premium rates and limit the ability of a carrier to terminate customers’ coverage. In
addition, HHS’ rules on rates impose additional public disclosure requirements on any rate filings that exceed the
“reasonableness” threshold and require additional review of those rates.
In addition, a number of states provide for a voluntary reinsurance mechanism to spread small group risk among
participating insurers and other carriers. In a small number of states, participation in this pooling mechanism is
mandatory for all small group carriers. In general, we have elected not to participate in voluntary pools. However,
even in the voluntary pool states, we may be subject to certain supplemental assessments related to the state’s small
group experience.
HIPAA Administrative Simplification, GLBA and Other Privacy, Security and Confidentiality Requirements
Federal, state and international privacy and security requirements change periodically because of legislation,
regulations and judicial or administrative interpretation. The regulations under the administrative simplification
provisions of the Health Insurance Portability and Accountability Act of 1996 (“HIPAA”), as further modified by
the American Recovery and Reinvestment Act of 2009 (“ARRA”) and Health Care Reform, also impose a number
of additional obligations on issuers of health insurance coverage and health benefit plan sponsors.
HIPAA’s administrative simplification requirements apply to self-funded group health plans, health insurers and
HMOs, health care clearinghouses and health care providers who transmit health information electronically
(“Covered Entities”). Regulations adopted to implement administrative simplification also require that “business
associates” acting for or on behalf of these Covered Entities be contractually obligated to meet HIPAA
standards. The administrative simplification regulations establish significant criminal penalties and civil sanctions
for noncompliance.
Under administrative simplification, HHS also has published rules requiring the use of standardized code sets and
unique identifiers for employers and health care providers. The federal government has mandated that by October
2015 the health and related benefits industry, including health insurers, health care providers and laboratories,
upgrade to an updated and expanded set of standardized diagnosis and procedure codes used for describing health