Aetna 2014 Annual Report Download - page 53

Annual Report- Page 47
We may not be able to obtain adequate premium rate increases, which would have an adverse effect on our
revenues, medical benefit ratios and operating results and could magnify the adverse impact of increases in
health care and other benefit costs and of Health Care Reform assessments, fees and taxes.
Premium rates generally must be filed with state insurance regulators and are subject to their approval, which
creates risk for us in the current political and regulatory environment. Health Care Reform generally requires a
review by HHS in conjunction with state regulators of premium rate increases of 10% or more (or another state-
specific threshold set by states determined by HHS to have adequate processes). Rate reviews can magnify the
adverse impact on our operating margins and operating results of increases in health care and other benefit costs,
increased utilization of covered services, and Health Care Reform assessments, fees and taxes, by restricting our
ability to reflect these increases and/or these assessments, fees and taxes in our pricing. The risk of increases in
utilization of medical and/or other covered services and/or in health care and other benefit costs is particularly acute
during and following periods (such as 2010-2013), when utilization has been below recent historical levels. 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 CHIP 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 and 2014, HHS issued determinations to health plans that their rate increases were unreasonable, and we
continued to experience challenges to appropriate premium rate increases in certain 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. Since
2014, our plans can 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 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 rate increases heighten the risks of adverse public and regulatory reaction and the
risk that our products will be selected by people with a higher risk profile or utilization rate than the pool of
participants we anticipated when we established the pricing for the applicable products (also known as “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 prior years. These
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 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 80 for
more information. Certain portions of our FEHBP program business are subject to minimum MLR rebate
requirements separate from those imposed by Health Care Reform. 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