Aetna 2014 Annual Report Download - page 65

Annual Report- Page 59
right to cancel or not to renew their contracts with us on short notice without cause or if funds are not available.
Funding for these programs is dependent on many factors outside our control, including general economic
conditions, continuing government efforts to contain health care costs and budgetary constraints at the federal or
applicable state or local level and general political issues and priorities.
For example, while Health Care Reform significantly expanded the number of people who qualify to enroll in
Medicaid beginning in 2014, most states currently face significant budget challenges, several states are currently
seeking to reduce their Medicaid expenditures and other states may take similar action. Our government customers
also determine the premium levels and other aspects of Medicare, Medicaid and dual eligible programs that affect
the number of persons eligible for or enrolled in these programs, the services provided to enrollees under the
programs, and our administrative and health care and other benefit costs under these programs. In the past,
determinations of this type have adversely affected our financial results from and willingness to participate in such
programs, and they may do so again in the future. For example, effective January 1, 2015, we terminated our
Insured Medicaid contract in Delaware because we did not believe the premium level was adequate. If a
government customer reduces premium levels or increases premiums by less than the increase in our costs (such as
by not allowing us to recover applicable Health Care Reform fees, taxes and assessments), and we cannot offset the
impact of these actions with supplemental premiums and/or changes in benefit plans, then our business and
operating results could be adversely affected. In addition, if states allow certain programs to expire or choose to opt
out of Medicaid expansion, we could experience reduced Medicaid enrollment or reduced Medicaid enrollment
growth, which would adversely affect our business, revenues and operating results.
In addition, the terms of our disability products often provide that the benefits due to beneficiaries are reduced by
the amount of certain federal benefits they receive, most notably Social Security Disability Insurance (“SSDI”)
payments. If such payments are suspended or reduced for any reason, including due to funding shortfalls for the
SSDI program, our disability payment obligations would be increased accordingly, and such increase could be
material.
Our ability to anticipate medical cost trends and achieve appropriate pricing on Insurance Exchanges could
adversely affect our operating results. There can be no assurance that the future health care benefit costs of our
Insurance Exchange products will not exceed our projections.
Unanticipated increases in our Insurance Exchange product health care benefit costs could adversely affect our
operating results. Coverage under Public Exchange products commenced on January 1, 2014. We do not have prior
experience with pricing Public Exchange products or utilization of medical and/or other covered services by Public
Exchange product members. We have set 2015 premium rates for our Public Exchange products based on our
projections, including as to the funding for Health Care Reform’s risk corridors and other premium stabilization
programs (which programs provide us with less protection in 2015 than 2014), the health status and quantity of
Public Exchange membership and utilization of medical and/or other covered services by Public Exchange product
members.
The premium rates for our Insurance Exchange products are set in advance and fixed for one-year periods. As a
result, health care benefit costs in excess of the projections reflected in our Insurance Exchange product pricing
cannot be recovered in the fixed premium period through higher premiums. Although, assuming they are funded, in
certain circumstances, federal risk adjustment mechanisms could help offset health care benefit costs in excess of
our projections in our Public Exchange products, the profitability of our Insurance Exchange products is particularly
sensitive to the accuracy of our forecasts of health care benefit costs. Those forecasts were made several months
before the fixed premium period began, require a significant degree of judgment and are dependent on our ability to
detect medical cost trends as well as accuracy.
There can be no assurance regarding the accuracy of the health care benefit cost, membership or other projections
reflected in our Insurance Exchange product pricing or that we will receive any payments under the risk corridors or
any other federal risk adjustment mechanism with respect to our Public Exchange membership. The risks related to
the accuracy of projections reflected in our pricing are magnified by adverse selection among individuals who
require or utilize more expensive medical and/or other covered services and legislation, or regulations or