Aetna 2014 Annual Report Download - page 94

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estimates are made based on actual experience of the customer emerging under the contract and the terms of the
underlying contract.
Fees and other revenue consists primarily of ASC fees which are received in exchange for performing certain claim
processing and member services for health and disability members and are recognized as revenue over the period
the service is provided. Fees and other revenue also includes fees related to our workers’ compensation
administrative services products and services. Some of our contracts include guarantees with respect to certain
functions, such as customer service response time, claim processing accuracy and claim processing turnaround
time, as well as certain guarantees that a plan sponsor’s benefit claim experience will fall within a certain range.
With any of these guarantees, we are financially at risk if the conditions of the arrangements are not met, although
the maximum amount at risk is typically limited to a percentage of the fees otherwise payable to us by the customer
involved. Each period we estimate our obligations under the terms of these guarantees and record it as an offset to
our ASC fees.
In addition, fees and other revenue also include charges assessed against contract holders’ funds for contract fees,
participant fees and asset charges related to pension and annuity products in the Large Case Pensions business.
Other amounts received on pension and annuity investment-type contracts are reflected as deposits and are not
recorded as revenue. Some of our Large Case Pension contract holders have the contractual right to purchase
annuities with life contingencies using the funds they maintain on deposit with us. Since these products are
considered an insurance contract, when the contract holder makes this election, we treat the accumulated investment
balance as a single premium and reflect it as both premiums and current and future benefits in our statements of
income.
Accounting for certain provisions of the Patient Protection and Affordable Care Act and the Health Care and
Education Reconciliation Act of 2010 (collectively, “Health Care Reform” or the “ACA”)
We are participating in certain public health insurance exchanges established pursuant to Health Care Reform
(“Public Exchanges”). Under regulations established by the U.S. Department of Health and Human Services
(“HHS”), HHS pays us a portion of the premium (“Premium Subsidy”) and a portion of the health care costs (“Cost
Sharing Subsidy”) for low-income individual Public Exchange members. In addition, HHS administers certain risk
management programs as described below.
We recognize monthly premiums received from Public Exchange members and the Premium Subsidy as premium
revenue ratably over the contract period. The Cost Sharing Subsidy offsets health care costs when incurred. We
record a liability if the Cost Sharing Subsidy is paid in advance or a receivable if incurred health care costs exceed
the Cost Sharing Subsidy received to date.
Accounting for Health Care Reform’s Reinsurance, Risk Adjustment and Risk Corridor (the “3Rs”)
Reinsurance
Health Care Reform established a temporary three-year reinsurance program, under which all issuers of major
medical commercial insurance products and self-insured plan sponsors are required to contribute funding in
amounts set by HHS. Funds collected will be utilized to reimburse issuers’ high claims costs incurred for qualified
individual members. The expense related to this required funding is reflected in general and administrative
expenses for all of our insurance products with the exception of products associated with qualified individual
members; this expense for qualified individual members is reflected as a reduction of premium revenue. When
annual claim costs incurred by our qualified individual members exceed a specified attachment point, we are
entitled to certain reimbursements from this program. We record a receivable and offset health care costs to reflect
our estimate of these recoveries. At December 31, 2014, we recorded a receivable under the temporary three-year
reinsurance program of approximately $338 million.
Risk Adjustment
Health Care Reform established a permanent risk adjustment program to transfer funds from qualified individual
and small group insurance plans with below average risk scores to plans with above average risk scores. Based on
the risk of our qualified plan members relative to the average risk of members of other qualified plans in
comparable markets, we estimate our ultimate 2014 risk adjustment receivable or payable and reflect the pro-rata