Aetna 2015 Annual Report Download - page 102

Annual Report- Page 96
yields or other factors, and these changes are recorded in current and future benefits in our statements of income in
the period they are determined.
Policyholders’ funds
Policyholders’ funds consist primarily of reserves for pension and annuity investment contracts in the Large Case
Pensions business and customer funds associated with group life and health contracts in the Health Care and Group
Insurance businesses. Reserves for such contracts are equal to cumulative deposits less withdrawals and charges
plus credited interest thereon, net of experience-rated adjustments. In 2015, interest rates for pension and annuity
investment contracts ranged from 3.5% to 14.7%, and interest rates for group life and health contracts ranged from
0% to 2.7%. In 2014, interest rates for pension and annuity investment contracts ranged from 3.6% to 16.7%, and
interest rates for group life and health contracts ranged from 0% to 2.8%. Reserves for contracts subject to
experience rating reflect our rights as well as the rights of policyholders and plan participants.
We also hold funds for health savings accounts (“HSAs”) on behalf of members associated with high deductible
health plans. These amounts are held to pay for qualified health care expenses incurred by these members. The HSA
balances were approximately $1.5 billion and $1.3 billion at December 31, 2015 and 2014, respectively, and are
reflected in other current assets with a corresponding liability in policyholder funds.
We review health care and other insurance liabilities periodically. We reflect any necessary adjustments during the
current period in operating results. While the ultimate amount of claims and related expenses are dependent on
future developments, it is management’s opinion that the liabilities that have been established are adequate to cover
such costs. The health care and other insurance liabilities that are expected to be paid within twelve months are
classified as current on our balance sheets.
Premium Deficiency Reserves
We evaluate our insurance contracts to determine if it is probable that a loss will be incurred. We recognize a
premium deficiency loss when it is probable that expected future claims, including maintenance costs (for
example, claim processing costs), will exceed existing reserves plus anticipated future premiums and reinsurance
recoveries. Anticipated investment income is considered in the calculation of premium deficiency losses for short-
duration contracts. For purposes of determining premium deficiency losses, contracts are grouped in a manner
consistent with our method of acquiring, servicing and measuring the profitability of such contracts. We did not
have any premium deficiency reserves at December 31, 2015 or 2014.
Health Care Contract Acquisition Costs
Health care benefits products included in the Health Care segment are cancelable by either the customer or the
member monthly upon written notice. Acquisition costs related to our prepaid health care and health indemnity
contracts are generally expensed as incurred. At December 31, 2015 and 2014, the balance of our deferred
acquisition costs was $305 million and $222 million, respectively, comprised primarily of commissions paid on our
Medicare Supplement products. Deferred acquisition costs are amortized over the estimated life of the contracts.
Revenue Recognition and Allowance for Estimated Terminations and Uncollectible Accounts
Health care premiums are recognized as income in the month in which the enrollee is entitled to receive health care
services. Health care premiums are reported net of an allowance for estimated terminations and uncollectible
amounts. Additionally, premium revenue subject to the minimum MLR rebate requirements of Health Care Reform
is recorded net of the estimated minimum MLR rebates for the current calendar year. Other premium revenue for
group life, long-term care and disability products is recognized as income, net of allowances for termination and
uncollectible accounts, over the term of the coverage. Other premium revenue for Large Case Pensions’ limited
payment pension and annuity contracts is recognized as revenue in the period received. Premiums related to
unexpired contractual coverage periods are reported as unearned premiums in our balance sheets.
The balance of the allowance for estimated terminations and uncollectible accounts on premiums receivable was
$146 million and $141 million at December 31, 2015 and 2014, respectively, and is reflected as a reduction of
premiums receivable in our balance sheets. The balance of the allowance for uncollectible accounts on other