Aetna 2015 Annual Report Download - page 32

Annual Report- Page 26
premium for group life and disability products is recognized as revenue, net of allowances for uncollectible
accounts, over the term of coverage. Amounts received before the period of coverage begins are recorded as
unearned premiums.
Health Care billings may be subsequently adjusted to reflect enrollment changes due to terminations or other
factors. These adjustments are known as retroactivity adjustments. In each period, we estimate the amount of
future retroactivity and adjust the recorded revenue accordingly. In each period, we also estimate the amount of
uncollectible receivables and establish an allowance for uncollectible amounts. We base such estimates on
historical trends, premiums billed, the amount of contract renewal activity during the period and other relevant
information. As information regarding actual retroactivity and uncollectible amounts becomes known, we refine
our estimates and record any required adjustments to revenues in the period they arise. A significant difference in
the actual level of retroactivity or uncollectible amounts compared to our estimated levels would have a significant
effect on our operating results.
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. We estimate the minimum MLR
rebates by projecting MLRs for certain markets, as defined by Health Care Reform, for each state in which each of
our insurance entities operate. The claims and premiums used in estimating such rebates are modified for certain
adjustments allowed by Health Care Reform and include a statistical credibility adjustment for those states with a
number of members that is not statistically credible.
Furthermore, premium revenue subject to Health Care Reform’s permanent risk adjustment program transfers 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 risk adjustment receivable or payable for the
current calendar year and reflect the pro-rata year-to-date impact as an adjustment to our premium revenue. In this
analysis, we consider the estimate of the average risk of members of other qualified plans in comparable markets
the most critical assumption. We estimate this assumption using management’s best estimates, which are based on
various data sources, including but not limited to market risk data compiled by third party sources as well as pricing
and other regulatory inputs. Refer to Note 2 of Notes to Consolidated Financial Statements beginning on page
88 for additional information on each of Health Care Reform’s risk adjustment, risk corridor and reinsurance
programs.
NEW ACCOUNTING STANDARDS
Refer to Note 2 of Notes to Consolidated Financial Statements, beginning on page 88, for a discussion of recently
issued accounting standards.
REGULATORY ENVIRONMENT
General
Our operations are subject to comprehensive United States federal, state and local and comparable multiple levels
of international regulation in the jurisdictions in which we do business. The laws and rules governing our business
and interpretations of those laws and rules continue to expand and become more restrictive each year and are
subject to frequent change. Health Care Reform has made and will continue to make extensive changes to the U.S.
health care system and significantly increases the regulation of our business. There also continues to be a
heightened level of review and/or audit by federal, state and international regulators of the health and related
benefits industry’s business and reporting practices.
We must obtain and maintain regulatory approvals to price, market and administer many of our products.
Supervisory agencies, including CMS, the Center for Consumer Information and Insurance Oversight (“CCIIO”)
and the Department of Labor (“DOL”), as well as state health, insurance, managed care and Medicaid departments
and state boards of pharmacy have broad authority to take one or more of the following actions:
• Grant, suspend and revoke our licenses to transact business;