Aetna 2015 Annual Report Download - page 36

Annual Report- Page 30
Health Care Regulation
General
Federal, state, local and foreign governments have adopted comprehensive laws and regulations that govern our
business activities in various ways. These laws and regulations, including Health Care Reform, restrict how we
conduct our business and result in additional burdens and costs to us.
In addition to the expanded regulation created by Health Care Reform discussed above, significant areas of
governmental regulation include premium rates and rating methodologies, underwriting rules and procedures,
required benefits, sales and marketing activities, health care provider rates of payment, restrictions on health plans’
ability to limit providers’ participation in their networks and/or remove providers from their networks, pharmacy
and pharmacy benefit management operations and financial position (including reserves and minimum capital or
risk based capital requirements). These laws and regulations are different in each jurisdiction and vary from product
to product.
Each health insurer and HMO must file periodic financial and operating reports with the states in which it does
business. In addition, health insurers and HMOs are subject to state examination and periodic license renewal.
Applicable laws also restrict the ability of our regulated subsidiaries to pay dividends, and certain dividends require
prior regulatory approval. In addition, some of our business and related activities may be subject to preferred
provider organization (“PPO”), managed care organization, utilization review or third-party administrator-related
licensure requirements and regulations. These licensure requirements and regulations differ from state to state, but
may contain health care provider network, contracting, product and rate, financial and reporting requirements.
There also are laws and regulations that set specific standards for our delivery of services, payment of claims, fraud
prevention, protection of consumer health information, payment for covered benefits and services and escheatment
of funds to states. Our pharmacy benefit management (“PBM”) services suppliers, including Caremark PCS Health,
L.L.C. (and its predecessors, collectively “CVS”), also are subject to extensive federal and state regulation,
including many of the items described above.
Pricing and Underwriting Restrictions
Pricing and underwriting regulation by states limits our underwriting and rating practices and those of other health
insurers, particularly for small employer groups and individuals. Beginning in 2014, as a result of Health Care
Reform, health insurers cannot vary small group or individual premium rates based on individual members’
characteristics except for geography and limited variation for age and tobacco use. Beginning in 2016, states have
the ability to expand the small group rating category to cover groups of up to 100 employees. Pricing and
underwriting laws and regulations vary by state. In general, they apply to certain customer segments and limit our
ability to set prices for new or renewal business, or both, based on specific characteristics of the group or the
group’s prior claim experience. In some states, these laws and regulations restrict our ability to price for the risk we
assume and/or reflect reasonable costs in our pricing.
Health Care Reform expanded the premium rate review process by, among other things, requiring our rates to be
reviewed for “reasonableness” at either the state or the federal level. HHS established a federal premium rate review
process that generally applies to proposed premium rate increases equal to or exceeding 10% (or a state specified
threshold). HHS’s rate review process imposes additional public disclosure requirements as well as additional
review on filings requesting premium rate increases equal to or exceeding this “reasonableness” threshold. These
combined state and federal review requirements may prevent, further delay or otherwise affect our ability to price
for the risk we assume, which could adversely affect our medical benefit ratios and results of operations,
particularly during periods of increased utilization of medical services and/or medical cost trend or when such
utilization and/or trend exceeds our projections.
Health Care Reform also specifies minimum MLRs of 85% for large group commercial products, 80% for
individual and small group commercial products and 85% for Medicare Advantage and Medicare Part D plans.
Because Health Care Reform is structured as a “floor” for many of its requirements, states have the latitude to enact
more stringent rules governing its various restrictions. For commercial products, states may adopt higher minimum
MLR requirements, use more stringent definitions of “medical loss ratio,” incorporate minimum MLR requirements