Aetna 2015 Annual Report Download - page 40

Annual Report- Page 34
based regulatory regime as well as proposed elements of additional federal involvement in insurance regulation. We
cannot predict whether future legislative or regulatory action will result from this report.
Health savings accounts, health reimbursement arrangements and flexible spending accounts and certain of the tax,
fee and subsidy provisions of Health Care Reform are also regulated by the Treasury and the Internal Revenue
Service (the “IRS”).
We also may be adversely impacted by court and regulatory decisions that expand or revise the interpretations of
existing statutes and regulations or impose medical malpractice or bad faith liability. Federal and state courts
continue to consider cases addressing group and individual life insurance payment practices and the pre-emptive
effect of ERISA on state laws.
The Employee Retirement Income Security Act of 1974
The provision of services to certain employee benefit plans, including certain Health Care, Group Insurance and
Large Case Pensions benefit plans, is subject to ERISA, a complex set of laws and regulations subject to
interpretation and enforcement by the IRS and the U.S. Department of Labor (the “DOL”). ERISA regulates certain
aspects of the relationships between us and employers who maintain employee benefit plans subject to ERISA.
Some of our administrative services and other activities may also be subject to regulation under ERISA. ERISA
generally preempts all state and local laws that relate to employee benefit plans, but the extent of the pre-emption
continues to be reviewed by courts.
Some of our Large Case Pensions and Group Insurance products and services are also subject to potential issues
raised by certain judicial interpretations relating to ERISA. Under those interpretations, together with DOL
regulations, we may have ERISA fiduciary duties with respect to certain general account assets held under contracts
that are not guaranteed benefit policies. As a result, certain transactions related to those assets are subject to conflict
of interest and other restrictions, and we must provide certain disclosures to policyholders annually. We must
comply with these restrictions or face substantial penalties.
Federal Employees Health Benefits (“FEHB”) Program
Our subsidiaries contract with the Office of Personnel Management (the “OPM”) to provide managed health care
services under the FEHB program in their service areas. These contracts with the OPM and applicable government
regulations establish premium rating arrangements for this program. OPM regulations require that community-rated
FEHB plans meet a FEHB program-specific MLR by plan code and market. Managing to these rules is complicated
by the simultaneous application of the minimum MLR standards and associated premium rebate requirements of
Health Care Reform. We also manage certain FEHB plans on a “cost-plus” basis. The OPM conducts periodic
audits of its contractors to, among other things, verify that plans meet their applicable FEHB program-specific MLR
and the premiums established under its insured contracts and costs allocated pursuant to its cost-based contracts are
in compliance with the requirements of the applicable FEHB program. The OPM may seek premium refunds or
institute other sanctions against us if we fail to comply with the FEHB program requirements.
Medicare
We continue to expand the Medicare markets we serve and Medicare products we offer. We expect to further
expand our Medicare business in 2016 and are seeking to substantially grow our Medicare business over the next
several years, including through the Proposed Acquisition and growth in our Medicare Supplement products, which
products are regulated at the state level. The organic expansion of the Medicare markets we serve and Medicare
products we offer, the completion of the Proposed Acquisition, and the Medicare-related provisions of Health Care
Reform significantly increase our exposure to funding and regulation of, and changes in government policy with
respect to and/or funding or regulation of, the various Medicare programs in which we participate, including
changes in the amounts payable to us under those programs and/or new reforms or surcharges on existing programs.
For example, sequestration began in 2013 and resulted in an automatic reduction in Medicare reimbursements to
health plans of not more than 2% of total program costs per year through 2024. In addition, Health Care Reform
contains further significant reductions in the reimbursements we receive for our Medicare Advantage members,
including freezing 2011 rates based on 2010 levels, with additional reductions in future years based on regionally