Aetna 2015 Annual Report Download - page 41

Annual Report- Page 35
adjusted benchmarks. Since the 2014 contract year, Health Care Reform also has required minimum MLRs for
Medicare Advantage and Medicare Part D plans of 85%.
We project that CMS’s Medicare Advantage benchmark payment rates for 2016 will increase funding for our
Medicare Advantage business by 1% in 2016 compared to 2015. This 2016 rate increase only partially offsets the
challenge we face from the impact of the increasing cost of medical care and the HIF.
Our Medicare Advantage and PDP products are regulated by CMS. The regulations and contractual requirements
applicable to us and other participants in Medicare programs are complex, expensive to comply with and subject to
change. For example, in the second quarter of 2014, CMS issued a final rule implementing the ACA requirements
that Medicare Advantage and PDP plans report and refund to CMS overpayments that those plans receive from
CMS. The precise interpretation, impact and legality of this rule are not clear and are subject to pending litigation.
In that same rule, CMS also changed in some respects how we can pay pharmacies in 2016 that impacts our
Medicare Advantage and PDP products. We have invested significant resources to comply with Medicare standards,
and our Medicare compliance efforts will continue to require significant resources. CMS may seek premium and
other refunds, prohibit us from continuing to market and/or enroll members in or refuse to passively enroll members
in one or more of our Medicare or Medicare-Medicaid demonstration (historically known as “dual eligible”) plans,
exclude us from participating in one or more Medicare or dual eligible programs and/or institute other sanctions
against us if we fail to comply with CMS regulations or our Medicare contractual requirements.
CMS regularly audits our performance to determine our compliance with CMS’s regulations and our contracts with
CMS and to assess the quality of services we provide to Medicare beneficiaries. For example, CMS currently
conducts risk adjustment data validation (“RADV”) audits of a subset of Medicare Advantage contracts for each
contract year. In December 2015, CMS released a request for information (“RFI”) for a significant expansion of the
RADV audit program. As described in the RFI, CMS would use third party auditors to attain its ultimate goal of
subjecting all Medicare Advantage contracts to either a comprehensive or a targeted RADV audit for each contract
year. Refer to “CMS Actions” in Note 19 of Notes to Consolidated Financial Statements for information on certain
pending CMS audits.
A portion of each Medicare Advantage plan’s reimbursement is tied to the plan’s “star ratings.” The star rating
system considers a variety of measures adopted by CMS, including quality of preventative services, chronic illness
management and overall customer satisfaction. Our star ratings and past performance scores are adversely affected
by compliance issues that arise in our Medicare business, such as our distribution of inaccurate information
regarding which pharmacies were part of our Medicare network and related $1 million civil monetary penalty in
2015.
Since 2015, Medicare Advantage plans must have an overall star rating of four stars or higher (out of five stars) to
qualify for a quality bonus in their basic premium rates. CMS released our 2016 star ratings in October 2015. Our
2016 star ratings will be used to determine which of our Medicare Advantage plans have ratings of four stars or
higher and qualify for bonus payments in 2017. Our enrollment weighted average 2016 star rating was 4.2. Based
on our membership at December 31, 2015, 85% of our Medicare Advantage members were in plans with 2016 star
ratings of at least 4.0 stars. CMS will release updated stars ratings in October 2016 that will be used to determine
the portion of our Medicare Advantage membership that will reside in plans with ratings of four stars or higher and
qualify for bonus payments in 2018. In 2016 and going forward, our Medicare Advantage plans’ operating results
will continue to be significantly affected by their star ratings. Despite our recent success in improving our star
ratings and other quality measures for 2016 and the continuation of our improvement efforts, there can be no
assurances that we will be successful in maintaining or improving our star ratings in future years. Accordingly, our
plans may not be eligible for full level quality bonuses, which could adversely affect the benefits such plans can
offer, reduce membership and/or reduce profit margins.
We cannot predict future Medicare funding levels or the impact that future federal budget actions or entitlement
program reform, if it occurs, will have on our business, operations or operating results, but the effects could be
materially adverse, particularly on our Medicare and/or Medicaid revenues, medical benefit ratios and operating
results. For example, the Federal government may seek to impose restrictions on the configuration of pharmacy or