Aetna 2015 Annual Report Download - page 59

Annual Report- Page 53
• Restricting our ability to price for the risk we assume and/or reflect reasonable costs or profits in our
pricing, and/or limiting the level of margin we can earn, including by mandating minimum medical loss
ratios;
• Reducing our ability to manage health care or other benefit costs (including by mandating benefits,
restricting our ability to manage our provider network and/or capping member cost sharing or otherwise
limiting members’ financial responsibility for health care or other covered services they utilize and thus
increasing our medical costs);
• Increasing health care or other benefit costs and operating expenses (including duplicate expenses resulting
from changes in regulations during implementation);
• Increasing our exposure to lawsuits and other adverse legal proceedings;
• Adversely affecting our product mix; and/or
• Imposing new or increasing existing taxes and financial assessments.
Legislative and regulatory changes could create significant challenges to our Medicare Advantage and PDP
revenues and operating results, and proposed changes to these programs could create significant additional
challenges. Starting in 2017, federal funding for Medicaid expansion will decrease. Entitlement program reform,
if it occurs, could have a material adverse effect on our business, operations or operating results.
From time to time the federal government alters the level of funding for government health care programs,
including Medicare. Under the BCA and the ATRA, significant, automatic across-the-board budget cuts (known as
sequestration) to several federal government programs started in March 2013. These include Medicare spending
cuts of up to 2% of total program costs per year through 2024. The ATRA also contained additional reductions to
Medicare reimbursements to health plans that commenced in April 2013 and eliminated funding for certain Health
Care Reform programs. These reductions could adversely affect us, our customers and our providers.
Medicare Advantage payment rates to health plans have been cut over the last several years, with additional
reductions to be phased in through 2017. CMS’ Final Notice for 2016 Medicare Advantage benchmark payment
rates provided some progress toward more stable program rates. We project that the benchmark rates in the Final
Notice will increase funding for our Medicare Advantage business by 1% in 2016 compared to 2015. However, this
rate increase is still below the rate of increase of the cost of medical care and creates continued pressure on the
Medicare Advantage program and our Medicare Advantage results. We cannot predict changes in future Medicare
funding levels, the impact of future federal budget actions or ensure that such changes or actions will not have an
adverse effect on our Medicare operating results.
In addition, the “star ratings” from CMS for our Medicare Advantage plans will continue to have a significant effect
on our plans’ operating results. Since 2015, only Medicare Advantage plans with a star rating of four or higher (out
of five) are eligible for a quality bonus in their basic premium rates. 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. If our star ratings fall below expectations, do not match the performance of our
competitors, the star rating standards are raised, or the quality bonuses are reduced or eliminated, our revenues and
operating results may be adversely affected.
During 2014, CMS issued a final rule that changes in some respects how we can pay pharmacies and impacts our
Medicare Advantage and PDP products. This final rule, which takes effect in 2016, may limit our ability to realize
anticipated cost savings.
Beginning in 2017, federal funding for expanded Medicaid coverage will decrease, which may cause states to re-
evaluate their Medicaid expansions, That re-evaluation may adversely affect Medicaid payment rates, our revenues
and our Medicaid membership in those states.
If entitlement program reform occurs, it could have a material adverse effect on our business, operations or
operating results, particularly on our Medicare and/or Medicaid revenues, medical benefit ratios and operating
results.