Aetna 2015 Annual Report Download - page 61

Annual Report- Page 55
determination of the amount of rebates payable is complex and requires judgment, and the rebate reporting
requirements are detailed. Our Commercial business is currently under audit by both federal and state regulators
related to the ACA’s minimum MLR requirements. Additional challenges to our methodology and/or reports
relating to minimum MLR rebates by federal and state regulators and private litigants are reasonably possible. The
outcome of these audits and additional challenges could adversely affect our operating results.
Additionally, we are required to pay minimum MLR rebates in a number of states in which we offer Medicaid
coverage. These rebates are not required by Health Care Reform; they are mandated by our Medicaid contracts.
We may be subject to regulatory actions or suffer reputational harm if we do not or cannot adequately implement
Health Care Reform and related legislation, which may have a material adverse effect on our business.
Health Care Reform enacted in 2010, legislated broad-based changes to the U.S. health care system. To date the
constitutionality of Health Care Reform has been upheld, although significant portions of the law are subject to
pending litigation. We are dedicating, and will continue to be required to dedicate significant resources and incur
significant expenses to implement and comply with Health Care Reform and changes to Health Care Reform at both
the state and federal level, including complying with the implementation timeframe set by the government each
year for developing and pricing our Public Exchange products for the following year and implementing and
complying with future legislation and regulations that will provide guidance on and clarification of and changes to
significant parts of the legislation. If we fail to effectively implement Health Care Reform and our related
operational and strategic initiatives, or do not do so as effectively as our competitors, our business, operating results
and reputation may be materially adversely affected, we may lose customers and we may be subject to penalties,
sanctions or other regulatory actions.
If we are unable to include the significant assessments, fees and taxes imposed on us by Health Care Reform in
our premiums and fees or otherwise solve for them, our operating results, financial position and/or cash flows
would be materially and adversely affected. The inclusion of these assessments, fees and taxes in our premiums
also could adversely affect our ability to grow and/or maintain our medical membership.
Health Care Reform imposes significant assessments, fees and taxes on us and other health insurers, health plans
and other industry participants. We project that our share of the 2016 Health Care Reform assessments, fees and
taxes will be approximately $1 billion. As we are one of the nation’s largest health care benefits companies, we
expect our share of the Health Care Reform fees, assessments and taxes to continue to be significant. There is some
uncertainty whether we will be able to include all of these assessments, fees and taxes in our premium rates. It may
be particularly challenging to be able to include all of our portion of the industry-wide $14.3 billion 2018 HIF in
our premium rates beginning with 2017 medical customer renewals that have member months in 2018 because of
the HIF suspension for 2017. In addition, our ability to reflect Health Care Reform assessments, fees and taxes in
our Medicare rates is limited; and our ability to reflect them in our Medicaid and CHIP rates is likely to be limited
due, among other things, to the budgetary pressures currently facing many state governments. If we are unable to
include the Health Care Reform assessments, fees and taxes in our premiums and fees or otherwise adjust our
business model to solve for them, these assessments, fees and taxes could have a material adverse effect on our
operating results, financial position and/or cash flows. The increases in our prices caused by including all of these
assessments, fees and taxes in our premiums and fees also could adversely affect our ability to profitably grow and/
or maintain our medical membership if, for example, our competitors do not seek to include all or a significant
portion of these assessments, fees and taxes in their premiums or fees.
Our business activities are highly regulated. Our Medicare, Medicaid, specialty and mail order pharmacy, Public
Exchange and certain other products are subject to particularly extensive and complex regulations. If we fail to
comply with applicable laws and regulations, we could be subject to significant adverse regulatory actions or
suffer reputational harm which may have a material adverse effect on our business. Upon completion of the
Proposed Acquisition, our exposure to these risks will increase significantly. Compliance with future laws,
regulations and/or judicial decisions may reduce our profitability and limit our growth.