Aetna 2015 Annual Report Download - page 73

Annual Report- Page 67
operating results could be adversely affected. In addition, if states allow certain programs to expire or choose to opt
out of Medicaid expansion, we could experience reduced Medicaid enrollment or reduced Medicaid enrollment
growth, which would adversely affect our business, revenues and operating results.
In addition, the terms of our disability products often provide that the benefits due to beneficiaries are reduced by
the amount of certain federal benefits they receive, most notably SSDI payments. If such payments are suspended
or reduced for any reason, including due to funding shortfalls for the SSDI program, our disability payment
obligations would be increased accordingly, and such increase could be material.
Our ability to anticipate and detect medical cost trends and achieve appropriate pricing on Insurance Exchanges
could adversely affect our operating results. There can be no assurance that the future health care benefit costs
of our Insurance Exchange products will not exceed our projections.
Unanticipated increases in our Insurance Exchange product health care benefit costs could adversely affect our
operating results. Coverage under Public Exchange products commenced on January 1, 2014. We do not have prior
experience with pricing Public Exchange products or utilization of medical and/or other covered services by Public
Exchange product members, particularly those members who purchase coverage during special election periods and
typically have higher utilization of medical and/or other covered services. Our Public Exchange products were not
profitable in 2015. We have set 2016 premium rates for our Public Exchange products based on our projections,
including as to the funding for Health Care Reform’s risk corridors and other premium stabilization programs
(which programs provide us with less protection in 2016 than 2015 and will provide us with less protection in 2017
than 2016), the health status and quantity of Public Exchange membership and utilization of medical and/or other
covered services by Public Exchange product members.
The premium rates for our Insurance Exchange products are set in advance and fixed for one-year periods. As a
result, health care benefit costs in excess of the projections reflected in our Insurance Exchange product pricing
cannot be recovered in the fixed premium period through higher premiums. Although, if they are funded, in certain
circumstances, federal risk adjustment mechanisms could help offset health care benefit costs in excess of our
projections in our Public Exchange products, the profitability of our Insurance Exchange products is particularly
sensitive to the accuracy of our forecasts of health care benefit costs. Those forecasts were made several months
before the fixed premium period began, require a significant degree of judgment and are dependent on our ability to
detect medical cost trends as well as the accuracy of our projections used in setting our Insurance Exchange product
premium rates.
There can be no assurance regarding the accuracy of the health care benefit cost, membership or other projections
reflected in our Insurance Exchange product pricing or that we will receive any payments under the risk corridors or
any other federal risk adjustment mechanism with respect to our Public Exchange membership. For example, in
October 2015, HHS announced that Health Care Reform risk corridor receivables for the 2014 program year would
only be funded at 12.6%. The risks related to the accuracy of projections reflected in our pricing are magnified by
adverse selection among individuals who require or utilize more expensive medical and/or other covered services
(such as those who purchase coverage during special election periods) and legislation, regulations, enforcement
activity and/or judicial decisions that cause Insurance Exchanges to operate in a manner different than what we
projected in setting our Insurance Exchange product premium rates, such as ongoing initiatives in several states to
require insurers to allow members to pay insurers less for certain high cost drugs than the amounts assumed in
pricing of their Public Exchange products or situations where Health Care Reform co-op insolvencies may require
us to take on Public Exchange membership that we did not anticipate or price for. In addition, the limited payments
under the Health Care Reform risk corridor program for the 2014 program year may create instability in the
marketplace for individual Commercial products in 2016 and going forward by, among other things, causing health
plans to change or stop offering their Public Exchange products. For additional information on certain of the
medical cost trend, pricing and economic conditions risks associated with our Insurance Exchange and other Health
Care products, see “We may not be able to accurately forecast health care and other benefit costs, which could
adversely affect our operating results. We may not able to obtain appropriate pricing on new or renewal business”,
beginning on page 63; and “We may not be able to obtain adequate premium rate increases, which would have an
adverse effect on our revenues, medical benefit ratios and operating results and could magnify the adverse impact