CVS 2012 Annual Report Download - page 73

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CVS CAREMARK 2012 ANNUAL REPORT
71
9 Medicare Part D
The Company offers Medicare Part D benefits through SilverScript and Pennsylvania Life, which have contracted with CMS
to be a PDP and, pursuant to the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (“MMA”), must
be risk-bearing entities regulated under state insurance laws or similar statutes.
SilverScript and Pennsylvania Life are licensed domestic insurance companies under the applicable laws and regulations.
Pursuant to these laws and regulations, SilverScript and Pennsylvania Life must file quarterly and annual reports with the
National Association of Insurance Commissioners (“NAIC”) and certain state regulators, must maintain certain minimum
amounts of capital and surplus under a formula established by the NAIC and must, in certain circumstances, request and
receive the approval of certain state regulators before making dividend payments or other capital distributions to the Company.
The Company does not believe these limitations on dividends and distributions materially impact its financial position.
The Company has recorded estimates of various assets and liabilities arising from its participation in the Medicare Part D
program based on information in its claims management and enrollment systems. Significant estimates arising from its
participation in this program include: (i) estimates of low-income cost subsidy and reinsurance amounts ultimately payable
to or receivable from CMS based on a detailed claims reconciliation that will occur in the following year; (ii) an estimate of
amounts receivable from or payable to CMS under a risk-sharing feature of the Medicare Part D program design, referred
to as the risk corridor and (iii) estimates for claims that have been reported and are in the process of being paid or con-
tested and for our estimate of claims that have been incurred but have not yet been reported.
10 PensionPlansandOtherPostretirementBenets
Defined Contribution Plans
The Company sponsors voluntary 401(k) savings plans that cover substantially all employees who meet plan eligibility
requirements. The Company makes matching contributions consistent with the provisions of the plans.
At the participant’s option, account balances, including the Company’s matching contribution, can be moved without
restriction among various investment options, including the Company’s common stock. The Company also maintains
a nonqualified, unfunded Deferred Compensation Plan for certain key employees. This plan provides participants the
opportunity to defer portions of their eligible compensation and receive matching contributions equivalent to what they
could have received under the CVS Caremark 401(k) Plan absent certain restrictions and limitations under the Internal
Revenue Code. The Company’s contributions under the above defined contribution plans were $199 million, $187 million
and $186 million in 2012, 2011 and 2010, respectively.
Other Postretirement Benefits
The Company provides postretirement health care and life insurance benefits to certain retirees who meet eligibility require-
ments. The Company’s funding policy is generally to pay covered expenses as they are incurred. For retiree medical plan
accounting, the Company reviews external data and its own historical trends for health care costs to determine the health
care cost trend rates. As of December 31, 2012 and 2011, the Company’s postretirement medical plans have an accumu-
lated postretirement benefit obligation of $16 million and $17 million, respectively. Net periodic benefit costs related to
these postretirement medical plans were approximately $1 million for 2012, 2011 and 2010.
Pursuant to various labor agreements, the Company also contributes to multiemployer health and welfare plans that cover
union-represented employees. The plans provide postretirement health care and life insurance benefits to certain employees
who meet eligibility requirements. Total Company contributions to multiemployer health and welfare plans were $50 million,
$47 million and $46 million in 2012, 2011 and 2010, respectively.
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