Cigna 2012 Annual Report Download - page 37

PART I
ITEM 1 Business
limits on the dollar amount of essential health benefits, increasing Management continues to closely monitor the implementation of
restrictions on rescinding coverage and extending coverage of Health Care Reform and is actively engaged with regulators and
dependents to the age of 26. Minimum medical loss ratio policymakers on the conversion of legislation to regulation. In
requirements as prescribed by the Department of Health and Human addition, management is implementing the necessary capabilities to
Services (‘‘HHS’’) became effective in January 2011 and required ensure that the Company is compliant with the law and assessing
payment of premium rebates beginning in 2012 to employers and potential opportunities arising from Health Care Reform.
customers covered under the Company’s comprehensive medical
insurance if certain annual minimum medical loss ratios (‘‘MLR’’) are
Dodd-Frank Act
not met. HHS regulations permit adjustments to be made to the
In 2010, Congress enacted the Dodd-Frank Wall Street Reform and
claims used in the calculation for Cigna’s international health care and
Consumer Protection Act (the ‘‘Dodd-Frank Act’’) that provides for a
limited benefit plans subject to the MLR minimums. The adjustment
number of reforms and regulations in the corporate governance,
for limited benefit plans is only permitted through 2014.
financial reporting and disclosure, investments, tax and enforcement
Certain other provisions of Health Care Reform will not become areas that affect Cigna. The SEC and other regulatory authorities
effective until 2013 or later, including: (1) the annual health insurer engaged in rulemaking efforts under the Dodd-Frank Act throughout
fee on health insurers and HMOs to help fund the expanded coverage 2011 and 2012, and additional rulemaking still continues. The
provided under this legislation; (2) reinsurance assessments on Dodd-Frank Act established a Federal Insurance Office that will
insurers and HMOs to help stabilize rates in the individual and small develop and coordinate federal policy on insurance matters. Cigna is
group markets beginning in 2014; (3) the guaranteed issue and closely monitoring how these regulations impact the Company,
renewal requirements and the requirement that individuals maintain however the full impact of the legislation may not be known for
coverage, and (4) an excise tax on high-cost employer-sponsored several years until regulations become fully effective.
coverage. These fees and excise taxes will generally not be tax
deductible with the exception of the reinsurance assessment on
insurers and HMOs. Health Care Reform also changed certain tax
Regulation of Insurance Companies
laws that will effectively limit the amount of certain employee
Financial Reporting and Internal Control
compensation that is tax deductible by health insurers.
Regulators closely monitor the financial condition of licensed
Health Care Reform also impacts Cigna’s Medicare Advantage and insurance companies and HMOs. States regulate the form and
Medicare Part D prescription drug plan businesses acquired with content of statutory financial statements, the type and concentration
HealthSpring in a variety of additional ways, including reduced of permitted investments, and corporate governance over financial
Medicare premium rates (which began with the 2011 contract year), reporting. Cigna’s insurance and HMO subsidiaries are required to
mandated minimum reductions to risk scores (beginning in 2014), file periodic financial reports and schedules with regulators in most of
transition of Medicare Advantage ‘‘benchmark’’ rates to Medicare the jurisdictions in which they do business as well as annual financial
fee-for-service parity, reduced enrollment periods and limitations on statements audited by independent registered public accountants.
disenrollment, providing ‘‘quality bonuses’’ for Medicare Advantage Certain insurance and HMO subsidiaries are required to file an
plans with a rating for four or five stars from CMS and mandated annual report of internal control over financial reporting with most
consumer discounts on brand name and generic prescription drugs for jurisdictions in which they do business. Insurance and HMO
Medicare Part D plan participants in the coverage gap. Beginning in subsidiaries’ operations and accounts are subject to examination by
2014, Health Care Reform requires Medicare Advantage and such agencies. Cigna expects states to expand the scope of regulations
Medicare Part D plans to meet a minimum MLR of 85%. Under the relating to corporate governance and internal control activities of its
rules proposed by HHS, if the MLR for a CMS contract is less than insurance and HMO subsidiaries as a result of the National
85%, the contractor is required to pay a penalty to CMS and could be Association of Insurance Commissioners’ (‘‘NAIC’’) amendment to
subject to additional sanctions if the MLR continues to be less than the Annual Financial Reporting Model Regulation to adopt elements
85% for successive years. Through Health Care Reform and other of corporate governance and internal control requirements similar to
federal legislation, funding for Medicare Advantage plans has been those under federal securities’ laws.
and may continue to be altered.
Health Care Reform significantly affects states that can elect to
Guaranty Associations, Indemnity Funds, Risk Pools
establish their own state exchanges for individual and small employer
and Administrative Funds
insurance business or allow the federal government to establish and
operate the exchange for them. Cigna, therefore, expects state Most states and certain non-U.S. jurisdictions require insurance
legislatures to focus on legislation to implement Health Care Reform companies to support guaranty associations or indemnity funds that
and to address the impact of Health Care Reform on state budgets. are established to pay claims on behalf of insolvent insurance
companies. In the United States, these associations levy assessments
On June 28, 2012, the U.S. Supreme Court upheld the
on member insurers licensed in a particular state to pay such claims.
constitutionality of most parts of Health Care Reform, including the
obligation to purchase health care coverage (the ‘‘individual Several states also require HMOs to participate in guaranty funds,
mandate’’). The Company has implemented the provisions of Health special risk pools and administrative funds. For additional
Care Reform that are currently in effect (including the commercial information about guaranty fund and other assessments, see Note 24
minimum MLR requirements) and continues its implementation to Cigna’s Consolidated Financial Statements.
planning for those provisions that must be adopted in the future.
CIGNA CORPORATION - 2012 Form 10-K 15