Aetna 2009 Annual Report Download - page 36

Annual Report – Page 30
The states of domicile of our regulated subsidiaries have statutory risk-based capital, or RBC, requirements for health
and other insurance companies and HMOs based on the RBC Model Act. These RBC requirements are intended to
assess the capital adequacy of life and health insurers and HMOs, taking into account the risk characteristics of a
company’ s investments and products. The RBC Model Act sets forth the formula for calculating the RBC
requirements, which are designed to take into account asset risks, insurance risks, interest rate risks and other relevant
risks with respect to an individual company’ s business. In general, under these laws, an insurance company or HMO
must submit a report of its RBC level to the insurance department or insurance commissioner of its state of domicile
for each calendar year.
The RBC Model Act requires increasing degrees of regulatory oversight and intervention as a company’ s RBC
declines and provides for four different levels of regulatory attention depending on the ratio of a company’ s total
adjusted capital (defined as the total of its statutory capital, surplus and asset valuation reserve) to its risk-based
capital. The level of regulatory oversight ranges from requiring the company to inform and obtain approval from the
domiciliary insurance commissioner of a comprehensive financial plan for increasing its RBC, to mandatory regulatory
intervention requiring a company to be placed under regulatory control in a rehabilitation or liquidation proceeding.
As of December 31, 2009, the RBC levels of our insurance and HMO subsidiaries exceeded all RBC thresholds.
For information regarding restrictions on certain payments of dividends or other distributions by HMO and insurance
company subsidiaries of our company, refer to Note 16 of Notes to Consolidated Financial Statements on page 76
The holding company laws for the states of domicile of Aetna and certain of its subsidiaries also restrict the ability of
any person to obtain control of an insurance company or HMO without prior regulatory approval. Under those
statutes, without such approval (or an exemption), no person may acquire any voting security of an insurance holding
company (such as our parent company, Aetna Inc.) that controls an insurance company or HMO, or merge with such a
holding company, if as a result of such transaction such person would control the insurance holding company. Control
is generally defined as the direct or indirect power to direct or cause the direction of the management and policies of a
person and is presumed to exist if a person directly or indirectly owns or controls 10% or more of the voting securities
of another person.
Audits and Investigations; Fraud and Abuse Laws
We typically have been and are currently involved in various governmental investigations, audits and reviews, the
frequency and depth of which continue to increase. These include routine, regular and special investigations, audits
and reviews by CMS, state insurance and health and welfare departments, state attorneys general, the Office of the
Inspector General, the Office of Personnel Management, U.S. Congressional committees, the U.S. Department of
Justice, U.S. Attorneys and other governmental authorities. Such government actions can result in changes to our
business practices, assessment of damages, civil or criminal fines or penalties, or other sanctions, including the loss of
licensure or exclusion from participation in government programs. For example, in January 2009, we agreed to
discontinue the use of the Ingenix database at a future date. We currently use the Ingenix database for many plans to
determine the level of reimbursement when our members utilize providers who do not have a contract with us. Refer
to Litigation and Regulatory Proceedings in Note 18 of Notes to Consolidated Financial Statements beginning on page
77 for more information.
Federal and state governments have made investigating and prosecuting health care fraud and abuse a priority. Fraud
and abuse prohibitions encompass a wide range of activities, including kickbacks for referral of members, billing for
unnecessary medical services, improper marketing, and violations of patient privacy rights. Companies involved in
public health care programs such as Medicare and Medicaid are often the subject of fraud and abuse
investigations. The regulations and contractual requirements applicable to us and other participants in these public-
sector programs are complex and subject to change. Although we believe our compliance efforts are adequate,
ongoing vigorous law enforcement and the highly technical regulatory scheme mean that our compliance efforts in this
area will continue to require significant resources.
State and/or federal regulatory scrutiny of life and health insurance company and HMO marketing and advertising
practices, including the adequacy of disclosure regarding products and their administration, is increasing as are the
penalties being imposed for inappropriate practices. Products offering limited benefits, such as those we issue and sell
through Strategic Resource Company, which we acquired in January 2005, in particular may attract increased
regulatory scrutiny.