Aetna 2013 Annual Report Download - page 57

Annual Report- Page 51
Recent legislative changes and Medicare Advantage and PDP rates for 2014 and proposed rates for 2015 create
significant challenges to our Medicare Advantage and PDP revenues and operating results, and proposed
changes to these programs could create significant additional challenges. Entitlement program reform, if it
occurs, could have a material adverse effect on our business, operations or operating results.
From time to time the federal government alters the level of funding for government health care programs,
including Medicare. Under the BCA and the ATRA, significant, automatic across-the-board budget cuts (known as
sequestration) to several federal government programs started in March 2013. These include Medicare spending
cuts of up to 2% of total program costs per year through 2024. The ATRA also contained additional reductions to
Medicare reimbursements to health plans that commenced in April 2013 and eliminated funding for certain Health
Care Reform programs. These reductions could adversely affect us, our customers and our providers.
In addition, on April 1, 2013, CMS published final Medicare Advantage and PDP premium rates for 2014. These
rates reflect a material reduction in 2014 premiums compared to 2013, and are in addition to the challenge we face
from the impact of the industry-wide health insurer fee that became effective January 1, 2014. The final 2014 and
proposed 2015 rates represent a meaningful revenue and operating results challenge for us and other Medicare
Advantage and PDP plans, as well as providers. We expect these challenges to continue in 2015. We cannot predict
changes in future Medicare funding levels, the impact of future federal budget actions or ensure that such changes
or actions will not have an adverse effect on our Medicare operating results.
Furthermore, under Health Care Reform, 2011 Medicare Advantage payment rates to us were frozen based on 2010
levels with additional reductions over a multiyear period beginning in 2012 based on regionally adjusted
benchmarks. In addition, the “star ratings” from CMS for our Medicare Advantage plans will continue have a
significant impact on our plans’ operating results, since in 2014 only Medicare Advantage plans with an overall star
rating of three or more stars (out of five stars) will be eligible for a quality bonus in their basic premium rates and,
beginning in 2015, only Medicare Advantage plans with an overall star rating of four or more stars will be eligible
for a quality bonus. If our star ratings fall below expectations, the star rating standards are raised, or the quality
bonuses are reduced or eliminated, our revenues and operating results may be adversely affected.
If implemented as proposed, a recent CMS proposal would substantially revise the Medicare Part D program
beginning in 2015. Among other things, the proposed rule would impose restrictions on provider contracting and
network configurations, restrict our ability to design benefit plans (including limiting our ability to offer zero-
premium products) and limit the number of benefit plan designs we could offer. We cannot predict the ultimate
outcome or impact of this proposal but, among other things, it could have a significant adverse impact on our
Medicare Advantage and PDP products, our PBM business and/or our mail order pharmacies, including by making
pricing our 2015 Medicare products more difficult, resulting in lower membership, requiring us to incur significant
costs to amend our contracts with pharmacies and limiting our ability to realize anticipated cost savings.
If entitlement program reform occurs, it could have a material adverse effect on our business, operations or
operating results, particularly on our Medicare and/or Medicaid revenues, medical benefit ratio and operating
results.
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 of increases in
health care and other benefit costs and of Health Care Reform assessments, fees and taxes.
Premium rates generally must be filed with state insurance regulators and are subject to their approval, which
creates risk for us in the current political and regulatory environment. Health Care Reform generally requires a
review by HHS in conjunction with state regulators of premium rate increases of 10% or more (or another state-
specific threshold set by states determined by HHS to have adequate processes). Rate reviews can magnify the
adverse impact on our operating margins and operating results of increases in health care and other benefit costs,
increased utilization of covered services, and Health Care Reform assessments, fees and taxes, by restricting our
ability to reflect these increases and/or these assessments, fees and taxes in our pricing. The risk of increases in
utilization of medical and/or other covered services and/or in health care and other benefit costs is particularly acute