Aetna 2013 Annual Report Download - page 96

Annual Report- Page 90
Fees and other revenue consists primarily of ASC fees which are received in exchange for performing certain claim
processing and member services for health and disability members and are recognized as revenue over the period
the service is provided. Fees and other revenue also includes fees related to our workers' compensation
administrative services products and services. Some of our contracts include guarantees with respect to certain
functions, such as customer service response time, claim processing accuracy and claim processing turnaround
time, as well as certain guarantees that a plan sponsor's benefit claim experience will fall within a certain range.
With any of these guarantees, we are financially at risk if the conditions of the arrangements are not met, although
the maximum amount at risk is typically limited to a percentage of the fees otherwise payable to us by the customer
involved. Each period we estimate our obligations under the terms of these guarantees and record it as an offset to
our ASC fees.
In addition, fees and other revenue also include charges assessed against contract holders' funds for contract fees,
participant fees and asset charges related to pension and annuity products in the Large Case Pensions business.
Other amounts received on pension and annuity investment-type contracts are reflected as deposits and are not
recorded as revenue. Some of our Large Case Pension contract holders have the contractual right to purchase
annuities with life contingencies using the funds they maintain on deposit with us. Since these products are
considered an insurance contract, when the contract holder makes this election, we treat the accumulated investment
balance as a single premium and reflect it as both premiums and current and future benefits in our statements of
income.
Accounting for the Medicare Part D Prescription Drug Program (“PDP”)
We were selected by the Centers for Medicare & Medicaid Services (“CMS”) to be a national provider of PDP in
all 50 states to both individuals and employer groups in 2013, 2012 and 2011. Under these annual contracts, CMS
pays us a portion of the premium, a portion of, or a capitated fee for, catastrophic drug costs and a portion of the
health care costs for low-income Medicare beneficiaries and provides a risk-sharing arrangement to limit our
exposure to unexpected expenses.
We recognize premiums received from, or on behalf of, members or CMS and capitated fees as premium revenue
ratably over the contract period. We expense the cost of covered prescription drugs as incurred. Costs associated
with low-income Medicare beneficiaries (deductible, coinsurance, etc.) and the catastrophic drug costs paid in
advance by CMS are recorded as a liability and offset health care costs when incurred. For individual PDP
coverage, the risk-sharing arrangement provides a risk corridor whereby the amount we received in premiums from
members and CMS based on our annual bid is compared to our actual drug costs incurred during the contract year.
Based on the risk corridor provision and PDP activity-to-date, an estimated risk-sharing receivable or payable is
recorded on a quarterly basis as an adjustment to premium revenue. We perform a reconciliation of the final risk-
sharing, low-income subsidy and catastrophic amounts after the end of each contract year.
Allocation of Operating Expenses
We allocate to the business segments centrally-incurred costs associated with specific internal goods or services
provided to us, such as employee services, technology services and rent, based on a reasonable method for each
specific cost (such as membership, usage, headcount, compensation or square footage occupied). Interest expense
on third-party borrowings and the financing components of our pension and other post-retirement benefit plan
expense are not allocated to the reporting segments, since they are not used as a basis for measuring the operating
performance of the segments. Such amounts are reflected in Corporate Financing in our segment financial
information. Refer to Note 19 beginning on page 135 for additional information.
Income Taxes
We are taxed at the statutory corporate income tax rates after adjusting income reported for financial statement
purposes for certain items. We recognize deferred income tax assets and liabilities for the differences between the
financial and income tax reporting basis of assets and liabilities based on enacted tax rates and laws. Valuation
allowances are provided when it is considered more likely than not that deferred tax assets will not be realized.
Deferred income tax expense or benefit primarily reflects the net change in deferred income tax assets and
liabilities during the year.