Cigna 2011 Annual Report Download - page 143

121CIGNA CORPORATION2011 Form10K
PART II
ITEM 8 Financial Statements and Supplementary Data
•additional mandated benets or services that increase costs;
•
legislation that would grant plan participants broader rights to sue
their health plans;
•
changes in public policy and in the political environment, that
could aect state and federal law, including legislative and regulatory
proposals related to health care issues, that could increase cost and
aect the market for the Company’s health care products and services;
• changes in Employee Retirement Income Security Act of 1974 (“ERISA”)
regulations resulting in increased administrative burdens and costs;
•
additional restrictions on the use of prescription drug formularies and
rulings from pending purported class action litigation, that could result
in adjustments to or the elimination of the average wholesale price of
pharmaceutical products as a benchmark in establishing certain rates,
charges, discounts, guarantees and fees for various prescription drugs;
• additional privacy legislation and regulations that interfere with
the proper use of medical information for research, coordination of
medical care and disease and disability management;
•
additional variations among state laws mandating the time periods and
administrative processes for payment of health care provider claims;
• legislation that would exempt independent physicians from antitrust
laws; and
•
changes in federal tax laws, such as amendments that could aect
the taxation of employer provided benets.
e health services industry remains under scrutiny by various state
and federal government agencies and could be subject to government
eorts to bring criminal actions in circumstances that could previously
have given rise only to civil or administrative proceedings.
Guaranty fund assessments. e Company operates in a regulatory
environment that may require the Company to participate in assessments
under state insurance guaranty association laws. e Company’s exposure
to assessments is based on its share of business it writes in the relevant
jurisdictions for certain obligations of insolvent insurance companies to
policyholders and claimants. For the years ended December31,2011
and 2010, charges related to guaranty fund assessments were not
material to the Company’s results of operations.
e Company is aware of an insurer that is in rehabilitation, an
intermediate action before insolvency. As of December31,2011,
the regulator had petitioned the state court for liquidation and the
Company believes it is likely that the state court will rule on insolvency
for this insurer in 2012. If the insurer is declared insolvent and placed
in liquidation, the Company and other insurers may be required to pay
a portion of policyholder claims through guaranty fund assessments
from various states in which the Company’s insurance subsidiaries write
premiums. Based on current information available, that is subject to
change, the Company has estimated that potential future assessments
could decrease its future results of operations by up to $40million
after-tax. e ultimate amount and timing of any future charges for
this potential insolvency will depend on several factors, including the
declaration of insolvency and the amount of the potential insolvency, the
basis, amount and timing of associated estimated future guaranty fund
assessments and the availability and amount of any potential premium
tax and other osets. Cash payments, if any, by the Company’s insurance
subsidiaries are likely to extend over several years. e Company will
continue to monitor the outcome of the court’s deliberations and may
record a liability and expense in a future reporting period.
E. Litigation and Other Legal Matters
e Company is routinely involved in numerous claims, lawsuits,
regulatory and IRS audits, investigations and other legal matters arising,
for the most part, in the ordinary course of managing a health services
business, including payments to providers and benet level disputes.
Such legal matters include benet claims, breach of contract claims, tort
claims, disputes regarding reinsurance arrangements, employment related
suits, employee benet claims, wage and hour claims, and intellectual
property and real estate related disputes. Litigation of income tax matters
is accounted for under FASB’s accounting guidance for uncertainty
in income taxes. Further information can be found in Note19. e
outcome of litigation and other legal matters is always uncertain, and
unfavorable outcomes that are not justied by the evidence can occur.
e Company believes that it has valid defenses to the legal matters
pending against it and is defending itself vigorously.
When the Company (in the course of its regular review of pending
litigation and legal matters) has determined that a material loss is
reasonably possible, the matter is disclosed including an estimate or
range of loss or a statement that such an estimate cannot be made.
In many proceedings, however, it is inherently dicult to determine
whether any loss is probable or even possible or to estimate the amount
or range of any loss. In accordance with applicable accounting guidance,
when litigation and regulatory matters present loss contingencies
that are both probable and estimable, the Company accrues the
estimated loss by a charge to income. e amount accrued represents
the Company’s best estimate of the probable loss. If only a range of
estimated losses can be determined, the Company accrues an amount
within the range that, in the Company’s judgment, reects the most
likely outcome; if none of the estimates within that range is a better
estimate than any other amount, the Company accrues at the low end
of the range. In cases that the Company has accrued an estimated loss,
the accrued amount may dier materially from the ultimate amount
of the relevant costs. As a litigation or regulatory matter develops, the
Company monitors the matter for further developments that could
aect the amount previously accrued, if any, and updates such amount
accrued or disclosures previously provided as appropriate.
Except as otherwise noted, the Company believes that the legal actions,
proceedings and investigations currently pending against it should not
have a material adverse eect on the Company’s results of operation,
nancial condition or liquidity based upon current knowledge and
taking into consideration current accruals. However, in light of the
uncertainties involved in these matters, there is no assurance that their
ultimate resolution will not exceed the amounts currently accrued by
the Company and that an adverse outcome in one or more of these
matters could be material to the Company’s results of operation,
nancial condition or liquidity for any particular period.
Amara cash balance pension plan litigation. On December18,2001,
Janice Amara led a class action lawsuit, captioned Janice C. Amara,
Gisela R. Broderick, Annette S. Glanz, individually and on behalf of all
others similarly situated v. Cigna Corporation and Cigna Pension Plan,
in the UnitedStates District Court for the District of Connecticut
against Cigna Corporation and the Cigna Pension Plan on behalf of
herself and other similarly situated participants in the Cigna Pension
Plan aected by the 1998 conversion to a cash balance formula. e
plaintis allege various ERISA violations including, among other
things, that the Plan’s cash balance formula discriminates against older
employees; the conversion resulted in a wear away period (when the
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