Cigna 2013 Annual Report Download - page 73

PART II
ITEM 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Balance Sheet Caption / Nature of Critical Accounting Estimate Effect if Different Assumptions Used
Goodwill If we do not achieve our earnings objectives or the cost of capital rises
significantly, the assumptions and estimates underlying these
At the acquisition date, goodwill represents the excess of the cost of impairment evaluations could be adversely affected and result in future
businesses acquired over the fair value of their net assets. impairment charges that would negatively impact our operating
results.
We completed our annual evaluations of goodwill for impairment
during the third quarter of 2013. These evaluations were performed at The fair value estimate of our Government reporting unit could
the reporting unit level, based on discounted cash flow analyses. The decrease by approximately 30% before an indication of impairment of
evaluations indicated that no impairment was required. goodwill occurs. Future changes in the funding for our Medicare
programs by the federal government could substantially reduce
Consistent with prior years, fair value of a reporting unit was estimated
Cigna-HealthSpring’s revenues and profitability and have a significant
using models and assumptions that we believe a hypothetical market
impact on the fair value of the Government operating segment.
participant would use to determine a current transaction price. The
significant assumptions and estimates used in determining fair value The fair value estimates of our remaining reporting units could
include the discount rate and future cash flows. A range of discount decrease by approximately 25% to 85% before an indication of
rates was used, corresponding with the reporting unit’s weighted impairment of goodwill occurs. These outcomes were derived by
average cost of capital, consistent with that used for investment determining the magnitude of changes to certain assumptions and
decisions considering the specific and detailed operating plans and estimates necessary for the estimated fair value of reporting units to
strategies within the reporting units. Projections of future cash flows approach their carrying values.
were consistent with our annual planning process for revenues, claims,
operating expenses, taxes, capital levels and long-term growth rates.
Our Cigna-HealthSpring business (reported in the Government
operating segment that is also the reporting unit) contracts with CMS
and various state governmental agencies to provide managed health
care services, including Medicare Advantage plans and
Medicare-approved prescription drug plans. Estimated future cash
flows for this business incorporated the potential effects of
sequestration and the Medicare Advantage reimbursement rates for
2014 and beyond as discussed in the ‘‘Overview’’ section of this
MD&A. Revenues from the Medicare programs are dependent, in
whole or in part, upon annual funding from the federal government
through CMS. Funding for these programs is dependent on many
factors including general economic conditions, continuing
government efforts to contain health care costs and budgetary
constraints at the federal level and general political issues and priorities.
Goodwill as of December 31 was as follows (in millions):
2013 – $6,029
2012 – $6,001
See Notes 2(H) and 8 to the Consolidated Financial Statements for
additional discussion of our goodwill.
CIGNA CORPORATION - 2013 Form 10-K 41
•
•