Cigna 2014 Annual Report Download - page 145

PART II
ITEM 8. Financial Statements and Supplementary Data
amount due under these obligations, because not all amounts due initiatives, such as those relating to Medicare programs, or additional
under these indemnification obligations are subject to limitation. changes in existing laws or regulations or their interpretations, could
There were no liabilities for these indemnification obligations as of have a material adverse effect on the Company’s business, results of
December 31, 2014. operations and financial condition.
The Company does not expect that these guarantees will have a In addition, there is heightened review by federal and state regulators
material adverse effect on the Company’s consolidated results of of the health care, disability and life insurance industry business and
operations, financial condition or liquidity. related reporting practices. Cigna is frequently the subject of
regulatory market conduct reviews and other examinations of its
business and reporting practices, audits and investigations by state
D. Guaranty Fund Assessments
insurance and health and welfare departments, state attorneys general,
The Company operates in a regulatory environment that may require the CMS and the Office of Inspector General (‘‘OIG’’). With respect
the Company to participate in assessments under state insurance to Cigna’s Medicare Advantage business, the CMS and OIG perform
guaranty association laws. The Company’s exposure to assessments for audits to determine a health plan’s compliance with federal regulations
certain obligations of insolvent insurance companies to policyholders and contractual obligations, including compliance with proper coding
and claimants is based on its share of business written in the relevant practices (sometimes referred to as Risk Adjustment Data Validation
jurisdictions. For the year ended December 31, 2014 and 2013, audits or RADV audits), that may result in retrospective adjustments
charges related to guaranty fund assessments were immaterial to the to payments made to health plans. Regulatory actions can result in
Company’s results of operations. assessments, civil or criminal fines or penalties or other sanctions,
including loss of licensing or exclusion from participating in
The Company is aware of an insurer that is in rehabilitation. In 2012, government programs.
the state court denied the regulator’s amended petitions for
liquidation and set forth specific requirements and a deadline for the As a global company, Cigna is also subject to the laws, regulations and
regulator to develop a plan of rehabilitation without liquidating the rules of the foreign jurisdictions in which it conducts business.
insurer. The regulator has appealed the court’s decision. If the actions Foreign laws and rules, and regulatory audit and investigation
taken in the rehabilitation plan fail to improve this insurer’s financial practices, may differ from or be more stringent than, similar
condition, or if the state court’s ruling is overturned on appeal, this requirements in the United States.
insurer may be forced into insolvency. In that event, the Company Regulation, legislation and judicial decisions have resulted in changes
would be required to pay guaranty fund assessments related to this to industry and the Company’s business practices, financial liability or
insurer. Due to the uncertainties surrounding this matter, the other sanctions and will continue to do so in the future.
Company is unable to estimate the amount of any potential guaranty
When the Company (in the course of its regular review of pending
fund assessments and is monitoring the situation.
litigation and legal or regulatory matters) has determined that a
material loss is reasonably possible, the matter is disclosed. In
E. Legal and Regulatory Matters
accordance with GAAP, when litigation and regulatory matters
present loss contingencies that are both probable and estimable, the
The Company is routinely involved in numerous claims, lawsuits,
Company accrues the estimated loss by a charge to income. The
regulatory audits, investigations and other legal matters arising, for the
amount accrued represents the Company’s best estimate of the
most part, in the ordinary course of managing a health services
probable loss at the time. If only a range of estimated losses can be
business. These actions may include benefit disputes, breach of
determined, the Company accrues an amount within the range that,
contract claims, tort claims, provider disputes, disputes regarding
in the Company’s judgment, reflects the most likely outcome; if none
reinsurance arrangements, employment and employment
of the estimates within that range is a better estimate than any other
discrimination-related suits, employee benefit claims, wage and hour
amount, the Company accrues the minimum amount of the range. In
claims, privacy, intellectual property claims and real estate related
cases when the Company has accrued an estimated loss, the accrued
disputes. There are currently, and may be in the future, attempts to
amount may differ materially from the ultimate amount of the loss. In
bring class action lawsuits against the industry. The Company also is
many proceedings, it is inherently difficult to determine whether any
regularly engaged in IRS audits and may be subject to examinations
loss is probable or even possible or to estimate the amount or range of
by various state and foreign taxing authorities. Disputed income tax
any loss. The Company provides disclosure in the aggregate for
matters arising from these examinations, including those resulting in
material pending litigation and legal or regulatory matters, including
litigation, are accounted for under the FASB’s guidance for uncertain
accruals, range of loss, or a statement that such information cannot be
tax positions. Further information on income tax matters can be
estimated. As a litigation or regulatory matter develops, the Company
found in Note 19.
monitors the matter for further developments that could affect the
The business of administering and insuring health services programs, amount previously accrued, if any, and updates such amount accrued
particularly health care and group insurance programs, is heavily or disclosures previously provided as appropriate.
regulated by federal and state laws and administrative agencies, such as
The outcome of litigation and other legal or regulatory matters is
state departments of insurance and the U.S. Departments of Health
always uncertain, and unfavorable outcomes that are not justified by
and Human Services, Treasury, Labor and Justice, as well as the courts.
the evidence or existing law can occur. The Company believes that it
Health care regulation and legislation in its various forms, including
has valid defenses to the matters pending against it and is defending
the implementation of Health Care Reform, other regulatory reform
itself vigorously. Except as otherwise noted, the Company believes
CIGNA CORPORATION - 2014 Form 10-K 113