Cigna 2015 Annual Report Download - page 142

PART II
ITEM 8. Financial Statements and Supplementary Data
operation of law, such as statutes of limitation. In some cases, the implementation of Health Care Reform, other regulatory reform
maximum potential amount due is subject to contractual limitations initiatives, such as those relating to Medicare programs, or additional
based on a percentage of the transaction purchase price, while in other changes in existing laws or regulations or their interpretations, could
cases limitations are not specified or applicable. The Company does have a material adverse effect on the Company’s business, results of
not believe that it is possible to determine the maximum potential operations and financial condition.
amount due under these obligations because not all amounts due In addition, there is heightened review by federal and state regulators
under these indemnification obligations are subject to limitation. of the health care, disability and life insurance industry business and
There were no liabilities for these indemnification obligations as of related reporting practices. Cigna is frequently the subject of
December 31, 2015. 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,
CMS and the Office of Inspector General (‘‘OIG’’). With respect to
The Company operates in a regulatory environment that may require Cigna’s Medicare Advantage business, the CMS and OIG perform
the Company to participate in assessments under state insurance audits to determine a health plan’s compliance with federal regulations
guaranty association laws. The Company’s exposure to assessments for and contractual obligations, including compliance with proper coding
certain obligations of insolvent insurance companies to policyholders practices (sometimes referred to as ‘‘Risk Adjustment Data Validation
and claimants is based on its share of business written in the relevant Audits’’ or ‘‘RADV audits’’) that may result in retrospective
jurisdictions. For the year ended December 31, 2015 and 2014, adjustments to payments made to health plans. Regulatory actions
charges related to guaranty fund assessments were immaterial to the can result in assessments, civil or criminal fines or penalties or other
Company’s results of operations. sanctions, including loss of licensing or exclusion from participating
in government programs.
The Company is aware of an insurer that is in rehabilitation. In 2012,
the state court denied the regulator’s amended petitions for As a global company, Cigna is also subject to the laws, regulations and
liquidation and set forth specific requirements and a deadline for the rules of the foreign jurisdictions in which it conducts business.
regulator to develop a plan of rehabilitation without liquidating the Foreign laws and rules and regulatory audit and investigation practices
insurer. The regulator has appealed the court’s decision. If the actions may differ from, or be more stringent than, similar requirements in
taken in the rehabilitation plan fail to improve this insurer’s financial the U.S.
condition, or if the state court’s ruling is overturned on appeal, this
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. The Company is monitoring this situation. litigation and legal or regulatory matters) has determined that a
material loss is reasonably possible, the matter is disclosed. Such
E. Legal and Regulatory Matters matters are described in the Litigation Matters and Regulatory
Matters sections below. In accordance with GAAP, when litigation
and regulatory matters present loss contingencies that are both
The Company is routinely involved in numerous claims, lawsuits,
probable and estimable, the Company accrues the estimated loss by a
regulatory audits, investigations and other legal matters arising, for the
charge to net income. The amount accrued represents the Company’s
most part, in the ordinary course of managing a health services
best estimate of the probable loss at the time. If only a range of
business. These actions may include benefit disputes, breach of
estimated losses can be determined, the Company accrues an amount
contract claims, tort claims, provider disputes, disputes regarding
within the range that, in the Company’s judgment, reflects the most
reinsurance arrangements, employment and employment
likely outcome; if none of the estimates within that range is a better
discrimination-related suits, employee benefit claims, wage and hour
estimate than any other amount, the Company accrues the minimum
claims, privacy, intellectual property claims and real estate-related
amount of the range.
disputes. There are currently, and may be in the future, attempts to
bring class action lawsuits against the industry. The Company also is In cases when the Company has accrued an estimated loss, the accrued
regularly engaged in IRS audits and may be subject to examinations amount may differ materially from the ultimate amount of the loss. In
by various state and foreign taxing authorities. Disputed income tax many proceedings, it is inherently difficult to determine whether any
matters arising from these examinations, including those resulting in loss is probable or even possible or to estimate the amount or range of
litigation, are accounted for under GAAP for uncertain tax positions. any loss. The Company provides disclosure in the aggregate for
Further information on income tax matters can be found in Note 19. material pending litigation and legal or regulatory matters, including
accruals, range of loss, or a statement that such information cannot be
The business of administering and insuring health services programs,
estimated. As a litigation or regulatory matter develops, the Company
particularly health care and group insurance programs, is heavily
monitors the matter for further developments that could affect the
regulated by federal and state laws and administrative agencies, such as
amount previously accrued, if any, and updates such amount accrued
state departments of insurance, HHS and the U.S. Departments of
or disclosures previously provided as appropriate.
Treasury, Labor and Justice, as well as the courts. Health care
regulation and legislation in its various forms, including the
112 CIGNA CORPORATION - 2015 Form 10-K