Source: http://www.state.me.us/pfr/insurance/company/exam_reports/2007/2007AetnaReport.htm
Timestamp: 2013-12-13 10:34:42
Document Index: 586995176

Matched Legal Cases: ['§4215', '§4203', '§222', '§4204', '§4204', '§4204', '§412', '§4204', '§4204', '§4204']

> Aetna Health, Inc.
(a Maine corporation) REPORT OF EXAMINATION
December 19, 2008 Honorable Mila Kofman Superintendent of Insurance Bureau of Insurance 34 State House Station Augusta, Maine 04333 Dear Madam: Pursuant to your instructions, in compliance with 24-A M.R.S.A. §4215, the Maine Bureau of Insurance (hereinafter, "Bureau") conducted an examination, as of December 31, 2007, of the financial condition of AETNA HEALTH INC. (a Maine corporation) The examination, performed at the local office of Aetna Health Inc. (a Maine corporation) (hereinafter, "Company") located at 175 Running Hill Road, Suite 301, South Portland, Maine, was made in accordance with the standards and procedures established by the Bureau and the National Association of Insurance Commissioners (hereinafter, "NAIC") and for that reason, included tests of the accounting records and certain other procedures considered necessary.
The accompanying financial statements have been prepared pursuant to statutory accounting principles prescribed or permitted by the Bureau and the NAIC. These principles differ in certain respects from generally accepted accounting principles. The following report is respectfully submitted. TABLE OF CONTENTS
PLAN OF OPERATION INTER-COMPANY AGREEMENTS
ADMINISTRATIVE SERVICES AGREEMENT DRUG REBATE PROGRAM
REINSURANCE AGRESMENT
STATUTORY STATEMENT OF ADMITTED ASSETS. LIABILITIES AND SURPLUS
NOTE 2 - CASH & CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS
NOTE 4 - FEDERAL AND FOREIGN INCOME TAXES
NOTE 5 - AMOUNTS DUE FROM PARENT & AFFILIATES
NOTE 6 - HEALTH CARE RECEIVABLE
NOTE 7 - UNPAID CLAIMS, UNPAID CLAIM EXPENSES AND CLAIM RESERVES
NOTE 8 - CAPITAL AND SURPLUS
The NAIC recently supplanted the Specific Risk Assessment approach with the Risk- Focused approach. The previous examination covered the period from January 1, 2002 through December 31, 2004 and was performed in accordance with the Specific Risk Assessment approach set forth in the Financial Examiners Handbook. This examination, covering the period from January 1, 2005 through December 31, 2007 was performed in accordance with the Risk- Focused approach set forth in the Financial Examiners Handbook. The examination consisted of a survey of the Company's business policies and underwriting practices; a review of corporate minutes; a verification of assets and a determination of liabilities at December 31, 2007 in conformity with statutory accounting practices, NAIC guidelines, and the laws, rules and regulations prescribed by the Bureau. DESCRIPTION OF THE COMPANY
The Company was incorporated in the State of Maine on October 3, 1995. In accordance with 24-A M.R.S.A. §4203, the Company was organized as a for-profit, privately held health maintenance organization (hereinafter, "HMO") to provide health care benefits and managed care services. The Company was established as a direct subsidiary of NYLCare Health Plans, Inc. with the ultimate parent being New York Life Insurance Company. The Company was licensed to conduct business as an HMO on April 10, 1996. On July 15, 1998, Aetna Inc. acquired all the outstanding common stock of the Company’s immediate parent, NYLCare Health Plans, Inc. and transferred ownership to Aetna U.S. Healthcare Inc., a Pennsylvania corporation (PA), whose ultimate parent was Aetna Inc., a Connecticut corporation (CT). Effective December 28, 1998, the Company's name was changed from NYLCare Health Plans of Maine, Inc. to Aetna U.S. Healthcare Inc., and its ultimate parent remained Aetna Inc. (CT).
On December 13, 2000, Aetna Inc. (CT) simultaneously sold its non health business and spun-off the health care business to shareholders in the form of cash and shares in Aetna U.S. Healthcare (PA). Aetna U.S. Healthcare a Pennsylvania corporation (PA) was then renamed Aetna Inc., a Pennsylvania corporation (PA). On June 14, 2002, the Company’s name was changed from Aetna U.S. Healthcare Inc. to Aetna Health Inc. (a Maine corporation)
The Company is a member of an insurance holding company system and has filed annual Form B registration statements, as required under 24-A M.R.S.A §222 (8)(B). Due to the number of entities within the holding company system, the abbreviated December 31, 2007 organizational chart presents only the Company’s immediate and ultimate parents and the affiliates with whom it has agreements.
The Company is governed by a three-member Board of Directors. The people identified below are the duly elected members of the Board of Directors and the Officers serving at December 31, 2007:
Michael Edward Morris Margaret Ann Spann
David Andrew Swords Name of Officer
Michael Wayne Hudson
Edward Chung-I Lee
Mary Therese McCluskey, MD
Dawn Marie Schoen
Each Director and Officer of the Company completes a conflict of interest statement. The conflict of interest statement discloses any material interest or affiliation which is likely to be in conflict with his/her official duties and responsibilities with the Company.
The Company's Articles of Incorporation and Bylaws were reviewed. The minutes of the Company's Board of Directors' meetings, held from the period January 1, 2005 to the completion of field work, were reviewed. The minutes of Aetna Inc.'s Board of Directors' meetings of were also reviewed for the same period.
The Company received its license to operate as an HMO in the Cumberland, York and Sagadahoc counties in the State of Maine on April 10, 1996. As of September 24, 1996, the Company was authorized to operate in all counties except Oxford County. On April 10, 1997, the Company was licensed to provide HMO benefits in all counties of the State of Maine. In addition to providing managed care, the Company participated in the Medicare program regulated by the Health Care Financing Administration (hereinafter, "HCFA") and the Medicaid program administered by the State of Maine. The Company discontinued participation in the Medicare and Medicaid programs effective January 1, 2001 and November 11, 2000 respectively. The Company maintains networks of providers for its HMO products. The Company’s providers consisted of the following types: primary care physicians, specialist physicians, ancillary services and hospital services. Title 24-A M.R.S.A. §4204(6) requires that a “hold harmless” provision be included in HMO provider contracts. Title 24-A M.R.S.A. §4204 (6) requires that a "hold harmless" provision be included in HMO provider contracts. Title 24-A M.R.S.A. §4204 (7) requires that a provision for continuation of benefits be included in provider contracts. (See Comment and Recommendation) INTER-COMPANY AGREEMENTS
The Company had the following agreements with affiliates in effect at December 31, 2007:
The Company entered into an Administrative Services Agreement with Aetna Inc. dated April 1, 2000. Under the terms of the agreement, Aetna Inc. provides administrative services and resources to the Company. Administrative services include all services related to the day to day administration, operation and overall management of the Company. In consideration of these services, the Company pays Aetna Inc. a fee. Effective January 1, 2003, Aetna Inc's responsibility for the Administration Services Agreement with the Company was assigned to and assumed by,
Aetna Health Management, LLC (hereinafter, "AHM"). Effective January 1, 2004, the Company and AHM terminated the Administration Services Agreement. A new administrative services agreement between the Company and AHM became effective on May 27, 2004. Drug Rebate Program
The Company participated in a drug rebate program administered by an affiliate, AHM. Disclosure of this arrangement was included in the Company’s Form B filing dated April 29, 2002. This agreement was incorporated as part of the Administrative Services Agreement. The new administrative services agreement between the Company and AHM, dated May 27, 2004, includes provisions maintaining the drug rebate program.
Guaranty Agreement A guaranty by U.S. Healthcare Inc, (a Pennsylvania corporation), predecessor of Aetna, Inc., dated February 22, 2000, became effective on September 27, 2000. This guaranty obligates the guarantor, now Aetna, Inc., to maintain minimum capital and surplus in the Company as required by Maine Law. This guaranty was amended, effective January 1, 2005 to update the corporate names on the guaranty.
The Company, its ultimate parent and other affiliates file a consolidated Federal Income Tax Return and are parties to an inter-company tax sharing agreement. The agreement has been effective since July 5, 2000.
Effective through December 31, 2007, the Company had a reinsurance agreement in place with an affiliate, Corporate Health Insurance Company (PA) (hereinafter, "CHI"). This agreement was terminated effective December 31, 2007.
The Company had one reinsurance contract in effect through December 31, 2007. The contract with CHI became effective January 1, 2001. The contract indemnifies the Company for 100% of the loss for any member during the contract year paid in excess of $500,000. Premium balances due CHI are settled monthly. Loss recoveries from CHI are due within 90 days of receipt by CHI of the proof of loss. As of December 31, 2007, the CHI reinsurance contract was terminated. Effective January 1, 2008 an Insolvency Agreement was executed whereby Aetna Health Insurance Company (hereinafter, "AHIC"), formerly known as CHI guarantees that in the event of insolvency of the Company, AHIC will continue plan benefits for its members.
The Company does not use outside counsel. The Company's internal legal counsel advised the Bureau that it is not involved in any actual, pending or threatened non-claims litigation at this time that would result in a material judgment against the Company.
The accompanying financial statements fairly present, in all material respects, the Company's statutory financial position as of December 31, 2007 and statutory results of operations for the period then ended. The financial statements as of December 31, 2006 and December 31,2005 are unexamined and are presented for comparative purposes only.
STATUTORY STATEMENT OF ADMITTED ASSETS, LIABILITIES AND SURPLUS
as of December 31, 2007, 2006 and 2005
Admitted Assets: Bonds (Note 1)
$ 34,380,358 $ 32,824,853 $ 22,913,697 Cash Equivalents and Short-term Investments -Note 2
7,472,951 9,853,004 12,167,432 Investment Income Due and Accrued 418,272 404,603 185,245 Premiums in the Course of Collection - Note 3
1,447,968 1,112,954 1,550,998 Reinsurance Recoverable
66,504 264,185 0 Net Deferred Tax Asset - Note 4
1,515,821 1,132,748 1,069,916 Amounts Due from Parent and Affiliates -Note 5
150,391 0 0
Health Care Receivables - Note 6
208,931 226,065 261,586 Aggregate Write-ins for Other than Invested Assets 480,632 0 72,788 Total Admitted Assets
$46,141,828 $45,818,412 $38,221,662 Liabilities and Surplus:
Unpaid Claims -Note 7
$ 14,079,779 $ 15,378,714 $ 14,759,343 Unpaid Claims Adjustment Expenses
279,470 319,821 314,639 Aggregate Health Policy Reserves
144,730 267,057 266,235 Aggregate Health Claim Reserves
360,400 520,347 675,324 General Expenses Due and Accrued
125 0 Federal Income Tax - Note 4
748,250 1,610,770 122,982 Net Deferred Tax Liability
24,203 Ceded Reinsurance Premiums Payable
Amounts Due to Parent and Affiliates - Note 5
15,636,832 18,599,967 17,146,469 Common Capital Stock
1,000,000 Gross Paid-in and Contributed Capital
9,700,000 Unassigned Surplus
19,804,996
16,518,445
10,375,193
Total Capital and Surplus - Note 8
30,504,996
27,218,445
21,075,193 Total Liabilities, Capital and Surplus
$46,141,828
$45,818,412
$38,221,662
$159,046,046
$175,273,029
$174,723,291 Change in Unearned Premium Reserves
51,863 Total Revenue
159,088,771
175,272,207
174,775,154
108,532,309
115,434,719
106,846,820
1,125,018
1,335,370
1,801,306 Emergency Room and Out-of-area
7,474,782
7,581,983
6,575,208 Prescription Drugs
16,243,459
18,263,572
16,148,651 Subtotal
133,375,568
142,615,644
131,371,985
Less Reinsurance Recoveries
(247,599)
(880,726)
(81,196) Total Hospital and Medical 133,127,969
141,734,918
131,290,789 Claims Adjustment Expenses
2,800,886
3,137,544
3,021,556 General Administrative Expenses
14,778,460
23,811,642
20,639,514 Increase in Reserves
100,000 Total Underwriting Deductions
150,627,713
168,684,104
155,051,859
8,461,058
6,588,103
19,723,295
2,232,768
1,574,804 Earned Net Realized Capital Gains/(Losses)
(546,440)
(22,733) Net Investment Gains/(Losses) 1,686,328
1,552,071 Net Income Before Taxes
10,147,386
8,412,703
21,275,366
(3,668,315)
(2,130,202)
(6,757,086)
$6,479,071
$6,282,501
$14,518,280
$27,218,445
$21,075,193
$18,621,685 Net income
6,282,501
14,518,280 Change in Unrealized Capital Gains
(747,692)
(722,913) Change in Non-admitted Assets
Dividends to Stockholders - Note 8
$30,504,996
$21,075,193 NOTES TO FINANCIAL STATEMENTS
Bonds are stated at amortized value and, at December 31, 2007, consisted of the following:
$ 19,869,537 $ 20,300,000 $ 20,740,964 $ 19,926,620 States, Territories & Possessions
3,955,500 4,000,000 4,106,360 3,992,333 Special Revenue
6,121,884 6,132,455 6,168,277
6,119,661
4,340,110
4,356,306
4,341,744
$ 34,287,031
$ 34,932,455
$ 35,371,907
$ 34,380,358
As required by 24-A M.R.S.A §412, the Company has maintained the required security deposit with the Treasurer of Maine.
The Company properly reports investments with original maturities of three months or less as cash equivalents, and all other investments with original maturities of less than one year as short-term investments.
The Company's reporting of cash and cash equivalents is substantially in compliance with the NAIC's Accounting Practices and Procedures Manual. Note 3 - Premiums Receivable The Company's affiliate, AHM, provided the premium billing and collection for the Company's small group and multi-option business. The aging of premiums receivable and non-admission of certain receivables is substantially in compliance with the NAIC's Practices and Procedures Manual. Note 4 - Federal and Foreign Income Taxes The Company is party to an inter-company tax sharing agreement. Current federal and foreign income tax recoverable and payable is based upon separate return calculations with credit for net losses that can be used on a consolidated basis. The deferred tax asset estimation is substantially in compliance with the Statement of Statutory Accounting Principles No. 10. Note 5 - Amounts Due from Parent & Affiliates
Amounts due from parent & affiliates represent the net amounts receivable from Aetna Inc. (PA) under the Administrative Services and Tax Agreements.
Note 6 – Health Care Receivable
The Company properly reports unpaid claims, unpaid claims adjustment expenses and aggregate health claim reserves and estimates of incurred but not reported claims and claim expenses unpaid. The adequacy of the reserves is attested to by a qualified actuary employed by the Company. An actuarial opinion attesting to reserve adequacy is submitted to the Bureau annually. The Company's methodology for estimating and reporting unpaid claims, unpaid claim expenses and claim reserves appears reasonable. Note 8 – Capital and Surplus
As of December 31, 2007, the Company had authorized 1,000,000 shares of common stock, par value $1, all of which were issued and outstanding. NYLCare Health Plans, Inc. owns 100% of the Company's common stock. During the period under examination the Company return capital and paid dividends. Specifically, the Company returned $12,100,000 in paid-in-capital in 2005 and issued an ordinary dividend of $4,400,000 in 2007.
Capital and surplus amounts were in compliance with the minimum net worth requirement set forth in 24-A M.R.S.A. §4204-A (4) for each year examined. Subsequent to year end, in June 2008, the Company issued an extraordinary dividend of $9,000,000.
Comment: As noted in the Plan of Operation section of this report, certain of the provider contracts reviewed either did not contain a continuation of benefits clause, or the contract language was insufficient to meet the requirements of 24-A M.R.S.A. Chapter 56 §4204 (7). Provider contracts so noted included Redington Fairview General Hospital, Integrated Healthcare Corporation, Nordx Northern Diagnostic Labs, Fresenius Medical Care Holdings, Inc., Northeast Cardiology Associates, Neurobehavioral Services of New England, Transitions Counseling Inc. and Penobscot Bay Medical Center Recommendation: The Company should review all provider contracts to ensure they include a continuation of benefits clause in compliance with all terms and conditions of 24-A M.R.S.A. Chapter 56 §4204 (7). CONCLUSION The Company's financial condition, as disclosed by this examination, is reflected in the statements and the supporting exhibits contained in this report. The basis of preparation of such statements conforms to laws, rules and regulations prescribed and or permitted by the Bureau.
Acknowledgement of cooperation and assistance is extended to the examiners by all Company personnel is hereby expressed. I hereby certify that the attached report of examination dated December 19, 2008 shows the condition and affairs of AETNA HEALTH INC. (a Maine corporation) of South Portland, Maine as of December 31, 2007 and has been filed in the Bureau of Insurance as a public document.
Stuart E. Turney, CPA Director of Examination Dated this 14 day of May, 2009 STATE OF MAINE
Kendra L. Godbout, CPA, CFE, being duly sworn according to law, deposes and says that in accordance with the authority vested in her by Mila Kofman, Superintendent of Insurance, pursuant to the Insurance Laws of the State of Maine, has made an examination of the conditions and affairs of AETNA HEALTH INC. (a Maine corporation)
of South Portland, Maine as of December 31, 2007 and that the foregoing report of examination, subscribed to by her, is true to the best of her knowledge and belief. The following examiners from the Bureau of Insurance assisted: Graham S. Payne Margaret S. Boghosian, CPA, CFE Debra L. Blaisdell Vanessa J. Leon
Kendra L. Godbout, CPA, CFE Director of Financial Affairs and Solvency Subscribed and sworn to before me
this 14th day of May, 2009
Linda Gomeau_____________
LINDA M. GOMEAU
My Commission Expires September 26, 2013