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AETNA HEALTH INC.
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| Directors | |
| Michael Edward Morris | |
| Margaret Ann Spann | |
| David Andrew Swords | |
| Name of Officer | Position Held |
| Michael Wayne Hudson | President |
| Edward Chung-I Lee | Vice President & Secretary |
| Alicia Helene Bolton | Principal Financial Officer and Controller |
| Mary Therese McCluskey, MD | Senior Medical Director |
| Elaine Rose Cofrancesco | Treasurer |
| Gregory Stephen Martino | Vice President |
| Kevin James Casey | Senior Investment Officer |
| Dawn Marie Schoen | Assistant Controller |
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)
The Company had the following agreements with affiliates in effect at December 31, 2007:
Administrative Services Agreement
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.
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.
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
| 2007 |
2006 (unexamined) |
2005 (unexamined) |
|
| 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 | 30,190 | 31,926 | |
| Amounts Due to Parent and Affiliates - Note 5 | 472,943 | 976,020 | |
| Total Liabilities | 15,636,832 | 18,599,967 | 17,146,469 |
| Common Capital Stock | 1,000,000 | 1,000,000 | 1,000,000 |
| Gross Paid-in and Contributed Capital | 9,700,000 | 9,700,000 | 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 |
STATUTORY STATEMENT OF CAPITAL AND SURPLUS
Years Ended December 31, 2007, 2006 and 2005
| 2007 |
2006 (unexamined) |
2005 (unexamined) |
|
| Capital and Surplus, Beginning of Year | $27,218,445 | $21,075,193 | $18,621,685 |
| Net income | 6,479,071 | 6,282,501 | 14,518,280 |
| Change in Unrealized Capital Gains | 0 | 0 | 0 |
| Change in Net Deferred Income Tax | (173,150) | (747,692) | (722,913) |
| Change in Non-admitted Assets | 1,380,630 | 608,443 | 758,141 |
| Dividends to Stockholders - Note 8 | (4,400,000) | (12,100,000) | |
| Change in Surplus as Regards to Policyholders | 3,286,551 | 6,143,252 | 2,453,508 |
| Capital and Surplus, End of Year | $30,504,996 | $27,218,445 | $21,075,193 |
Bonds are stated at amortized value and, at December 31, 2007, consisted of the following:
| Cost | Par Value |
Market Value |
Amortized Value |
|
|---|---|---|---|---|
| Government | $ 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 |
| Industrial & Miscellaneous | 4,340,110 | 4,500,000 | 4,356,306 | 4,341,744 |
| Total | $ 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.
Note 2 – Cash & Cash Equivalents and Short-term Investments
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.
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
Health care receivable represents the Company’s best estimate of amounts receivable pursuant to pharmacy rebates.
The receivable for pharmaceutical rebates was determined to be in substantial compliance with the Statement of Statutory Accounting Principle No. 84.
Note 7 - Unpaid Claims, Unpaid Claim Expenses and Claim Reserves
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.
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).
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.
This report has been reviewed.
______________________________
Stuart E. Turney, CPA
Director of Examination
Dated this 14 day of May, 2009
STATE OF MAINE
COUNTY OF KENNEBEC, SS
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_____________
Notary Public
My commission expires:
LINDA M. GOMEAU
Notary Public, Maine
My Commission Expires September 26, 2013
Last Updated: August 22, 2012
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