REPORT OF EXAMINATION

AETNA HEALTH INC.
(a Maine corporation)

AS OF

DECEMBER 31, 2010

ACCEPTANCE OF REPORT OF EXAMINATION

WHEREAS a verified report of examination of Aetna Health Inc. (a Maine corporation) dated January 17, 2012 was delivered to that insurer on February 8, 2012 and

WHEREAS Aetna Health Inc. (a Maine corporation) and Bureau of Insurance staff have agreed to certain modifications with respect to the report of examination, and

WHEREAS I find such modifications proper, and

WHEREAS no hearing with respect to the report of examination has been requested by Aetna Health Inc. (a Maine corporation),

NOW THEREFORE, I accept the report of examination as modified and hereby order it placed on file in the Bureau of Insurance as provided for by 24-A M.R.S.A. §226 (3).

 

Dated:                                                                         ________________________
                                                                                    Eric A. Cioppa
                                                                                    Superintendent

Table of Contents

Scope of Examination...................................................................................................................................................... 1
Summary of Significant Findings....................................................................................................................................... 1
Prior Examination Comments, Recommendations, and Status............................................................................................ 1
Current Examination......................................................................................................................................................... 2
Subsequent Events........................................................................................................................................................... 2
The Company.................................................................................................................................................................. 2
History............................................................................................................................................................................. 2
Corporate Records.......................................................................................................................................................... 3
Corporate Ownership....................................................................................................................................................... 3
Corporate Governance..................................................................................................................................................... 3
Code of Conduct and Conflict of Interest.......................................................................................................................... 4
Fidelity Bond Insurance.................................................................................................................................................... 4
Territory & Plan of Operation........................................................................................................................................... 4
Transactions with Affiliates................................................................................................................................................ 4
Reinsurance...................................................................................................................................................................... 4
Accounts and Records...................................................................................................................................................... 5
Statutory Deposits............................................................................................................................................................. 5
Litigation........................................................................................................................................................................... 5
Financial Statements.......................................................................................................................................................... 5
Statement of Admitted Assets, Liabilities, and Surplus........................................................................................................ 6
Statement of Operations.................................................................................................................................................... 7
Statement of Capital and Surplus....................................................................................................................................... 8
Comments on the Financial Statements.............................................................................................................................. 9
Reserves........................................................................................................................................................................... 9
Conclusion........................................................................................................................................................................ 9

 

Scope of Examination

 

Aetna Health Inc. (a Maine corporation) (hereinafter, “Company”) was last examined as of December 31, 2007, by the State of Maine Bureau of Insurance (hereinafter, “Bureau”).  This examination covered the period from January 1, 2008, to December 31, 2010.

This examination was performed pursuant to the risk-focused approach promulgated by the National Association of Insurance Commissioners (hereinafter, “NAIC”), and consisted of a review of the Company’s operations, administrative practices, valuation of assets, and determination of liabilities at December 31, 2010, in conformity with statutory accounting practices, NAIC guidelines including the 2010 Financial Condition Examiners Handbook (hereinafter “FCEH”), and the laws, rules, and regulations prescribed or permitted by the State of Maine.

Areas reviewed in this examination included claims administration and loss reserves, underwriting and premium policies, investments, reinsurance, and risk-based-capital requirements.  To the extent deemed necessary, transactions occurring subsequent to the examination date were reviewed.

The results of this examination present the financial condition of the Company as of December 31, 2010.  Comments on various balance sheet items, for purposes of this report, may be limited to matters involving clarification, departures from laws, rules and regulations, and/or significant changes in amounts.

 

Summary of Significant Findings

Prior Examination Comments, Recommendations, and Status

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. §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 that they include a continuation of benefits clause in compliance with all terms and conditions of 24-A M.R.S.A. §4204 (7).

Status:
See current examination comment.

Current Examination

Comment:
Certain provider contracts contain a continuation of benefits clause, or contract language that do not comply with 24-A M.R.S.A. §4204 (7).  Provider contracts, so noted, included Affiliated Laboratory Inc. and Greater Brunswick Physical Therapy.

Recommendation:
The Company should review all provider contracts to ensure that they include a continuation of benefits clause in compliance with all terms and conditions of 24-A M.R.S.A. §4204 (7).

 

Subsequent Events

On June 21, 2011, the Maine Superintendent of Insurance issued a market conduct examination report for a targeted market conduct examination for the period of January 1, 2005, through December 31, 2008.  The purpose of the market conduct examination was to assess whether the Company’s mental health and substance abuse benefits were at least equal to those received by a person receiving medical treatment.  Several findings were noted in the examination report.  The market conduct report of examination can be found on the Bureau’s website.

On November 30, 2011, the Bureau approved the Company’s request to pay an extraordinary dividend in the amount of $5,000,000 to Aetna Health Holdings, LLC.

 

The Company

History

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., a Connecticut corporation 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, whose ultimate parent was Aetna Inc., a Connecticut corporation.  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., a Connecticut corporation.

On December 13, 2000, Aetna Inc., a Connecticut corporation 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 Inc., a Pennsylvania corporation.  Aetna U.S. Healthcare Inc., a Pennsylvania corporation, was then renamed Aetna Inc., a Pennsylvania corporation.

On June 14, 2002, the Company changed its name from Aetna U.S. Healthcare Inc. to Aetna Health Inc. (a Maine corporation).

Effective October 1, 2009, the Company became a wholly-owned subsidiary of Aetna Health Holdings, LLC, a Delaware corporation whose ultimate parent is Aetna Inc., a Pennsylvania corporation.

Corporate Records

The Company’s articles of incorporation, bylaws, and minutes of the board of directors’ meetings held during the period under examination were reviewed.

Corporate Ownership

The Company is a wholly-owned subsidiary of Aetna Health Holdings, LLC, whose ultimate parent is Aetna Inc. Following is an abbreviated organizational chart.

Corporate Governance

The Company is governed and overseen by its board of directors and the management team of the Company.

As of December 31, 2010, the board of directors of the Company consisted of the following members:

As of December 31, 2010, the officers of the Company consisted of the following individuals:

Code of Conduct and Conflict of Interest

Title 24-A M.R.S.A. §3413 identifies potential conflict of interest areas.  As such, the Company requires each director and officer to complete a conflict of interest statement annually.

Fidelity Bond Insurance

A blanket fidelity bond protects the Company.  The $5,000,000 fidelity bond maintained by the Company satisfies the NAIC suggested amount of $700,000.  The Company also maintains the customary coverage including, but not limited to, property, casualty, and workers compensation.

Territory & Plan of Operation

The Company received its license to operate as a for-profit health maintenance organization on April 10, 1996.  The Company offers a variety of managed care products and services under commercial and government plans.  The Company is only licensed in the State of Maine.

Transactions with Affiliates

The Company had the following agreements with affiliates at December 31, 2010:

• Administrative Services Agreement with Aetna Health Management, LLC, (hereinafter, “AHM”) under which AHM provides certain administrative services including accounting and processing of premiums and claims.
• Pharmacy Rebate Agreement with AHM under which the Company remits 10% of earned pharmaceutical rebates to AHM as a fee.
• Insolvency Agreement with Aetna Health Insurance Company (hereinafter, “AHIC”) under which, in the event the Company ceases operations or becomes insolvent, AHIC will continue to pay member benefits until the member is discharged.
• Tax Sharing Agreement with Aetna Inc., a Pennsylvania corporation under which the tax provisions are generally computed as if the Company were filing a separate tax return with current credit for net operating losses utilized in the consolidated tax return.
• Guaranty Agreement with Aetna Inc., a Pennsylvania corporation under which the Company will maintain a minimum capital and surplus as required by Maine Law.

 

Reinsurance

The Company entered into an insolvency agreement effective January 1, 2008, whereby AHIC guarantees, in the event of insolvency of the Company, that AHIC will continue plan benefits for its members.

Accounts and Records

Accounts and records were reviewed and tested in order to assess the impact on the Company’s financial condition and conformity to related laws.

Statutory Deposits

Pursuant to 24-A M.R.S.A. §412, the Company maintained the required security deposit with the Treasurer of Maine as follows:

 

Litigation

The Company does not engage outside counsel.  The Company’s internal legal counsel is not aware of any material pending or threatened litigation, claims or assessments, or any material unasserted claims or assessments at December 31, 2010.

 

Financial Statements

The accompanying financial statements fairly present, in all material respects, the Company’s statutory financial position as of December 31, 2010, and statutory results of operations for the period then ended.  The financial statements as of December 31, 2009, and 2008 are unexamined and are presented for comparative purposes only.

Statement of Admitted Assets, Liabilities, and Surplus

as of December 31, 2010, 2009 and 2008

 

Statement of Operations

Years Ended December 31, 2010, 2009, and 2008

 

Statement of Capital and Surplus

Years Ended December 31, 2010, 2009, and 2008

 

Comments on the Financial Statements

 

Reserves

The adequacy of reserves is attested to by a qualified actuary employed by the Company and an actuarial opinion attesting to reserve adequacy is submitted to the Bureau annually.  In addition, the Company’s external auditors review the Company’s reserving methodology and reserve amounts annually.

The Company’s methodology for estimating and reporting reserves appears reasonable.

 

Conclusion

The Company’s financial condition, as reported by management, is reflected in the statements and 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 extended to the examiners by all Company personnel is hereby expressed.