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AETNA HEALTH INC.
REPORT OF EXAMINATION
This report has been reviewed.
Dated this day of , 2005
May 25, 2005
Honorable Alessandro A. Iuppa
Superintendent of Insurance
Bureau of Insurance
34 State House Station
Augusta, Maine 04333
Pursuant to your instructions, in compliance with Title 24-A M.R.S.A. § 4215, and in accordance with the practices and procedures promulgated by the National Association of Insurance Commissioners, an examination has been made as of December 31, 2004 of the financial condition and corporate affairs of:
AETNA HEALTH INC.
One Monument Square
hereinafter referred to as the "Company".
Such report of examination is herewith respectfully submitted.
The last examination covered the period ended December 31, 2001. This examination was called under the authority of Title 24-A M.R.S.A. § 4215 and covers the period from January 1, 2002 through December 31, 2004.
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, 2004 in conformity with statutory accounting practices, NAIC guidelines, and the laws, rules and regulations prescribed by the Maine Bureau of Insurance.
The independent CPA audit of the Company is performed on a consolidated basis for the purpose of expressing an opinion on the consolidated operations of the Company’s ultimate parent, Aetna Inc. Due to the timing of this examination, the workpapers of this independent audit were not available for review by the examiners. This comprehensive financial examination was conducted in accordance with the Examiners Handbook and Annual Statement Instructions, promulgated by the National Association of Insurance Commissioners (NAIC), with due regard to the statutory requirements of the insurance laws, rules and regulations of the State of Maine.
Transactions occurring subsequent to our examination date that were material or unusual in nature were reviewed. The results of this examination present the financial condition of the Company at December 31, 2004 as determined by the examiners. For purposes of this report, comments on various balance sheet items may be limited to matters involving a departure from laws, rules or regulations; a significant change in the amount of the item; or where an explanation, comment and/or recommendation is warranted.
The Company was incorporated in the State of Maine on October 3, 1995. In accordance with Title 24-A M.R.S.A. § 4203, the Company was organized as a for-profit, privately held health maintenance organization (HMO) to provide health care benefits and managed care services. The Company was licensed to conduct business as an HMO on April 10, 1996. The Company was established as a direct subsidiary of NYLCare Health Plans, Inc. with the ultimate parent being New York Life Insurance Company.
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 (PA) was then renamed Aetna Inc., a Pennsylvania corporation (PA). The Company is now indirectly a wholly owned subsidiary of Aetna Inc. (PA).
On June 14, 2002, the Company’s name was changed from Aetna U.S. Healthcare Inc. to Aetna Health Inc.
The Company is a member of an insurance holding company system and has filed annual Form B registration statements, as required under Title 24-A M.R.S.A § 222 (8)(B). Due to the number of entities within the holding company system, this report’s organizational chart presents only the Company’s immediate, intermediate and ultimate parents and the affiliates with whom it has agreements. The following is an abbreviated organization chart at December 31, 2004:
The Company is governed by a three-member Board of Directors. The following are the duly elected members of the Board of Directors and the Officers serving at December 31, 2004:
Charles Alan Peck, M.D.
Gordon William Grundy, M.D.
|Name of Officer||Position Held|
|Charles Alan Peck, M.D.||President|
|William Calvin Baskin III||V.P & Secretary|
|James David Weiss||Controller|
|Emanuel Francis Germano||Principal Financial Officer|
|Gordon William Grundy, M.D.||Senior Medical Director|
|Russell Page Smith||Treasurer|
|Gregory Stephen Martino||Vice President|
|Kevin James Casey||Senior Investment Officer|
|Alicia Helene Bolton||Assistant Controller|
Title 24-A M.R.S.A. § 3413 requires that each Director and Officer of the Company complete a conflict of interest statement to disclose any material interest or affiliation which is likely to be in conflict with his/her official duties and responsibilities with the Company. A review of the conflict of interest statements for the period of the examination revealed the Company was in substantial compliance with its policy and the Maine Statute.
The Articles of Incorporation, Bylaws and Minutes of the Board of Directors’ meetings held from the period January 1, 2002 to the completion of field work were reviewed for the Company. Review of these records indicates the Company is conducting its affairs substantially in accordance with its Articles of Incorporation and Bylaws.
The Company is a named insured under a blanket fidelity bond in the amount of $5,000,000 which covers Aetna Inc./U.S. Healthcare Inc. and their Affiliated Companies. The Fidelity Bond insurance was in compliance with Title 24-A M.R.S.A § 4204 (2-A) (H).
The Company’s other insurance coverage include the usual and customary coverage for property, casualty and workers’ compensation protection.
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 (HCFA) and the Medicaid program administered by the State of Maine. The Company has discontinued participation in Medicaid and Medicare, effective November 11, 2000 and January 1, 2001 respectively.
The Company maintains networks of providers for its HMO products. The Company’s providers consisted of the following types: primary physicians, specialist physicians, ancillary services and hospital services. Maine Title 24-A M.R.S.A. § 4204(6) requires that a “hold harmless” provision be included in HMO provider contracts. The State of Maine also requires that a provision for continuation of benefits be included in provider contracts, Maine Title 24-A M.R.S.A. § 4204(7). The Company is in substantial compliance with both of these requirements.
The Company had the following agreements with affiliates in effect at December 31, 2004:
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. This agreement was approved by the Maine Bureau of Insurance on May 2, 2000.
Effective January 1, 2003, Aetna Inc. assigned its responsibility for administering its administration service agreement with the Company to Aetna Health Management, LLC (AHM) (which AHM assumed). The Department of Insurance approved this assignment and assumption.
Effective January 1, 2004, the Company and AHM terminated this agreement and entered into a new agreement with AHM to provide administrative services. The agreement was approved by the Maine Bureau of Insurance 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 contemplated as part of the Administrative Services Agreement which was approved by the Maine Bureau of Insurance on May 2, 2000.
Tax Sharing Agreement
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 was approved by the Maine Bureau of Insurance on July 5, 2000.
The Company had one reinsurance contract in effect as of December 31, 2004. The contract, effective January 1, 2001, was with the Company’s affiliate, Corporate Health Insurance Company (CHI). The contract indemnifies the Company for 100% of the loss for any member during the contract year paid in excess of $500,000. Premium balances due CHI are settled monthly. Loss recoveries from CHI are due within 90 days of receipt by CHI of the proof of loss.
The Company does not use outside counsel. The Company advised the examiners that it is not involved in any actual, pending or threatened non-claims litigation at this time that would result in a material judgment against the Company.
The following pages contain financial statements showing the Company’s
financial position as of December 31, 2004 as determined by this examination.
Comments on the financial statements have been made in the section of
this report captioned Notes to Financial Statements.
December 31, 2004
|Bonds (Note 1)||$ 27,516,463|
|Cash and cash equivalents (Note 2)||12,252,614|
|Short-term investments (Note 2)||13,893|
|Premiums receivable (Note 3)||711,680|
|Health care receivable (Note 4)||696,319|
|Investment income due and accrued||289,844|
|Net deferred tax asset (Note 5)||1,098,012|
|Federal income tax recoverable (Note 5)||277,064|
|State income tax receivable||47,444|
|LIABILITIES, CAPITAL AND SURPLUS|
|Claims unpaid (Note 6)||$ 18,364,592|
|Unpaid claims adjustment expenses (Note 6)||447,834|
|Aggregate health claim reserves (Note 6)||846,086|
|Premium received in advance (Note 7)||218,098|
|General expenses due/accrued||1,599|
|Ceded reinsurance premiums payable||31,913|
|Amounts due to parent, subs & affiliates (Note 8)||4,371,526|
|Total Liabilities||$ 24,281,648|
|Common capital stock (Note 9)||1,000,000|
|Gross paid in and contributed surplus (Note 9)||21,800,000|
|Surplus (Note 9)||(4,178,315)|
|Total Capital and Surplus||$ 18,621,685|
|Total Liabilities and Surplus||$ 42,903,333|
STATEMENT OF REVENUES AND EXPENSES
For the Year Ended December 31, 2004
|Total Premium Income||$ 172,588,439|
|Medical and Hospital Deductions|
|Emergency room and out-of area||5,814,901|
|Net reinsurance recoveries||0|
|Total medical and hospital deductions||140,539,716|
|Claims adjustment expense||3,794,572|
|General administrative expenses||19,385,548|
|Decrease in reserves for accident & health contracts||0|
|Total underwriting deductions||163,719,836|
|Total underwriting gain or (loss)||8,868,603|
|Net investment income earned||1,832,213|
|Net realized capital gains or (losses)||66,662|
|Net investment gains or (losses)||1,898,875|
|Net income or (loss) before Federal income taxes||10,767,478|
|Federal & foreign income taxes incurred (benefit)||2,853,529|
|Net income (loss)||$ 7,913,949|
STATEMENT OF CAPITAL AND SURPLUS
December 31, 2004
|Surplus as regards to policyholders, December 31, 2003||$ 32,670,528|
|Net income||$ 7,913,949|
|Change in net deferred income tax||(778,385)|
|Change in non-admitted assets||515,593|
|Surplus adjustment: return of capital||(21,700,000)|
|Change in surplus as regards to policyholders, December 31, 2004||$ (14,048,843)|
|Surplus as regards to policyholders, December 31, 2004||$ 18,621,685|
|Note 1 – Bonds||$27,516,463|
Bonds are stated at amortized value and, at December 31, 2004, consisted of the following:
|Government||$ 9,134,102||$ 9,250,000||$ 9,231,570||$ 9,178,284|
|States, Territories & Possessions||3,955,500||4,000,000||4,210,280||3,973,723|
|Industrial & Miscellaneous||2,981,640||3,000,000||3,019,100||2,982,879|
|Total||$ 27,454,051||$ 27,426,931||$ 27,888,999||$ 27,516,463|
As required by Title 24-A M.R.S.A § 412, the Company has maintained the required security deposit with the Treasurer of Maine. The Company did not disclose the information required pursuant to the Statement of Statutory Accounting Principles (SSAP) No. 43 paragraph 27 with regard to loan-backed securities. (See Comment and Recommendation #1)
Note 2 – Cash & Cash Equivalents and Short-term Investments
|Cash and Cash Equivalents||$12,252,614|
|Short-term Investments||$ 13,893|
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, as required by the NAIC Accounting Practices and Procedures Manual.
|Note 3 - Premiums Receivable||$ 711,680|
The Company’s parent, Aetna U.S. Healthcare Inc., 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 Practices and Procedures Manual, however, the Company elected to record non admitted premium receivable based on the greater of the amount determined under statutory or generally accepted accounting principles (GAAP). At December 31, 2004 the Company recorded the GAAP basis value as non admitted premiums receivable (See Comment and Recommendation #2).
|Note 4 – Health Care Receivable||$696,319|
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 5 – Federal and Foreign Income Taxes
|Net deferred tax asset||$1,098,012|
|Current federal and foreign income tax recoverable||$ 277,064|
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 was determined to be substantially in compliance with the Statement of Statutory Accounting Principles No. 10.
Note 6 - Claims Unpaid, Unpaid Cla Reserves
|Unpaid claims adjustment expenses||$ 447,834|
|Aggregate health claim reserves||$ 846,086|
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 Bureau of Insurance contracted with an outside actuary to perform an actuarial analysis of the Company's claim liabilities and reserves. The actuarial review determined that the reported claims unpaid are adequate. (See Appendix A for Actuarial Opinion)
|Note 7 – Premiums Received in Advance||$ 218,098|
The amount reported as premiums received in advance represents the unearned premium reserve for which premiums have been reported for a period beyond the valuation date. (See Comment and Recommendation #3)
|Note 8 - Amounts Due to Parent, Subs & Affiliates||$4,371,526|
Amounts due to parent & affiliates of $4,371,526 represent the net amounts payable to Aetna Inc. (PA) under the Administrative Services and Tax Agreements. The balances were detail tested during the examination with no material differences noted.
|Note 9 – Capital and Surplus||$ 18,621,685|
|Common Stock||$ 1,000,000|
|Paid In Surplus||$ 21,800,000|
|Retained Earnings/Fund Balance||$ (4,178,315)|
As of December 31, 2004, 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.
Capital and surplus of $18,621,685 were in compliance with the minimum net worth requirement of the State of Maine per M.R.S.A. Title 24-A § 4204-A (4).
STATE OF MAINE
COUNTY OF KENNEBEC, SS
James C. Williams, CPA, CFE, being duly sworn according to law, deposes and says that in accordance with the authority vested in him by Alessandro A. Iuppa, 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.
of Portland, Maine as of December 31, 2004 and that the foregoing report of examination, subscribed to by him, is true to the best of his knowledge and belief.
The following examiners from the Bureau of Insurance assisted:
Graham S. Payne
Jill C. Tobey, CPA, CFE
Heather E. Warren
Bryan J. Avant
James C. Williams, CPA, CFE
Director of Financial Affairs and Solvency
Subscribed and sworn to before me
this day of , 2005
My commission expires:
Statement of Actuarial Opinion of Reserves
On Aetna Health Inc. (A Maine Corporation)
as of December 31, 2004
I, Gary P. Monnin, FSA, MAAA, am an actuary for G.P. Monnin Consulting, Inc., and am a member of the American Academy of Actuaries. I meet the Academy qualification standards for rendering this opinion and am familiar with the valuation requirements for life and heath insurance companies and health maintenance organizations. I have been contracted by the State of Maine to review certain liabilities of the Aetna Health Inc. (A Maine Corporation). In forming my opinion, I relied upon inforce listings and claim and census information supplied by Aetna Health, and other related data provided by the Maine Bureau of Insurance.
I relied upon the inforce testing performed by the examiners of the Bureau of Insurance. The examiners performed completeness and accuracy testing.
I have examined the actuarial assumptions and actuarial methods used in determining the unpaid claims liability and related actuarial items, as shown in the NAIC Annual Statement of the Company at December 31, 2004.
The actuarial liabilities established by Aetna Health as of December 31, 2004 are listed below. Based upon materiality considerations, there is no adjustment recommended to the liabilities established on the books.
|Claims Unpaid (Page 3, Line 1)||18,364,592|
|Accrued Medical Incentive Pool and Bonus Payments
(Page 3, Line 2)
|Unpaid Claims Adjustment Expenses
(Page 3, Line 3)
| Aggregate Health Policy Reserves
(Page 3, Line 4)
|Aggregate Claim Reserves
(Page 3, Line 7)
My examination included such review of the actuarial assumptions and actuarial methods used by the Company and such tests of the actuarial calculations as I considered necessary.
This opinion is not based upon an asset adequacy analysis.
I reviewed for consistency any underlying data but did not perform independent audit of the data.
In my opinion, the amounts carried in the balance sheet on account of the actuarial items identified above:
The actuarial methods, considerations and analyses used in forming my opinion conform to the appropriate Standards of Practice as promulgated by the Actuarial Standards Board which standards form the basis of this statement of opinion.
Gary P. Monnin, FSA, MAAA
G.P. Monnin Consulting, Inc.
1715 Capital of Texas Hwy South, Suite 205
Austin, Texas 78746
June 22, 2005
Last Updated: October 22, 2013
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