PART I ITEM 1A Risk Factors Risk Factors ITEM 1A Regulatory and Litigation Risks Health Care Reform legislation, as well as potential additional changes in federal or state regulations, could have a material adverse effect on Cigna’s business, results of operations, financial condition and liquidity. As a large company operating in a complex industry, Cigna encounters a variety of risks and uncertainties including those identified in this Risk Factor discussion and elsewhere in this report. Cigna has implemented and maintains enterprise-wide risk management processes, in addition to the risk management processes within its businesses. The factors discussed below represent significant risks and uncertainties that could have a material adverse effect on Cigna’s business, liquidity, results of operations or financial condition. These risks and uncertainties are not the only ones Cigna faces. Additional risks and uncertainties not presently known to the Company or that it currently believes to be immaterial may also adversely affect Cigna. In 2010, Health Care Reform was signed into law, and it is resulting in significant changes to the current U.S. health care system. Health Care Reform mandates broad changes in the delivery of health care benefits that may impact the Company’s current business model, including its relationship with current and future customers, producers and health care providers, products, services, processes and technology. Health Care Reform includes, among other requirements, provisions for guaranteed coverage and renewal requirements, prohibitions on annual and lifetime limits on the dollar amount of benefits for essential health services, increased restrictions on rescinding coverage, minimum medical loss ratio and customer rebate requirements, a requirement to cover preventive services on a first dollar basis, and greater controls on premium rate increases for individual and small employer health insurance. It also reduces the Medicare Part D coverage gap and reduces payments to private plans offering Medicare Advantage, as well as provides for state insurance exchanges through which insurers and HMOs will, if qualified, be able to offer insured plans to individuals and small employers. In addition, the legislation imposes an excise tax on high-cost employer- sponsored coverage and annual fees on insurance companies and HMOs that will generally not be deductible for income tax purposes and therefore may adversely impact the Company’s effective tax rate. It also limits the amount of compensation for executives of insurers that is tax deductible. Certain of the law’s provisions became effective between 2010 and 2012 and other provisions will take effect from 2013 to 2018. Health Care Reform left many of the details of the new law to be set forth through regulations. While federal agencies have published interim final regulations with respect to certain requirements, many issues remain uncertain, thus the full impact on the Company is not yet known. This legislation could impact the Company significantly by: Accordingly, Health Care Reform, other regulatory reform initiatives or additional changes in existing laws or regulations, or their interpretations, could have a material adverse effect on the Company’s business, results of operations, financial condition and liquidity. The Medicare business acquired with HealthSpring presents additional risks for Cigna, as the Medicare program has been the subject of recent regulatory reform initiatives, including Health Care Reform. Because Medicare program premiums account for substantially all of the acquired business’s revenue, reductions or less than expected increases in funding for Medicare programs (including the potential effect of sequestration) could significantly reduce the Company’s profitability, and non-renewal or termination of Medicare contracts would substantially impair the acquired business. In June 2012, the U.S. Supreme Court upheld the constitutionality of most parts of Health Care Reform, but considerable uncertainty remains and it is difficult to predict the impact of Health Care Reform on the business due to the law’s complexity, continuing development of implementing regulations and interpretive guidance. Cigna is unable to predict how these events will develop and what impact they will have on Health Care Reform, and in turn, on Cigna. For additional information on Health Care Reform, see ‘‘Business – Regulation’’ in Section H beginning on page 14 of this Form 10-K and the ‘‘Introduction’’ section of MD&A beginning on page 32 of this Form 10-K. See also the description of minimum medical loss ratio and customer rebate requirements in the ‘‘Business – B. Global Health Care’’ section beginning on page 2 of this Form 10-K. disrupting the employer-based market, which is currently the primary business model for the Company’s Global Health Care segment; GLYPH<127> causing employers to drop health care coverage for their employees; GLYPH<127> driving potential cost shifting in the health care delivery system to health insurance companies and HMOs; GLYPH<127> regulating business practices; GLYPH<127> imposing new or increasing taxes and financial assessments; GLYPH<127> limiting the ability to increase premiums to meet costs (including denial or delays in approval and implementation of those rates); and GLYPH<127> significantly reducing the growth of Medicare program payments. GLYPH<127> CIGNA CORPORATION -  2012 Form  10-K 19