Audit of Medicare Contractor's Segmented Pension Cost, Aetna Life Insurance Company

This final audit report presents the results of our review of the Aetna Life Insurance Company's (Aetna) implementation of its Medicare contract clause on pension plan segmentation. Our review disclosed that Aetna had, as of January 1, 1991, understated Medicare pension assets by $3.0 million. Aetna omitted participants in its Medicare Systems Unit in computing the actuarial liability of the Medicare segment for 1981. This omittance understated the 1981 asset fraction. Aetna's use of the incorrect asset fraction and market value of pension assets understated Medicare's pension assets as of January 1, 1986 by $384,702. Also, Medicare's pension assets were understated by another $2,626,674 in the update of Medicare segment assets from 1986 through 1990.