Aetna 2008 Annual Report Download - page 38

Annual Report - Page 33
We must continue to differentiate our products and services from those of our competitors; we operate in an
evolving industry that requires us to anticipate changes in customer preferences and to innovate and deliver
products and services that demonstrate value to our customers.
We operate in a highly competitive environment and in an industry that is subject to significant ongoing changes
from market pressures brought about by customer demands, as well as business consolidations, strategic alliances,
legislative and regulatory changes and marketing practices. In addition, our customers generally, and our larger
customers particularly, are well informed and organized and have significant flexibility in moving between us and
our competitors. These factors require us to differentiate our products and services by anticipating changes in
customer preferences and innovating and delivering products and services that demonstrate value to our customers.
Failure to anticipate changes in customer preferences or to innovate and deliver products and services that
demonstrate value to our customers can affect our ability to retain or grow profitable membership which can
adversely affect our operating results.
Our ability to anticipate and detect medical cost trends and achieve appropriate pricing affects our
profitability.
Premium revenues from our Insured Health Care products comprised approximately 82% of our total consolidated
revenues for the year ended December 31, 2008. We continue to be vigilant in our pricing and have generally
increased our premium rates for Insured business that will be under contract in 2009. Our health care premiums are
generally fixed for one-year periods. Accordingly, future cost increases in excess of health care or other benefit cost
projections reflected in our pricing cannot be recovered in the contract year through higher premiums. As a result,
our profits are particularly sensitive to the accuracy of our forecasts of the increases in health care and other benefit
costs that we expect to occur during the fixed premium period. Those forecasts typically are made several months
before the fixed premium period begins and are dependent on our ability to anticipate and detect medical cost trends.
There can be no assurance regarding the accuracy of the health care or other benefit cost projections reflected in our
pricing, and our health care and other benefit costs can be affected by external events over which we have no control.
Relatively small differences between predicted and actual health care costs as a percentage of premium revenues can
result in significant changes in our results of operations. If the rate of increase in our health care or other benefit
costs in 2009 were to exceed the levels reflected in our pricing or if we are not able to obtain appropriate pricing on
new or renewal business, our operating results would be adversely affected.
Our ability to manage health care costs affects our profitability.
Our profitability depends in large part on our ability to appropriately manage future health care costs through
underwriting criteria, product design, negotiation of favorable provider contracts and medical management
programs. The aging of the population and other demographic characteristics, advances in medical technology and
other factors continue to contribute to rising health care costs. Changes in health care practices, general economic
conditions such as inflation and employment levels, new technologies, increases in the cost of prescription drugs,
direct-to-consumer marketing by pharmaceutical companies, clusters of high cost cases, changes in the regulatory
environment, health care provider or member fraud and numerous other factors affecting the cost of health care can
be beyond any health plan’ s control and may adversely affect our ability to manage health care costs, which can
adversely affect our operating results
We face risks from industry, public policy and economic forces that can change the fundamentals of the
health and related benefits industry and adversely affect our business and operating results.
Various factors particular to the health and related benefits industry may affect our business model. Those factors
include, among others, the rapid evolution of the business model, shifts in public policy, consumerism, pricing
actions by competitors, competitor and supplier consolidation and a declining number of commercially insured
people. We also face the potential of competition from existing or new companies that have not historically been in
the health or group insurance industries. For example, the GLBA gives banks and other financial institutions the
ability to affiliate with insurance companies, which may lead to new competitors with significant financial resources
in the insurance and health benefits fields. If we are unable to anticipate, detect and deploy meaningful responses to
these external factors, our business and operating results may be adversely affected.
Adverse economic conditions in the U.S. and abroad can significantly and adversely affect our businesses and
profitability, and we do not expect these conditions to improve in the near future.
Serious concerns over inflation, energy costs, geopolitical issues, the availability and cost of credit and other capital,
the U.S. mortgage market, consumer spending, a declining U.S. real estate market and other factors have contributed