Aetna 2008 Annual Report Download - page 46

Annual Report - Page 41
period operating results within health care costs. Our estimates of health care costs payable are based on a number of
factors, including those derived from historical claim experience. A large portion of health care claims are not
submitted to us until after the end of the quarter in which services are rendered by providers to our members. As a
result, an extensive degree of judgment is used in this estimation process, considerable variability is inherent in such
estimates, and the adequacy of the estimate is highly sensitive to changes in medical claims payment patterns and
changes in medical cost trends. A worsening (or improvement) of medical cost trend or changes in claim payment
patterns from those that were assumed in estimating health care costs payable at December 31, 2008 would cause
these estimates to change in the near term, and such a change could be material. Furthermore, if we are not able to
accurately estimate the cost of incurred but not yet reported claims or reported claims that have not been paid, our
ability to take timely corrective actions may be limited, which would further exacerbate the extent of any negative
impact on our results of operations. Refer to our discussion of Critical Accounting Estimates – Health Care Costs
Payable beginning on page 18 for more information.
The appropriate application of accounting principles in accordance with GAAP is required to ensure the soundness
and accuracy of our financial statements. An inappropriate application of these principles may lead to a restatement
of our financial results and/or a deterioration in the soundness and accuracy of our reported financial results. If we
experienced such a deterioration, users of our financial statements may lose confidence in our reported results, which
could adversely affect the trading price of our common stock and/or our access to capital markets.
We are dependent on our ability to manage, engage and retain a very large workforce.
Our products and services and our operations require a large number of employees. Our business could be adversely
affected if our retention, development, succession and other human resource management techniques are not aligned
with our strategic objectives.
Epidemics, pandemics, terrorist attack, natural disasters or other extreme events or the continued threat of
these extreme events could materially increase health care utilization, pharmacy costs and/or life and
disability claims and impact our business continuity, and we cannot predict with certainty whether any such
events will occur.
Extreme events, including terrorism, can affect the U.S. economy in general, our industry and us specifically. Such
events could adversely affect our business and operating results, and in the event of extreme circumstances, our
financial condition or viability. Other than obtaining insurance coverage for our facilities, there are few, if any,
commercial options through which to transfer the exposure from terrorism away from us. In particular, in the event
of bioterrorism attacks, epidemics or other extreme events, we could face significant health care (including
behavioral health), life insurance and disability costs depending on the government’ s actions and the responsiveness
of public health agencies and other insurers. In addition, our life insurance members and our employees and those of
our vendors are concentrated in certain large, metropolitan areas which may be exposed to these events. Our
business could also be adversely affected if we do not maintain adequate procedures to ensure disaster recovery and
business continuity during and after such events.
We must demonstrate that our products and processes lead to access by our members to quality care by their
providers, or delivery of care by us.
Failure to demonstrate that our products and processes (such as disease management and patient safety programs,
provider credentialing and other quality of care and information management initiatives) lead to access by our
members to quality care by providers or delivery of quality care by us would adversely affect our ability to
differentiate our product and/or service offerings from those of competitors and could adversely affect our operating
results.
We outsource and obtain certain information technology systems or other services from independent third
parties, and also delegate selected functions to independent practice associations and specialty service
providers; portions of our operations are subject to their performance.
Although we take steps to monitor and regulate the performance of independent third parties who provide services to
us or to whom we delegate selected functions, these arrangements may make our operations vulnerable if those third
parties fail to satisfy their obligations to us, whether because of our failure to adequately monitor and regulate their
performance, or changes in their own financial condition or other matters outside our control. In recent years, certain
third parties to whom we delegated selected functions, such as independent practice associations and specialty
services providers, have experienced financial difficulties, including bankruptcy, which may subject us to increased