Aetna 2009 Annual Report Download - page 58

Annual Report – Page 52
utilized, including changes in membership, revenue, health care costs, operating expenses and effective tax rates, are
based on estimates consistent with those utilized in our annual planning process that we believe are reasonable. If we
do not achieve our earnings objectives, the assumptions and estimates underlying these goodwill impairment
evaluations could be adversely affected, and we may impair a portion of our goodwill, which would adversely affect
our operating results in the period of impairment.
Property and Equipment and Other Acquired Intangible Assets
We report property and equipment and other acquired intangible assets at historical cost, net of accumulated
depreciation or amortization. At both December 31, 2009 and 2008, the historical cost of property and equipment
was approximately $1.1 billion, and the related accumulated depreciation was approximately $543 million and $615
million, respectively. We calculate depreciation and amortization primarily using the straight-line method over the
estimated useful lives of the respective assets ranging from three to forty years.
We regularly evaluate whether events or changes in circumstances indicate that the carrying value of property and
equipment or other acquired intangible assets may not be recoverable. If we determine that an asset may not be
recoverable, we estimate the future undiscounted cash flows expected to result from future use of the asset and its
eventual disposition. If the sum of the expected undiscounted future cash flows is less than the carrying value of the
asset, we recognize an impairment loss for the amount by which the carrying value of the asset exceeds its fair value.
There were no impairment losses recognized in the three years ended December 31, 2009.
Separate Accounts
Separate Account assets and liabilities in the Large Case Pensions business represent funds maintained to meet
specific objectives of contract holders who bear the investment risk. These assets and liabilities are carried at fair
value. Investment income and capital gains and losses accrue directly to such contract holders. The assets of each
account are legally segregated and are not subject to claims arising from our other businesses. Deposits, withdrawals,
net investment income and realized and unrealized capital gains and losses on Separate Account assets are not
reflected in our statements of income or cash flows. Management fees charged to contract holders are included in
fees and other revenue and recognized over the period earned.
Health Care and Other Insurance Liabilities
Health Care Costs Payable
Health care costs payable consist principally of unpaid fee-for-service medical, dental and pharmacy claims,
capitation costs and other amounts due to health care providers pursuant to risk-sharing arrangements related to
Health Care’ s POS, PPO, HMO, Indemnity, Medicare and Medicaid products. Unpaid health care claims include our
estimate of payments we will make on claims reported to us but not yet paid and for health care services rendered to
members but not yet reported to us as of the balance sheet date (collectively, “IBNR”). Also included in these
estimates is the cost of services that will continue to be rendered after the balance sheet date if we are obligated to pay
for such services in accordance with contractual or regulatory requirements. Such estimates are developed using
actuarial principles and assumptions which consider, among other things, historical and projected claim submission
and processing patterns, medical cost trends, historical utilization of health care services, claim inventory levels,
changes in membership and product mix, seasonality and other relevant factors. We reflect changes in these estimates
in health care costs in our results of operations in the period they are determined. Capitation costs represent
contractual monthly fees paid to participating physicians and other medical providers for providing medical care,
regardless of the medical services provided to the member. Less than 6% of our health care costs related to capitated
arrangements in each of the last three years. Amounts due under risk-sharing arrangements are based on the terms of
the underlying contracts with the providers and consider claims experience under the contracts through the balance
sheet date.
Future policy benefits
Future policy benefits consist primarily of reserves for limited payment pension and annuity contracts in the Large
Case Pensions business and long-duration group life and long-term care insurance contracts in the Group Insurance
business. Reserves for limited payment contracts are computed using actuarial principles that consider, among other
things, assumptions reflecting anticipated mortality, retirement, expense and interest rate experience. Such
assumptions generally vary by plan, year of issue and policy duration. Assumed interest rates on such contracts
ranged from 2.0% to 11.3% in both 2009 and 2008. We periodically review mortality assumptions against both
industry standards and our experience. Reserves for long-duration group life and long-term care contracts represent