Aetna 2009 Annual Report Download - page 62

5. Operating Expenses
For 2009, 2008 and 2007, selling expenses (which include broker commissions, the variable component of our internal
sales force compensation and premium taxes) and general and administrative expenses were as follows:
(Millions) 2009 2008 2007
Selling expenses 1,251.9$ 1,149.6$ 1,060.9$
General and administrative expenses:
Salaries and related benefits 2,971.8 2,619.8 2,343.6
Other general and administrative expenses
(1)
2,159.3 1,982.1 1,641.9
Total general and administrative expenses
(2)
5,131.1 4,601.9 3,985.5
Total operating expenses 6,383.0$ 5,751.5$ 5,046.4$
(1) Includes the following for 2009: litigation-related insurance proceeds of $38.2 million. Includes the following charges for 2008: a $20.0
million contribution for the establishment of an out-of-network pricing database and a $42.2 million allowance on a reinsurance
recoverable. Refer to the reconciliation of operating earnings to net income in Note 19 beginning on page 81 for additional information.
(2) In 2009 and 2008, we recorded severance and facility charges of $93.7 million and $54.7 million, respectively. The 2009 severance and
facility charges related to actions taken or committed to be taken by the end of the first quarter of 2010. These charges are reflected in
total general and administrative expenses. Refer to the reconciliation of operating earnings to net income in Note 19 beginning on page 81
for additional information.
6. Health Care Costs Payable
The following table shows the components of the change in health care costs payable during 2009, 2008 and 2007:
(Millions) 2009 2008 2007
Health care costs payable, beginning of the period 2,393.2$ 2,177.4$ 1,927.5$
Less: Reinsurance recoverables 2.0 2.9 3.7
Health care costs payable, beginning of the period - net 2,391.2 2,174.5 1,923.8
Acquisition of businesses 1.1 - 58.1
Add: Components of incurred health care costs
Current year 24,127.2 20,948.5 17,472.0
Prior years (66.0) (163.0) (177.2)
Total incurred health care costs 24,061.2 20,785.5 17,294.8
Less: Claims paid
Current year 21,401.1 18,726.4 15,528.5
Prior years 2,159.0 1,842.4 1,573.7
Total claims paid 23,560.1 20,568.8 17,102.2
Health care costs payable, end of period - net 2,893.4 2,391.2 2,174.5
Add: Reinsurance recoverables 1.9 2.0 2.9
Health care costs payable, end of the period 2,895.3$ 2,393.2$ 2,177.4$
Our prior year estimates of health care costs payable decreased by approximately $66 million, $163 million and $177
million in 2009, 2008 and 2007, respectively, resulting from claims being settled for amounts less than originally
estimated. This reduction was primarily the result of lower than expected health care cost trends as well as the actual
claim submission time being faster than we assumed in establishing our health care costs payable in the prior year.
This reduction was offset by current period health care costs when we established our estimate of current year health
care costs payable. When significant decreases (increases) in prior period health care cost estimates occur that we
believe significantly impact our current period results of operations, we disclose that amount as favorable
(unfavorable) development of prior period health care cost estimates. In 2009, we had approximately $116 million of
unfavorable development of prior year health care cost estimates that was driven by what we believe was unusually
high paid claims activity in the first half of 2009 related to the second half of 2008. This unfavorable development of
prior year health care cost estimates offset the amount of the 2009 reduction in our estimate of health care costs
payable for prior years. We had no significant amount of favorable (unfavorable) development of prior year health
care cost estimates that affected our results of operations in 2008 and 2007.
Annual Report – Page 56