Aetna 2011 Annual Report Download

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2011
Aetna Annual Report,
Financial Report to Shareholders

Table of contents

  • Page 1
    2011 Aetna Annual Report, Financial Report to Shareholders

  • Page 2

  • Page 3

  • Page 4
    ...addressed is that our current system pays health care providers according to activity, rather than the quality or result of care delivered. This payment model drives health care costs higher than necessary, without providing any clear advantage in terms of quality. As such, quality and affordability...

  • Page 5
    ... conserve environmental resources, our traditional summary Annual Report will be available in an online format. Please visit www.aetna.com/2011annualreport to learn how we are providing consumers with the connections they need to access the right care at the right time. The summary Annual Report is...

  • Page 6

  • Page 7
    ... consolidated balance sheets at December 31, 2011 and 2010 and the related consolidated statements of income, shareholders' equity and cash flows for each of the years 2009 through 2011. Notes to Consolidated Financial Statements Reports of Management and our Independent Registered Public Accounting...

  • Page 8
    ... of traditional and consumer-directed health insurance products and related services, including medical, pharmacy, dental, behavioral health, group life and disability plans, medical management capabilities, Medicaid health care management services and health information exchange technology services...

  • Page 9
    ... of convenient, easy-to-access technology solutions for physicians, hospitals and other health care providers. Prodigy Health Group In June 2011, we acquired Prodigy, a third-party administrator of self-funded health care plans, for approximately $600 million, net of cash acquired. We preliminarily...

  • Page 10
    ...June 13, 2011, the Centers for Medicare & Medicaid Services ("CMS") lifted the intermediate sanctions it had previously imposed on us that required us to suspend the enrollment of and marketing to new members of all Aetna Medicare Advantage and Standalone Prescription Drug Plan ("PDP") contracts. We...

  • Page 11
    ... for segment reporting and consistent with our segment disclosure included in Note 19 of Notes to Consolidated Financial Statements beginning on page 108. Our operations are conducted in three business segments: Health Care, Group Insurance and Large Case Pensions. Our Corporate Financing segment is...

  • Page 12
    ... plans that combine traditional POS or PPO and/or dental coverage, subject to a deductible, with an accumulating benefit account. We also offer Medicare and Medicaid products and services, as well as specialty products, such as health information exchange technology services, medical management...

  • Page 13
    ... to our discussion of Commercial results below for additional information. We calculate our medical benefit ratio ("MBR") by dividing health care costs by premiums. Our MBRs by product for the last three years were: 2011 Commercial Medicare Medicaid Total 77.9% 84.0% 87.3% 79.6% 2010 80.6% 87.3% 87...

  • Page 14
    ... of 2011 for claims incurred in the latter half of 2010 caused by lower than projected utilization of medical services. The lower Commercial MBR in 2010 compared to 2009 reflects favorable development of prior-years health care cost estimates and a percentage increase in our per member health care...

  • Page 15
    ...our dental provider network for a nominal fee. Total medical membership at December 31, 2011 was relatively flat compared to December 31, 2010, reflecting a reduction in Commercial membership due primarily to lapsed customers and in-group attrition that exceeded new sales, as well as lower Medicare...

  • Page 16
    ... basic and supplemental group term life, group universal life, supplemental or voluntary programs and accidental death and dismemberment coverage. Group Insurance also includes: (i) group disability products offered to employers on both an Insured and an ASC basis, which consist primarily of short...

  • Page 17
    LARGE CASE PENSIONS Large Case Pensions manages a variety of retirement products (including pension and annuity products) primarily for tax qualified pension plans. These products provide a variety of funding and benefit payment distribution options and other services. The Large Case Pensions ...

  • Page 18
    ... available for sale Mortgage loans Other investments Total investments $ $ 2011 17,390.8 1,648.5 1,255.7 20,295.0 $ $ 2010 16,961.6 1,509.8 1,244.6 19,716.0 The risks associated with investments supporting experience-rated pension and annuity products in our Large Case Pensions business are assumed...

  • Page 19
    ... investment options at the direction of plan participants, without market value adjustment, subject to plan, contractual and income tax provisions. Debt and Equity Securities The debt securities in our investment portfolio had an average credit quality rating of A at both December 31, 2011 and 2010...

  • Page 20
    ... with our investment and risk management objectives, we also use derivative financial instruments whose market value is at least partially determined by, among other things, levels of or changes in interest rates (short-term or long-term), duration, prepayment rates, equity markets or credit ratings...

  • Page 21
    ... of our portfolio of highly marketable debt securities and mortgage loans, and execute purchases and sales of these investments with the objective of having adequate funds available to satisfy our maturing liabilities. Overall cash flows are used primarily for claim and benefit payments, contract...

  • Page 22
    ..., in voluntary cash contributions to the Aetna Pension Plan. Cash flows from investing activities decreased in 2011 compared to 2010 primarily due to $1.6 billion in acquisitions we completed during 2011, which increased membership, enhanced our capabilities and contributed to service fee and other...

  • Page 23
    ... due June 2011. In August 2010, we issued $750 million of 3.95% senior notes due 2020 in anticipation of the 2011 scheduled maturity of certain of our senior notes. From time to time, we use short-term commercial paper borrowings to address timing differences between cash receipts and disbursements...

  • Page 24
    ...not include future payments of claims to health care providers or pharmacies because certain terms of these payments are not determinable at December 31, 2011 (for example, the timing and volume of future services provided under fee-for-service arrangements and future membership levels for capitated...

  • Page 25
    ... claim cost and the claims paid through the financial statement date represents our estimate of claims remaining to be paid as of the financial statement date and is included in our health care costs payable. We use completion factors predominantly to estimate reserves for claims Annual Report...

  • Page 26
    ... in medical technology and other factors continue to contribute to rising per member utilization and unit costs. Changes in health care practices, inflation, new technologies, increases in the cost of prescription drugs, direct-to-consumer marketing by pharmaceutical companies, clusters of high-cost...

  • Page 27
    ... other than health care costs payable for benefit claims primarily related to our Group Insurance segment. We refer to these liabilities as other insurance liabilities. These liabilities primarily relate to our life, disability and long-term care products. Life and Disability The liabilities for our...

  • Page 28
    ... (lower) than required to cover future life benefit payments. At December 31, 2011, we held approximately $189 million in reserves for life claims incurred but not yet reported to us. Long-term Care We established reserves for future policy benefits for the long-term care products we issued based on...

  • Page 29
    ... until the next policy renewal dates for the related policies. We did not have any premium deficiency reserves for our Health Care or Group Insurance business at December 31, 2011 or 2010. Large Case Pensions Discontinued Products Reserve We discontinued certain Large Case Pensions products in 1993...

  • Page 30
    ... not affected the cash contributions we are required to make to our pension and OPEB plans because we have met all minimum funding requirements. However, during 2011 and 2010 we made $60 million and $505 million, respectively, in voluntary cash contributions to the Aetna Pension Plan. Refer to Note...

  • Page 31
    ... as well as state health, insurance and managed care departments and state boards of pharmacy have broad authority to Grant, suspend and revoke our licenses to transact business; Exclude us from participation in government programs; Suspend or limit our authority to market products; Regulate many...

  • Page 32
    ... Management (the "OPM"), the U.S. Department of Health and Human Services ("HHS") and other state and federal government authorities. In addition, from time to time we receive, and expect to continue to receive, subpoenas and other requests for information from CMS, HHS, various state insurance...

  • Page 33
    ... and annual maximum limits on the dollar value of coverage, eliminate payments by members for covered preventive services, provide required reimbursements for emergency services, eliminate prohibited policy rescissions and implement new claim appeal procedures. Regulations issued to date, among...

  • Page 34
    ... in a number of states have implemented or are considering limits on premium rate increases, either enforcing existing legal requirements more stringently or proposing different regulatory standards or procedures for reviewing proposed rate changes; requiring us and other health plans to price...

  • Page 35
    ... Medical benefit ratios Underwriting rules and procedures Policy forms, including plan design and disclosures Benefit mandates Market conduct Utilization review activities Payment of Health Care, Group Insurance and other claims, including timeliness and accuracy of payment Member rights...

  • Page 36
    ...basic and standard plan of benefits. HIPAA also mandates guaranteed renewal of health care coverage for most employer groups, subject to certain defined exceptions, and provides for specified employer notice periods in connection with product and market withdrawals. The law further limits exclusions...

  • Page 37
    ... generally require insurers to provide customers with notice regarding how their non-public personal health and financial information is used and the opportunity to "opt out" of certain disclosures before the insurer shares such information with a non-affiliated third party. The GLBA Annual Report...

  • Page 38
    ... our failure to pay claims within specified time periods. Imposing payment levels for services rendered to our members by providers who do not have contracts with us. Exempting physicians from the antitrust laws that prohibit price fixing, group boycotts and other horizontal Annual Report- Page 32...

  • Page 39
    ... and small groups to collectively purchase health care coverage without any other affiliations. Imposing requirements and restrictions on the administration of pharmacy benefits, including restricting or eliminating the use of formularies for prescription drugs, limiting or eliminating rebates on...

  • Page 40
    ...be reviewed by courts. DOL regulations under ERISA set standards for claim payment and member appeals along with associated notice and disclosure requirements. We have invested significant resources to comply with these standards. Certain Large Case Pensions and Group Insurance products and services...

  • Page 41
    ... of services we provide to Medicare beneficiaries. CMS uses various payment mechanisms to allocate and adjust premium payments to our and other companies' Medicare plans by considering the applicable health status of Medicare members as supported by information maintained and provided by health care...

  • Page 42
    ... have begun to serve the Aged, Blind and Disabled and Long Term Care Medicaid populations. As a result, we also increased our exposure to changes in government policy with respect to and/or regulation of the various Medicaid programs in which we participate, including changes in the amounts payable...

  • Page 43
    ... to require significant resources. CMS and/or state Medicaid agencies may fine us, seek premium refunds, elect not to award us new contracts or renew our existing contracts, prohibit us from continuing to market and/or enroll members in one or more Medicaid products, exclude us from participating in...

  • Page 44
    ...licensure or suspension or exclusion from participation in government programs. For example, effective April 21, 2010, CMS imposed intermediate sanctions on us suspending the enrollment of and marketing to new members of all Aetna Medicare Advantage and Standalone PDP contracts. In addition, CMS has...

  • Page 45
    ... the delivery of PBM services. In addition, we continue to own two mail order pharmacy facilities and one specialty pharmacy facility (our "Pharmacies") and utilize certain CVS Caremark pharmacies. One mail order pharmacy is located in Missouri, and the specialty pharmacy and our second mail order...

  • Page 46
    ... to require insurers to, regularly consult the U.S. Social Security Administration's Death Master File or a similar database to determine if unclaimed death benefits may be payable under life insurance and similar products, to pay any such benefits and to make certain other business process changes...

  • Page 47
    ... business, cash flows, financial condition or operating results. In that case, the trading price of our common stock could decline materially. The continuing public policy debate on Health Care Reform, additional changes to the U.S. health care system and the stressed economic environment, with high...

  • Page 48
    ...industry participants based on net premiums written for insured business plus the fees received and cost of coverage administered for self-insured business. As we are one of the nation's largest health care benefits companies, we expect our share of the Health Care Reform assessments, fees and taxes...

  • Page 49
    ... require us to develop or acquire the tools necessary to interact with Insurance Exchanges and individual consumers using Insurance Exchanges (including social media tools), increase our focus on individual consumers and improve our consumer-focused sales and marketing channels, customer interfaces...

  • Page 50
    ... and employment levels, new technologies, increases in the cost of prescription drugs, direct-to-consumer marketing by pharmaceutical companies, clusters of high-cost cases, health care provider or member fraud, changes to Medicare and/or Medicaid reimbursement levels to health plans and providers...

  • Page 51
    ... for our members' utilization of medical services and our self-insured customers' medical cost trends and/or changes in those trends and/or future health care and other benefit costs. • Increasing our medical unit costs as hospitals and other providers attempt to maintain revenue levels in their...

  • Page 52
    ...-funded health program business we obtain, such as Medicare and Medicaid, our revenues are dependent on annual funding by the federal government and/or applicable state governments, and both federal and state governments have the right to non-renew or cancel their contracts with us on short notice...

  • Page 53
    ... increase in our costs and we cannot offset the impact of these actions with supplemental premiums and/or changes in benefit plans, then our business and operating results could be adversely affected. In addition, premiums for certain federal government employee groups, Medicare members and Medicaid...

  • Page 54
    ... products and services. Our businesses depend in large part on our information and other technology systems to adequately price our products and services; accurately establish reserves, process claims and report financial results; and interact with providers, employer plan sponsors, members...

  • Page 55
    ..., addressing rising health care and other benefit costs, achieving profitable membership growth, further improving the efficiency of our operations, managing certain significant technology projects, further improving relations with health care providers, negotiating contract changes with customers...

  • Page 56
    ... during implementation), Increasing our exposure to lawsuits and other adverse legal proceedings, Regulating levels and permitted lines of business, Restricting our ability to underwrite and operate our individual Health Care business, Imposing new or increasing taxes and financial assessments, and...

  • Page 57
    ... the enrollment of and marketing to new members of all Aetna Medicare Advantage and Standalone Prescription Drug Plan ("PDP") contracts. The sanctions related to our compliance with certain Medicare Part D requirements. As a result of these sanctions, our 2011 Medicare membership and operating...

  • Page 58
    ... health and related benefits industry's business and reporting practices, including payment of providers with whom the payor does not have a contract and other claim payment practices, and utilization management, as well as heightened review of the general insurance industry's brokerage, sales and...

  • Page 59
    ... and Medicaid products are more highly regulated than our Commercial products, and our mail order and specialty pharmacies dispense medications directly to members. There is the possibility of temporary or permanent suspension from participating in government health care programs, including Medicare...

  • Page 60
    ... rights to access to drugs for individuals enrolled in health care benefits plans, and restrictions on the use of average wholesale prices. The application of federal, state and local laws and regulations to the operation of our mail order pharmacy and mail order specialty pharmacy products...

  • Page 61
    ... and growth of Medicity, expand our Accountable Care Solutions business, increase the amount of information we make available to members and consumers on mobile devices, expand our use of social media and expand internationally, our exposure to these data security and related cybersecurity risks...

  • Page 62
    ... retain membership is dependent upon providing quality customer service operations (such as call center operations, claim processing, outsourced PBM functions, mail order pharmacy prescription delivery, specialty pharmacy prescription delivery, customer case installation and on-line access and tools...

  • Page 63
    ..., we changed the compensation model for most sales of our Commercial Insured Health Care products to groups of fifty-one or more employees. Under the revised model, in most states, we will not pay commissions, and the third-party broker or agent must negotiate compensation directly with its customer...

  • Page 64
    ..., changes in membership and product mix, utilization of medical services, 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, 2011 would...

  • Page 65
    ... 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 costs and potential health care benefits provider network disruptions...

  • Page 66
    ... pension expense increased in 2009. The decrease in pension cost in 2011 and 2010 was caused by the freezing of the Aetna Pension Plan. We also face other risks that could adversely affect our business, operating results or financial condition, which include: • Health care benefits provider fraud...

  • Page 67
    ... (losses), net of tax Total assets Short-term debt Long-term debt Shareholders' equity Per common share data: Cumulative annual dividends declared Net income: Basic Diluted (1) $ 2011 33,779.8 1,985.7 109.1 38,593.1 425.9 3,977.7 10,120.2 For the Years Ended December 31, 2008 2009 2010 $ 34,246...

  • Page 68
    .... Health care costs have been reduced by Insured member co-payments related to our mail order and specialty pharmacy operations of $130 million, $148 million and $122 million for 2011, 2010 and 2009 respectively. Refer to accompanying Notes to Consolidated Financial Statements. Annual Report...

  • Page 69
    ...-term investments Reinsurance recoverables Goodwill Other acquired intangible assets, net Property and equipment, net Deferred income taxes Other long-term assets Separate Accounts assets Total assets Liabilities and shareholders' equity: Current liabilities: Health care costs payable Future policy...

  • Page 70
    ... Pension and OPEB plans Other comprehensive loss Total comprehensive income Common shares issued for benefit plans, including tax benefits Repurchases of common shares Dividends declared Balance at December 31, 2011 Refer to accompanying Notes to Consolidated Financial Statements. Annual Report...

  • Page 71
    ... of long-term debt Net issuance of long-term debt Net issuance (repayment) of short-term debt Deposits and interest credited for investment contracts Withdrawals of investment contracts Common shares issued under benefit plans Stock-based compensation tax benefits Common shares repurchased Dividends...

  • Page 72
    ... new long-term care customers. Large Case Pensions manages a variety of retirement products (including pension and annuity products) primarily for tax qualified pension plans. These products provide a variety of funding and benefit payment distribution options and other services. Large Case Pensions...

  • Page 73
    ... clarifies that such costs qualify for capitalization when directly related to the successful acquisition of new and renewed insurance contracts. We do not expect the adoption of this accounting guidance to have a material impact on our financial position or operating results. Annual Report- Page 67

  • Page 74
    ...preparation of the accompanying consolidated financial statements: health care costs payable, other insurance liabilities, recoverability of goodwill and other acquired intangible assets, measurement of defined benefit pension and other postretirement benefit plans, otherthan-temporary impairment of...

  • Page 75
    ... or paid related to a recognized asset or liability; or a foreign currency fair value or cash flow hedge. Net Investment Income and Realized Capital Gains and Losses Net investment income on investments supporting Health Care and Group Insurance liabilities and Large Case Pensions products (other...

  • Page 76
    ...' accounts are reflected in policyholders' funds, and the reserve for anticipated future losses is reflected in future policy benefits on our balance sheets. Unrealized capital gains and losses on investments supporting Health Care and Group Insurance liabilities and Large Case Pensions products...

  • Page 77
    ... 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...

  • Page 78
    ... 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...

  • Page 79
    ...December 31, 2011 or 2010. Health Care Contract Acquisition Costs Health care benefits products included in the Health Care segment are cancelable by either the customer or the member monthly upon written notice. Acquisition costs related to our prepaid health care and health indemnity contracts are...

  • Page 80
    Accounting for the Medicare Part D Prescription Drug Program ("PDP") We were selected by the Centers for Medicare & Medicaid Services ("CMS") to be a national provider of PDP in all 50 states to both individuals and employer groups in 2011, 2010 and 2009. Under these annual contracts, CMS pays us a ...

  • Page 81
    ... be tax deductible. All of the goodwill related to this acquisition was assigned to our Health Care segment. Prodigy Health Group In June 2011, we acquired Prodigy, a third-party administrator of self-funded health care plans, for approximately $600 million, net of cash acquired. We preliminarily...

  • Page 82
    ... claims incurred in the latter half of 2010 caused by lower than projected utilization of medical services. In 2010, we had approximately $118 million pretax of favorable development of prior-years health care cost estimates that primarily resulted from lower than projected paid claims Annual Report...

  • Page 83
    ... to the Group Insurance segment, with the remainder assigned to the Health Care segment. Other acquired intangible assets at December 31, 2011 and 2010 were comprised of the following: (Millions) 2011 Provider networks Customer lists Value of business acquired Technology Other Definite-lived...

  • Page 84
    ... 2013 2014 2015 2016 $ 141.8 129.2 107.2 91.2 84.2 8. Investments Total investments at December 31, 2011 and 2010 were as follows: 2011 (Millions) Debt and equity securities available for sale Mortgage loans Other investments Total investments $ $ Current 2,168.1 41.7 2.0 2,211.8 $ $ Long-term...

  • Page 85
    ... and equity securities available for sale at December 31, 2011 and 2010 were as follows: Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value (Millions) December 31, 2011 Debt securities: U.S. government securities States, municipalities and political subdivisions U.S. corporate...

  • Page 86
    ... 31, 2011 were issued by the Government National Mortgage Association, the Federal National Mortgage Association or the Federal Home Loan Mortgage Corporation and carry agency guarantees and explicit or implicit guarantees by the U.S. Government. At December 31, 2011, our residential mortgage-backed...

  • Page 87
    ... of time the investments have been in that position: Less than 12 months (Millions) December 31, 2011 Debt securities: U.S. government securities States, municipalities and political subdivisions U.S. corporate securities Foreign securities Residential mortgage-backed securities Commercial mortgage...

  • Page 88
    ...3.8 94.0 Fair Value Unrealized Losses Supporting remaining products Fair Value Unrealized Losses Total Fair Value Unrealized Losses Net realized capital gains for the three years ended December 31, 2011, 2010 and 2009, excluding amounts related to experience-rated contract holders and discontinued...

  • Page 89
    ... by commercial real estate. During 2011 and 2010 we had the following activity in our mortgage loan portfolio: (Millions) New mortgage loans Mortgage loans fully-repaid Mortgage loans foreclosed $ 2011 260.4 70.4 - $ 2010 103.3 129.3 20.0 At December 31, 2011 and 2010, we had no material problem...

  • Page 90
    ... beginning on page 110 for additional information on our accounting for discontinued products). Net investment income includes $317.5 million, $344.9 million and $347.8 million for December 31, 2011, 2010 and 2009, respectively, related to investments supporting our experience-rated and discontinued...

  • Page 91
    ... market information or by using a matrix pricing model. These financial assets and liabilities would then be classified as Level 2. If quoted market prices are not available, we determine fair value using broker quotes or an internal analysis of each investment's financial performance and cash...

  • Page 92
    ...-held equity securities, there is no active market; therefore, we classify these securities as Level 3 because we price these securities through an internal analysis of each investment's financial statements and cash flow projections. Derivatives - Our derivative instruments are valued using models...

  • Page 93
    Financial assets and liabilities measured at fair value on a recurring basis in our balance sheets at December 31, 2011 and 2010 were as follows: (Millions) December 31, 2011 Assets: Debt securities: U.S. government securities States, municipalities and political subdivisions U.S. corporate ...

  • Page 94
    ... methodologies used for estimating the fair value of our financial assets and liabilities that are carried on our balance sheets at adjusted cost or contract value. Mortgage loans: Fair values are estimated by discounting expected mortgage loan cash flows at market rates that reflect the rates at...

  • Page 95
    ... do not necessarily represent the prices at which the real estate investments would sell, since market prices of real estate investments can only be determined by negotiation between a willing buyer and seller. Therefore, these investment values are classified as Level 3. Annual Report- Page 89

  • Page 96
    ...two pension plans, and OPEB plans that provide certain health care and life insurance benefits for retired employees, including those of our former parent company. On August 31, 2010, we announced that pension eligible employees will no longer earn future pension service credits in our tax-qualified...

  • Page 97
    ... of the cost of providing medical and dental benefits to our retirees. All current and future retirees and employees who terminate employment at age 45 or later with at least five years of service are eligible to participate in our group health plans at their own cost. The information set forth...

  • Page 98
    ...108 for additional information on our business segments. As a result of the August 31, 2010 announcement freezing the Aetna Pension Plan and related requirement to remeasure the Aetna Pension Plan's obligations and plan assets as of August 31, 2010, our pension obligation increased by approximately...

  • Page 99
    ... OPEB Plans 2011 2010 5.20% 5.64% 5.50 5.50 - - 2009 6.92% 5.50 - Discount rate Expected long-term return on plan assets Rate of increase in future compensation levels We assume different health care cost trend rates for medical costs and prescription drug costs in estimating the expected costs of...

  • Page 100
    ... are traded in markets where quoted market prices are readily available. The fair value of private equity and hedge fund limited partnerships are estimated based on the net asset value of the investment fund provided by the general partner or manager of the investments, the financial statements of...

  • Page 101
    ...$136.7 million of cash and cash equivalents and other receivables. The changes in the balances of Level 3 Pension Assets during 2011 were as follows: 2011 Beginning balance Actual return on plan assets Purchases, sales and settlements Transfers out of Level 3 Ending balance $ Real Estate 395.3 $ 49...

  • Page 102
    ... improve portfolio and operational risk characteristics. Public and private equity investments are used primarily to increase overall plan returns. Real estate investments are viewed favorably for their diversification benefits and above-average dividend generation. Fixed income investments provide...

  • Page 103
    ... time during the ten years after grant, except in certain circumstances, generally related to employment termination or retirement. At the end of the ten-year period, any unexercised SARs and stock options expire. RSUs - For each RSU granted, employees receive one share of common stock, net of taxes...

  • Page 104
    ... option and SAR transactions during 2011, 2010 and 2009 were as follows: Weighted Average Exercise Price $ 27.50 32.00 10.01 36.34 28.88 26.16 28.88 29.20 10.65 37.32 31.01 30.22 Weighted Average Remaining Contractual Life 4.9 $ - - - 4.7 $ 3.7 $ 4.7 $ - - - 4.1 $ 3.6 $ Aggregate Intrinsic Value...

  • Page 105
    ... dollar value of the stock options, SARs and stock units as of the grant date. We settle our stock options, SARs and stock units with newly-issued common stock and generally utilize the proceeds from stock options to repurchase our common stock in the open market in the same period. In 2011, 2010...

  • Page 106
    ... 31, 2011 and 2010 were as follows: (Millions) Deferred tax assets: Reserve for anticipated future losses on discontinued products Employee and postretirement benefits Investments, net Deferred policy acquisition costs Insurance reserves Net operating losses Severance and facilities Other Gross...

  • Page 107
    ... state tax issues. At December 31, 2011 and 2010, we did not have material uncertain tax positions reflected in our consolidated balance sheets. We paid net income taxes of $899 million, $674 million and $634 million in 2011, 2010 and 2009, respectively. 14. Debt The carrying value of our long-term...

  • Page 108
    ... and moved us to a quarterly dividend payment cycle. On December 2, 2011, we announced that our Board increased the Company's quarterly cash dividend to shareholders to $.175 per share. Prior to February 2011, our policy had been to pay an annual dividend of $.04 per share. Annual Report- Page 102

  • Page 109
    ..., among other things, may require such companies to maintain certain levels of equity and restrict the amount of dividends and other distributions that may be paid to their parent corporations. The additional regulations applicable to our HMO and insurance company subsidiaries are not expected to...

  • Page 110
    ... provide an aggregate of $390 million of collateralized excess of loss reinsurance coverage on a portion of Aetna's group Commercial Insured Health Care business. 18. Commitments and Contingencies Guarantees We have the following guarantee arrangements at December 31, 2011. • ASC Claim Funding...

  • Page 111
    ... of our practices related to the payment of claims for services rendered to our members by health care providers with whom we do not have a contract ("out-of-network providers"). Among other things, these lawsuits allege that we paid too little to our health plan members and/or providers for these...

  • Page 112
    ...Centers for Medicare & Medicaid Services ("CMS") lifted the intermediate sanctions it had previously imposed on us that required us to suspend the enrollment of and marketing to new members of all Aetna Medicare Advantage and Standalone Prescription Drug Plan ("PDP") contracts. The sanctions related...

  • Page 113
    ..., rescission of insurance coverage, limited benefit health products, student health products, pharmacy benefit management practices, sales practices, and claim payment practices (including payments to out-of-network providers and payments on life insurance policies). For example, New York is one of...

  • Page 114
    ...$17 million, respectively. 19. Segment Information Our operations are conducted in three business segments: Health Care, Group Insurance and Large Case Pensions. Our Corporate Financing segment is not a business segment; it is added to our business segments in order to reconcile to our consolidated...

  • Page 115
    .... Revenues from external customers by product in 2011, 2010 and 2009 were as follows: (Millions) Health care premiums Health care fees and other revenue Group life Group disability Group long-term care Large case pensions Total revenue from external customers (1) (2) (1) $ 2011 27,189.2 $ 3,604...

  • Page 116
    ... ("SPAs") and guaranteed investment contracts ("GICs"), primarily to employer sponsored pension plans. In 1993, we discontinued selling these products to Large Case Pensions customers, and now we refer to these products as discontinued products. We discontinued selling these products because they...

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    ... result of sales. The resulting proceeds were primarily reinvested in debt and equity securities. Over time, the then-existing mortgage loan and real estate portfolios and the reinvested proceeds have resulted in greater investment returns than we originally assumed in 1993. Annual Report- Page 111

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    ... 31, 2011, 2010 and 2009, respectively. Participant-directed withdrawals from our discontinued products were not significant in the years ended ended December 31, 2011, 2010 or 2009. Cash required to fund these distributions was provided by earnings and scheduled payments on, and sales of, invested...

  • Page 119
    ...Aetna's Board of Directors engages KPMG LLP, an independent registered public accounting firm, to audit our consolidated financial statements and express their opinion thereon. Members of that firm also have the right of full access to each member of management in conducting their audits. The report...

  • Page 120
    ...Financial Plaza 755 Main Street Hartford, CT 06103 Report of Independent Registered Public Accounting Firm The Board of Directors and Shareholders Aetna Inc.: We have audited the accompanying consolidated balance sheets of Aetna Inc. and subsidiaries (the "Company") as of December 31, 2011 and 2010...

  • Page 121
    ... of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2011 and 2010, and...

  • Page 122
    ...stock data) 2011 Total revenue Income before income taxes Income taxes Net income Net income per share - basic (1) Net income per share - diluted (1) Dividends declared per share Common stock prices, high Common stock prices, low 2010 Total revenue Income before income taxes Income taxes...Calculation ...

  • Page 123
    ... December 31, 2011. The graph assumes a $100 investment in shares of our common stock on December 31, 2006. (1) At December 31, 2011, the companies included in the MSHPI were: Aetna Inc., Amerigroup Corporation, Centene Corporation, CIGNA Corporation, Coventry Health Care, Inc., Health Net, Inc...

  • Page 124
    ..., Marketing, Product and Communications Sandip Patel Senior Vice President, International Businesses Lonny Reisman, M.D. Senior Vice President, Chief Medical Officer Elease E. Wright Senior Vice President, Human Resources Joseph M. Zubretsky Senior Executive Vice President, Chief Financial Officer...

  • Page 125
    ... Company' s latest quarterly earnings release and dividend information. Also available on Aetna' s website at www.aetna.com/governance are the following Aetna corporate governance materials: Articles of Incorporation and By-Laws; Code of Conduct for Directors, officers and employees (and information...

  • Page 126
    ... dividend checks, address changes, stock transfers and other account matters. Computershare Investment Plan ("CIP") Current shareholders and new investors can purchase Aetna common shares and reinvest cash dividends through the CIP sponsored by Computershare. Contacting Computershare by mail...

  • Page 127
    ...Avenue, RW61 Hartford, CT 06156-3215 Fax: 860-293-1361 E-mail address: [email protected] Aetna Equity-Based Grant Participants and Aetna Employee Stock Purchase Plan Participants Employees with outstanding equity-based grants (stock options, stock appreciation rights, market stock units...

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