Aetna 2011 Annual Report Download - page 64

Annual Report- Page 58
such estimates, and the adequacy of the estimate is highly sensitive to changes in medical claims submission and
payment patterns, 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 cause these estimates to
change in the near term, and such 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
operating results. These risks are particularly acute during and following periods when utilization of medical
services and/or medical cost trends are below historical levels such as we have experienced during 2010 and 2011
and magnified by Health Care Reform and other legislation and regulations (such as rate reviews and limits on
premium rate increases) that limit our ability to price for our projected and/or experienced increases in such
utilization and/or trend. Refer to our discussion of “Critical Accounting Estimates - Health Care Costs Payable”
beginning on page 19 for more information.
Any requirement to restate financial results due to the inappropriate application of accounting principles or
other matters could also have a material adverse effect on us and/or the trading price of our common stock.
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 might lose confidence in our reported results,
which could adversely affect the trading price of our common stock, our credit ratings and/or our access to capital
markets.
We are dependent on our ability to manage, engage and retain a very large and diverse workforce.
Our products and services and our operations require a large number of employees, and a significant number of
employees joined us during 2011 as a result of our acquisitions. Our business could be adversely affected if our
retention, development, succession, integration and other human resource management techniques are not aligned
with our strategic objectives. In addition, as we expand internationally, we face the added challenge of integrating,
educating, managing and retaining a more culturally diverse workforce. The impact of the external environment or
other factors on employee morale and engagement could also significantly impact the success of our company.
Epidemics, pandemics, terrorist attacks, 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, cash flows, and operating results, and, in the event of extreme
circumstances, our financial condition or viability. Other than obtaining insurance coverage for our facilities and
limited reinsurance of our Health Care and/or Group Insurance liabilities, there are few, if any, commercial options
through which to transfer the exposure from terrorism away from us. In particular, in the event of nuclear,
biological or other terrorist attacks, natural disasters, epidemics or other extreme events, we could face significant
health care (including behavioral health), life insurance and disability costs which would also be affected by 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 outsource and obtain PBM services and certain information technology systems and 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.
We take steps to monitor and regulate the performance of independent third parties who provide PBM services,
systems-related or other services or facilities to us or to whom we delegate selected functions. Certain of these third
parties provide us with significant portions of our requirements. These third parties include CVS Caremark,