Aetna 2011 Annual Report Download - page 77

Annual Report- Page 71
decisions and takes into account the specific and detailed operating plans and strategies of the Health Care and
Group Insurance segments. Certain other key assumptions 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 December 31, 2011 and 2010, the historical cost of property and equipment was
approximately $1.1 billion and $1.0 billion, respectively, and the related accumulated depreciation was
approximately $507 million and $473 million, respectively. Refer to Note 7 beginning on page 77 for cost and
accumulated amortization associated with other acquired intangibles. We calculate depreciation and amortization
primarily using the straight-line method over the estimated useful lives of the respective assets ranging from two to
forty years.
As part of the acquisition of Genworth Financial, Inc.'s ("Genworth") Medicare Supplement and related blocks of
in-force business we recognized an asset for the valuation of business acquired ("VOBA"). VOBA represents the
present value of the future profits embedded in the acquired businesses, and was determined by estimating the net
present value of future cash flows from the contracts in force at the date of acquisition. VOBA is amortized in
proportion to estimated premiums arising from the acquired contracts over their expected life.
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 material impairment losses recognized in the three years ended December 31, 2011, 2010
and 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. Net investment income and net realized 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 net realized and net 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, assumed and historical medical cost trends, historical utilization of
medical 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 operating results in the period they are
determined. Capitation costs represent contractual monthly fees paid to participating physicians and other medical