Aetna 2011 Annual Report Download - page 8

Annual Report- Page 2
Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”)
OVERVIEW
We are one of the nation’s leading diversified health care benefits companies, serving approximately 36.4 million
people with information and resources to help them make better informed decisions about their health care. We
offer a broad range 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. Our customers
include employer groups, individuals, college students, part-time and hourly workers, health plans, health care
providers, governmental units, government-sponsored plans, labor groups and expatriates. Our operations are
conducted in three business segments: Health Care, Group Insurance and Large Case Pensions.
Summarized Results
(Millions)
Revenue:
Health Care
Group Insurance
Large Case Pensions
Total revenue
Net income
Operating earnings: (1)
Health Care
Group Insurance
Large Case Pensions
Cash flows from operations
2011
$ 31,254.0
2,025.6
500.2
33,779.8
1,985.7
1,955.7
153.0
20.7
2,507.8
2010
$ 31,604.0
2,118.6
523.4
34,246.0
1,766.8
1,650.1
128.0
27.8
1,412.1
2009
$ 32,073.3
2,143.0
547.8
34,764.1
1,276.5
1,412.7
103.8
32.2
2,488.3
(1) Our discussion of operating results for our reportable business segments is based on operating earnings, which is a non-GAAP measure
of net income (the term “GAAP” refers to U.S. generally accepted accounting principles). Refer to “Segment Results and Use of Non-
GAAP Measures in this Document" beginning on page 5 for a discussion of non-GAAP measures. Refer to pages 7, 10 and 11 for a
reconciliation of operating earnings to net income for Health Care, Group Insurance and Large Case Pensions, respectively.
We analyze our operating results based on operating earnings, which excludes net realized capital gains and losses
as well as other items from net income. Operating earnings for the past three years were primarily generated from
our Health Care segment. This segment produced higher operating earnings in 2011 than 2010 and 2009.
Operating earnings in 2011 were higher than 2010 and 2009 primarily as a result of higher Commercial
underwriting margins (calculated as premiums less health care costs) in our Health Care segment. In 2011,
underwriting margins in the Health Care segment were higher than 2010 primarily as a result of low medical
utilization, continued pricing discipline, medical cost management and unit cost controls. In 2010, underwriting
margins in the Health Care segment were higher than 2009 primarily due to higher Commercial underwriting
margins, driven by management actions to appropriately price the business and members' lower medical utilization,
partially offset by the effect of lower Commercial Insured membership in 2010. Our underwriting margins in 2011
and 2010 included $207 million and $118 million, respectively, of before tax favorable development of prior-years
health care cost estimates.
Total revenue declined during each of 2011 and 2010 when compared to the corresponding prior year primarily due
to a decline in Health Care premium as a result of lower Commercial Insured membership due primarily to lapsed
customers and in-group attrition that exceeded new sales. During 2011, the decline in total revenue was partially
offset by higher Health Care fees and other revenue, primarily as a result of our 2011 acquisitions.
In 2011, our Health Care segment experienced lower medical Insured membership (where we assume all or a
majority of the risk for medical and dental care costs) and higher medical membership in our administrative
services contract ("ASC") products (where the plan sponsor assumes all or a majority of the risk for medical and