Aetna 2012 Annual Report Download - page 15

Annual Report- Page 9
Operating earnings in 2012 decreased compared to 2011.
2012 operating earnings were lower than 2011, primarily due to lower Commercial underwriting margins which
declined primarily due to the favorable impact of development of prior-years' health care cost estimates on 2011
Commercial underwriting margins and consideration of our 2011 experience in our 2012 pricing, partially offset by
higher underwriting margins in our Medicare business, primarily the result of our 2011 acquisition of Genworth's
Medicare Supplement business. 2011 operating earnings were higher than 2010, primarily due to higher
Commercial underwriting margins as a result of low medical utilization, disciplined execution of our pricing and
medical cost management strategies and unit cost controls. There was no significant development of prior-years'
health care cost estimates in 2012. Our operating earnings in 2011 and 2010 included $132 million and $76 million,
respectively, of after-tax favorable development of prior-years' health care cost estimates. Refer 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:
2012 2011 2010
Commercial 81.1% 77.9% 80.6%
Medicare 83.8% 84.0% 87.3%
Medicaid 89.0% 87.3% 87.5%
Total 82.2% 79.6% 82.3%
Refer to our discussion of Commercial and Medicare results below for an explanation of the changes in our MBRs.
Commercial operating results reflect lower underwriting margins and lower Insured membership in 2012
compared to 2011.
Commercial premiums were $681 million higher in 2012 than 2011, primarily due to higher Commercial premium
rates partially offset by lower Commercial Insured membership in 2012. Commercial premiums were $368 million
lower in 2011 than 2010, primarily due to lower Commercial Insured membership, partially offset by premium rate
increases as well as changes in the customer market, product and geographic mix of business.
Our Commercial MBRs were 81.1%, 77.9% and 80.6% for 2012, 2011 and 2010, respectively. The increase in our
Commercial MBR in 2012 compared to 2011 is primarily due to the favorable impact of development of prior-
years' health care cost estimates on the 2011 MBR and consideration of our 2011 experience in 2012 pricing. The
decrease in our Commercial MBR in 2011 compared to 2010 reflects favorable development of prior-years' health
care cost estimates in 2011 as well as disciplined execution of our pricing and medical cost management strategies
and unit cost controls. There was no significant development of prior-years' health care cost estimates in 2012.
Included in the 2011 Commercial MBR is approximately $171 million of favorable development of prior-years'
health care cost estimates. The majority of this development resulted from lower than projected paid claims in the
first half of 2011 for claims incurred in the latter half of 2010 caused by lower than projected utilization of medical
services. Included in the 2010 Commercial MBR is approximately $60 million of favorable development of prior-
years' health care cost estimates. This development primarily resulted from lower than projected paid claims in the
first half of 2010 for claims incurred in the latter part of 2009 caused by lower than projected utilization of medical
services driven by the abatement of H1N1 and other flu, among other factors.
The calculation of Health Care Costs Payable is a critical accounting estimate (refer to “Critical Accounting
Estimates - Health Care Costs Payable” beginning on page 22 for additional information).