Aetna 2012 Annual Report Download - page 71

Annual Report- Page 65
products, contracts with providers, medical management, underwriting, rating and/or claims processing methods
and processes. Relatively small differences between predicted and actual health care and other benefit costs as a
percentage of premium revenues can result in significant adverse changes in our operating results. Furthermore, if
we are unable to accurately and promptly anticipate and detect medical cost trends, our ability to take timely pricing
and other corrective actions may be limited, which would further exacerbate the adverse impact on our operating
results. This risk is 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
utilization of medical and/or other covered services and/or such trend. If health care and other benefit costs are
higher than we predict or if we are not able to obtain appropriate pricing on new or renewal business, our prices will
not reflect the risk we assume, and our operating results will be adversely affected. If health care and other benefit
costs are lower than we predict, our prices may be higher than those of our competitors, which may cause us to lose
membership. For more information, see “Critical Accounting Estimates - Health Care Costs Payable” beginning on
page 22.
Our ability to manage health care and other benefit costs affects our operating results and competitiveness.
Our operating results and competitiveness depend in large part on our ability to appropriately manage future health
care and other benefit costs through underwriting criteria, product design, negotiation of favorable provider
contracts and medical management programs. Government-imposed limitations on Medicare and Medicaid
reimbursement also have caused the private sector to bear a greater share of increasing health care and other
benefits costs over time. The aging of the population and other demographic characteristics, advances in medical
technology, increases in the cost of prescription drugs (including specialty pharmacy drugs) and other factors
continue to contribute to rising health care and other benefit costs. Changes as a result of Health Care Reform and
other changes in the regulatory environment, implementation of ICD-10, changes in health care practices, general
economic conditions (such as inflation and employment levels), new technologies, increases in the cost of
prescription drugs (including specialty pharmacy drugs), direct-to-consumer marketing by pharmaceutical
companies, clusters of high-cost cases, health care provider and member fraud, changes to Medicare and/or
Medicaid reimbursement levels to health plans and providers and numerous other factors affecting the cost of health
care can be beyond any health plan's control and may adversely affect our ability to predict and manage health care
and other benefit costs, which can adversely affect our competitiveness and operating results.
We face risks from industry, public policy and economic forces that can change the fundamentals of the
health and related benefits industry and adversely affect our business and operating results.
Various factors particular to the health and related benefits industry may affect our business model. Those factors
include, among others, a declining number of Commercially insured people; the rapid evolution of the business
model, particularly as that model moves to a direct-to-consumer marketing model, such as the model contemplated
by existing private insurance exchanges and the Insurance Exchanges, which will begin to operate in 2014, or a
defined contribution model for health benefits; shifts in public policy, including those embodied in Health Care
Reform or other changes that cause employers to shift away from defined benefit health plans; adverse changes in
laws and regulations or the interpretation of laws and regulations; consumerism; pricing actions by competitors;
competitor, provider and other supplier consolidation and integration; and changes in technology. We also face the
potential of competition from existing or new companies that have not historically been in the health or group
insurance industries, such as HIT companies and providers entering into the health insurance business. If we are
unable to anticipate or detect these and other relevant external factors and deploy meaningful responses to all
relevant external factors, our business and operating results may be adversely affected.