Aetna 2013 Annual Report Download - page 31

Annual Report- Page 25
$394 million in 2013, 2012 and 2011, respectively. These reductions were offset by estimated current year health
care costs when we established our estimate of current period health care costs payable. Our reserving practice is to
consistently recognize the actuarial best estimate of our ultimate liability for health care costs payable.
During 2013 and 2012 we observed an increase in our completion factors relative to those assumed at the prior year
end. After considering the claims paid in 2013 and 2012 with dates of service prior to the fourth quarter of the
previous year, we observed the assumed weighted average completion factors were 70 and 10 basis points higher,
respectively, than previously estimated, resulting in a decrease of approximately $117 million and $40 million in
2013 and in 2012, respectively, in health care costs payable that related to the prior year. We have considered the
pattern of changes in our completion factors when determining the completion factors used in our estimates of
IBNR at December 31, 2013. However, based on our historical claim experience, it is reasonably possible that our
estimated weighted average completion factor may vary by plus or minus 12 basis points from our assumed rates,
which could impact health care costs payable by approximately plus or minus $113 million pretax.
Also during 2013 and 2012, we observed that our health care cost trend rates for claims with claim incurred dates of
three months or less before the financial statement date were lower than previously estimated. Specifically, after
considering the claims paid in 2013 and 2012 with claim incurred dates for the fourth quarter of the previous year,
we observed health care cost trend rates that were approximately 5.3% and 3.3%, respectively, lower than
previously estimated, resulting in a reduction of approximately $332 million in 2013 and $107 million in 2012 in
health care costs payable that related to the prior year.
We consider historical health care cost trend rates together with our knowledge of recent events that may impact
current trends when developing our estimates of current health care cost trend rates. When establishing our reserves
at December 31, 2013, we increased our assumed health care cost trend rates for the most recent three months by
6% from health care cost trend rates recently observed. However, based on our historical claim experience, it is
reasonably possible that our estimated health care cost trend rates may vary by plus or minus 3.5% from our
assumed rates, which could impact health care costs payable by approximately plus or minus $262 million pretax.
Health care costs payable as of December 31, 2013 and 2012 consisted of the following products:
(Millions) 2013 2012
Commercial $ 2,768.4 $ 2,298.9
Medicare 1,123.6 465.2
Medicaid 678.3 228.4
Total health care costs payable $ 4,570.3 $ 2,992.5
Other Insurance Liabilities
We establish insurance liabilities other than health care costs payable for benefit claims primarily related to our
Group Insurance segment. We refer to these liabilities as other insurance liabilities. These liabilities primarily
relate to our life, disability and long-term care products.
Life and Disability
The liabilities for our life and disability products reflect benefit claims that have been reported to us but not yet
paid, estimates of claims that have been incurred but not yet reported to us, and future policy benefits earned under
insurance contracts. We develop these reserves and the related benefit expenses using actuarial principles and
assumptions that consider, among other things, discount, resolution and mortality rates. Completion factors are also
evaluated when estimating our reserves for claims incurred but not yet reported for life products. We also consider
the benefit payments from the U.S. Social Security Administration for which our disability members may be
eligible and which may offset our liability for disability claims (this is known as the Social Security offset). Each
period, we estimate these factors, to the extent relevant, based primarily on historical data, and use these estimates
to determine the assumptions underlying our reserve calculations. Given the extensive degree of judgment and
uncertainty used in developing these estimates, it is possible that our estimates could develop either favorably or
unfavorably.