Aetna 2013 Annual Report Download - page 68

Annual Report- Page 62
also determine the premium levels and other aspects of Medicare, Medicaid and dual eligible programs that affect
the number of persons eligible for or enrolled in these programs, the services provided to enrollees under the
programs, and our administrative and health care and other benefit costs under these programs. In the past,
determinations of this type have adversely affected our financial results from and willingness to participate in such
programs, and they may do so again in the future. For example, if a government customer reduces premium levels
or increases premiums by less than the increase in our costs (such as by not allowing us to recover applicable Health
Care Reform fees, taxes and assessments), and we cannot offset the impact of these actions with supplemental
premiums and/or changes in benefit plans, then our business and operating results could be adversely affected. In
addition, if states allow certain programs to expire or choose to opt out of Medicaid expansion, we could experience
reduced Medicaid enrollment or reduced Medicaid enrollment growth, which would adversely affect our business,
revenues and operating results.
Our ability to anticipate medical cost trends and achieve appropriate pricing on Public Exchanges could
adversely affect our operating results. There can be no assurance that the future health care benefit costs of our
Public Exchange products will not exceed our projections.
Unanticipated increases in our Public Exchange product health care benefit costs could adversely affect our
operating results. Coverage under Public Exchange products commenced on January 1, 2014, and although initial
enrollment in these products is ongoing, membership is less than expected by the federal government. We do not
have prior experience with pricing Public Exchange products or utilization of medical and/or other covered services
by Public Exchange product members. We have set premium rates for our Public Exchange products based on our
projections, including as to the health status and quantity of Public Exchange membership, utilization of medical
and/or other covered services by Public Exchange product members and the individual Public Exchange open
enrollment period ending on March 31, 2014.
The premium rates for our Public Exchange products are set in advance and fixed for one-year periods. As a result,
health care benefit costs in excess of the projections reflected in our Public Exchange product pricing cannot be
recovered in the fixed premium period through higher premiums. Although, in certain circumstances, federal risk
adjustment mechanisms could help offset health care benefit costs in excess of our projections, the profitability of
our Public Exchange products is particularly sensitive to the accuracy of our forecasts of health care benefit costs.
Those forecasts were made several months before the fixed premium period began, require a significant degree of
judgment and are dependent on our ability to detect medical cost trends.
There can be no assurance regarding the accuracy of the health care benefit cost, membership or other projections
reflected in our Public Exchange product pricing. This risk is magnified by adverse selection among individuals
who require or utilize more expensive medical and/or other covered services (which may be reinforced by the
technical difficulties applicants encounter in utilizing Public Exchanges which may, among other things, deter
relatively healthy individuals, whereas those who require or utilize more medical and/or other covered services may
be more determined to overcome such technical difficulties) and the potential for legislation or regulations that
cause Public Exchanges to operate in a manner different than what we projected in setting our Public Exchange
product premium rates. For additional information on certain of the medical cost trend, pricing and economic
conditions risks associated with our Insurance Exchange and other Health Care products, see “We may not be able
to accurately forecast health care and other benefit costs, which could adversely affect our operating results. We
may not able to obtain appropriate pricing on new or renewal business”, beginning on page 58; and “We may not be
able to obtain adequate premium rate increases, which would have an adverse effect on our revenues, medical
benefit ratios and operating results and could magnify the adverse impact of increases in health care and other
benefit costs and of Health Care Reform assessments, fees and taxes”, beginning on page 51.
Bids for non-Commercial business in our Health Care segment are increasingly subject to challenge, which may
adversely affect contracts initially awarded to us and may result in increased costs.
We continue to increase our focus on the non-Commercial portion of our Health Care segment as part of our
business diversification efforts, and that portion of our business increased as a percentage of our total business due
to the Coventry acquisition in 2013. We are seeking to substantially grow our Medicare, Medicaid and dual eligibles