Aetna 2015 Annual Report Download - page 69

Annual Report- Page 63
could be liable for, and be required to fund, such claims. Furthermore, the terms of our disability products often
provide that the benefits due to beneficiaries are reduced by the amount of certain federal benefits they receive,
most notably Social Security Disability Insurance (“SSDI”) payments. If such payments are suspended or reduced
due to a failure to timely raise the debt ceiling, our disability payment obligations would be increased accordingly,
and such increase could be material. If beneficiaries subsequently receive such payments from the federal
government, we would seek reimbursement or attempt to offset a portion of such payments against future disability
benefit payments. We may not be successful in recovering the amount sought. A failure to timely raise the debt
ceiling could have a material adverse effect on our businesses, operating results, cash flows and reputation and, in
the case of a prolonged failure to raise the debt ceiling, our financial position.
If the United States defaults on its obligations due to a failure to timely raise the debt ceiling or otherwise, or its
credit rating is downgraded by any of the credit rating agencies, interest rates could rise, financial markets could
become volatile and/or the availability of credit (and short-term credit in particular) could be adversely affected,
thereby increasing our borrowing costs, negatively impacting the value of our investment portfolio, and/or
adversely affecting our ability to access the capital markets, which could have a material adverse effect on our
operating results, financial position and cash flows and could adversely affect our liquidity.
Risks Related to Our Business
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.
Premiums for our insured Health Care Products, which comprised 86% and 85% of our total consolidated revenues
for 2015 and 2014, respectively, are priced in advance based on our forecasts of health care and other benefit costs
during a fixed premium period, which is generally one year. These forecasts are typically developed several months
before the fixed premium period begins, are influenced by historical data (and recent historical data in particular),
are dependent on our ability to anticipate and detect medical cost trends, and require a significant degree of
judgment. For example, our revenue on Medicare policies is based on bids submitted in June of the year before the
contract year. Cost increases in excess of our projections cannot be recovered in the fixed premium period through
higher premiums. As a result, our profits are particularly sensitive to the accuracy of our forecasts and our ability to
anticipate and detect medical cost trends. Even 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.
Our health care and other benefit costs can be affected by external events that we cannot forecast or project and
over which we have little or no control, such as emerging changes in the economy and/or public policy, government
mandated benefits or other regulatory changes, changes in health care practices, new technologies, increases in the
cost of prescription drugs, direct-to-consumer marketing by pharmaceutical companies, clusters of high cost cases,
influenza related health care costs (which may be substantial and are currently projected to be lower in to
2015-2016 than in 2014-2015), epidemics, pandemics, terrorist attacks or other man-made disasters, natural
disasters or other events that materially increase utilization of medical and/or other covered services, as well as
changes in members’ behavior and healthcare utilization patterns and provider billing practices. Our health care and
other benefit costs also can be affected by changes in our business mix, product designs, contracts with providers,
medical management, underwriting, rating and/or claims processing methods and processes, and our medical
management initiatives may not deliver the reduction in utilization and/or medical cost trend that we project.
It is particularly difficult to accurately anticipate, detect, forecast, manage and reserve for medical cost trends and
utilization of medical and/or other covered services during and following periods when such utilization and/or
trends are below recent historical levels and during periods of changing economic conditions and employment
levels. For example, during calendar year 2014, medical costs in our smaller middle market and individual
businesses were higher than we projected, and during the calendar years 2010-2013, medical costs and members’
utilization of medical and/or other covered services were lower than we projected and members’ utilization was
below recent historical levels. The recent favorable experience is not projected to continue in 2016, as we expect
utilization to increase in 2016 when compared to 2015.