Aetna 2015 Annual Report Download - page 75

Annual Report- Page 69
A change in our health care product mix may impact our profit margins.
Our health care products that involve greater potential risk generally tend to be more profitable than administrative
services contract products. Individuals and small employer groups are more likely to purchase our higher-risk health
care products because such purchasers are generally unable or unwilling to bear greater liability for health care
expenditures. Typically, government-sponsored programs also involve our higher-risk health care products and have
lower profit margins than our Insured Commercial products, and our membership is projected to shift towards
higher revenue, higher MBR Government products in 2016. In 2014 and 2015, our products sold on the Public
Exchanges were not profitable. A shift of enrollees from more profitable products to less profitable products could
have a material adverse effect on our operating results.
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. That portion of our business increased as a percentage of our total business due to
the Coventry acquisition in 2013 and would significantly increase upon the closing of the Proposed Acquisition. We
are seeking to substantially grow our Medicare, Medicaid and dual eligibles business over the next several years. In
many instances, to acquire and retain our non-Commercial business, we must bid against our competitors in an
increasingly competitive environment. Winning bids increasingly are being challenged successfully. In cases where
our bid is successful, we may incur unreimbursed implementation and other costs to meet contractual deadlines
even if we ultimately lose the challenge.
Extreme events, or the threat of extreme events, could materially increase our health care (including behavioral
health), life insurance and disability costs and impact our business continuity. We cannot predict whether or
when any such events will occur.
Nuclear, biological or other attacks, whether as a result of war or terrorism, other man-made disasters, natural
disasters, epidemics, pandemics and other extreme events can affect the U.S. economy in general, our industry and
us specifically. In particular, such extreme events or the threat of such extreme events could result in significant
health care (including behavioral health), life insurance and disability costs, which would also be affected by the
government’s actions and the responsiveness of public health agencies and other insurers. In addition, our life
insurance members and our employees and those of our vendors are concentrated in certain large, metropolitan
areas which may be particularly exposed to these events. Such events could adversely affect our business, cash
flows, and operating results, and, in the event of extreme circumstances, our financial position or viability.
Our business could also be adversely affected if we do not maintain adequate procedures to ensure disaster recovery
and business continuity during and after such events. Other than obtaining insurance coverage for our facilities and
limited reinsurance of our Health Care and/or Group Insurance liabilities, there are few, if any, commercial options
through which to transfer the exposure from terrorism or other extreme events away from us.
Risks Related to Our Operations
Unless we are able to develop alternative sources of revenue and earnings and achieve transformational change
in our business model, our ability to profitably grow our business could be adversely affected.
We operate in a highly competitive environment and in an industry that is subject to significant ongoing changes
from marketplace pressures brought about by public policy forces, Health Care Reform, Insurance Exchanges,
customer demands, business consolidations, strategic alliances, new market entrants, legislative and regulatory
changes and marketing practices. As a result of Health Care Reform, the declining number of commercially insured
people and other factors, our ability to grow profitably through the sale of traditional Insured health care and related
benefits products in the United States may be limited. In order to profitably grow our business in the future, we
need to diversify the sources of our revenue and earnings and transform our business model, including through
developing and expanding our consumer business, making investments in consumer engagement capabilities and