Aetna 2006 Annual Report Download - page 30

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We have the ability and intent to hold the securities that were in an unrealized loss position at December 31, 2006
until such securities recover in value.
The risks inherent in assessing the impairment of an investment include the risk that market factors may differ from
our expectations and the risk that facts and circumstances factored into our assessment may change with the passage
of time. Unexpected changes to market factors and circumstances that were not present in past reporting periods
may result in a current period decision to sell securities that were not impaired in prior reporting periods.
Revenue Recognition (Allowance for Estimated Terminations and Uncollectable Accounts)
Our revenue is principally derived from premiums and fees billed to customers in the Health Care and Group
Insurance businesses. In Health Care, revenue is recognized based on customer billings, which reflect contracted
rates per employee and the number of covered employees recorded in our records at the time the billings are
prepared. Billings are generally sent monthly for coverage during the following month. In Group Insurance,
premium for group life and disability products is recognized as revenue, net of allowances for uncollectable
accounts, over the term of coverage. Amounts received before the period of coverage begins are recorded as
unearned premiums.
Health Care billings may be subsequently adjusted to reflect changes in the number of covered employees due to
terminations or other factors. These adjustments are known as retroactivity adjustments. We estimate the amount
of future retroactivity each period and adjust the recorded revenue accordingly. We also estimate the amount of
uncollectable receivables each period and establish an allowance for uncollectable amounts. We base such
estimates on historical trends, premiums billed, the amount of contract renewal activity during the period and other
relevant information. As information regarding actual retroactivity and uncollectable amounts becomes known, we
refine our estimates and record any required adjustments to revenues in the period they arise. A significant
difference in the actual level of retroactivity or uncollectable amounts when compared to our estimated levels
would have a significant effect on Health Care’ s results of operations.
REGULATORY ENVIRONMENT
General
The federal and state governments continue to enact and seriously consider many legislative and regulatory
proposals that have or could materially impact various aspects of the health care system. For example, proposals
that would address the issues of affordability and availability of health insurance, including ways to reduce the
number of uninsured, are currently pending in many states and have been advanced by a number of presidential
candidates. The proposals vary, and include individual insurance requirements, the expansion of eligibility under
existing Medicaid programs, minimum medical cost ratios for health plans, mandatory issuance of insurance
coverage and requiring health plans and insurers to set premiums based only on age and home address. While
certain of these measures would adversely affect us, at this time we cannot predict the extent of this impact.
Our operations are subject to comprehensive state and federal regulation throughout the United States (“U.S.”) in
the jurisdictions in which we do business. Supervisory agencies, including state health, insurance and managed
care departments and state boards of pharmacy, have broad authority to:
• Grant, suspend and revoke our licenses to transact business;
• Regulate many aspects of the products and services we offer;
• Assess fines, penalties and/or sanctions;
• Monitor our solvency and reserve adequacy; and
• Regulate our investment activities on the basis of quality, diversification and other quantitative criteria.
Our operations and accounts and other books and records are subject to examination at regular intervals by these
agencies. In addition, our current and past business practices are subject to review by, and we from time to time
receive subpoenas and other requests for information from, these agencies and other state and federal authorities.
These reviews may result, and have resulted, in changes to or clarifications of our business practices, as well as
fines, penalties or other sanctions.