Aetna 2006 Annual Report Download - page 37

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quality and sufficiency of medical provider networks and quality of medical management programs. In addition to
competitive pressures affecting our ability to obtain new customers or retain existing customers, our membership
can be affected by reductions in workforce by existing customers due to soft general economic conditions,
especially in the geographies where our membership is concentrated. Failure to profitably grow and diversify our
membership geographically or by product type may adversely affect our operating results.
Our ability to manage health care costs affects our profitability.
Our profitability depends in large part on our ability to appropriately manage future health care costs through
underwriting criteria, product design, negotiation of favorable provider contracts and medical management
programs. The aging of the population and other demographic characteristics, advances in medical technology and
other factors continue to contribute to rising health care costs. Government-imposed limitations on Medicare and
Medicaid reimbursements have also caused the private sector to assume a greater share of increasing health care
costs. Changes in health care practices, inflation, new technologies, increases in the cost of prescription drugs,
direct-to-consumer marketing by pharmaceutical companies, clusters of high cost cases, changes in the regulatory
environment, health care provider or member fraud and numerous other factors affecting the cost of health care can
be beyond any health plan’ s control and may adversely affect our ability to manage health care costs, as well as our
business, financial condition and operating results.
Our ability to forecast health care and other benefit costs, detect changes in these costs and achieve
appropriate pricing affects our profitability.
We continue to be vigilant in our pricing and have generally increased our premiums for new and renewal Risk
business in 2007. Premiums in the health business are generally fixed for one-year periods. Accordingly, future
cost increases in excess of medical cost projections reflected in our pricing cannot be recovered in the contract year
through higher premiums. As a result, our profits are particularly sensitive to the accuracy of our forecasts of
increases in health care and other benefit costs, which we make before we renew or place new business and are
dependent on our ability to anticipate and detect medical cost trends. There can be no assurance regarding the
accuracy of the health care or other benefit cost projections we assumed for pricing purposes, including the impact
of external events over which we have no control. If the rate of increase in medical costs in 2007 were to exceed
the levels we projected for pricing purposes, our operating results would be materially adversely affected.
We must continue to provide quality service to our customers that meets their expectations.
Our ability to attract and retain membership is dependent upon providing quality customer service operations (such
as call center operations, claim processing, mail order pharmacy prescription delivery, specialty pharmacy
prescription delivery and customer case installation) that meet or exceed our customers’ expectations. Failure to
provide service that meets our customers’ expectations can affect our ability to retain or grow profitable
membership which can adversely affect our operating results.
We must continue to differentiate our products and services from those of our competitors; we operate in an
evolving industry that requires us to anticipate changes in customer preferences and deliver products and
services that demonstrate value to our customers.
We operate in a highly competitive environment and in an industry that is subject to significant ongoing changes
from market pressures brought about by customer demands, as well as business consolidations, strategic alliances,
legislative and regulatory changes and marketing practices. These factors require us to differentiate our products
and services by anticipating changes in customer preferences and delivering products and services that demonstrate
value to our customers. Failure to anticipate changes in customer preferences and deliver products and services that
demonstrate value to our customers can affect our ability to retain or grow profitable membership which can
adversely affect our operating results.
Our business success and profitability depend in part on effective information technology systems and on
continuing to develop and implement improvements in technology; certain significant multiyear strategic
information technology projects are currently in process.
Our businesses depend in large part on our information and other technology systems for processing claims and
interacting with providers, employer plan sponsors and members, and our business strategy involves providing
customers with easy to use products that leverage information to meet the needs of those customers. Our success is
dependent in large part on maintaining the effectiveness of existing technology systems and on continuing to
develop and enhance technology systems that support our business processes in a cost and resource efficient