Aetna 2006 Annual Report Download - page 40

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We hold reserves for expected claims, which are estimated, and these estimates involve an extensive degree
of judgment; if actual claims exceed reserve estimates, our operating results could be materially adversely
affected; moreover any requirement to restate financial results due to the inappropriate application of
accounting principles or other matters could also have a material adverse effect on us.
Health care costs payable reflect estimates of the ultimate cost of claims that have been incurred but not yet reported
to us and claims that have been reported to us but not yet paid. Health care costs payable are estimated periodically,
and any resulting adjustments are reflected in current-period operating results within health care costs. Health care
costs payable are based on a number of factors, including those derived from historical claim experience. A large
portion of health care claims are not submitted to us until after the end of the quarter in which services are rendered
by providers to our members. As a result, an extensive degree of judgment is used in this estimation process,
considerable variability is inherent in such estimates, and the adequacy of the estimate is highly sensitive to changes
in medical claims payment patterns and changes in medical cost trends. A worsening (or improvement) of medical
cost trend or changes in claim payment patterns from those that were assumed in estimating health care costs
payable at December 31, 2006 would cause these estimates to change in the near term, and such a change could be
material. Refer to our discussion of Health Care results and Critical Accounting Estimates – Health Care Costs
Payable on pages 5 and 21, respectively for more information.
The appropriate application of accounting principles in accordance with GAAP is required to ensure the soundness
and accuracy of our financial statements. An inappropriate application of these principles may lead to a restatement
of our financial results and/or a deterioration in the soundness and accuracy of our reported financial results. If we
experienced such a deterioration, users of our financial statements may lose confidence in our reported results,
which could adversely affect our access to capital markets.
We are dependent on our ability to manage and engage a very large workforce.
Our products and services and our operations require a large number of employees. We would be adversely
affected if our retention, development, succession and other human resource management techniques are not
aligned with our strategic objectives.
Epidemics, pandemics, terrorists attacks, natural disasters or other extreme events or the continued threat of
these extreme events could materially increase health care utilization, pharmacy costs, life and disability
claims and impact our business continuity, although we cannot predict with certainty whether any such
increases will occur.
Extreme events, including terrorism, can affect the U.S. economy in general, our industry and us specifically. Such
events could materially adversely affect our business and operating results, and in the event of extreme
circumstances, our financial condition or viability. Other than obtaining insurance coverage for our facilities, there
are few, if any, commercial options through which to transfer the exposure from terrorism away from us. In
particular, in the event of bioterrorism attacks, epidemics or other extreme events, we could face significant health
care (including behavioral health) and disability costs depending on 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 exposed to
these events. We could also be adversely affected if we do not maintain adequate procedures to ensure disaster
recovery and business continuity during and after such events.
We must demonstrate that our products and processes lead to access by our members to quality care by
their providers, or delivery of care by us.
Failure to demonstrate that our products and processes (such as disease management and patient safety programs,
provider credentialing and other quality of care and information management initiatives) lead to access by our
members to quality care by providers or by us would adversely affect our ability to differentiate our product and/or
service offerings from those of competitors and could adversely affect our results of operations.