Aetna 2006 Annual Report Download - page 41

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We face risks related to litigation.
We are growing by expanding into certain segments and subsegments of the healthcare marketplace. Some of the
segments and subsegments we have targeted for growth include Medicare, Medicaid, individual, public sector and
labor customers who are not subject to ERISA’ s limits on state law remedies. In addition, we are entering into
businesses in which we previously did not participate, including mail order pharmacy, specialty pharmacy and
ActiveHealth. These businesses may increase the risks we face from litigation and other adverse legal proceedings.
For example, we are dispensing medications at our mail order and specialty pharmacies directly to members.
In addition, we are party to a number of lawsuits, certain of which are purported to be class actions. The majority
of these cases relate to the conduct of our health care business and allege various violations of law. Many of these
cases seek substantial damages (including punitive damages) and may also seek changes in our business practices.
We may also be subject to additional litigation and other adverse legal proceedings in the future. Litigation and
other adverse legal proceedings could materially adversely affect our business or operating results because of
reputational harm to us caused by such proceedings, the costs of defending such proceedings, the costs of
settlement or judgments against us, or the changes in our operations that could result from such proceedings. For
example, we made certain changes to our business practices in connection with the settlement in 2003 of a large
provider class action that we must continue to effectively implement. Refer to Note 18 of Notes to Consolidated
Financial Statements beginning on page 79 for more information.
Our business activities are highly regulated; further regulation could also materially adversely affect our
business.
Our business is subject to extensive regulation and oversight by state and federal governmental authorities. The
federal and many state governments have enacted and continue to consider legislative and regulatory changes
related to health products. We must monitor these changes and timely implement any revisions to our business
processes that these changes require. At this time, we are unable to predict the impact of future changes, although
we anticipate that some of these measures, if enacted, could adversely affect our health operations including:
• Affecting premium rates,
• Reducing our ability to manage medical costs,
• Increasing medical costs and operating expenses,
• Increasing our exposure to lawsuits and other adverse legal proceedings,
• Regulating levels and permitted lines of business,
• Imposing financial assessments, and/or
• Regulating business practices.
There continues to be a heightened review by regulators of the health care insurance industry’ s business and
reporting practices, including utilization management and claim payment practices, as well as review of the general
insurance industry’ s brokerage practices. As one of the largest national health insurers, we are regularly the subject
of regulatory market conduct reviews and several such reviews currently are pending, some of which may be
resolved during 2007. These regulatory reviews could result in changes to or clarifications of our business
practices, and also could result in material fines, penalties or other sanctions. Our business also may be adversely
impacted by judicial and regulatory decisions that expand the interpretations of existing statutes and regulations,
impose medical or bad faith liability, increase our responsibilities under ERISA, or reduce the scope of ERISA pre-
emption of state law claims. We also have received subpoenas for information from various state attorneys’
general and inquiries from other regulatory authorities with respect to an industry wide investigation into certain
insurance brokerage practices.
For more information regarding these matters, refer to Regulatory Environment beginning on page 28 and Note 18
of Notes to Consolidated Financial Statements beginning on page 79.