Aetna 2009 Annual Report Download - page 24

2007, respectively. This reduction was offset by current year health care costs when we established our estimate of
current period health care costs payable. Our reserving practice is to consistently recognize the actuarial best estimate
of our ultimate liability for health care costs payable. When significant decreases (increases) in prior periods’ health
care cost estimates occur that we believe significantly impact our current period results of operations, we disclose that
amount as favorable (unfavorable) development of prior period health care cost estimates. In 2009 we had
approximately $116 million of unfavorable development of prior period health care cost estimates that was driven by
what we believe was unusually high paid claims activity in the first half of 2009 related to the second half of 2008.
This unfavorable development of prior year health care cost estimates offset the amount of the 2009 reduction in our
estimate of health care costs payable for prior years. We had no significant amount of favorable (unfavorable)
development of prior year health care cost estimates that affected our results of operations in 2008.
During 2009 we observed essentially no change in our completion factors relative to those assumed at year end 2008.
During 2008 we observed an increase in our completion factors as a result of a speedup in the provider claim
submission and our processing times relative to those assumed at December 31, 2007. After considering the claims
paid in 2009 and 2008 with dates of service prior to the fourth quarter of the previous year, we observed the assumed
weighted average completion factors were approximately flat and 20 basis points higher, respectively, than previously
estimated, resulting in a decrease of approximately $7 million in 2009 and $43 million in 2008 in health care costs
payable that related to the prior year. We have considered the pattern of changes in our completion factors when
determining the completion factors used in our estimates of IBNR at December 31, 2009. However, based on our
historical claim experience, it is reasonably possible that our estimated completion factors may vary by plus or minus
50 basis points from our assumed rates, which could impact health care costs payable by approximately plus or minus
$29 million pretax.
Also during 2009 and 2008, we observed that our health care cost trend rates for claims with dates of service three
months or less before the financial statement date were slightly lower than previously estimated. Specifically, after
considering the claims paid in 2009 and 2008 with dates of service for the fourth quarter of the previous year, we
observed health care cost trend rates that were approximately .9% and 3.7%, respectively, lower than previously
estimated, resulting in a reduction of approximately $59 million in 2009 and $120 million in 2008 in health care costs
payable that related to the prior year.
We consider historical health care cost trend rates together with our knowledge of recent events that may impact
current trends when developing our estimates of current health care cost trend rates. When establishing our reserves at
December 31, 2009, we increased our assumed health care cost trend rates for the most recent three months by 5.3%
from health care cost trend rates recently observed. However, based on our historical claim experience, it is
reasonably possible that our estimated health care cost trend rates may vary by plus or minus 3.5% from our assumed
rates, which could impact health care costs payable by approximately plus or minus $182 million pretax.
Health care costs payable as of December 31, 2009 and 2008 consisted of the following products:
(Millions) 2009 2008
Commercial 2,295.0$ 1,936.6$
Medicare 492.0 390.9
Medicaid 108.3 65.7
Total health care costs payable 2,895.3$ 2,393.2$
Premium Deficiency Reserves
We recognize a premium deficiency loss when it is probable that expected future health care costs will exceed our
existing reserves plus anticipated future premiums and reinsurance recoveries. Anticipated investment income is
considered in the calculation of expected losses for certain contracts. Any such reserves established would normally
cover expected losses until the next policy renewal dates for the related policies. We did not have any material
premium deficiency reserves for our Health Care business at December 31, 2009 or 2008.
Other Insurance Liabilities
We establish insurance liabilities other than health care costs payable for benefit claims related to our Group Insurance
segment. We refer to these liabilities as other insurance liabilities. These liabilities relate to our life, disability and
long-term care products.
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