Aetna 2013 Annual Report Download - page 69

Annual Report- Page 63
business over the next several years. In many instances, to acquire and retain our non-Commercial business, we
must bid against our competitors in an increasingly competitive environment. Winning bids increasingly are being
challenged successfully. In cases where our bid is successful, we may incur unreimbursed implementation and other
costs to meet contractual deadlines even if we ultimately lose the challenge.
The reserves we hold for expected claims are based on estimates that involve an extensive degree of judgment
and are inherently variable. If actual claims exceed our estimates, our operating results could be materially
adversely affected and our ability to take timely corrective actions to limit future costs may be limited.
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. Our reported health care costs payable for any particular period reflect our
estimates of the ultimate cost of such claims as well as claims that have been reported to us but not yet paid. We
also must estimate the amount of rebates payable under Health Care Reform's minimum MLR rules.
Our estimates of health care costs payable are based on a number of factors, including those derived from historical
claim experience, but this estimation process also makes use of extensive judgment. Considerable variability is
inherent in such estimates, and the accuracy of the estimates is highly sensitive to changes in medical claims
submission and processing patterns and/or procedures, changes in membership and product mix, changes in the
utilization of medical and/or other covered services, changes in medical cost trends, changes in our medical
management practices and the introduction of new benefits and products. We estimate health care costs payable
periodically, and any resulting adjustments are reflected in current-period operating results within health care costs.
A worsening (or improvement) of health care cost trend rates or changes in claim payment patterns from those that
we assumed in estimating health care costs payable at December 31, 2013 would cause these estimates to change in
the near term, and such a change could be material.
Furthermore, if we are not able to accurately and promptly anticipate and detect medical cost trends or accurately
estimate the cost of incurred but not yet reported claims or reported claims that have not been paid, our ability to
take timely corrective actions to limit future costs and reflect our current benefit cost experience in our pricing
process may be limited, which would further exacerbate the extent of any negative impact on our operating results.
These risks are particularly acute during and following periods (such as calendar years 2010-2013) when utilization
of medical and/or other covered services and/or medical cost trends are below recent historical levels (possibly due
to members postponing necessary care or neglecting to seek preventive care, thereby increasing the risk that acute
care will be needed) and such risks are further magnified by Health Care Reform and other legislation and
regulations that limit our ability to price for our projected and/or experienced increases in utilization and/or medical
cost trend.
Refer to our discussion of “Critical Accounting Estimates - Health Care Costs Payable” beginning on page 23 for
more information.
Our medical membership remains concentrated in certain geographic areas and industries, exposing us to
unfavorable changes in local benefit costs, reimbursement rates, competition and economic conditions.
Even after the Coventry acquisition, our medical membership remains concentrated in certain geographic areas in
the U.S. and in certain industries. Unfavorable changes in health care or other benefit costs or reimbursement rates
or increased competition in those geographic areas where our membership is concentrated could therefore have a
disproportionately adverse effect on our operating results. Our membership has been and may continue to be
affected by workforce reductions by our customers due to unfavorable general economic conditions, especially in
the U.S. geographies and industries where our membership is concentrated. As a result, we may not be able to
profitably grow and diversify our membership geographically, by product type or by customer industry, and our
revenue and operating results may be disproportionately affected by adverse changes affecting our customers.