Aetna (NYSE: AET) today announced third-quarter 2011 operating
earnings (1) of $528.4 million, or $1.40 per share, a per share
increase of 40 percent over 2010. The increase in third quarter
operating earnings was largely the result of strong performance
across all product lines from lower than projected utilization and
disciplined execution of our pricing and medical cost management
strategies, partially offset by the effect of lower commercial
insured membership in 2011. Third-quarter operating earnings
included favorable prior-period reserve development of
approximately $117 million, after tax. The significant majority of
this development is a result of current year performance, mainly
attributable to second quarter 2011 incurred health care costs.
Third-quarter net income per share, which includes a one-time $.24
per share charge associated with the previously announced voluntary
early retirement program, was $1.30, a per share increase of 9
percent over 2010.
For the nine months ended September 30, 2011, operating earnings
per share and net income per share were both $4.19. Operating
earnings per share for the nine months ended
September 30, 2011 includes $.37 per share of favorable
prior-year reserve development substantially from 2010 incurred
health care costs.
Third Quarter Financial Results at a Glance
Three Months Ended September 30, (Millions, except
per share results) 2011
2010 Change Revenue, excluding net realized
capital gains (3) $ 8,396.7 $ 8,459.2 (1)% Operating earnings 528.4
419.6 26% Net income 490.4 497.6 (1)% Per share results:
Operating earnings $ 1.40 $ 1.00 40% Net income 1.30 1.19 9%
Weighted average common shares - diluted 376.8
418.8
“These results are a continuation of our strong operating
performance in the first and second quarters, driven largely by
lower-than-projected utilization, our pricing discipline and our
medical cost management strategies,” said Mark T. Bertolini, Aetna
chairman, CEO and president. “In our core health operations, we're
excited about the prospects for our Medicare business, which posted
another strong quarter. Aetna Medicare will gain even more momentum
with the completion of the Genworth Medicare Supplement acquisition
and our recent launch of a co-branded CVS Part D plan.
“In our emerging businesses, we are advancing new models of
payment reform in our relationships with providers as part of our
strategy to create shareholder value by leveraging new capabilities
and technology assets to strengthen our core health business.
Building on our success with the provider systems we have mentioned
previously, our Accountable Care Solutions business has a strong
pipeline of new opportunities. We are excited about working with
providers to offer a variety of low-cost local-market options,
including narrow networks. Provider collaboration is key to our
strategy for addressing the new health-care marketplace in 2014 and
beyond,” said Bertolini.
“Our strong performance and excellent capital position allow
Aetna to continue to invest in our future and ensure that we serve
the needs of our customers through advanced technologies, products
and services,” said Joseph M. Zubretsky, Aetna senior executive
vice president and CFO. “Through October, we have deployed
approximately $1.6 billion in capital for acquisitions that
strategically strengthen Aetna across the enterprise. The PayFlex
and Medicare Supplement acquisitions will enhance our core
capabilities, while the purchase earlier in the year of Medicity
already has helped to fuel our growth in the accountable-care
space. At the same time, we have deployed $1.2 billion through
September 30 to repurchase 31 million of our shares.
“With the favorable performance in the first nine months, we are
increasing our full-year 2011 operating earnings projection to
$5.00 per share. Our initial projection is that we will be able to
generate full-year 2012 operating earnings of at least $4.80 per
share.”
Health Care business results
Health Care, which provides a full range of insured and
self-insured medical, pharmacy, dental and behavioral health
products and services, reported:
- Operating earnings of $525.7 million
for the third quarter of 2011, compared with $442.2 million for the
corresponding period in 2010. The increase in operating earnings
was primarily due to higher commercial underwriting margins which
continue to benefit from lower than projected utilization and
disciplined execution of our pricing and medical cost management
strategies, partially offset by the effect of lower commercial
insured membership in 2011. Operating earnings included
approximately $117 million and $69 million, after tax, of favorable
prior-period reserve development in the third quarter of 2011 and
2010, respectively. Prior-period reserve development for the third
quarter of 2011 relates primarily to second quarter 2011 incurred
health care costs.
- Revenues (3) were $7.8 billion for both
the third quarter of 2011 and the third quarter of 2010. Total
revenue for the third quarter of 2011, which includes net realized
capital gains, was $7.8 billion compared with $7.9 billion for the
third quarter of 2010.
- Medical benefit ratios (MBRs) for third
quarter 2011 and 2010 were as follows:
2011
2010 Commercial
77.8% 80.5% Medicare 81.4% 84.9% Medicaid
84.7% 88.8% Total
78.9% 81.8%
- Excluding favorable prior-period
reserve development, the Total MBR was 81.5 percent and 83.3
percent for the third quarter of 2011 and 2010, respectively. Total
medical costs include favorable development of prior-period health
care cost estimates of $181 million and $107 million in the third
quarter of 2011 and 2010, respectively.
- Excluding favorable prior-period
reserve development, the Commercial MBR was 80.6 percent and 82.2
percent for the third quarter of 2011 and 2010, respectively.
Commercial medical costs include favorable prior-period development
of $141 million and $90 million in the third quarter of 2011 and
2010, respectively.
- Excluding favorable prior-period
reserve development, the Medicare MBR was 83.1 percent and 85.3
percent for the third quarter of 2011 and 2010, respectively.
Medicare medical costs include favorable prior-period development
of $22 million and $6 million in the third quarter of 2011 and
2010, respectively.
- Sequentially, third-quarter 2011
medical membership decreased by 11 thousand to 18.230 million;
dental membership decreased by 139 thousand to 13.647 million and
pharmacy benefit management services membership increased by 28
thousand to 8.806 million.
- Net income was $471.3 million for the
third quarter of 2011, compared with $507.5 million for the third
quarter of 2010.Favorable prior-year reserve development was $218
million and $142 million for the nine months ended
September 30, 2011 and 2010, respectively.
Group Insurance business results
Group Insurance, which includes group life, disability and
long-term care products, reported:
- Operating earnings of $37.9 million for
the third quarter of 2011, compared with $34.6 million for the
third quarter of 2010.
- Net income of $51.1 million for the
third quarter of 2011, compared with $50.8 million for the third
quarter of 2010.
- Revenues (3) of $489.0 million for the
third quarter of 2011, compared with $501.7 million for the third
quarter of 2010. Third quarter total revenue, which includes net
realized capital gains, was $509.3 million in 2011 and $526.6
million in 2010.
Large Case Pensions business results
Large Case Pensions, which manages a variety of discontinued and
other retirement and savings products, primarily qualified pension
plans, reported:
- Operating earnings of $4.4 million for
the third quarter of 2011, compared with $5.6 million for the third
quarter of 2010.
- Net income of $7.6 million for the
third quarter of 2011, compared with net income of $2.1 million for
the third quarter of 2010.
Total company results
- Revenues (3) for the
third quarter of 2011 were $8.4 billion, compared with $8.5 billion
for the third quarter of 2010. Total Revenue, which includes net
realized capital gains, was $8.5 billion for both the third quarter
of 2011 and the third quarter of 2010.
- Operating Expenses (1)
were $1.7 billion for the third quarter of 2011, $84.2 million
higher than the third quarter of 2010. The operating expense ratio
(4) was 20.0 percent for the third quarter of 2011 and 18.9 percent
for the third quarter of 2010. The increase in the operating
expense ratio is driven primarily by the inclusion of acquisitions,
the settlement of certain contractual disputes, increased
investment spending, including open enrollment initiatives, and
lower revenue. Including net realized capital gains, a one-time
charge associated with the voluntary early retirement program
announced during the third quarter of 2011 and litigation-related
insurance proceeds recorded in 2010, these percentages were 21.4
percent and 18.2 percent for the third quarter of 2011 and 2010,
respectively.
- Corporate Financing Interest
Expense was $38.8 million and $41.6 million after tax for the
third quarter of 2011 and 2010, respectively.
- Net Income was $490.4 million
for the third quarter of 2011 compared with $497.6 million for the
third quarter of 2010.
- Pre-tax Operating Margin
(5) was 10.7 percent for the third quarter of 2011 compared
with 8.7 percent for the third quarter of 2010. For both the third
quarter of 2011 and 2010, the after-tax net income margin was 5.8
percent.
- Share Repurchases totaled 12.8
million shares at a cost of $493 million in the third quarter of
2011.
Aetna's conference call to discuss third quarter 2011 results
will begin at 8:30 a.m. ET today. The public may access the
conference call through a live audio webcast available on Aetna's
Investor Information link on the Internet at www.aetna.com.
Financial, statistical and other information, including GAAP
reconciliations, related to the conference call also will be
available on Aetna's Investor Information web site.
The conference call also can be accessed by dialing 888-401-4685
or +1-719-457-2710 for international callers. The company suggests
participants dial in approximately 10 minutes before the call. The
access code is 7249513. Individuals who dial in will be asked to
identify themselves and their affiliations.
A replay of the call may be accessed through Aetna's Investor
Information link on the Internet at www.aetna.com or by dialing
888-203-1112, or +1-719-457-0820 for international callers. The
replay access code is 7249513. Telephone replays will be available
from 11 a.m. ET on October 27, 2011 until 11 p.m. ET on November
10, 2011.
About Aetna
Aetna is one of the nation's leading diversified health care
benefits companies, serving approximately 36.3 million people with
information and resources to help them make better informed
decisions about their health care. Aetna offers a broad range of
traditional, voluntary and consumer-directed health insurance
products and related services, including medical, pharmacy, dental,
behavioral health, group life and disability plans, and medical
management capabilities and health care management services for
Medicaid plans. Our customers include employer groups, individuals,
college students, part-time and hourly workers, health plans,
governmental units, government-sponsored plans, labor groups and
expatriates. For more information, see www.aetna.com.
Consolidated Statements of Income
For the Three Months For the Nine
Months Ended September 30, Ended September 30,
(Millions) 2011
2010 2011 2010
Revenue: Health care premiums $ 6,776.7 $ 6,908.9 $ 20,260.7
$ 20,719.2 Other premiums 439.8 448.9 1,336.9 1,384.1 Fees and
other revenue 946.6 853.2 2,742.7 2,626.0 Net investment income
233.6 248.2 727.5 777.1 Net realized capital gains
78.6 79.6 139.7 199.7
Total revenue 8,475.3 8,538.8
25,207.5 25,706.1
Benefits and
expenses: Health care costs 5,345.5 5,649.3 16,060.3 16,998.9
Current and future benefits 470.7 480.9 1,433.9 1,488.6 Operating
expenses: Selling expenses 269.1 304.8 827.0 928.8 General and
administrative expenses 1,547.2 1,249.3
4,144.5 3,700.6 Total operating
expenses 1,816.3 1,554.1 4,971.5 4,629.4 Interest expense 59.7 63.9
187.3 185.5 Amortization of other acquired intangible assets
31.7 23.4 83.6
72.0 Total benefits and expenses 7,723.9
7,771.6 22,736.6 23,374.4
Income before income taxes 751.4 767.2 2,470.9 2,331.7 Income taxes
261.0 269.6 857.8
780.5 Net income $ 490.4 $ 497.6 $
1,613.1 $ 1,551.2
Summary of Results
For the Three
Months For the Nine Months Ended September 30,
Ended September 30, (Millions)
2011 2010
2011 2010 Operating earnings,
excluding prior-period reserve development $ 411.8 $ 351.0
Favorable development of prior-period
health care cost estimates
116.6 68.6 Operating
earnings 528.4 419.6 $
1,611.4 $ 1,300.4 Voluntary early retirement program (89.1 ) -
(89.1 ) - Litigation-related insurance proceeds - 26.6 - 85.1 Net
realized capital gains 51.1
51.4 90.8 165.7 Net
income (GAAP measure) $ 490.4 $ 497.6
$ 1,613.1 $ 1,551.2 Weighted average
common shares - basic 369.2
412.7 377.2 422.3
Weighted average common shares - diluted 376.8
418.8 385.0
429.5
Per Common Share
Operating earnings, excluding prior-period reserve
development $ 1.09 $ .84
Favorable development of prior-period
health care cost estimates
.31 .16 Operating
earnings 1.40 1.00 $ 4.19
$ 3.03 Voluntary early retirement program (.24 ) - (.23 ) -
Litigation-related insurance proceeds - .07 - .20 Net realized
capital gains .14 .12
.23 .38 Net income (GAAP
measure) $ 1.30 $ 1.19 $ 4.19
$ 3.61
Segment Information
(6) For the Three Months
For the Nine Months Ended September 30, Ended
September 30, (Millions) 2011
2010 2011
2010 Health Care:
Revenue, excluding net realized capital gains $ 7,779.6 $ 7,834.1 $
23,180.7 $ 23,571.6 Net realized capital gains 53.3
60.0 102.0
127.8 Total revenue (GAAP measure) $ 7,832.9
$ 7,894.1 $ 23,282.7 $
23,699.4 Commercial Medical Benefit Ratio: Premiums
$ 5,074.3 $ 5,140.7 $ 15,119.3
$ 15,432.5 Health care costs (GAAP measure) $
3,947.2 $ 4,136.3 $ 11,724.5 $ 12,429.8
Favorable development of prior-period
health care cost estimates
140.8 90.2 Health care
costs, excluding prior-period development $ 4,088.0
$ 4,226.5 Commercial MBR (GAAP measure) 77.8 %
80.5 % 77.5 % 80.5 % Commercial MBR, excluding prior-period reserve
development 80.6 % 82.2 % Medicare Medical Benefit Ratio:
Premiums $ 1,333.4 $ 1,482.2 $
4,100.5 $ 4,508.7 Health care costs (GAAP
measure) $ 1,085.9 $ 1,259.1 $ 3,433.4 $ 3,884.0
Favorable development of prior-period
health care cost estimates
22.1 5.4 Health care
costs, excluding prior-period development $ 1,108.0
$ 1,264.5 Medicare MBR (GAAP measure) 81.4 %
84.9 % 83.7 % 86.1 % Medicare MBR, excluding prior-period reserve
development 83.1 % 85.3 % Total Medical Benefit
Ratio: Premiums $ 6,776.7 $ 6,908.9
$ 20,260.7 $ 20,719.2 Health care costs
(GAAP measure) $ 5,345.5 $ 5,649.3 $ 16,060.3 $
16,998.9
Favorable development of prior-period
health care cost estimates
180.8 106.7 Health care
costs, excluding prior-period development $ 5,526.3
$ 5,756.0 Total MBR (GAAP measure) 78.9 % 81.8
% 79.3 % 82.0 % Total MBR, excluding prior-period reserve
development 81.5 % 83.3 % Operating earnings $ 525.7 $ 442.2
$ 1,593.9 $ 1,369.7 Voluntary early retirement program (89.1 ) -
(89.1 ) - Litigation-related insurance proceeds - 26.6 - 85.1 Net
realized capital gains 34.7 38.7
66.3 109.2 Net
income (GAAP measure) $ 471.3 $ 507.5
$ 1,571.1 $ 1,564.0
Segment Information continued (6)
For the Three Months For the
Nine Months Ended September 30, Ended September
30, (Millions) 2011
2010 2011
2010 Group Insurance:
Revenue, excluding net realized capital gains $ 489.0 $ 501.7 $
1,492.9 $ 1,548.6 Net realized capital gains
20.3 24.9 31.2
60.6 Total revenue (GAAP measure)
$ 509.3 $ 526.6 $ 1,524.1
$ 1,609.2 Operating earnings $ 37.9 $ 34.6 $
125.2 $ 107.5 Net realized capital gains 13.2
16.2 20.3
47.2 Net income (GAAP measure) $ 51.1
$ 50.8 $ 145.5 $ 154.7
Large Case Pensions: Revenue, excluding net
realized capital gains (losses) $ 128.1 $ 123.4 $ 394.2 $ 386.2 Net
realized capital gains (losses) 5.0
(5.3 ) 6.5 11.3
Total revenue (GAAP measure) $ 133.1
$ 118.1 $ 400.7 $ 397.5
Operating earnings $ 4.4 $ 5.6 $ 16.4 $ 21.4 Net realized
capital gains (losses) 3.2
(3.5 ) 4.2 9.3 Net
income (GAAP measure) $ 7.6 $ 2.1
$ 20.6 $ 30.7
Total Company: Revenue, excluding net realized
capital gains (A) $ 8,396.7 $ 8,459.2 $ 25,067.8 $ 25,506.4 Net
realized capital gains 78.6
79.6 139.7 199.7
Total revenue (GAAP measure) (B) $ 8,475.3
$ 8,538.8 $ 25,207.5 $
25,706.1 Business segment operating expenses (C) $
1,678.0 $ 1,562.4 $ 4,830.8 $ 4,641.0 Corporate Financing segment
operating expenses (7) 1.3
32.7 3.7 119.4
Operating expenses, including Corporate Financing segment
(D) 1,679.3 1,595.1 4,834.5 4,760.4 Voluntary early retirement
program 137.0 - 137.0 - Litigation-related insurance proceeds
- (41.0 ) -
(131.0 ) Total operating expenses (GAAP
measure) (E) $ 1,816.3 $ 1,554.1
$ 4,971.5 $ 4,629.4
Operating Expenses Ratios: Business segment operating
expense ratio (C)/(A) 20.0 % 18.5 % 19.3 % 18.2 % Operating expense
ratio (D)/(A) 20.0 % 18.9 % 19.3 % 18.7 % Total operating expense
ratio (E)/(B) (GAAP measure) 21.4 % 18.2 % 19.7 % 18.0 %
Membership
September 30, June 30, December 31,
September 30, (Thousands) 2011
2011 2010 2010 Medical
Membership: Commercial 16,561 16,594 16,824 16,908 Medicare 408
405 445 449 Medicaid 1,261 1,242 1,199
1,171 Total Medical Membership 18,230
18,241 18,468 18,528
Consumer-Directed
Health Plans (8) 2,399 2,405
2,184 2,225
Dental Membership: Commercial
12,095 12,181 12,137 12,206 Medicare & Medicaid 653 635 639 625
Network Access (9) 899 970 971
967 Total Dental Membership 13,647 13,786
13,747 13,798
Pharmacy Benefit Management
Membership: Commercial 8,162 8,131 8,555 8,646 Medicare PDP
(stand-alone) 429 432 608 622 Medicare Advantage PDP 188 188 227
231 Medicaid 27 27 27 30 Total
Pharmacy Benefit Management Services 8,806
8,778 9,417 9,529
Operating
Margins For
the Three Months For the Nine Months Ended September
30, Ended September 30, (Millions)
2011 2010
2011 2010
Reconciliation to Income Before Income Taxes:
Operating earnings before income taxes,
excluding interest expense and amortization of other acquired
intangible assets (A)
$ 901.2 $ 733.9 $ 2,739.1 $ 2,258.5 Interest expense (59.7 ) (63.9
) (187.3 ) (185.5 ) Amortization of other acquired intangible
assets (31.7 ) (23.4 ) (83.6 ) (72.0 ) Voluntary early retirement
program (137.0 ) - (137.0 ) - Litigation-related insurance proceeds
- 41.0 - 131.0 Net realized capital gains
78.6 79.6 139.7
199.7 Income before income taxes (GAAP
measure) $ 751.4 $ 767.2
$ 2,470.9 $ 2,331.7
Reconciliation to Net Income:
Operating earnings, excluding interest
expense and amortization of other acquired intangible assets, net
of tax
$ 587.8 $ 476.4 $ 1,787.4 $ 1,467.8 Interest expense, net of tax
(38.8 ) (41.6 ) (121.7 ) (120.6 ) Amortization of other acquired
intangible assets, net of tax (20.6 ) (15.2 ) (54.3 ) (46.8 )
Voluntary early retirement program, net of tax (89.1 ) - (89.1 ) -
Litigation-related insurance proceeds, net of tax - 26.6 - 85.1 Net
realized capital gains, net of tax 51.1
51.4 90.8
165.7 Net income (GAAP measure) (B)
$ 490.4 $ 497.6 $ 1,613.1
$ 1,551.2
Reconciliation of Revenue:
Revenue, excluding net realized capital gains (C) $ 8,396.7 $
8,459.2 $ 25,067.8 $ 25,506.4 Net realized capital gains
78.6 79.6
139.7 199.7 Total revenue (GAAP
measure) (D) $ 8,475.3 $ 8,538.8
$ 25,207.5 $ 25,706.1
Operating and Net Income Margins: Pretax operating margin
(A)/(C) 10.7 % 8.7 % 10.9 % 8.9 % After-tax net income margin
(B)/(D) (GAAP measure) 5.8 % 5.8 % 6.4 % 6.0 %
(1) Operating earnings and operating earnings per share exclude
net realized capital gains and losses and other items, if any, from
net income. Although the excluded items may recur, management
believes that operating earnings and operating earnings per share
provide a more useful comparison of Aetna's underlying business
performance from period to period. Management uses operating
earnings to assess business performance and to make decisions
regarding Aetna's operations and allocation of resources among
Aetna's businesses. Operating earnings is also the measure reported
to the Chief Executive Officer for these purposes.
The following items are excluded from operating earnings because
we believe they neither relate to the ordinary course of our
business nor reflect our underlying business performance:
- In July 2011, we announced a voluntary
early retirement program (the “Program”). In connection with the
Program, we recorded a one-time charge of $89.1 million ($137.0
million pretax) during the three and nine months ended September
30, 2011.
- Following a Pennsylvania Supreme Court
ruling in June 2009, we recorded litigation-related insurance
proceeds of $26.6 million ($41.0 million pretax) and $85.1 million
($131.0 million pretax) for the three and nine months ended
September 30, 2010, respectively, from our liability
insurers related to certain litigation we settled in 2003.
- Net realized capital gains and losses
arise from various types of transactions, primarily in the course
of managing a portfolio of assets that support the payment of
liabilities. However, these transactions do not directly relate to
the underwriting or servicing of products for customers and are not
directly related to the core performance of Aetna's business
operations.
For a reconciliation of these items to financial measures
calculated under U.S. generally accepted accounting principles
(“GAAP”), refer to the tables on pages 8 through 10 and 12 of this
press release.
(2) Projected operating earnings per share exclude any future
net realized capital gains and losses and other items, if any, from
net income. Aetna is not able to project the amount of future net
realized capital gains and losses and therefore cannot reconcile
projected operating earnings to projected net income in any period.
Projected operating earnings per share for the full year 2011
reflect approximately 381 million weighted average diluted
shares.
(3) Revenue excludes net realized capital gains and losses as
noted in (1) above. Refer to the tables on pages 9, 10 and 12 of
this press release for a reconciliation of revenue excluding net
realized capital gains and losses to revenue calculated under
GAAP.
(4) The operating expense ratio reflects the inclusion of the
Corporate Financing segment in operating expenses and excludes net
realized capital gains and losses and other items, if any. For a
reconciliation of this metric to the comparable GAAP measure refer
to page 10 of this press release.
(5) In order to provide useful information regarding Aetna's
profitability on a basis comparable to others in the industry,
without regard to financing decisions, income taxes or amortization
of other acquired intangible assets (each of which may vary for
reasons not directly related to the performance of the underlying
business), Aetna's pretax operating margin is based on operating
earnings excluding interest expense, income taxes and amortization
of other acquired intangible assets. Management also uses pretax
operating margin to assess Aetna's performance, including
performance versus competitors.
(6) Revenue and operating expense information is presented
before income taxes. Operating earnings is presented net of income
taxes.
(7) Our Corporate Financing segment is not a business segment.
It is added to our business segments to reconcile to our
consolidated results. The Corporate Financing segment includes
interest expense on our outstanding debt and the financing
components of our pension and other postretirement benefit plan
expenses.
(8) Represents members in consumer-directed health plans
included in Aetna's Commercial medical membership.
(9) Represents members in products that allow these members
access to Aetna's dental provider network for a nominal fee.
CAUTIONARY STATEMENT; ADDITIONAL INFORMATION -- -- Certain
information in this press release is forward-looking, including our
projections as to operating earnings per share, the future
performance of Aetna Medicare, the impact of certain acquisitions
on our core capabilities and weighted average diluted shares.
Forward-looking information is based on management's estimates,
assumptions and projections, and is subject to significant
uncertainties and other factors, many of which are beyond Aetna's
control. Important risk factors could cause actual future results
and other future events to differ materially from those currently
estimated by management, particularly the implementation of health
care reform legislation and changes in Aetna's future cash
requirements, capital requirements, results of operations,
financial condition and/or cash flows. Health care reform will
significantly impact our business operations and financial results,
including our medical benefit ratios. Components of the legislation
will be phased in over the next seven years, and we will be
required to dedicate material resources and incur material expenses
during that time to implement health care reform. Many significant
parts of the legislation, including health insurance exchanges and
the implementation of medical loss ratios, require further guidance
and clarification both at the federal level and in the form of
regulations and actions by state legislatures to implement the law.
As a result, many of the impacts of health care reform will not be
known for the next several years. Other important risk factors
include adverse and less predictable economic conditions in the
U.S. and abroad (including unanticipated levels of or rate of
increase in the unemployment rate); adverse changes in health care
reform and/or other federal or state government policies or
regulations as a result of health care reform, changes in health
care reform or otherwise (including legislative, judicial or
regulatory measures that would affect our business model, restrict
funding for various aspects of health care reform, limit our
ability to price for the risk we assume and/or reflect reasonable
costs or profits in our pricing, such as mandated minimum medical
benefit ratios, eliminate or reduce ERISA pre-emption of state laws
(increasing our potential litigation exposure) or mandate coverage
of certain health benefits); our ability to differentiate our
products and solutions from those offered by our competitors, and
demonstrate that our products lead to access to better quality of
care by our members; unanticipated increases in medical costs
(including increased intensity or medical utilization as a result
of the H1N1 or other flu, increased COBRA participation rates or
otherwise; changes in membership mix to higher cost or
lower-premium products or membership-adverse selection; changes in
medical cost estimates due to the necessary extensive judgment that
is used in the medical cost estimation process, the considerable
variability inherent in such estimates, and the sensitivity of such
estimates to changes in medical claims payment patterns and changes
in medical cost trends; increases resulting from unfavorable
changes in contracting or re-contracting with providers, and
increased pharmacy costs); failure to achieve and/or delays in
achieving desired rate increases and/or profitable membership
growth due to regulatory restrictions, the difficult economy and/or
significant competition, especially in key geographic areas where
membership is concentrated; adverse changes in size, product mix or
medical cost experience of membership; our ability to diversify our
sources of revenue and earnings; adverse program, pricing or
funding actions by federal or state government payors; the ability
to successfully implement our agreement with CVS Caremark
Corporation on a timely basis and in a cost-efficient manner and to
achieve projected operating efficiencies for the agreement; our
ability to integrate, simplify, and enhance our existing
information technology systems and platforms to keep pace with
changing customer and regulatory needs; the success of our health
information technology initiatives; the ability to successfully
integrate our businesses (including Medicity, Prodigy Health Group,
PayFlex, and Genworth Financial Inc.'s Medicare Supplement business
and other businesses we acquire in the future) and implement
multiple strategic and operational initiatives simultaneously;
managing executive succession and key talent retention, recruitment
and development; the ability to reduce administrative expenses
while maintaining targeted levels of service and operating
performance; the outcome of various litigation and regulatory
matters, including the CMS risk adjustment audits of certain of our
Medicare contracts, guaranty fund assessments and litigation
concerning, and ongoing reviews by various regulatory authorities
of, certain of our payment practices with respect to out-of-network
providers; reputational issues arising from data security breaches
or other means; the ability to improve relations with providers
while taking actions to reduce medical costs and/or expand the
services we offer; our ability to maintain our relationships with
third party brokers, consultants and agents who sell our products;
increases in medical costs or Group Insurance claims resulting from
any epidemics, acts of terrorism or other extreme events; and a
downgrade in our financial ratings. For more discussion of
important risk factors that may materially affect Aetna, please see
the risk factors contained in Aetna's 2010 Annual Report on Form
10-K and Aetna's Quarterly Report on Form 10-Q for the quarter
ended June 30, 2011, each on file with the Securities and Exchange
Commission (the “SEC”), and Aetna's Quarterly Report on Form 10-Q
for the quarter ended September 30, 2011 (Aetna's “Third
Quarter 10-Q”), when filed with the SEC. You also should read
Aetna's Third Quarter 10-Q when filed with the SEC for a discussion
of Aetna's historical results of operations and financial
condition.
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