[October 28, 2014] |
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Aetna Reports Third-Quarter 2014 Results
HARTFORD, Conn. --(Business Wire)--
Aetna (NYSE: AET)
announced third-quarter 2014 operating earnings (1) of $638.6
million, or $1.79 per share, a per-share increase of 11 percent over the
third quarter of 2013. Net income (2) for the third quarter
of 2014 was $594.5 million, or $1.67 per share. Net income for the third
quarter includes $0.12 per share of net charges, which are detailed in
the Summary of Results table.
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Third-Quarter Financial Results at a Glance
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(Millions, except per share results)
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2014
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2013
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Change
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Operating revenue (3)
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$
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14,699.5
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$
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12,994.2
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13
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%
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Total revenue
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14,727.8
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13,035.6
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13
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%
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Operating earnings (1)
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638.6
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604.3
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6
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%
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Net income (2)
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594.5
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518.6
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15
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%
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Per share results:
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Operating earnings (1)
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$
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1.79
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$
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1.61
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11
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%
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Net income (2)
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1.67
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1.38
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21
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%
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Weighted average common shares - diluted
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356.8
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375.2
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"Aetna reported solid third-quarter results, including our 10th
consecutive quarter of membership growth, record quarterly operating
revenues, and continued high single-digit pretax operating margin," said
Mark T. Bertolini, Aetna chairman, CEO and president. "These results are
a testament to the power of our strategy and the strength of our
diversified business portfolio.
"We remain confident in our ability to execute our business strategy and
in our ability to produce strong overall business performance. Based on
our year-to-date results, we are again raising our projection for
full-year 2014 operating earnings per share to a range of $6.60 to $6.70
from our previous projection of $6.45 to $6.60 per share."
"We are pleased with the strength of our third-quarter operating
results, including excellent performance in our Government business,
which now represents more than 40 percent of our health premiums," said
Shawn M. Guertin, Aetna executive vice president and CFO. "Additionally,
we continue to make progress on the integration of Coventry, and now
project 2014 operating earnings accretion of $0.60 per share, at the
high end of our previous $0.55 to $0.60 range."
Total company results
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Operating earnings (1) were $638.6 million
for the third quarter of 2014 compared with $604.3 million for the
third quarter of 2013. The increase in operating earnings is primarily
due to higher underwriting margins in Aetna's Health Care and Group
Insurance businesses partially offset by increased investment spend to
support growth, primarily in Aetna's Government business.
-
Operating revenues (3) for the third quarter
of 2014 were $14.7 billion compared with $13.0 billion for the third
quarter of 2013. The 13 percent increase in operating revenues is
primarily the result of membership growth in Aetna's Health Care
businesses and the effects of pricing actions designed to recover the
fees and taxes mandated by health care reform. Total revenue was $14.7
billion and $13.0 billion for the third quarters of 2014 and 2013,
respectively.
-
Operating expenses (1) were $2.7
billion for the third quarter of 2014. The operating expense ratio (5)
was 18.2 percent and 17.3 percent for the third quarters of 2014 and
2013, respectively. The operating expense ratio increased primarily as
a result of the inclusion of fees mandated by health care reform and
increased investment spend to support growth, primarily in Aetna's
Government business, partially offset by improvement from the
operating revenue growth described above and continued execution of
Aetna's expense initiatives, including execution on the
Coventry-related cost synergies. The total company expense ratio was
18.4 percent and 17.7 percent for the third quarters of 2014 and 2013,
respectively.
-
Pretax operating margin (6) was 7.8 percent
for the third quarter of 2014 compared with 7.9 percent for the third
quarter of 2013. Pretax operating margins were relatively flat as a
higher percentage of Aetna's 2014 operating revenue was derived from
the lower margin Government business and 2014 public exchange
membership, partially offset by pricing actions designed to recover
the income tax effects of the non-deductible health insurer fee
mandated by health care reform. For both the third quarters of 2014
and 2013, the after-tax net income margin was 4.0 percent.
-
Effective tax rate for the third quarter of 2014 was 40 percent
compared with 36 percent for the third quarter of 2013. The increase
in the effective tax rate is primarily driven by the non-deductibility
of the health insurer fee mandated by health care reform.
-
Share repurchases totaled 3.2 million shares at a cost of $255
million for the third quarter of 2014.
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 (1) of $625.6 million for the third
quarter of 2014 compared with $627.5 million for the third quarter of
2013. Operating earnings were relatively flat in the third quarter of
2014 when compared to the third quarter of 2013 primarily as a result
of higher underwriting margins in both the Government and Commercial
businesses more than offset by increased investment spend to support
growth, primarily in the Government business.
-
Net income (2) was $576.7 million for the third quarter of
2014 compared with $549.1 million for the third quarter of 2013.
-
Operating revenues (3) of $14.0 billion for the third
quarter of 2014 compared with $12.3 billion for the third quarter of
2013. The 14 percent increase is due primarily to membership growth in
both of Aetna's Government and Commercial businesses, as well as the
effects of pricing actions designed to recover the fees and taxes
mandated by health care reform. Total revenue was $14.0 billion and
$12.3 billion for the third quarters of 2014 and 2013, respectively.
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Sequentially, third-quarter 2014 medical membership increased by
470,000 due to growth in Aetna's Commercial ASC and Government
products.
-
Medical benefit ratios (MBRs) for the three and nine months ended
September 30, 2014 and 2013 were as follows:
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Three Months Ended
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Nine Months Ended
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September 30,
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September 30,
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2014
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2013
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2014
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2013
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Commercial
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81.0
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%
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80.5
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%
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79.6
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%
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79.5
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%
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Government (7)
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84.0
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%
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87.0
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%
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85.1
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%
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87.7
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%
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Health Care
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82.3
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%
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83.1
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%
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81.9
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%
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82.6
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%
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Aetna's third-quarter 2014 Commercial MBR increased over the prior
year's MBR primarily as a result of medical cost performance in the
smaller middle-market business, costs associated with new hepatitis C
treatments, and performance in the individual business, which reflects
the impact of programs mandated by health care reform in 2014. This
result was partially offset by higher premiums driven in part by pricing
actions designed to recover the fees and taxes mandated by health care
reform. Aetna's third-quarter 2014 Government MBR improved over the
prior year's MBR primarily from actions impacting revenue and medical
costs designed to solve for the gap between Medicare premiums and
medical costs and other expenses, including the health insurer fee, and
increased favorable development of prior-period health care cost
estimates in 2014.
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In the third quarter of 2014, we experienced favorable development of
prior-period health care cost estimates in each of our core products,
primarily attributable to second quarter 2014 performance.
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Prior-years' health care costs payable estimates developed favorably
by $549.2 million and $396.4 million during the first nine months of
2014 and 2013, respectively. The May 7, 2013, acquisition of Coventry
significantly impacts the year-over-year comparability of prior years'
development. This development is reported on a basis consistent with
the prior years' development reported in the health care costs payable
table in Aetna's annual audited financial statements and does not
directly correspond to an increase in 2014 operating results.
Group Insurance business results
Group Insurance, which includes group life, disability and long-term
care products, reported:
-
Operating earnings (1) of $47.9 million for the third
quarter of 2014 compared with $20.5 million for the third quarter of
2013, primarily due to higher underwriting margins, reflecting
improved experience in Aetna's Life products.
-
Net income (2) of $52.6 million for the third quarter of
2014 compared with $17.2 million for the third quarter of 2013.
-
Operating revenues (3) of $621.4 million for the third
quarter of 2014, an 8 percent increase over $577.7 million for the
third quarter of 2013. Total revenue was $628.7 million in the third
quarter of 2014 and $573.7 million in the third quarter of 2013.
Large Case Pensions business results
Large Case Pensions, which manages a variety of discontinued and other
retirement and savings products, primarily for qualified pension plans,
reported:
-
Operating earnings (1) of $4.9 million for the third
quarter of 2014 compared with $6.2 million for the third quarter of
2013.
-
Net income (2) of $5.0 million for the third quarter of
2014 compared with $2.4 million for the third quarter of 2013.
-
Operating revenues (3) of $86.3 million for the third
quarter of 2014 compared with $113.7 million for the third quarter of
2013, primarily as a result of the discontinuance of certain services
under an existing customer contract in 2014. Total revenue was $86.5
million in the third quarter of 2014 compared with $162.1 million in
the third quarter of 2013. Third-quarter 2013 total revenue includes
$54.1 million of group annuity contract conversion premium related to
the conversion of an existing Large Case Pensions group annuity
contract from a participating to a non-participating contract. The
discontinuance of certain services under an existing customer contract
in 2014 and contract conversion in 2013 collectively also resulted in
a corresponding reduction in total benefits and expenses for the third
quarter of 2014.
Aetna's conference call to discuss third-quarter 2014 results will begin
at 8:00 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 website.
The conference call also can be accessed by dialing 1-877-879-6184 or
+1-719-325-4920 for international callers. The company suggests
participants dial in approximately 10 minutes before the call. The
access code is 6861605. 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 1-888-203-1112, or +1-719-457-0820 for international
callers. The replay access code is 6861605. Telephone replays will be
available until 11 p.m. ET on November 11, 2014.
About Aetna
Aetna is one of the nation's leading diversified health care benefits
companies, serving an estimated 46 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, Medicaid health
care management services, workers' compensation administrative services
and health information technology products and services. Aetna's
customers include employer groups, individuals, college students,
part-time and hourly workers, health plans, health care providers,
governmental units, government-sponsored plans, labor groups and
expatriates. For more information, see www.aetna.com
and learn about how Aetna is helping to build a healthier world. @aetna
|
Consolidated Statements of Income
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For the Three Months
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For the Nine Months
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Ended September 30,
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Ended September 30,
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(Millions)
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2014
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2013
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2014
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2013
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Revenue:
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Health care premiums
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$
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12,588.4
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$
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11,025.2
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$
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36,916.2
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$
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28,512.3
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Other premiums
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538.8
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525.9
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1,652.1
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1,561.5
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Group annuity contract conversion premium
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-
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54.1
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-
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54.1
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Fees and other revenue
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1,337.7
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1,233.1
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3,876.0
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3,326.1
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Net investment income
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234.6
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210.0
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707.1
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670.1
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Net realized capital gains (losses)
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28.3
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(12.7
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)
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80.6
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(12.2
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)
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Total revenue
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14,727.8
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13,035.6
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43,232.0
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34,111.9
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Benefits and expenses:
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Health care costs
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10,354.5
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9,161.9
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30,245.6
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23,548.3
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Current and future benefits
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521.6
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557.0
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1,625.9
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1,655.4
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Benefit expense on group annuity contract conversion
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-
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54.1
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-
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54.1
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|
Operating expenses:
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Selling expenses
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422.3
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|
353.9
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1,238.1
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|
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|
|
983.3
|
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General and administrative expenses
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|
2,292.4
|
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|
|
|
|
1,950.6
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|
|
|
6,528.2
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|
|
|
|
|
5,154.8
|
|
Total operating expenses
|
|
|
|
|
2,714.7
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|
|
|
|
|
2,304.5
|
|
|
|
|
|
7,766.3
|
|
|
|
|
|
6,138.1
|
|
Interest expense
|
|
|
|
|
80.6
|
|
|
|
|
|
86.1
|
|
|
|
|
|
247.5
|
|
|
|
|
|
247.4
|
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Amortization of other acquired intangible assets
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|
|
|
|
59.5
|
|
|
|
|
|
65.3
|
|
|
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|
|
183.6
|
|
|
|
|
|
149.5
|
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Loss on early extinguishment of long-term debt
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|
|
|
-
|
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|
|
|
|
-
|
|
|
|
|
|
91.9
|
|
|
|
|
|
-
|
|
Reduction of reserve for anticipated future losses on
|
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|
|
|
|
|
|
|
|
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|
|
|
discontinued products
|
|
|
|
|
-
|
|
|
|
|
|
-
|
|
|
|
|
|
-
|
|
|
|
|
|
(86.0
|
)
|
Total benefits and expenses
|
|
|
|
|
13,730.9
|
|
|
|
|
|
12,228.9
|
|
|
|
|
|
40,160.8
|
|
|
|
|
|
31,706.8
|
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|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
Income before income taxes
|
|
|
|
|
996.9
|
|
|
|
|
|
806.7
|
|
|
|
|
|
3,071.2
|
|
|
|
|
|
2,405.1
|
|
Income taxes
|
|
|
|
|
398.1
|
|
|
|
|
|
287.7
|
|
|
|
|
|
1,255.8
|
|
|
|
|
|
862.0
|
|
Net income including non-controlling interests
|
|
|
|
|
598.8
|
|
|
|
|
|
519.0
|
|
|
|
|
|
1,815.4
|
|
|
|
|
|
1,543.1
|
|
Less: Net income (loss) attributable to non-controlling interests
|
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|
|
|
4.3
|
|
|
|
|
|
.4
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|
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6.6
|
|
|
|
|
|
(1.6
|
)
|
Net income attributable to Aetna
|
|
|
|
|
$
|
594.5
|
|
|
|
|
|
$
|
518.6
|
|
|
|
|
|
$
|
1,808.8
|
|
|
|
|
|
$
|
1,544.7
|
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|
|
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|
Summary of Results
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For the Three Months
|
|
|
|
|
For the Nine Months
|
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|
|
|
Ended September 30,
|
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|
|
|
Ended September 30,
|
(Millions)
|
|
|
|
2014
|
|
|
|
|
|
2013
|
|
|
|
|
|
2014
|
|
|
|
|
2013
|
|
Operating earnings (1)
|
|
|
|
$
|
638.6
|
|
|
|
|
|
$
|
604.3
|
|
|
|
|
|
$
|
1,970.6
|
|
|
|
|
$
|
1,703.4
|
|
Transaction and integration-related costs, net of tax
|
|
|
|
(23.7
|
)
|
|
|
|
|
(34.6
|
)
|
|
|
|
|
(101.9
|
)
|
|
|
|
(140.6
|
)
|
Loss on early extinguishment of long-term debt, net of tax
|
|
|
|
-
|
|
|
|
|
|
-
|
|
|
|
|
|
(59.7
|
)
|
|
|
|
-
|
|
Release of litigation-related reserve, net of tax
|
|
|
|
-
|
|
|
|
|
|
-
|
|
|
|
|
|
67.0
|
|
|
|
|
-
|
|
Reduction of reserve for anticipated future losses on discontinued
products, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
|
|
|
-
|
|
|
|
|
|
-
|
|
|
|
|
55.9
|
|
Reversal of allowance and gain on sale of reinsurance recoverable,
net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
|
|
|
-
|
|
|
|
|
|
-
|
|
|
|
|
32.1
|
|
Amortization of other acquired intangible assets, net of tax
|
|
|
|
(38.7
|
)
|
|
|
|
|
(42.5
|
)
|
|
|
|
|
(119.4
|
)
|
|
|
|
(97.2
|
)
|
Net realized capital gains (losses), net of tax
|
|
|
|
18.3
|
|
|
|
|
|
(8.6
|
)
|
|
|
|
|
52.2
|
|
|
|
|
(8.9
|
)
|
Net income (2) (GAAP measure)
|
|
|
|
$
|
594.5
|
|
|
|
|
|
$
|
518.6
|
|
|
|
|
|
$
|
1,808.8
|
|
|
|
|
$
|
1,544.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares - basic
|
|
|
|
353.2
|
|
|
|
|
|
371.1
|
|
|
|
|
|
357.2
|
|
|
|
|
351.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares - diluted
|
|
|
|
356.8
|
|
|
|
|
|
375.2
|
|
|
|
|
|
360.7
|
|
|
|
|
355.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per Common Share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating earnings (1)
|
|
|
|
$
|
1.79
|
|
|
|
|
|
$
|
1.61
|
|
|
|
|
|
$
|
5.46
|
|
|
|
|
$
|
4.79
|
|
Transaction and integration-related costs, net of tax
|
|
|
|
(.06
|
)
|
|
|
|
|
(.09
|
)
|
|
|
|
|
(.28
|
)
|
|
|
|
(.40
|
)
|
Loss on early extinguishment of long-term debt, net of tax
|
|
|
|
-
|
|
|
|
|
|
-
|
|
|
|
|
|
(.17
|
)
|
|
|
|
-
|
|
Release of litigation-related reserve, net of tax
|
|
|
|
-
|
|
|
|
|
|
-
|
|
|
|
|
|
.19
|
|
|
|
|
-
|
|
Reduction of reserve for anticipated future losses on
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
discontinued products, net of tax
|
|
|
|
-
|
|
|
|
|
|
-
|
|
|
|
|
|
-
|
|
|
|
|
.16
|
|
Reversal of allowance and gain on sale of reinsurance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
recoverable, net of tax
|
|
|
|
-
|
|
|
|
|
|
-
|
|
|
|
|
|
-
|
|
|
|
|
.09
|
|
Amortization of other acquired intangible assets, net of tax
|
|
|
|
(.11
|
)
|
|
|
|
|
(.11
|
)
|
|
|
|
|
(.33
|
)
|
|
|
|
(.27
|
)
|
Net realized capital gains (losses), net of tax
|
|
|
|
.05
|
|
|
|
|
|
(.03
|
)
|
|
|
|
|
.14
|
|
|
|
|
(.02
|
)
|
Net income (2) (GAAP measure)
|
|
|
|
$
|
1.67
|
|
|
|
|
|
$
|
1.38
|
|
|
|
|
|
$
|
5.01
|
|
|
|
|
$
|
4.35
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment Information (8)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months
|
|
|
|
|
For the Nine Months
|
|
|
|
|
Ended September 30,
|
|
|
|
|
Ended September 30,
|
(Millions)
|
|
|
|
2014
|
|
|
|
|
|
2013
|
|
|
|
|
|
2014
|
|
|
|
|
|
2013
|
|
Health Care:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenue (3) (excludes net realized capital
gains (losses) and an other item)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
13,991.8
|
|
|
|
|
|
$
|
12,302.8
|
|
|
|
|
|
$
|
40,976.1
|
|
|
|
|
|
$
|
31,968.2
|
|
Interest income on proceeds of transaction-related debt
|
|
|
|
-
|
|
|
|
|
|
-
|
|
|
|
|
|
-
|
|
|
|
|
|
2.5
|
|
Net realized capital gains (losses)
|
|
|
|
20.8
|
|
|
|
|
|
(3.0
|
)
|
|
|
|
|
68.1
|
|
|
|
|
|
(.5
|
)
|
Total revenue (GAAP measure)
|
|
|
|
$
|
14,012.6
|
|
|
|
|
|
$
|
12,299.8
|
|
|
|
|
|
$
|
41,044.2
|
|
|
|
|
|
$
|
31,970.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Medical Benefit Ratio:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Premiums
|
|
|
|
$
|
7,268.9
|
|
|
|
|
|
$
|
6,553.6
|
|
|
|
|
|
$
|
21,279.0
|
|
|
|
|
|
$
|
17,835.6
|
|
Health care costs
|
|
|
|
$
|
5,886.8
|
|
|
|
|
|
$
|
5,272.9
|
|
|
|
|
|
$
|
16,941.5
|
|
|
|
|
|
$
|
14,185.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial MBR (GAAP measure)
|
|
|
|
81.0
|
%
|
|
|
|
|
80.5
|
%
|
|
|
|
|
79.6
|
%
|
|
|
|
|
79.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Government Medical Benefit Ratio:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Premiums
|
|
|
|
$
|
5,319.5
|
|
|
|
|
|
$
|
4,471.6
|
|
|
|
|
|
$
|
15,637.2
|
|
|
|
|
|
$
|
10,676.7
|
|
Health care costs
|
|
|
|
$
|
4,467.7
|
|
|
|
|
|
$
|
3,889.0
|
|
|
|
|
|
$
|
13,304.1
|
|
|
|
|
|
$
|
9,362.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Government MBR (7) (GAAP measure)
|
|
|
|
84.0
|
%
|
|
|
|
|
87.0
|
%
|
|
|
|
|
85.1
|
%
|
|
|
|
|
87.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Medical Benefit Ratio:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Premiums
|
|
|
|
$
|
12,588.4
|
|
|
|
|
|
$
|
11,025.2
|
|
|
|
|
|
$
|
36,916.2
|
|
|
|
|
|
$
|
28,512.3
|
|
Health care costs
|
|
|
|
$
|
10,354.5
|
|
|
|
|
|
$
|
9,161.9
|
|
|
|
|
|
$
|
30,245.6
|
|
|
|
|
|
$
|
23,548.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total MBR (GAAP measure)
|
|
|
|
82.3
|
%
|
|
|
|
|
83.1
|
%
|
|
|
|
|
81.9
|
%
|
|
|
|
|
82.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating earnings (1)
|
|
|
|
$
|
625.6
|
|
|
|
|
|
$
|
627.5
|
|
|
|
|
|
$
|
1,928.9
|
|
|
|
|
|
$
|
1,732.8
|
|
Transaction and integration-related costs, net of tax
|
|
|
|
(23.7
|
)
|
|
|
|
|
(34.4
|
)
|
|
|
|
|
(101.9
|
)
|
|
|
|
|
(126.4
|
)
|
Release of litigation-related reserve, net of tax
|
|
|
|
-
|
|
|
|
|
|
-
|
|
|
|
|
|
67.0
|
|
|
|
|
|
-
|
|
Amortization of other acquired intangible assets, net of tax
|
|
|
|
(38.6
|
)
|
|
|
|
|
(41.7
|
)
|
|
|
|
|
(118.6
|
)
|
|
|
|
|
(95.0
|
)
|
Net realized capital gains (losses), net of tax
|
|
|
|
13.4
|
|
|
|
|
|
(2.3
|
)
|
|
|
|
|
44.1
|
|
|
|
|
|
(1.3
|
)
|
Net income (2) (GAAP measure)
|
|
|
|
$
|
576.7
|
|
|
|
|
|
$
|
549.1
|
|
|
|
|
|
$
|
1,819.5
|
|
|
|
|
|
$
|
1,510.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment Information continued (8)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months
|
|
|
|
For the Nine Months
|
|
|
|
|
Ended September 30,
|
|
|
|
Ended September 30,
|
(Millions)
|
|
|
|
2014
|
|
|
|
|
2013
|
|
|
|
|
2014
|
|
|
|
|
2013
|
|
Group Insurance:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenue (3) (excludes net realized capital
gains (losses) and an other item)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
621.4
|
|
|
|
|
$
|
577.7
|
|
|
|
|
$
|
1,859.8
|
|
|
|
|
$
|
1,741.4
|
|
Gain on sale of reinsurance recoverable
|
|
|
|
-
|
|
|
|
|
-
|
|
|
|
|
-
|
|
|
|
|
7.2
|
|
Net realized capital gains (losses)
|
|
|
|
7.3
|
|
|
|
|
(4.0
|
)
|
|
|
|
11.5
|
|
|
|
|
(1.0
|
)
|
Total revenue (GAAP measure)
|
|
|
|
$
|
628.7
|
|
|
|
|
$
|
573.7
|
|
|
|
|
$
|
1,871.3
|
|
|
|
|
$
|
1,747.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating earnings (1)
|
|
|
|
$
|
47.9
|
|
|
|
|
$
|
20.5
|
|
|
|
|
$
|
149.7
|
|
|
|
|
$
|
83.0
|
|
Reversal of allowance and gain on sale of reinsurance recoverable,
net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
|
|
-
|
|
|
|
|
-
|
|
|
|
|
32.1
|
|
Amortization of other acquired intangible assets, net of tax
|
|
|
|
(.1
|
)
|
|
|
|
(.8
|
)
|
|
|
|
(.8
|
)
|
|
|
|
(2.2
|
)
|
Net realized capital gains (losses), net of tax
|
|
|
|
4.8
|
|
|
|
|
(2.5
|
)
|
|
|
|
7.5
|
|
|
|
|
(.6
|
)
|
Net income (2) (GAAP measure)
|
|
|
|
$
|
52.6
|
|
|
|
|
$
|
17.2
|
|
|
|
|
$
|
156.4
|
|
|
|
|
$
|
112.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Large Case Pensions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenue (3) (excludes net realized capital
gains (losses) and an other item)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
86.3
|
|
|
|
|
$
|
113.7
|
|
|
|
|
$
|
315.5
|
|
|
|
|
$
|
350.7
|
|
Group annuity contract conversion premium
|
|
|
|
-
|
|
|
|
|
54.1
|
|
|
|
|
-
|
|
|
|
|
54.1
|
|
Net realized capital gains (losses)
|
|
|
|
.2
|
|
|
|
|
(5.7
|
)
|
|
|
|
1.0
|
|
|
|
|
(10.7
|
)
|
Total revenue (GAAP measure)
|
|
|
|
$
|
86.5
|
|
|
|
|
$
|
162.1
|
|
|
|
|
$
|
316.5
|
|
|
|
|
$
|
394.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating earnings (1)
|
|
|
|
$
|
4.9
|
|
|
|
|
$
|
6.2
|
|
|
|
|
$
|
15.1
|
|
|
|
|
$
|
16.2
|
|
Reduction of reserve for anticipated future losses on discontinued
products, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
|
|
-
|
|
|
|
|
-
|
|
|
|
|
55.9
|
|
Net realized capital gains (losses), net of tax
|
|
|
|
.1
|
|
|
|
|
(3.8
|
)
|
|
|
|
.6
|
|
|
|
|
(7.0
|
)
|
Net income (2) (GAAP measure)
|
|
|
|
$
|
5.0
|
|
|
|
|
$
|
2.4
|
|
|
|
|
$
|
15.7
|
|
|
|
|
$
|
65.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate Financing: (9)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss (1)
|
|
|
|
$
|
(39.8
|
)
|
|
|
|
$
|
(49.9
|
)
|
|
|
|
$
|
(123.1
|
)
|
|
|
|
$
|
(128.6
|
)
|
Transaction and integration-related costs, net of tax
|
|
|
|
-
|
|
|
|
|
(.2
|
)
|
|
|
|
-
|
|
|
|
|
(14.2
|
)
|
Loss on early extinguishment of long-term debt, net of tax
|
|
|
|
-
|
|
|
|
|
-
|
|
|
|
|
(59.7
|
)
|
|
|
|
-
|
|
Net loss (GAAP measure)
|
|
|
|
$
|
(39.8
|
)
|
|
|
|
$
|
(50.1
|
)
|
|
|
|
$
|
(182.8
|
)
|
|
|
|
$
|
(142.8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Company:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenue (3) (excludes net realized capital
gains (losses) and other items) (A)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
14,699.5
|
|
|
|
|
$
|
12,994.2
|
|
|
|
|
$
|
43,151.4
|
|
|
|
|
$
|
34,060.3
|
|
Group annuity contract conversion premium
|
|
|
|
-
|
|
|
|
|
54.1
|
|
|
|
|
-
|
|
|
|
|
54.1
|
|
Interest income on proceeds of transaction-related debt
|
|
|
|
-
|
|
|
|
|
-
|
|
|
|
|
-
|
|
|
|
|
2.5
|
|
Gain on sale of reinsurance recoverable
|
|
|
|
-
|
|
|
|
|
-
|
|
|
|
|
-
|
|
|
|
|
7.2
|
|
Net realized capital gains (losses)
|
|
|
|
28.3
|
|
|
|
|
(12.7
|
)
|
|
|
|
80.6
|
|
|
|
|
(12.2
|
)
|
Total revenue (GAAP measure) (B)
|
|
|
|
$
|
14,727.8
|
|
|
|
|
$
|
13,035.6
|
|
|
|
|
$
|
43,232.0
|
|
|
|
|
$
|
34,111.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses (C)
|
|
|
|
$
|
2,679.4
|
|
|
|
|
$
|
2,253.3
|
|
|
|
|
$
|
7,714.5
|
|
|
|
|
$
|
6,008.9
|
|
Transaction and integration-related costs
|
|
|
|
35.3
|
|
|
|
|
51.2
|
|
|
|
|
154.8
|
|
|
|
|
171.4
|
|
Release of litigation-related reserve
|
|
|
|
-
|
|
|
|
|
-
|
|
|
|
|
(103.0
|
)
|
|
|
|
-
|
|
Reversal of allowance on reinsurance recoverable
|
|
|
|
-
|
|
|
|
|
-
|
|
|
|
|
-
|
|
|
|
|
(42.2
|
)
|
Total operating expenses (GAAP measure) (D)
|
|
|
|
$
|
2,714.7
|
|
|
|
|
$
|
2,304.5
|
|
|
|
|
$
|
7,766.3
|
|
|
|
|
$
|
6,138.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Expense Ratios:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expense ratio (5) (C)/(A)
|
|
|
|
18.2
|
%
|
|
|
|
17.3
|
%
|
|
|
|
17.9
|
%
|
|
|
|
17.6
|
%
|
Total company expense ratio (D)/(B) (GAAP measure)
|
|
|
|
18.4
|
%
|
|
|
|
17.7
|
%
|
|
|
|
18.0
|
%
|
|
|
|
18.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Membership
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2014
|
|
|
|
|
June 30, 2014
|
|
|
|
|
December 31, 2013
|
|
|
|
|
September 30, 2013
|
(Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Medical Membership:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
|
19,893
|
|
|
|
|
19,503
|
|
|
|
|
18,821
|
|
|
|
|
18,764
|
Medicare Advantage
|
|
|
|
1,135
|
|
|
|
|
1,113
|
|
|
|
|
968
|
|
|
|
|
961
|
Medicare Supplement
|
|
|
|
448
|
|
|
|
|
434
|
|
|
|
|
386
|
|
|
|
|
363
|
Medicaid
|
|
|
|
2,098
|
|
|
|
|
2,054
|
|
|
|
|
2,015
|
|
|
|
|
2,064
|
Total Medical Membership
|
|
|
|
23,574
|
|
|
|
|
23,104
|
|
|
|
|
22,190
|
|
|
|
|
22,152
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer-Directed Health Plans (10)
|
|
|
|
3,793
|
|
|
|
|
3,566
|
|
|
|
|
3,254
|
|
|
|
|
3,307
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dental Membership:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Dental Membership
|
|
|
|
15,363
|
|
|
|
|
14,439
|
|
|
|
|
14,145
|
|
|
|
|
14,215
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pharmacy Benefit Management Membership:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
|
10,835
|
|
|
|
|
10,840
|
|
|
|
|
10,191
|
|
|
|
|
10,124
|
Medicare Prescription Drug Plan (stand-alone)
|
|
|
|
1,590
|
|
|
|
|
1,609
|
|
|
|
|
2,166
|
|
|
|
|
2,139
|
Medicare Advantage Prescription Drug Plan
|
|
|
|
750
|
|
|
|
|
735
|
|
|
|
|
588
|
|
|
|
|
582
|
Medicaid
|
|
|
|
2,231
|
|
|
|
|
2,105
|
|
|
|
|
1,214
|
|
|
|
|
1,244
|
Total Pharmacy Benefit Management Services
|
|
|
|
15,406
|
|
|
|
|
15,289
|
|
|
|
|
14,159
|
|
|
|
|
14,089
|
|
|
|
|
|
Operating Margins
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months
|
|
|
|
For the Nine Months
|
|
|
|
|
|
Ended September 30,
|
|
|
|
Ended September 30,
|
(Millions)
|
|
|
|
|
2014
|
|
|
|
|
2013
|
|
|
|
|
2014
|
|
|
|
|
2013
|
|
Reconciliation to Income Before Income Taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating earnings (1) before income taxes, excluding
interest expense (A)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,144.0
|
|
|
|
|
$
|
1,022.0
|
|
|
|
|
$
|
3,565.4
|
|
|
|
|
$
|
2,847.7
|
|
Interest expense *
|
|
|
|
|
(80.6
|
)
|
|
|
|
(86.1
|
)
|
|
|
|
(247.5
|
)
|
|
|
|
(226.7
|
)
|
Transaction and integration-related costs
|
|
|
|
|
(35.3
|
)
|
|
|
|
(51.2
|
)
|
|
|
|
(154.8
|
)
|
|
|
|
(189.6
|
)
|
Loss on early extinguishment of long-term debt
|
|
|
|
|
-
|
|
|
|
|
-
|
|
|
|
|
(91.9
|
)
|
|
|
|
-
|
|
Release of litigation-related reserve
|
|
|
|
|
-
|
|
|
|
|
-
|
|
|
|
|
103.0
|
|
|
|
|
-
|
|
Reduction of reserve for anticipated future losses on discontinued
products
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
|
|
-
|
|
|
|
|
-
|
|
|
|
|
86.0
|
|
Reversal of allowance and gain on sale of reinsurance recoverable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
|
|
-
|
|
|
|
|
-
|
|
|
|
|
49.4
|
|
Amortization of other acquired intangible assets
|
|
|
|
|
(59.5
|
)
|
|
|
|
(65.3
|
)
|
|
|
|
(183.6
|
)
|
|
|
|
(149.5
|
)
|
Net realized capital gains (losses)
|
|
|
|
|
28.3
|
|
|
|
|
(12.7
|
)
|
|
|
|
80.6
|
|
|
|
|
(12.2
|
)
|
Income before income taxes (GAAP measure)
|
|
|
|
|
$
|
996.9
|
|
|
|
|
$
|
806.7
|
|
|
|
|
$
|
3,071.2
|
|
|
|
|
$
|
2,405.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation to Net Income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating earnings,(1) excluding interest expense, net of
tax
|
|
|
|
|
$
|
691.0
|
|
|
|
|
$
|
660.3
|
|
|
|
|
$
|
2,131.5
|
|
|
|
|
$
|
1,850.8
|
|
Interest expense, net of tax *
|
|
|
|
|
(52.4
|
)
|
|
|
|
(56.0
|
)
|
|
|
|
(160.9
|
)
|
|
|
|
(147.4
|
)
|
Transaction and integration-related costs, net of tax
|
|
|
|
|
(23.7
|
)
|
|
|
|
(34.6
|
)
|
|
|
|
(101.9
|
)
|
|
|
|
(140.6
|
)
|
Loss on early extinguishment of long-term debt, net of tax
|
|
|
|
|
-
|
|
|
|
|
-
|
|
|
|
|
(59.7
|
)
|
|
|
|
-
|
|
Release of litigation-related reserve, net of tax
|
|
|
|
|
-
|
|
|
|
|
-
|
|
|
|
|
67.0
|
|
|
|
|
-
|
|
Reduction of reserve for anticipated future losses on discontinued
products, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
|
|
-
|
|
|
|
|
-
|
|
|
|
|
55.9
|
|
Reversal of allowance and gain on sale of reinsurance recoverable,
net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
|
|
-
|
|
|
|
|
-
|
|
|
|
|
32.1
|
|
Amortization of other acquired intangible assets, net of tax
|
|
|
|
|
(38.7
|
)
|
|
|
|
(42.5
|
)
|
|
|
|
(119.4
|
)
|
|
|
|
(97.2
|
)
|
Net realized capital gains (losses), net of tax
|
|
|
|
|
18.3
|
|
|
|
|
(8.6
|
)
|
|
|
|
52.2
|
|
|
|
|
(8.9
|
)
|
Net income (2) (GAAP measure) (B)
|
|
|
|
|
$
|
594.5
|
|
|
|
|
$
|
518.6
|
|
|
|
|
$
|
1,808.8
|
|
|
|
|
$
|
1,544.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation of Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenue (3) (excludes net realized capital
gains (losses) and other items) (C)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
14,699.5
|
|
|
|
|
$
|
12,994.2
|
|
|
|
|
$
|
43,151.4
|
|
|
|
|
$
|
34,060.3
|
|
Group annuity contract conversion premium
|
|
|
|
|
-
|
|
|
|
|
54.1
|
|
|
|
|
-
|
|
|
|
|
54.1
|
|
Interest income on proceeds of transaction-related debt
|
|
|
|
|
-
|
|
|
|
|
-
|
|
|
|
|
-
|
|
|
|
|
2.5
|
|
Gain on sale of reinsurance recoverable
|
|
|
|
|
-
|
|
|
|
|
-
|
|
|
|
|
-
|
|
|
|
|
7.2
|
|
Net realized capital gains (losses)
|
|
|
|
|
28.3
|
|
|
|
|
(12.7
|
)
|
|
|
|
80.6
|
|
|
|
|
(12.2
|
)
|
Total revenue (GAAP measure) (D)
|
|
|
|
|
$
|
14,727.8
|
|
|
|
|
$
|
13,035.6
|
|
|
|
|
$
|
43,232.0
|
|
|
|
|
$
|
34,111.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating and Net Income Margins:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pretax operating margin (6) (A)/(C)
|
|
|
|
|
7.8
|
%
|
|
|
|
7.9
|
%
|
|
|
|
8.3
|
%
|
|
|
|
8.4
|
%
|
After-tax net income margin (B)/(D) (GAAP measure)
|
|
|
|
|
4.0
|
%
|
|
|
|
4.0
|
%
|
|
|
|
4.2
|
%
|
|
|
|
4.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* Interest expense of $147.4 million ($226.7 million pretax) for the
nine months ended September 30, 2013 excludes the negative cost of carry
on transaction-related debt, which was issued in connection with the
acquisition of Coventry Health Care, Inc. ("Coventry"). Those costs are
presented within transaction and integration-related costs prior to the
closing of the acquisition of Coventry, which occurred on May 7, 2013
(the "Acquisition Date"). After the Acquisition Date, the interest
expense associated with the transaction-related debt is included in
interest expense.
(1) Operating earnings and operating earnings per share
exclude from net income attributable to Aetna and operating expenses and
operating revenues exclude, as applicable, amortization of other
acquired intangible assets, net realized capital gains and losses and
other items, if any, that neither relate to the ordinary course of
Aetna's business nor reflect Aetna's underlying business performance.
Although the excluded items may recur, management believes that
operating earnings, operating earnings per share, operating revenues,
operating expenses and the operating expense ratio 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 the
allocation of resources among Aetna's businesses. Operating earnings is
also the measure reported to the Chief Executive Officer for these
purposes. Non-GAAP financial measures Aetna discloses, such as operating
earnings, operating earnings per share, operating revenues, operating
expenses, pretax operating margin and the operating expense ratio,
should not be considered a substitute for, or superior to, financial
measures determined or calculated in accordance with U.S. generally
accepted accounting principles ("GAAP").
For the periods covered in this press release, the following items are
excluded from operating earnings, operating expenses and operating
revenues, as applicable, because Aetna believes they neither relate to
the ordinary course of Aetna's business nor reflect Aetna's underlying
business performance:
-
Aetna incurred transaction and integration-related costs of $23.7
million ($35.3 million pretax) and $101.9 million ($154.8 million
pretax) during the three and nine months ended September 30, 2014,
respectively, related to the acquisitions of Coventry and the
InterGlobal group ("InterGlobal"), and $34.6 million ($51.2 million
pretax) and $140.6 million ($189.6 million pretax) during the three
and nine months ended September 30, 2013, respectively, related to the
acquisition of Coventry. Transaction costs include advisory, legal and
other professional fees which are not deductible for tax purposes and
are reflected in Aetna's GAAP Consolidated Statements of Income in
general and administrative expenses. Transaction costs also include
transaction-related payments as well as expenses related to the
negative cost of carry associated with the permanent financing that
Aetna obtained in November 2012 for the Coventry acquisition. Prior to
the Acquisition Date, the negative cost of carry was excluded from
operating earnings and operating earnings per share. The components of
the negative cost of carry are reflected in Aetna's GAAP Consolidated
Statements of Income in interest expense, net investment income, and
general and administrative expenses. On and after the Acquisition
Date, the interest expense and general and administrative expenses
associated with the permanent financing are no longer excluded from
operating earnings or operating earnings per share.
-
In the first quarter of 2014, Aetna incurred a loss on the early
extinguishment of long-term debt of $59.7 million ($91.9 million
pretax) related to the redemption of its 6.0% senior notes due 2016.
-
In the fourth quarter of 2012, Aetna recorded a charge of $78.0
million ($120.0 million pretax) related to the settlement of purported
class action litigation regarding Aetna's payment practices related to
out-of-network health care providers. That charge included the
estimated cost of legal fees of plaintiffs' counsel and the costs of
administering the settlement. In the first quarter of 2014, Aetna
exercised its right to terminate the settlement agreement. As a
result, Aetna released the reserve established in connection with the
settlement agreement, net of amounts due to the settlement
administrator, which reduced first quarter 2014 other general and
administrative expenses by $67.0 million ($103.0 million pretax).
-
In the third quarter of 2013, pursuant to contractual rights exercised
by the contract holder, an existing group annuity contract converted
from a participating to a non-participating contract. Upon conversion,
Aetna recorded $54.1 million of non-cash group annuity conversion
premium for this contract and a corresponding $54.1 million non-cash
benefit expense on group annuity conversion for this contract during
the third quarter of 2013.
-
In the second quarter of 2013, Aetna reduced the reserve for
anticipated future losses on discontinued products by $55.9 million
($86.0 million pretax). Aetna believes excluding any changes in the
reserve for anticipated future losses on discontinued products from
operating earnings provides more useful information as to its
continuing products and is consistent with the treatment of the
operating results of these discontinued products, which are credited
or charged to the reserve and do not affect Aetna's operating results.
-
In 2008, as a result of the liquidation proceedings of Lehman Re Ltd.
("Lehman Re"), a subsidiary of Lehman Brothers Holdings Inc., Aetna
recorded an allowance against its reinsurance recoverable from Lehman
Re of $27.4 million ($42.2 million pretax). This reinsurance was
placed in 1999 and was on a closed book of paid-up group whole life
insurance business. In the second quarter of 2013, Aetna sold its
claim against Lehman Re to an unrelated third party (including the
reinsurance recoverable) and terminated the reinsurance arrangement.
Upon the sale of the claim and termination of the arrangement, Aetna
reversed the related allowance thereby reducing second quarter 2013
other general and administrative expenses by $27.4 million ($42.2
million pretax) and recognized a $4.7 million ($7.2 million pretax)
gain on the sale in fees and other revenue.
-
Other acquired intangible assets relate to Aetna's acquisition
activities and are amortized over their useful lives. However, this
amortization does not directly relate to the underwriting or servicing
of products for customers and is not directly related to the core
performance of Aetna's business operations.
-
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 GAAP, refer to the tables on pages 8 through 10 and 12 of this
press release.
(2) Net Income refers to net income attributable to Aetna
reported in Aetna's GAAP Consolidated Statements of Income. Unless
otherwise indicated, all references in this press release to operating
earnings, operating earnings per share, net income and net income per
share are based upon net income attributable to Aetna, which excludes
amounts attributable to non-controlling interests.
(3) Operating revenue excludes net realized capital gains and
losses, interest income on the proceeds of the transaction-related debt,
the gain on sale of a reinsurance recoverable from Lehman Re and premium
from a group annuity contract conversion as noted in (1)
above. Refer to the tables on pages 9, 10 and 12 of this press release
for a reconciliation of operating revenue to total revenue calculated
under GAAP.
(4) Projected 2014 operating earnings per share exclude from
net income estimated after-tax amortization of other acquired intangible
assets of approximately $157 million ($241 million pretax), projected
integration-related costs related to the Coventry and InterGlobal
acquisitions, any future net realized capital gains and losses and other
items, if any, that neither relate to the ordinary course of Aetna's
business nor reflect Aetna's underlying business performance. After-tax
amortization of other acquired intangible assets relates to Aetna's
acquisition activities, including Coventry and InterGlobal. Aetna is not
able to project the amount of future net realized capital gains and
losses or any such other items (other than projected integration-related
costs related to the Coventry and InterGlobal acquisitions) and
therefore cannot reconcile projected operating earnings per share to
projected net income per share in any period. Projected full-year 2014
operating earnings per share reflect the low end of a range of 359
million to 360 million weighted average diluted shares.
(5) The operating expense ratio excludes net realized capital
gains and losses and other items, if any, that are excluded from
operating revenues or operating expenses, as noted in (1)
above. For a reconciliation of this metric to the comparable GAAP
measure refer to page 10 of this press release.
(6) 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 and income taxes. Management also uses pretax operating
margin to assess Aetna's performance, including performance versus
competitors.
(7) Aetna's Government MBR is the combined MBR of its
Medicare and Medicaid businesses.
(8) Operating revenue and operating expense information is
presented before income taxes. Operating earnings information is
presented net of income taxes.
(9) Aetna's Corporate Financing segment is not a business
segment. It is added to Aetna's business segments to reconcile segment
reporting to Aetna's consolidated results. The net loss of the Corporate
Financing segment includes interest expense on Aetna's outstanding debt
and the financing components of Aetna's pension and other postretirement
benefit plan expenses (benefits). As described in (1) above,
the operating earnings of the Corporate Financing segment exclude other
items, if any, that neither relate to the ordinary course of Aetna's
business nor reflect Aetna's underlying business performance. Prior to
the Acquisition Date, the Corporate Financing segment operating loss
excluded the interest expense components of transaction-related costs.
Since the Acquisition Date, the Corporate Financing segment operating
loss has included the interest expense component of transaction-related
costs.
(10) Represents members in consumer-directed health plans
included in Commercial medical membership.
CAUTIONARY STATEMENT; ADDITIONAL INFORMATION -- -- Certain information
in this press release is forward-looking, including our projections as
to operating earnings per share, operating earnings per share accretion
related to the acquisition of Coventry, amortization of other acquired
intangible assets, 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 our control. Important risk factors
could cause actual future results and other future events to differ
materially from those currently estimated by management, including, but
not limited to: the implementation of health care reform legislation,
including collection of health care reform fees, assessments and taxes
through increased premiums; the implementation of health insurance
exchanges; unanticipated increases in medical costs (including increased
intensity or medical utilization as a result of flu or otherwise;
changes in membership mix to higher cost or lower-premium products or
membership-adverse selection; medical cost increases resulting from
unfavorable changes in contracting or re-contracting with providers
(including as a result of provider consolidation and/or integration);
and increased pharmacy costs (including in our health insurance exchange
products)); the profitability of our public health insurance exchange
and Medicare Advantage products, where membership is greater than our
initial projections and may have more adverse health status and/or
higher medical benefit utilization than we projected; our ability to
achieve the synergies and value creation contemplated by the Coventry
acquisition; our ability to effectively integrate Coventry's businesses;
the diversion of management time on Coventry integration-related issues;
our ability to offset Medicare Advantage and PDP rate pressures; and
changes in our future cash requirements, capital requirements, results
of operations, financial condition and/or cash flows. Health care reform
will continue to significantly impact our business operations and
financial results, including our pricing and medical benefit ratios.
Components of the legislation will be phased in over the next several
years, with the most significant changes occurring in 2014, 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 aspects of public health insurance
exchanges, Medicaid expansion, enforcement related reporting for the
individual and employer mandates, and reinsurance, risk corridor and
risk adjustment, require further guidance and clarification at the
federal level and/or in the form of regulations and actions by state
legislatures to implement the law. In addition, pending efforts in the
U.S. Congress to amend or restrict funding for various aspects of health
care reform, and litigation challenging aspects of the law continue to
create additional uncertainty about the ultimate impact of health care
reform. 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 changes in health care reform and/or other federal or
state government policies or regulations as a result of health care
reform or otherwise (including legislative, judicial or regulatory
measures that would affect our business model, restrict funding for or
amend 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, or eliminate
or reduce ERISA pre-emption of state laws (increasing our potential
litigation exposure)); adverse and less predictable economic conditions
in the U.S. and abroad (including unanticipated levels of, or increases
in the rate of, unemployment); our ability to diversify our sources of
revenue and earnings (including by expanding our direct-to-consumer
sales and capabilities and our foreign operations), transform our
business model, develop new products and optimize our business
platforms; the success of our HealthagenSM, Accountable Care
Solutions and health information technology initiatives; adverse changes
in size, product or geographic mix or medical cost experience of
membership; managing executive succession and key talent retention,
recruitment and development; failure to achieve and/or delays in
achieving desired rate increases and/or profitable membership growth due
to regulatory review or other regulatory restrictions, the difficult
economy and/or significant competition, especially in key geographic
areas where membership is concentrated, including successful protests of
business awarded to us; failure to adequately implement health care
reform; reputational or financial issues arising from our social media
activities, data security breaches, other cybersecurity risks or other
causes; the outcome of various litigation and regulatory matters,
including audits, challenges to our minimum MLR rebate methodology
and/or reports, guaranty fund assessments, intellectual property
litigation and litigation concerning, and ongoing reviews by various
regulatory authorities of, certain of our payment practices with respect
to out-of-network providers and/or life insurance policies; our ability
to integrate, simplify, and enhance our existing information technology
systems and platforms to keep pace with changing customer and regulatory
needs; our ability to successfully integrate our businesses (including
Coventry, the InterGlobal group and other businesses we may acquire in
the future) and implement multiple strategic and operational initiatives
simultaneously; our ability to manage health care and other benefit
costs; adverse program, pricing, funding or audit actions by federal or
state government payors, including as a result of sequestration and/or
curtailment or elimination of the Centers for Medicare & Medicaid
Services' star rating bonus payments; our ability to reduce
administrative expenses while maintaining targeted levels of service and
operating performance; failure by a service provider to meet its
obligations to us; our ability to develop and maintain relationships
(including collaborative risk-sharing agreements) with providers while
taking actions to reduce medical costs and/or expand the services we
offer; our ability to demonstrate that our products lead to access to
quality care by our members; 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; 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; the ability to successfully complete the implementation of our
agreement with CVS Caremark Corporation on a timely basis and to achieve
projected operating efficiencies for the agreement; a downgrade in our
financial ratings; and adverse impacts from any failure to raise the
U.S. Federal government's debt ceiling or any sustained U.S. Federal
government shut down. For more discussion of important risk factors that
may materially affect Aetna, please see the risk factors contained in
Aetna's 2013 Annual Report on Form 10-K ("Aetna's 2013 Annual Report")
on file with the Securities and Exchange Commission (the "SEC"). You
also should read Aetna's 2013 Annual Report and Aetna's Quarterly Report
on Form 10-Q for the quarter ended June 30, 2014, each on file with the
SEC, and Aetna's Quarterly Report on Form 10-Q for the quarter ended
September 30, 2014, when filed with the SEC, for a discussion of Aetna's
historical results of operations and financial condition.
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