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Aetna
Inc.
(860)
273-0123
151 Farmington Avenue
Hartford, CT 06156
(www.aetna.com)
Sales
$18
billion
Business Description
Aetna Inc.'s
business operations included three business segments: Health Care, Group
Insurance and Large Case Pensions. The principal products included in these
segments are as follows:
- Health and dental benefit products (including health maintenance
organization, point-of-service, preferred provider organization and
indemnity products)
- Group insurance products (including life, disability and long-term care
insurance products)
- Retirement products (including pension and annuity products) primarily for
defined benefit and defined contribution plans
Health Care
Products and Services
Health Care consists of health, dental and pharmacy plans offered on both a
risk basis (where the Company assumes all or a majority of the financial
risk for health care costs) (“Risk”) and an employer-funded basis (where the
plan sponsor under an administrative services contract, and not the Company,
assumes all or a majority of this risk) (“ASC”). Health plans include health
maintenance organization (“HMO”), point-of-service (“POS”), preferred
provider organization (“PPO”) and indemnity benefit products (“Indemnity”).
The principal commercial health products, offered both on a Risk and ASC
basis, are described below:
HMO plans offer comprehensive benefits generally through contracts with
participating network physicians, hospitals and other providers. When an
individual enrolls in one of the Company’s HMOs, he or she generally selects
a primary care physician (“PCP”) from among the physicians participating in
our network. PCPs generally are family practitioners, internists, general
practitioners or pediatricians who provide necessary preventive and primary
medical care, and are generally responsible for coordinating other necessary
health care, including making referrals to participating network
specialists. Preventive care is emphasized in these plans. The Company also
offers an open access HMO plan in certain markets that provides for the full
range of benefits available to HMO members without the requirements of PCP
selection or PCP referrals. The Company offers HMO plans with differing
benefit designs and varying levels of co-payments that result in different
levels of premium rates, including to federal government employee groups
under the Federal Employees Health Benefits Program. Commercial HMO
membership totaled 4.7 million as of December 31, 2003, 5.3 million as of
December 31, 2002 and 7.8 million as of December 31, 2001.
POS plans blend the characteristics of HMO and indemnity plans. Members can
have comprehensive HMO-style benefits for services received from
participating network providers with minimum co-payments, but also have
coverage, generally at higher co-payment or co-insurance levels, for
services received outside the network. The Company also offers an open
access POS plan in certain markets that provides in-network benefits without
PCP selection or referral. POS membership totaled 2.3 million as of December
31, 2003, 2.6 million as of December 31, 2002 and 3.0 million as of December
31, 2001.
PPO plans offer coverage for services received from any health care
provider, with benefits paid at a higher level when care is received from a
participating network provider. Coverage typically is subject to deductibles
and co-payments or coinsurance. PPO membership totaled 4.4 million as of
December 31, 2003, 3.9 million as of December 31, 2002 and 4.1 million as of
December 31, 2001.
During 2001, the Company also introduced Aetna Health Fund, a
consumer-directed health plan that combines traditional HMO, POS or PPO
coverage, subject to a deductible, with an accumulating benefit account,
allowing members greater flexibility in utilizing a portion of their benefit
dollars.
Indemnity plans offer the member the ability to select any health care
provider for covered services. Some care management features may be included
in these plans, such as inpatient precertification, disease management
programs and benefits for preventive services. Coverage typically is subject
to deductibles and coinsurance. In these plans, as with the Company’s other
health plans, member cost sharing for covered services generally is limited
by out-of-pocket maximums. Indemnity membership totaled 1.4 million as of
December 31, 2003, 1.6 million as of December 31, 2002 and 1.9 million as of
December 31, 2001.
In December 2003, the Company announced that it plans to offer, beginning in
2004, plans incorporating Health Savings Accounts, as authorized by the
Medicare Prescription Drug, Improvement and Modernization Act of 2003.
In connection with the administration of ASC plans, the Company offers
full-risk stop loss coverage for selected employers. This coverage transfers
to Aetna the costs associated with large individual claims and/or aggregate
loss experience within the ASC plan above a pre-set annual threshold.
In addition to Commercial health products, in select markets the Company
also offers HMO-based coverage for Medicare beneficiaries, participates in a
subsidized children’s health insurance program (“CHIP”) and has a Medicaid
and a CHIP ASC arrangement. Such coverages include the following:
Through annual contracts with the Centers for Medicare and Medicaid Services
(“CMS”), the Company’s HMOs offer coverage for Medicare-eligible individuals
in certain geographic areas through the Medicare Advantage (formerly
Medicare+Choice) program. Generally, services must be obtained through
participating network providers, with the exception of emergency and urgent
care. Members historically have received enhanced benefits over standard
Medicare fee-for-service coverage, including vision and certain pharmacy
coverage. These Medicare plans are offered on a Risk basis. Medicare
membership totaled .1 million as of December 31, 2003 and 2002 and .3
million as of December 31, 2001.
The Company participates on a Risk basis in the CHIP program in
Pennsylvania, and provides administrative services in connection with a
hospital-based Medicaid and CHIP program in Texas. Membership in these
programs totaled .1 million as of December 31, 2003 and 2002 and .2 million
as of December 31, 2001.
The Company offers a variety of other health care coverages either as
supplements to health products or as stand-alone products. Such coverages,
which are offered on a Risk or employer-funded basis, include indemnity and
managed dental plans, prescription drug, vision and behavioral health
programs. The Company is one of the nation’s largest providers of dental
coverage, based on membership at December 31, 2003. Dental membership
totaled 10.9 million as of December 31, 2003, 11.8 million as of December
31, 2002 and 13.5 million as of December 31, 2001.
In October 2002, the Company announced that, following a review of strategic
options related to its pharmacy benefits management operations, the Company
decided to retain and expand upon its existing capabilities. In February
2003, the Company completed the purchase of a mail order pharmacy facility
from Eckerd Health Services. The Company also expects to expand its existing
clinical and sales capabilities relating to its pharmacy benefits management
operations.
Provider Networks
General
The Company contracts with physicians, hospitals and other health care
providers for services provided to its health plan members. The
participating providers in the Company’s networks are independent
contractors and are neither employees nor agents of the Company, except for
providers in the Company’s new mail order pharmacy facility.
The Company uses a variety of techniques designed to help reduce
inappropriate utilization of medical resources and maintain affordability of
quality coverage. In addition to contracts with health care providers for
negotiated rates of reimbursement, these techniques include the development
and implementation of standards for the appropriate utilization of health
care resources and working with health care providers to review data in
order to help them improve consistency and quality. The Company also offers,
directly or in cooperation with third parties, a variety of disease
management programs related to specific conditions such as asthma, diabetes,
congestive heart failure and lower back pain.
At December 31, 2003, the Company had approximately 600,100 health care
providers participating in its networks nationwide, including more than
362,000 physicians and more than 3,600 hospitals.
Provider Network Contracting
Primary Care Physicians
The Company compensates PCPs on both a fee-for-service and capitated basis,
with capitation generally limited to HMO products. In a fee-for-service
arrangement, network physicians are paid for health care services provided
to the member based upon a fee schedule. Under a capitation arrangement,
physicians receive a monthly fixed fee for each member, regardless of the
medical services provided to the member. In recent years, the Company has
eliminated or reduced the use of capitation arrangements in many areas.
Specialist Physicians
Specialist physicians participating in the Company’s networks are generally
reimbursed at contracted rates per visit or procedure.
Integrated Delivery Systems and Delegated Arrangements
In select markets the Company has developed contractual relationships with
independent practice associations, integrated delivery systems and other
third parties for the provision of certain health care services. Under some
of these arrangements, the Company pays a fixed, per member fee or a
percentage of premium and may delegate to the third party associated claim
processing, utilization management and/or provider relations activities.
Most providers participating in these arrangements have agreed to look
solely to the third party for payment, but if the third party fails to pay,
the Company may be exposed to demands for reimbursement.
The Company’s HMO and POS plans typically employ capitated payment
arrangements for most mental and behavioral health, substance abuse and
freestanding laboratory services. These services are generally reimbursed on
a contracted, fee-for-service basis under the Company’s other products.
Hospitals
The Company typically enters into contracts with hospitals that provide for
per diem and/or per case rates, often with fixed rates for ambulatory
surgery and emergency room services. The Company has some hospital contracts
that pay a percentage of billed charges.
The Company’s plans generally require notification of elective hospital
admissions, and the Company monitors the length of hospital stays.
Participating physicians generally admit their HMO and POS patients to
participating hospitals using referral procedures that direct the hospital
to contact the Company’s patient management unit, which confirms the
patient’s membership status while obtaining pertinent data. This unit also
assists members and providers with related activities, including the
subsequent transition to the home environment and home care, if necessary.
Case management assistance for complex or “catastrophic” cases is provided
by a special case unit.
Quality Assessment
The Company’s quality assessment programs begin with the initial review of
health care practitioners. Each practitioner’s license and education are
verified and work history is collected by the Company or in some cases by
the practitioner’s affiliated group or organization. A committee of
participating practitioners in each region reviews this information before
the practitioner can participate in the network. Participating practitioners
also periodically undergo a recredentialing process. Participating hospitals
are required to have CMS and Joint Commission on Accreditation of Healthcare
Organizations accreditation or undergo a detailed site assessment by the
Company’s quality management staff.
Recredentialing of practitioners may include an analysis of member
grievances filed with the Company, interviews, member surveys, and analysis
of drug prescription and other utilization patterns. Committees composed of
a peer group of participating practitioners review participating
practitioners being considered for recredentialing.
The Company also offers quality and outcome measurement programs, quality
improvement programs and health care data analysis systems to providers and
purchasers of health care.
The Company seeks accreditation for most of its HMO plans from the National
Committee for Quality Assurance (the “NCQA”), a national organization
established to review the quality and medical management systems of HMOs and
certain other health care plans. NCQA accreditation is a nationally
recognized standard. As of December 31, 2003, approximately 98.3% of the
Company’s HMO members participated in HMOs that had received accreditation
by the NCQA.
The Company seeks accreditation for its PPO-based and other products from
the American Accreditation HealthCare Commission (also known as “URAC”), a
national organization founded in 1990 to establish standards for the health
care industry. Purchasers and consumers look to URAC’s accreditation as an
indication that a health care organization has the necessary structures and
processes to promote high quality care and preserve patient rights. In
addition, regulators in over half of the states recognize URAC’s
accreditation standards in the regulatory process. Aetna Inc. and Aetna Life
Insurance Company (“ALIC”) have received URAC accreditation extending
through May 1, 2004.
Principal Markets and Sales
Total Commercial, Medicare and Medicaid HMO, POS, PPO and Indemnity medical
membership (“Medical membership”) is dispersed throughout the United States.
The Company offers a wide array of benefit plans, many of which are
available in all 50 states. ASC products are available in all 50 states.
Depending on the product, the Company markets to a range of customers from
individuals and small employer groups to large, multi-site national
accounts.
Both Risk and ASC products and services are marketed primarily to employers
for the benefit of employees and their dependents. Frequently, employers
offer employees a choice of coverages, from which the employee makes his or
her selection during a designated annual open enrollment period. Employers
pay all of the monthly premiums to the Company and, through payroll
deductions, obtain reimbursement from employees for a percentage, as
determined by the employer, of such monthly premium.
Within Risk products, Medicare coverage is sold on an individual basis as
well as through employer groups to their retirees. Medicaid and subsidized
children’s health insurance programs are marketed to individuals rather than
employer groups.
Health Care products are sold primarily through the Company’s sales
personnel, who frequently work with independent consultants and brokers who
assist in the production and servicing of business. Sales representatives
also sell to employers on a direct basis. For large plan sponsors,
independent consultants and brokers are frequently involved in employer
health plan selection decisions and sales. Marketing and sales efforts are
promoted by an advertising program which includes television, radio,
billboards and print media, supported by market research and direct
marketing efforts.
Health Pricing
For Risk Commercial plans, customer contracts are generally established in
advance of the policy period, typically for a duration of one year. In
determining the premium rates to be charged to the customer, prospective,
experience-rated and retrospective rating methodologies may be used. Some
states may prohibit the use of one or more of these rating methods,
including for particular business segments, such as small employer groups.
Under prospective rating, a fixed premium rate is determined at the
beginning of the policy period. Unanticipated increases in medical costs
cannot be recovered in the current policy year; however, prior experience
for a product in the aggregate may be considered, among other factors, in
determining premium rates for future periods. Where required by law, the
Company establishes premium rates prior to contract inception without regard
to actual utilization of services incurred by individual members, using one
of three approved community rating methods. These rates may vary from
account to account to reflect projected family size and contract mix,
benefit levels, renewal date, and other factors. Under the “traditional
community rating” method, a plan establishes premium rates based on its
revenue requirements for its entire enrollment in a given community. Under
the “community rating by class” method, a plan establishes premium rates
based on its revenue requirements for broad classes of membership
distinguished by factors such as age and gender. Under the “group specific
community rating” method, a plan establishes premium rates based in part on
its revenue requirements for providing services to the group. State laws, in
some of the states in which the Company operates plans, require the filing
with and approval by the state of plan premium rates. In addition to
reviewing anticipated medical costs, some states also review anticipated
administrative costs as part of the approval process. Future results of the
Company could be adversely affected if the premium rates requested by the
Company are not approved or are adjusted downward by state regulators.
Under retrospective rating, a premium rate is determined at the beginning of
the policy period. After the policy period has ended, the actual experience
is reviewed. If the experience is positive (i.e., actual claim costs and
other expenses are less than those expected) then a refund may be credited
to the policy. If the experience is negative, then the resulting deficit
may, in certain instances, be recovered through contractual provisions;
otherwise the deficit is considered in setting future premium levels. If a
customer elects to terminate coverage, these deficits generally cannot be
recovered. Retrospective rating is often used for employer-funded POS, PPO
and Indemnity plans that cover more than 300 lives.
Premium rates generally for “experience-rated” plans give consideration to
the individual plan sponsor’s historical and anticipated claim experience.
With regard to smaller employer groups, however, the group may not be large
enough for the use of experience rating to be appropriate, and another
rating method is used.
The Company has contracts with CMS to provide HMO Medicare Advantage
(formerly Medicare+Choice) coverage to Medicare beneficiaries who choose
health care coverage through an HMO. Under these annual contracts, CMS pays
the HMO at a capitated rate based on membership and adjusted for demographic
factors. Inflation, changes in utilization patterns and benefit plans,
demographic factors such as age and gender, and both local county and
national fee for service average per capita Medicare costs are considered in
the rate calculation process. Amounts payable under Medicare arrangements
are subject to annual revision by CMS, and the Company elects to participate
in each Medicare service area on an annual basis. In addition to premiums
received from CMS, most of the Medicare products offered by the Company
require a supplemental premium to be paid by the member. Under Medicare
Advantage arrangements, the Company assumes the risk of higher than expected
medical expenses. Medicare contracts generate higher per member per month
revenues, but also generate higher per member per month medical expenses,
than typical Commercial plans.
The Company also has HMO contracts to serve a variety of federal government
employee groups under the Federal Employees Health Benefit Program. Premium
rates are subject to federal government review and audit, which can result
in retroactive and prospective premium adjustments.
In 2003, the Company had a contract in Pennsylvania to provide Risk health
benefits to persons eligible for children’s health insurance program
benefits. The Company receives a fixed monthly payment based on membership
in return for the coverage of health care services. The rates are subject to
periodic unilateral revision by the contracting agencies. The Company
assumes the risk of higher than expected medical expenses.
Contracts with plan sponsors to provide administrative services for
employer-funded plans are generally for a period of one year. Some of the
Company’s contracts include guarantees with respect to certain functions
such as customer service response time, claim processing accuracy and claim
processing turnaround time as well as certain guarantees that claim expenses
to be incurred by plan sponsors will fall within a certain range. With any
of these guarantees, the Company is financially at risk if the conditions of
the arrangements are not met, although the maximum at risk is typically 10%
- 30% of fees for the customer involved.
Competition
Competition in the health care industry is intense, primarily due to a large
number of competitors, aggressive marketing and pricing, and a proliferation
of competing products, including new products that are continually being
introduced into the market. New entrants into the marketplace as well as
significant consolidation within the industry have contributed to the
intense competitive environment.
The Company believes that the most significant factors that distinguish
competing health plans are perceived overall quality (including
accreditation status), quality of service, comprehensiveness of coverage,
cost (including both premium and member out-of-pocket costs), product
design, financial stability, the geographic scope of provider networks, and
the providers available in such networks. The Company believes that it is
competitive in each of these areas. The ability to increase the number of
persons covered by the Company’s plans or to increase revenues is affected
by competition in any particular area. In addition, the ability to increase
the number of persons enrolled in Risk products is affected by the desire
and ability of employers to self fund their health coverage. Competition may
also affect the availability of services from health care providers,
including primary care physicians, specialists and hospitals.
Within Risk products, the Company competes with local and regional managed
care plans, in addition to managed care plans sponsored by large health
insurance companies and Blue Cross/Blue Shield plans. Additional competitors
include other types of medical and dental provider organizations, various
specialty service providers, integrated health care delivery organizations,
and in certain plans, programs sponsored by the federal or state
governments.
With regard to ASC plans, the Company competes primarily with other
commercial insurance companies, Blue Cross/Blue Shield plans and third party
administrators.
Group Insurance
Principal Products
Group Insurance consists primarily of the following:
Group Life consists principally of renewable term coverage, the amounts of
which may be fixed or linked to individual employee wage levels. Basic and
supplemental term coverage and spouse and dependent coverages are available.
Group universal life and accidental death benefit coverages are also
available. Group life insurance is offered on an insured basis. Group life
insurance membership totaled 10.0 million as of December 31, 2003, 9.3
million as of December 31, 2002 and 9.2 million as of December 31, 2001.
Group Disability provides employee income replacement benefits for both
short-term disability and long-term disability. The Company also offers
disability products with additional case management features. Group
disability benefits are offered on both an insured and employer-funded
basis. Group disability membership totaled 2.1 million as of December 31,
2003, 2.2 million as of December 31, 2002 and 2.1 million as of December 31,
2001.
Long-Term Care provides benefits for long-term, custodial care expenses in a
nursing home, adult day care or home setting. Long-term care benefits are
offered primarily on an insured basis. The product is available on both a
service reimbursement and disability basis. Long-term care insurance
membership totaled .2 million as of December 31, 2003 and 2002 and .1
million as of December 31, 2001.
Group insurance members may utilize more than one Company product and in
such cases have been counted in membership totals for each.
Principal Markets and Sales
Products offered by Group Insurance are available in 49 states (Group
Insurance products are not offered in New Mexico) as well as Guam, Puerto
Rico and Canada. Depending on the product, the Company markets to a range of
customers from small employer groups to large, multi-site national accounts.
Group Insurance products and services are marketed primarily to employers
for the benefit of employees and their dependents. Frequently, employers
offer employees a choice of benefits, from which the employee makes his or
her selection during a designated annual open enrollment period. Typically,
employers pay all of the monthly premiums to the Company and, through
payroll deductions, obtain reimbursement from employees for a percentage, as
determined by the employer, of such monthly premium. Some products are sold
on a fully employee-paid basis and some billing is done on a direct basis.
Group Insurance products are sold primarily through the Company’s sales
personnel, who frequently work with independent consultants and brokers who
assist in the production and servicing of business. Sales representatives
also sell to employers on a direct basis. For large plan sponsors,
independent consultants and brokers are frequently involved in employer plan
selection decisions and sales. Marketing and sales efforts are promoted by
an advertising program that may include television, radio, billboards and
print media, supported by market research and direct marketing efforts.
Pricing
For risk Group Insurance Plans, customer contracts are generally established
in advance of the policy period, for a duration of one, two or three years.
In determining the premium rates to be charged to the customer, prospective
and retrospective rating methodologies are used.
Under prospective rating, a fixed premium rate is determined at the
beginning of the policy period. Unanticipated increases in mortality or
morbidity costs cannot be recovered in the current policy period; however,
prior experience for the specific customer and/or the product in aggregate
is considered, among other factors, in determining premium rates for future
policy periods.
Under retrospective rating, a premium rate is determined at the beginning of
a policy period. After the policy period has ended, the actual experience is
reviewed. If the experience is positive (i.e., actual claim costs and other
expenses are less than expected) then a refund may be credited to the
policy. If the experience is negative, then the resulting deficit is
considered in setting future premium levels; otherwise, in certain
circumstances, the deficit may be recovered through contractual provisions.
Such deficits may be used as offsets against refund credits that develop for
future policy periods. If a customer elects to terminate coverage, these
deficits generally cannot be recovered. Retrospective rating is most often
used for insured employer funded plans that cover more than 300 lives.
Competition
For the group insurance industry, the Company believes that the most
significant factors which distinguish competing companies are price, quality
of service, comprehensiveness of coverage, and product array and design.
Specialty carriers have increased market penetration in the life and
disability business. The deeply penetrated group life market remains highly
competitive.
Reinsurance
The Company uses reinsurance agreements with nonaffiliated insurers to
control its exposure to large losses and certain other risks for Group
Insurance products. The Company maintains catastrophic life reinsurance
(covering life, accidental death and dismemberment and disability products)
that generally provides protection against catastrophic events above a
retained deductible per event. For life, accidental death and long-term
disability products, there are excess of loss arrangements that provide
protection against large claims. Additional reinsurance arrangements include
quota share treaties on several large cases and facultative treaties that
are established on a case by case basis. The Company carries excess
professional liability insurance.
Large Case Pensions
Principal Products
Large Case Pensions manages a variety of retirement products (including
pension and annuity products) offered to Internal Revenue Code Section 401
qualified defined benefit and defined contribution plans. Contracts provide
nonguaranteed, experience-rated and guaranteed investment options through
general and separate account products. Large Case Pensions’ products that
use separate accounts provide contractholders with a vehicle for investments
under which the contractholders assume the investment risk. Large Case
Pensions earns a management fee on these separate accounts.
In 1993, the Company discontinued its fully guaranteed Large Case Pensions
products. Information regarding these products is incorporated herein by
reference to the MD&A - Large Case Pensions - Discontinued Products in the
Annual Report.
Ticker
AET
SIC Code
6324
- Hospital & Medical Service Plans
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