form10-k.htm
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-K
(Mark
One)
þ ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For
the fiscal year ended December 31, 2007
or
¨ TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For
the transition period from _________ to_________
Commission
file number 1-16095
Aetna
Inc.
(Exact
name of registrant as specified in its charter)
Pennsylvania
(State
or other jurisdiction of incorporation or organization)
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23-2229683
(I.R.S.
Employer Identification No.)
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151
Farmington Avenue, Hartford, CT
(Address
of principal executive offices)
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06156
(Zip
Code)
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Registrant’s
telephone number, including area code
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(860)
273-0123
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Securities
registered pursuant to Section 12(b) of the Act:
Title
of each class
Common
Shares, $.01 par value
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Name
of each exchange on which registered
New
York Stock Exchange
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Securities
registered pursuant to Section 12(g) of the Act:
None
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Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act.
þ Yes ¨ No
Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act.
¨ Yes þ No
Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. þ Yes ¨ No
Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.
¨
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company. See definitions of “large accelerated filer,” “accelerated
filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check
one):
Large
accelerated filer þ
|
Accelerated
filer ¨
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Non-accelerated
filer ¨
|
Smaller
reporting company ¨
|
Indicated
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the
Act). ¨ Yes þ No
The
aggregate market value of the outstanding common equity of the registrant held
by non-affiliates as of the last business day of the registrant’s most recently
completed second fiscal quarter (June 30, 2007) was $24.6 billion.
There
were 496.6 million shares of voting common stock with a par value of $.01
outstanding at January 31, 2008.
DOCUMENTS
INCORPORATED BY REFERENCE
The
2007 Annual Report, Financial Report to Shareholders (the “Annual Report”) is
incorporated by reference in Parts I, II and IV to the extent described
therein. The definitive proxy statement related to Aetna Inc.’s 2008
Annual Meeting of Shareholders, to be filed on or about April 21, 2008 (the
“Proxy Statement”), is incorporated by reference in Parts III and IV to the
extent described therein.
Aetna
Inc.
Annual
Report on Form 10-K
For
the Fiscal Year Ended December 31, 2007
Unless
the context otherwise requires, references to the terms “we,” “our” or “us” used
throughout this Annual Report on Form 10-K refer to Aetna Inc. (a Pennsylvania
corporation) (“Aetna”) and its subsidiaries (collectively, the
“Company”).
Part
I
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Item
1.
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Business
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1
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Item
1A.
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Risk
Factors
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10
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Item
1B.
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Unresolved
Staff Comments
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10
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Item
2.
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Properties
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11
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Item
3.
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Legal
Proceedings
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11
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Item
4.
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Submission
of Matters to a Vote of Security Holders
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11
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Executive
Officers Of The Registrant
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11
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Part
II
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Item
5.
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Market
for Registrant’s Common Equity, Related Stockholder Matters
and
Issuer
Purchases of Equity Securities
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12
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Item
6.
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Selected
Financial Data
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13
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Item
7.
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Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
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13
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Item
7A.
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Quantitative
and Qualitative Disclosures About Market Risk
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13
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Item
8.
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Financial
Statements and Supplementary Data
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13
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Item
9.
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Changes
in and Disagreements With Accountants on Accounting and Financial
Disclosure
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13
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Item
9A.
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Controls
and Procedures
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13
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Item
9B.
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Other
Information
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14
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Part
III
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Item
10.
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Directors,
Executive Officers and Corporate Governance
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14
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Item
11.
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Executive
Compensation
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14
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Item
12.
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Security
Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
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14
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Item
13.
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Certain
Relationships and Related Transactions, and Director
Independence
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15
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Item
14.
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Principal
Accounting Fees and Services
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15
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Part
IV
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Item
15.
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Exhibits,
Financial Statement Schedules
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15
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Signatures
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26
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Index
to Exhibits
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27
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Part
I
Item
1. Business
We are one of the nation’s leading
diversified health care benefits companies, serving approximately 36.7
million people with information and resources to help them make better informed
decisions about their health care. We offer a broad range of
traditional 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.
We are
dedicated to helping people achieve health and financial security by providing
easy access to safe, cost-effective, quality health care and protecting their
finances against health-related risks. We
seek to achieve superior customer satisfaction through innovative products,
comprehensive health and related benefits choices, effective service and
easy-to-understand information.
The health insurance and related
benefits industry continues to experience significant change. Employers,
consumers and the federal and state governments have increased their focus on
health care costs, which continue to drive changes in the structure of health
insurance and related benefits products and services. Product
features continue to evolve that are directed at containing rising health care
costs, enhancing access to quality health care services and giving members
greater control and responsibility in directing their benefit
dollars. For employer-based health coverage, employers are continuing
to require covered employee members to assume a greater portion of the cost of
their health care and/or coverage. These economic factors and greater consumer
awareness are leading to increased popularity of products that offer flexibility
in design features such as deductibles and co-payments, health savings accounts,
more consumer choice of health care providers and quality-based physician
networks. The industry is also subject to other forces including
federal and state legislative and regulatory reforms, advances in pharmaceutical
and medical technology, the increasing convergence of health and wealth
considerations and industry consolidation. All of these factors can
affect the competitiveness of product and service offerings, the range of
industry competitors and the bases of competition.
We
believe that these factors will exist for some time and will drive a continuing
evolution in the health insurance and related benefits industry. We
place significant emphasis on developing and maintaining our product and service
offerings to serve existing and new customer markets and have done so through
organic growth and acquisitions. Over the last five years, this focus
has led to the introduction of new products, such as our Personal Health Record
(which provides members with online access to personal information to help them
make better informed decisions about their health care), Aetna Health
ConnectionsSM, Health
Savings Account (“HSA”) and Aetna HealthFund® plans
(consumer-directed health plans that combine traditional health plan and/or
dental coverage, subject to a deductible, with an accumulating benefit account),
Medicare Part D prescription drug plans, and private fee-for-service Medicare
plans (“PFFS”). We continue to develop and enhance our existing
products, such as our AexcelSM
physician networks, which are comprised of specialist providers who have
demonstrated effectiveness in the delivery of care based on measures of clinical
performance and efficiency. We are also expanding our transparency
initiative by utilizing our Aetna Navigator on-line tool to give our members
access to physician-specific cost, clinical quality and efficiency information
in select markets.
During
2007, we continued to invest in the development of our business by acquiring
companies that support our strategy as well as continuing to introduce or
enhance our own new products and services. We expanded our Health
Care product offerings by acquiring a leading provider of health care management
services for Medicaid plans and a leading managing general underwriter (or
underwriting agent) for international private medical insurance that offers
expatriate benefits to individuals, small and medium enterprises, and large
multinational clients around the world. More details about these
acquisitions are included in Note 3 on page 54 of Notes to Consolidated
Financial Statements of the Annual Report which is incorporated herein by
reference.
During
2007, our emphasis on introducing, developing and enhancing new products and
services through organic growth and acquisitions led to the expansion and
diversification of both the geographic reach of our operations and the customer
markets we serve. Our significant expansions and diversifications
during 2007 included:
·
|
expanding
our individual and small group marketing into additional
states;
|
·
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expanding
our capabilities to serve Government and labor
customers;
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·
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expanding
our Medicaid offerings to a total of 10 states, mostly through
acquisition;
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·
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expanding
our capabilities to serve retirees, particularly through our relationships
with AARP and the HR Policy Association and our enhanced individual and
group Medicare offerings; and
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·
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expanding
our expatriate offerings and global capabilities and reach, also through
acquisition.
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As we
enhance our product capabilities and geographic presence, we continually
evaluate acquisitions and other transactions that present strategic growth
opportunities.
Our
operations are conducted in three business segments: Health Care, Group
Insurance and Large Case Pensions.
We derive
our revenues primarily from premiums earned on insured products (i.e.,
arrangements under which we assume all or a majority of the financial risk for
health care costs or other risks covered by the plan, hereinafter referred to as
“Insured”), fees (comprised of administrative services contract (“ASC”) and
other fees), investments and other revenue. Refer to Management’s
Discussion and Analysis of Financial Condition and Results of Operations
(“MD&A”) and Note 19 of Notes to Consolidated Financial Statements beginning
on pages 2 and 76, respectively, of the Annual Report, which are incorporated
herein by reference, regarding revenue and profit information for each of our
business segments. The following is a description of each of our business
segments.
Health
Care
Products and
Services
Health
Care products consist of medical, pharmacy benefits management, dental and
vision plans offered on both an Insured basis and an employer-funded basis
(i.e., arrangements under which the employer or other plan sponsor under an ASC
assumes all or a majority of the financial risk for health care costs or other
risks covered by the plan). Medical products include point of service
(“POS”), preferred provider organization (“PPO”), health maintenance
organization (“HMO”) and indemnity benefit (“Indemnity”)
plans. Medical products also include HSAs and Aetna HealthFund®,
consumer-directed health plans that combine traditional POS or PPO and/or dental
coverage, subject to a deductible, with an accumulating benefit account (which
may be funded by the plan sponsor and/or the member in the case of
HSAs). We also offer Medicare and Medicaid products and services and
specialty products, such as medical management and data analytics services,
behavioral health plans and stop loss insurance, as well as products that
provide access to our provider networks in select markets.
Our
principal products and services are targeted specifically to small, mid-sized
and large multi-site national employers. We also serve individual
insureds, expatriates and, in certain markets, Medicare and Medicaid
beneficiaries. Medicare and Medicaid products and services are
categorized separately from our other Health Care products and services, which
we refer to as Commercial.
The
primary Commercial products we offer are POS, PPO, HMO and indemnity
plans. We also offer other products and services. Our
other Commercial products and services include:
ActiveHealth
Management
Through
the use of our patented Care Engine® system,
our ActiveHealth Management business provides evidence-based medical management
and data analytics products and services to a broad range of customers,
including health plans, employers and others.
Personal Health
Record
Our
Personal Health Record provides members with online access to personal
information, including individual personalized messages and alerts, detailed
health history based on available claims data and voluntarily submitted
information and integrated information and resources to help members make
informed decisions about their health care.
Network
Access
We also
maintain a regional health care network with operations in Michigan, Colorado
and other states. We provide access to this network to a broad range
of customers, including other health plans and employers, for a
fee.
Stop
Loss
We offer
stop loss insurance coverage for certain employers. Under this
product, we assume the costs associated with large individual claims and/or
aggregate loss experience within the employer’s plan above a pre-set annual
threshold.
Pharmacy
We offer
pharmacy benefit management and specialty and mail order pharmacy services to
our members. Our pharmacy fulfillment services are delivered by Aetna
Specialty Pharmacy (“ASP”) and Aetna Rx Home Delivery®. ASP
compounds and dispenses specialty medications and offers disease management
programs associated with certain specialty medications. Specialty
medications are generally injectable or infused medications that may not be
readily available at local pharmacies. Aetna Rx Home Delivery®
complements ASP by offering a mail order prescription drug
service. Our pharmacy operations are located primarily in Missouri
and Florida.
Behavioral
Health
Our
behavioral health products provide members who experience mental health issues
with integrated behavioral health benefit administration, access to a network of
providers and innovative wellness programs.
Other Commercial Products
and Services
We offer
a variety of other health care coverage products either as supplements to health
products or as stand-alone products. Such products, which may be
offered on an Insured or an ASC basis, include indemnity and managed dental
plans and vision programs. We are one of the nation’s largest
providers of dental coverage, based on membership at December 31,
2007.
In
addition to Commercial health products, in select markets we also offer HMO,
PPO, PFFS and prescription drug coverage for Medicare beneficiaries and
participate in Medicaid and subsidized State Children’s Health Insurance
Programs (“SCHIP”). SCHIP are state-subsidized insurance programs
that provide benefits for families with uninsured children. Our Medicare and
Medicaid products include:
Medicare
Through
annual contracts with the Centers for Medicare & Medicaid Services (“CMS”),
we offer HMO and PPO plans for Medicare-eligible individuals in certain
geographic areas through the Medicare Advantage program. Members
typically receive enhanced benefits over standard Medicare fee-for-service
coverage, including reduced cost-sharing for preventive care, vision and other
non-Medicare services. As a result of the changes in Medicare
resulting from the Medicare Prescription Drug Improvement and Modernization Act
of 2003, we continue to expand our Medicare Advantage program into select
markets. We offered these plans in 205 counties in 16 states and
Washington, D.C. in 2007 and are expanding to 214 counties in 18 states and
Washington, D.C. in 2008.
We are a
national provider of the Medicare Part D Prescription Drug Program (“PDP”) in
all 50 states to both individuals and employer groups. All Medicare
eligible individuals are eligible to participate in this voluntary prescription
drug plan. Members typically receive coverage for certain
prescription drugs, usually subject to a deductible, co-insurance and/or
co-payment.
We offer
PFFS in select markets for individuals and nationally for employer
groups. PFFS complements our PDP product, forming an integrated
national fully insured Medicare product.
Medicaid
and SCHIP
Through
primarily annual contracts with states, we offer healthcare management services
for Medicaid-eligible individuals on an ASC and Insured basis. We
significantly expanded our Medicaid offerings in 2007 by acquiring Schaller
Anderson, Incorporated (refer to Note 3 of Notes to Consolidated Financial
Statements, on page 54 of the Annual Report, which is incorporated herein by
reference).
We
participate on an Insured basis in an SCHIP contract in Pennsylvania and an
SCHIP contract in Texas, and provide administrative services in connection with
a hospital-based SCHIP contract in Texas. We now
offer ASC Medicaid services in 8 states and Insured Medicaid services in 4
states.
Provider
Networks
We
contract with physicians, hospitals and other health care providers for services
provided to our health plan members and the members of our
customers. The providers who participate in our networks are
independent contractors and are neither our employees nor our agents, except for
providers who work in our mail-order and specialty pharmacy
facilities.
We use a
variety of techniques designed to help encourage appropriate utilization of
health care 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 guidelines for the appropriate utilization of health care
resources and providing health care providers with data in order to help them
improve consistency and quality. We also offer, directly or in
cooperation with third parties, our Aetna Health ConnectionsSM disease
management program, which addresses 30 chronic conditions, including asthma,
diabetes, congestive heart failure and lower back pain.
At
December 31, 2007, we had extensive nationwide provider networks of more than
820,000 participating health care providers, including over 478,000 primary care
and specialist physicians and over 4,700 hospitals.
PCPs
We
compensate primary care physicians (“PCPs”) on both a fee-for-service and
capitated basis, with capitation generally limited to HMO products in certain
geographic areas. 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. During 2007 we continued to eliminate or reduce the use of
capitation arrangements in many areas. The percentage of health care
costs related to capitation arrangements was 5.5% for the year ended December
31, 2007 compared to 5.9% and 7.9% for the years ended December 31, 2006 and
2005, respectively.
Specialist
Physicians
Specialist
physicians participating in our networks are generally reimbursed at contracted
rates per visit or per procedure.
Hospitals
We
typically enter into contracts with hospitals that provide for per day and/or
per case rates, often with fixed rates for ambulatory, surgery and emergency
room services. We also have hospital contracts that provide for
reimbursement based on a percentage of the charges billed by the
hospital.
Our
medical plans generally require notification of elective hospital admissions,
and we monitor the length of hospital stays. Physicians who
participate in our networks generally admit their HMO and POS patients to
participating hospitals using referral procedures that direct the hospital to
contact our 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, if necessary, the subsequent
transition to the home environment and home care. Case management
assistance for complex cases is provided by a special case
unit.
Other
Providers
Laboratory,
imaging, urgent care and other freestanding health facility providers are
generally paid under fee-for-service arrangements.
Quality
Assessment
We seek
accreditation for most of our HMO plans from the National Committee for Quality
Assurance (“NCQA”), a national organization established to review the quality
and medical management systems of health care plans. NCQA
accreditation is a nationally recognized standard. At December 31,
2007, approximately 99% of our HMO members participated in HMOs that had
received accreditation by the NCQA.
We also
seek accreditation and certification for our PPO-based and other products from
NCQA and URAC, national organizations founded to establish standards for the
health care industry. Purchasers and consumers look to URAC’s and
NCQA’s accreditation and certification 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 and NCQA’s accreditation and certification
standards in the regulatory process. Aetna Life Insurance Company
(“ALIC”), a wholly-owned subsidiary of Aetna that offers our PPO-based products,
has received NCQA PPO Full Accreditation through December 11,
2010. ALIC also has received NCQA Utilization Management
Certification through March 6, 2008 and NCQA Credentials Verification
Organization Certification through January 29, 2009. Certain of our
other subsidiaries, in addition to our HMOs, have additional NCQA and/or URAC
accreditations.
Our
quality assessment programs for contracted providers who participate in our
networks begin with the initial review of health care
practitioners. Practitioners’ licenses and education are verified,
and their work history is collected by us or in some cases by the practitioner’s
affiliated group or organization. Our credentialing and
recredentialing practices are in accordance with applicable URAC and NCQA
requirements and state and federal regulations. We generally require
participating hospitals to be certified by CMS or accredited by the Joint
Commission or the American Osteopathic Association.
We also
offer quality and outcome measurement programs, quality improvement programs and
health care data analysis systems to providers and purchasers of health care
services.
Principal Markets and
Sales
Our
medical membership generally is dispersed throughout the United States, although
we serve a limited number of members in countries outside the United
States. We offer a broad range of traditional and consumer-directed
health insurance products and related services, many of which are available in
all 50 states. Depending on the product, we market to a range of
customers including employer groups (small, mid-sized and large multi-site
national accounts), individuals, college students, part-time and hourly workers,
health plans, governmental units, government-sponsored plans, labor groups and
expatriates.
The
following table presents total medical membership by geographic region and
funding arrangement at December 31, 2007, 2006 and 2005:
|
2007
|
|
2006
|
|
2005
|
(Thousands)
|
Risk
|
ASC
|
Total
|
|
Risk
|
ASC
|
Total
|
|
Risk
|
ASC
|
Total
|
Northeast
|
1,154
|
1,471
|
2,625
|
|
1,159
|
1,443
|
2,602
|
|
1,205
|
1,365
|
2,570
|
Mid-Atlantic
|
1,074
|
1,767
|
2,841
|
|
1,007
|
1,642
|
2,649
|
|
1,122
|
1,505
|
2,627
|
Southeast
|
949
|
1,726
|
2,675
|
|
906
|
1,681
|
2,587
|
|
894
|
1,565
|
2,459
|
North
Central
|
783
|
2,271
|
3,054
|
|
571
|
2,284
|
2,855
|
|
542
|
2,173
|
2,715
|
Southwest
|
669
|
1,880
|
2,549
|
|
655
|
1,719
|
2,374
|
|
596
|
1,554
|
2,150
|
West
|
987
|
1,852
|
2,839
|
|
811
|
1,364
|
2,175
|
|
748
|
1,312
|
2,060
|
Other
|
133
|
137
|
270
|
|
124
|
67
|
191
|
|
109
|
65
|
174
|
Total
medical membership
|
5,749
|
11,104
|
16,853
|
|
5,233
|
10,200
|
15,433
|
|
5,216
|
9,539
|
14,755
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
information on Health Care’s membership is included in the “Membership” section
of the MD&A, on page 8 of the Annual Report, which is incorporated herein by
reference.
We market
both Insured and ASC products and services primarily to employers that sponsor
our products (or “plan sponsors”) for the benefit of their employees and their
employees’ dependents. Frequently, larger employers offer employees a
choice among coverage options, 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 us
and, through payroll deductions, obtain reimbursement from employees for a
percentage, as determined by the employer. Some Health Care products
are sold on a fully employee-paid basis. In some cases, we bill the
covered individual directly. We also sell Insured plans directly to
individual consumers in a number of states.
We sell
Insured Medicare coverage on an individual basis as well as through employer
groups to their retirees. Medicaid and SCHIP members are enrolled on
an individual basis.
Health
Care products are sold through our sales personnel, as well as independent
brokers, agents and consultants who assist in the production and servicing of
business. For large plan sponsors, independent consultants and
brokers are frequently involved in employer health plan selection decisions and
sales. We pay commissions, fees and other amounts to brokers, agents,
consultants and sales representatives who place business with us. We
support our marketing and sales efforts with an advertising program that may
include television, radio, billboards and print media, supplemented by market
research and direct marketing efforts.
Pricing
For
Commercial Insured plans, employer group contracts containing the pricing and
other terms of the relationship are generally established in advance of the
policy period, typically for a duration of one year. We use
prospective rating methodologies in determining the premium rates charged to the
majority of employer groups, and we also use retrospective rating methodologies
for some groups. Premium rates for customers with more than 125
employees generally take into consideration the individual plan sponsor’s
historical and anticipated claim experience. Some states may prohibit
the use of one or more of these rating methods for some customers, such as small
employer groups, or all customers.
Under
prospective rating, a fixed premium rate is determined at the beginning of the
policy period. We cannot recover unanticipated increases in medical
costs in the current policy year; however, we may consider prior experience for
a product in the aggregate or for a specific customer, among other factors, in
determining premium rates for future policy periods. Where required
by state laws, premium rates are filed and approved prior to contract
inception. Our future results could be adversely affected if the
premium rates we request are not approved or are adjusted downward by state
regulators.
Under
retrospective rating, we determine a premium rate at the beginning of the policy
period. After the policy period has ended, the actual claim and cost
experience is reviewed. If the experience is favorable (i.e., actual
claim costs and other expenses are less than expected), we may issue a refund to
the plan sponsor. If the experience is unfavorable, we may, in
certain instances, recover the resulting deficit through contractual provisions
or consider the deficit in setting future premium levels. We may not recover the
deficit if a plan sponsor elects to terminate coverage. Retrospective
rating may be used for Commercial Insured plans that cover more than 300
lives.
We have
Medicare Advantage and PDP contracts with CMS to provide HMO, PPO, PFFS and
prescription drug coverage to Medicare beneficiaries in certain geographic
areas. Under these annual contracts, CMS pays us a fixed capitation
payment and/or a portion of the premium, both of which are based on membership
and adjusted for demographic and health risk factors. CMS also
considers inflation, changes in utilization patterns and average per capita
fee-for-service Medicare costs in the calculation of the fixed capitation
payment or premium. Our PDP contracts also provide a risk sharing
arrangement with CMS to limit our exposure to unexpected
expenses. Amounts payable under the Medicare arrangements are subject
to annual revision by CMS, and we elect to participate in each Medicare service
area or region on an annual basis. In addition to payments received
from CMS, most of our Medicare Advantage products and all of our PDP products
require a supplemental premium to be paid by the member or sponsoring
employer. In some cases these supplemental premiums are adjusted
based on the member’s income and asset levels. Compared to commercial
products, Medicare contracts generate higher per member per month revenues and
medical expenses.
Under our
Insured Medicaid contracts with states, government agencies pay us fixed monthly
rates per member that vary by state, line of business and demographics, and we
arrange, pay for and manage health care services provided to Medicaid
beneficiaries. These rates are subject to change by each state,
however CMS requires these rates to be actuarially sound. We also
receive fee income from our clients where we provide services under ASC Medicaid
contracts. Our ASC Medicaid contracts generally are for periods of
more than one year, and certain of them contain guarantees with respect to
certain functions such as customer service response time, claim processing
accuracy and claim processing turnaround time, as well as certain performance
guarantees regarding reduction of the claim expenses incurred by the plan
sponsor. Under these guarantees, we are financially at risk if the
conditions of the arrangements are not met. Payments to us under each
of these Medicaid contracts are subject to the annual appropriation process in
the applicable state.
We also
serve a variety of federal government employee groups under the Federal
Employees Health Benefit Program under HMO and consumer-directed
plans. Premium rates are subject to federal government review and
audit, which can result and have resulted in retroactive and prospective premium
adjustments.
Our ASC
plans are generally for a period of one year. Some of our ASC
contracts include performance guarantees with respect to certain functions such
as customer service response time, claim processing accuracy and claim
processing turnaround time, as well as certain performance guarantees that claim
expenses to be incurred by plan sponsors will fall within a specified
range. Under these guarantees, we are financially at risk if the
conditions of the arrangements are not met, although the maximum amount at risk
is typically 10% - 30% of fees paid by the customer involved.
Competition
The
health care industry is highly competitive, primarily due to a large number of
competitors, our competitors’ 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
competitive environment.
We
believe that the 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, geographic scope of
provider networks, providers available in such networks, and quality of member
support and care management programs. We believe that we are
competitive on each of these factors. Our ability to increase the
number of persons covered by our plans or to increase our revenues is affected
by our ability to differentiate ourselves from our competitors on these
factors. In addition, our ability to increase the number of persons
enrolled in our Insured 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.
Our
Insured products compete with local and regional health care benefits plans, in
addition to health care benefits and other plans sponsored by other large
commercial health benefit insurance companies and Blue Cross/Blue Shield
plans. Additional competitors include other types of medical and
dental provider organizations, various specialty service providers (including
pharmacy benefit providers), integrated health care delivery organizations, and,
for certain plans, programs sponsored by the federal or state
governments.
Our ASC
plans compete primarily with other large commercial health benefit insurance
companies, Blue Cross/Blue Shield plans and third party
administrators.
Factors Affecting
Forward-Looking Information
Information
regarding certain important factors that may materially affect Health Care’s
business and our statements concerning future events is included in the “Outlook
for 2008” and “Forward-Looking Information/Risk Factors” sections of the
MD&A, beginning on pages 3 and 30 of the Annual Report, respectively, which
are incorporated herein by reference.
Group
Insurance
Principal
Products
Group
Insurance products consist primarily of the following:
·
|
Life Insurance Products
consist principally of renewable group term life insurance
coverage, the amounts of which may be fixed or linked to individual
employee wage levels. We also offer basic, supplemental or
voluntary spouse and dependent term life coverage, and group universal
life and accidental death and dismemberment coverage. We offer
life products on an Insured basis.
|
·
|
Disability Insurance Products
provide employee income replacement benefits for both short-term
and long-term disability. We also offer disability products
with additional case management features. Similar to Health
Care products, we offer disability benefits on both an Insured and
employer-funded basis. We also provide absence management
services, including short-term and long-term disability administration and
leave management, to employers.
|
·
|
Long-Term Care Insurance
Products provide benefits to cover the cost of care in private home
settings, adult day care, assisted living or nursing
facilities. Long-term care benefits were offered primarily on
an Insured basis. The product was available on both a service
reimbursement and disability basis. We no longer solicit or
accept new long-term care customers, and we are working with our customers
on an orderly transition of this product to other
carriers.
|
Group
Insurance members may utilize more than one of our products, and multi-product
cases have been counted in membership totals for each applicable
product.
Principal Markets and
Sales
We offer
our Group Insurance products in 49 states (Group Insurance products will be
offered in New Mexico in 2008) as well as the District of Columbia, Guam, Puerto
Rico, the United States Virgin Islands and Canada. Depending on the
product, we market to a range of customers from small employer groups to large,
multi-site and/or multi-state employer programs.
We market
Group Insurance products and services primarily to employers that sponsor our
products for the benefit of their employees and their employees’
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 us and, through payroll deductions, obtain reimbursement
from employees for a percentage, as determined by the employer. Some
Group Insurance products are sold directly to employees of employer groups on a
fully employee-paid basis. In some cases, we bill the covered
individual directly.
Group
Insurance products are sold through our sales personnel, as well as independent
brokers, agents and consultants who assist in the production and servicing of
business. For large plan sponsors, independent consultants and
brokers are frequently involved in employer plan selection decisions and
sales. We pay commissions, fees and other amounts to brokers, agents,
consultants and sales representatives who place business with us. We
support our marketing and sales efforts with an advertising program that may
include television, radio, billboards and print media, supplemented by market
research and direct marketing efforts.
Pricing
For
Insured Group Insurance plans, employer group contracts containing the pricing
and other terms of the relationship are generally established in advance of the
policy period. We use prospective and retrospective rating
methodologies to determine the premium rates charged to employer
groups.
Under
prospective rating, a fixed premium rate is determined at the beginning of the
policy period. We cannot recover unanticipated increases in
mortality or morbidity costs in the current policy period; however, we may
consider prior experience for a product in aggregate or a specific customer,
among other factors, in determining premium rates for future policy
periods.
Under
retrospective rating, we determine a premium rate at the beginning of the policy
period. After the policy period has ended, the actual claim and cost
experience is reviewed. If the experience is favorable (i.e., actual
claim costs and other expenses are less than expected), we may issue a refund to
the plan sponsor. If the experience is unfavorable, we consider the
deficit in setting future premium levels, and in certain circumstances, we may
recover the deficit through contractual provisions such as offsets against
refund credits that develop for future policy periods. However, we
may not recover the deficit if a plan sponsor elects to terminate
coverage. Retrospective rating is most often used for Insured
employer funded plans that cover more than 3,000 lives and pay more than
$500,000 in annual premiums.
Competition
For the
group insurance industry, we believe that the significant factors that
distinguish competing companies are cost, quality of service, comprehensiveness
of coverage, and product array and design. We believe we are
competitive on each of these factors. The group life market remains
highly competitive.
Reinsurance
We
currently have several reinsurance agreements with
nonaffiliated insurers that relate to both group life and long-term
disability products, although these agreements do not reduce our exposure to
life insurance claims resulting from terrorist attacks or other extreme
events. Most reinsurance arrangements are quota share treaties (where
a percentage of the insured claims are subject to reinsurance) on large, in
force customers and are established on a case by case basis, but our current
agreements also cover closed blocks of business and cancelled
cases. We frequently evaluate reinsurance opportunities and refine
our reinsurance and risk management strategies on a regular basis.
Group Life Insurance In
Force and Other Statistical Data
The
following table summarizes changes in group life insurance in force before
deductions for reinsurance ceded to other companies for the years
indicated:
(Dollars
in Millions)
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
In
force, end of year
|
|
$ |
461,952 |
|
|
$ |
438,303 |
|
|
$ |
559,979 |
|
Terminations
(lapses and all other)
|
|
$ |
67,793 |
|
|
$ |
184,154 |
|
|
$ |
64,768 |
|
Number
of policies and contracts in force, end of year:
|
|
|
|
|
|
|
|
|
|
|
|
|
Group
Life Contracts (1)
|
|
|
21,963 |
|
|
|
19,813 |
|
|
|
18,292 |
|
Group
Conversion Policies (2)
|
|
|
20,439 |
|
|
|
21,405 |
|
|
|
22,277 |
|
(1)
|
Due
to the diversity of coverages and size of covered groups, statistics are
not provided for average size of policies in force.
|
(2)
|
Reflects
conversion privileges exercised by insureds under group life policies to
replace those policies with individual life
policies.
|
Factors Affecting
Forward-Looking Information
Information
regarding certain important factors that may materially affect Group Insurance’s
business and our statements concerning future events is included in the “Outlook
for 2008” and “Forward-Looking Information/Risk Factors” sections of the
MD&A, beginning on pages 3 and 30, respectively, of the Annual Report, which
are incorporated herein by reference.
Large
Case Pensions
Principal
Products
Large
Case Pensions manages a variety of retirement products (including pension and
annuity products) primarily for tax qualified pension
plans. Contracts provide non-guaranteed, experience-rated and
guaranteed investment options through general and separate account
products. Large Case Pensions’ products that use separate accounts
provide contract holders with a vehicle for investments under which the contract
holders assume the investment risk. Large Case Pensions earns a
management fee on these separate accounts.
In 1993,
we discontinued our fully guaranteed Large Case Pensions
products. Information regarding these products is incorporated herein
by reference to Note 20 of Notes to Consolidated Financial Statements beginning
on page 78 in the Annual Report. We do not actively market our other
Large Case Pensions products, but continue to manage the run-off of existing
business.
Factors Affecting
Forward-Looking Information
Information
regarding certain important factors that may materially affect Large Case
Pensions’ business and our statements concerning future events is included in
the “Outlook for 2008” and “Forward-Looking Information/Risk Factors” sections
of the MD&A, beginning on pages 3 and 30, respectively, of the Annual
Report, which are incorporated herein by reference.
Other
Matters
Access
to Reports
Our
reports to the United States Securities and Exchange Commission (“SEC”),
including our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q,
Current Reports on Form 8-K and amendments to those reports, if any, are
available without charge on our website at http://www.aetna.com
as soon as practicable after they are electronically filed with or furnished to
the SEC. The information on our website is not incorporated by
reference in this Form 10-K. Copies of these reports are also
available, without charge, from Aetna’s Investor Relations Department, 151
Farmington Avenue, Hartford, CT 06156.
Regulation
Information
regarding significant regulations affecting us is included in the “Regulatory
Environment” and “Forward-Looking Information/Risk Factors” sections of the
MD&A, beginning on pages 24 and 30, respectively, of the Annual Report,
which are incorporated herein by reference.
Patents
and Trademarks
The
patent on our CareEngine® expires
in 2021. We own the trademarks Aetna®, Aetna
Rx Home Delivery® and
CareEngine®,
together with the corresponding Aetna design logo. We consider our
CareEngine®
and these trademarks and our other trademarks and trade names important
in the operation of our business. However, our business, including
that of each of our individual segments, is not dependent on any individual
patent, trademark or trade name.
Ratings
Information
regarding our ratings is included in the “Ratings” section of the MD&A, on
page 17 of the Annual Report, which is incorporated herein by
reference.
Miscellaneous
We had
approximately 35,200 employees at December 31, 2007.
The
federal government is a significant customer of both the Health Care segment and
the Company. Premiums and fees and other revenue paid by the federal
government accounted for approximately 15% of the Health Care segment’s revenue
and 14% of our total consolidated revenue in 2007. Contracts with CMS
for coverage of Medicare-eligible individuals accounted for 69% of our federal
government premiums and fees and other revenue, with the balance coming from
federal employee related benefit programs. No other individual
customer, in any of our segments, accounted for 10% or more of our consolidated
revenues in 2007. Our segments are not dependent upon a single
customer or a few customers, the loss of which would have a significant effect
on the earnings of a segment. The loss of business from any one, or a
few, independent brokers or agents would not have a material adverse effect on
our earnings or the earnings of any of our segments. Refer to Note 19
of Notes to Consolidated Financial Statements, beginning on page 76 of the
Annual Report, which is incorporated herein by reference, regarding segment
information.
Item
1A. Risk Factors
The
information contained in the “Forward-Looking Information/Risk Factors” section
of the MD&A, which begins on page 30 of the Annual Report, is incorporated
herein by reference.
Item
1B. Unresolved Staff Comments
None.
Item
2. Properties
Our
principal office is a building complex located at 151 Farmington Avenue,
Hartford, Connecticut that is approximately 1.7 million square feet in
size. Our principal office is used by all of our business
segments. We also own or lease other space in the greater Hartford
area; Blue Bell, Pennsylvania; and various field locations in the United States
and several foreign countries. Such properties are primarily used by
our Health Care segment. We believe our properties are adequate and
suitable for our business as presently conducted.
The
foregoing does not include numerous investment properties that we hold in our
general and separate accounts.
Item 3. Legal
Proceedings
The
information contained under Litigation and Regulatory Proceedings in Note 18 of
Notes to Consolidated Financial Statements, which begins on page 74 of the
Annual Report, is incorporated herein by reference.
Item
4. Submission of Matters to a Vote of Security Holders
None.
EXECUTIVE
OFFICERS OF THE REGISTRANT
Aetna’s
Chairman is elected by Aetna’s Board of Directors (the “Board”) and all of
Aetna’s other executive officers listed below are appointed by the Board at its
Annual Meeting, and such persons hold office until the next Annual Meeting of
the Board or until their successors are elected or appointed. None of
these officers has a family relationship with any other executive officer or
Director. In addition, there exist no arrangements or understandings,
other than those with Directors or officers acting solely in their capacities as
such, pursuant to which these executive officers were appointed.
|
|
|
|
|
Name of Executive Officer
|
|
Position*
|
|
Age *
|
|
|
|
|
|
Ronald
A. Williams
|
|
Chairman
and Chief Executive Officer
|
|
58
|
|
|
|
|
|
Mark
T. Bertolini
|
|
President
|
|
51
|
|
|
|
|
|
Joseph
M. Zubretsky
|
|
Executive
Vice President and Chief Financial Officer
|
|
51
|
|
|
|
|
|
Troyen
A. Brennan, M.D.
|
|
Senior
Vice President and Chief Medical Officer
|
|
53
|
|
|
|
|
|
William
J. Casazza
|
|
Senior
Vice President and General Counsel
|
|
52
|
*As of
February 29, 2008
Executive
Officers’ Business Experience During Past Five Years
Ronald A. Williams became
Chairman on October 1, 2006, has served as Chief Executive Officer since
February 14, 2006 and served as President from May 27, 2002 to July 24,
2007. Mr. Williams is a Director of American Express Company
(financial services) and is a trustee of The Conference Board. He
also serves on the Dean’s Advisory Council at the Massachusetts Institute of
Technology and is a member of MIT’s Alfred P. Sloan Management
Society.
Mark T. Bertolini became
President on July 24, 2007 having served as Executive Vice President and Head of
Business Operations since May 3, 2007. Prior to that, he had served
as Executive Vice President, Regional Businesses from February 1, 2006 and as
Senior Vice President, Regional Businesses from September 2005 to February 1,
2006. He served as Senior Vice President, Specialty Group from April
2005 to September 2005 and as Senior Vice President, Specialty Products from
February 2003 to April 2005. Prior to joining Aetna, Mr. Bertolini
served as Senior Vice President, Regional Segment and Middle Market Growth of
CIGNA Corporation (“CIGNA”) from November 2002 to February 2003.
Joseph M. Zubretsky became
Executive Vice President and Chief Financial Officer on April 20, 2007 having
served as Executive Vice President, Finance since February 28,
2007. Mr. Zubretsky also has served as the Company’s Chief Enterprise
Risk Officer since April 27, 2007. Prior to joining Aetna, Mr.
Zubretsky served as Senior Executive Vice President for Finance, Investments and
Corporate Development at UnumProvident Corporation, a position he assumed in
March 2005. Prior to that, Mr. Zubretsky was Chairman and Chief
Executive Officer of GAB Robins Group, a global insurance services company, as
well as a partner specializing in insurance industry investments with Brera
Capital Partners, a New York-based private equity firm, since 1999.
Troyen A. Brennan, M.D.,
became Senior Vice President and Chief Medical Officer on February 21,
2006. Prior to joining Aetna, Dr. Brennan served as President and
Chief Executive Officer of Brigham and Women’s Physician Organization, a
position he assumed in January 2000, as Professor of Medicine, Harvard Medical
School, since July 1995 and as Professor of Law and Public Health, Harvard
School of Public Health, since July 1992.
William J. Casazza became
Senior Vice President and General Counsel on September 6, 2005. He
served as Senior Vice President and Deputy General Counsel from July 6, 2004 to
September 6, 2005. Prior to that, he served as Vice President and
Deputy General Counsel from December 2000 to July 6, 2004. Mr.
Casazza also served as Corporate Secretary from October 2000 to January 27,
2006.
Part
II
Item
5. Market for Registrant’s Common Equity, Related Stockholder Matters
and Issuer Purchases of Equity Securities
Our
common shares (“common stock”) are listed on the New York Stock Exchange, where
they trade under the symbol AET. As of January 31, 2008, there were
10,579 record holders of our common stock.
During
each of 2006 and 2005, our common stock split two-for-one. All share
and per share amounts in this Form 10-K have been adjusted to reflect both stock
splits. Refer to Note 1 of Notes to Consolidated Financial
Statements, on page 45 of the Annual Report, which is incorporated herein by
reference, for additional information about these two stock splits.
On April
27, 2007 and September 28, 2007, we announced that our Board authorized two
share repurchase programs for the repurchase of up to $750 million and $1.25
billion, respectively, of common stock ($2.0 billion in
aggregate). During the three months ended December 31, 2007, we
repurchased approximately 6 million shares of common stock at a cost of $348
million, completing the April 27, 2007 authorization and utilizing a portion of
the September 28, 2007 authorization. At December 31, 2007, we had
authorization to repurchase up to $902 million of common stock remaining under
the September 28, 2007 authorization. On February 29, 2008, the Board
authorized an additional $750 million share repurchase program which will
commence upon completion of the September 28, 2007 authorization.
The
following table provides information about our monthly share repurchases all of
which were purchased as part of publicly announced programs for the three months
ended December 31, 2007:
Issuer
Purchases of Equity Securities
|
|
|
|
|
Total
Number of
|
|
Approximate
Dollar
|
|
|
|
|
Shares
Purchased
|
|
Value
of Shares
|
|
|
|
|
as
Part of Publicly
|
|
that
May Yet Be
|
|
Total
Number of
|
|
Average
Price
|
Announced
|
|
Purchased
Under the
|
(Millions,
except per share amounts)
|
Shares
Purchased
|
|
Paid
Per Share
|
Plans
or Programs
|
|
Plans
or Programs
|
October
1, 2007 - October 31, 2007
|
.5
|
|
$
55.58
|
.5
|
|
$
1,225.0
|
November
1, 2007 - November 30, 2007
|
.9
|
|
54.96
|
.9
|
|
1,173.3
|
December
1, 2007 - December 31, 2007
|
4.7
|
|
58.21
|
4.7
|
|
901.9
|
Total
|
6.1
|
|
$
57.51
|
6.1
|
|
N/A
|
We
declared, and subsequently paid, an annual cash dividend in the amount of $.04
per share of common stock in each of 2007 and 2006. Information
regarding restrictions on our present and future ability to pay dividends is
included in the “Liquidity and Capital Resources” section of the MD&A and
Note 16 of Notes to Consolidated Financial Statements, beginning on pages 14 and
72, respectively, of the Annual Report which are incorporated herein by
reference. Information regarding quarterly common stock prices is
incorporated herein by reference to the Quarterly Data (unaudited) included on
page 86 of the Annual Report.
Item
6. Selected Financial Data
The
information contained in Selected Financial Data on page 40 of the Annual Report
is incorporated herein by reference.
Item
7. Management’s Discussion and Analysis of Financial Condition and
Results of Operations
The
information contained in the MD&A, beginning on page 2 of the Annual Report,
is incorporated herein by reference.
Item
7A. Quantitative and Qualitative Disclosures About Market Risk
The
information contained in the “Risk Management and Market-Sensitive Instruments”
section of the MD&A, on page 14 of the Annual Report, is incorporated herein
by reference.
Item
8. Financial Statements and Supplementary Data
The
information contained in Consolidated Financial Statements, Notes to
Consolidated Financial Statements, Report of Independent Registered Public
Accounting Firm and Quarterly Data (unaudited), beginning on page 41 of the
Annual Report, is incorporated herein by reference.
Item
9. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure
None.
Item
9A. Controls and Procedures
Disclosure
Controls and Procedures
We
maintain disclosure controls and procedures, which are designed to ensure that
information that we are required to disclose in the reports we file or submit
under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is
recorded, processed, summarized and reported within the time periods specified
in the SEC’s rules and forms, and that such information is accumulated and
communicated to our management, including our Chief Executive Officer and Chief
Financial Officer, as appropriate to allow timely decisions regarding required
disclosure.
An
evaluation of the effectiveness of our disclosure controls and procedures as of
December 31, 2007 was conducted under the supervision and with the participation
of our Chief Executive Officer and Chief Financial Officer. Based on
that evaluation, our Chief Executive Officer and Chief Financial Officer have
concluded that our disclosure controls and procedures as of December 31, 2007
were effective and designed to ensure that material information relating to
Aetna Inc. and its consolidated subsidiaries would be made known to the Chief
Executive Officer and Chief Financial Officer by others within those entities,
particularly during the periods when periodic reports under the Exchange Act are
being prepared. Refer to the Certifications by our Chief Executive
Officer and Chief Financial Officer filed as Exhibits 31.1 and 31.2 to this Form
10-K.
Management’s
Report on Internal Control Over Financial Reporting
Management’s
Report on Internal Control Over Financial Reporting and the Report of
Independent Registered Public Accounting Firm, which begin on pages 83 and 84,
respectively, of the Annual Report, are incorporated herein by
reference.
Changes
in Internal Control over Financial Reporting
There has
been no change in our internal control over financial reporting, identified in
connection with the evaluation of such control, that occurred during our fourth
fiscal quarter that has materially affected, or is reasonably likely to
materially affect, our internal control over financial reporting.
Item
9B. Other Information
None.
Part
III
Item
10. Directors, Executive Officers and Corporate
Governance
Information
concerning the Executive Officers of Aetna Inc. is included in Part I pursuant
to General Instruction G to Form 10-K.
Information
concerning our Directors, our Directors’ and certain of our executives’
compliance with Section 16(a) of the Exchange Act, our Code of Conduct (our
written code of ethics) and our audit committee and audit committee financial
experts is incorporated herein by reference to the information under the
captions “Nominees for Directorships,” “Section 16(a) Beneficial Ownership
Reporting Compliance,” “Aetna’s Code of Conduct” and “Board and Committee
Membership; Committee Descriptions” in the Proxy Statement.
Item
11. Executive Compensation
The
information under the captions “Compensation Discussion and Analysis,” “Director
Compensation Philosophy and Elements,” “2007 Nonmanagement Director
Compensation,” “2007 Director Compensation Table,” “Additional Director
Compensation Information,” “Executive Compensation,” “Compensation Committee
Interlocks and Insider Participation” and “Report of the Committee on
Compensation and Organization” in the Proxy
Statement is incorporated herein by reference.
Item
12. Security Ownership of Certain Beneficial Owners and Management
and Related Stockholder Matters
The
information under the caption “Security Ownership of Certain Beneficial Owners,
Directors, Nominees and Executive Officers” in the Proxy Statement is
incorporated herein by reference.
The
following table gives information about our common shares that may be issued
upon the exercise of options, warrants and rights under all of our equity
compensation plans as of December 31, 2007:
Equity
Compensation Plan Information
|
|
|
|
|
Number
of securities
|
|
|
|
|
remaining
available
|
|
Number
of securities
|
|
|
for
future issuance
|
|
to
be issued upon
|
|
Weighted-average
|
under
equity
|
|
exercise
of
|
|
exercise
price of
|
compensation
plans
|
|
outstanding
options, |
|
outstanding
options,
|
(excluding
securities
|
Plan
Category
|
warrants
and rights
|
|
warrants
and rights
|
reflected
in column (a))
|
|
(a)
|
|
(b)
|
(c)
|
Equity
compensation plans approved by security holders (1)
|
34,619,271
|
|
$
25.79
|
33,719,044
|
Equity
compensation plans not approved by security holders (2)
|
8,093,063
|
|
17.93
|
11,272,995
|
Total
|
42,712,334
|
|
N/A
|
44,992,039
|
(1)
|
Includes
the 2000 Stock Incentive Plan and the Employee Stock Purchase
Plan.
|
(2)
|
Includes
the 2002 Stock Incentive Plan and the Non-Employee Director Compensation
Plan.
|
2002
Stock Incentive Plan
The 2002
Stock Incentive Plan is designed to promote our interests and those of our
shareholders and to further align the interests of shareholders and employees by
tying awards to total return to shareholders, enabling plan participants to
acquire additional equity interests in Aetna and providing compensation
opportunities dependent upon our performance. The plan has not been
submitted to shareholders for approval.
Under the
plan, eligible participants may be granted stock options to purchase shares of
common stock, stock appreciation rights, time vesting and/or performance vesting
incentive stock or incentive units and other stock-based awards. The
maximum number of shares of common stock that may be issued under the plan was
approximately 18 million shares at December 31, 2007, subject to adjustment for
corporate transactions. If an award is paid solely in cash, no shares
are deducted from the number of shares available for issuance.
Non-Employee
Director Compensation Plan
The
Non-Employee Director Compensation Plan permits Aetna’s eligible Directors to
receive shares of common stock in recognition of their
contributions. The maximum number of shares of common stock that may
be issued under the plan was approximately 1 million shares at December 31,
2007, subject to adjustment for corporate transactions. The plan has
not been submitted to shareholders for approval.
Item
13. Certain Relationships and Related Transactions, and Director
Independence
The
information under the captions “Director Independence” and “Related Party
Transaction Policy” in the Proxy Statement is incorporated herein by
reference.
Item
14. Principal Accounting Fees and Services
The
information under the captions “Fees Incurred for 2007 and 2006 Services
Performed by the Independent Registered Public Accounting Firm” and “Nonaudit
Services and Other Relationships Between the Company and the Independent
Registered Public Accounting Firm” in the Proxy Statement is incorporated herein
by reference.
Part
IV
Item
15. Exhibits and Financial Statement
Schedules
|
The
following documents are filed as part of this Form
10-K:
|
The
Consolidated Financial Statements, Notes to Consolidated Financial Statements
and Report of Independent Registered Public Accounting Firm, which begin on
pages 41, 45 and 84, respectively, of the Annual Report, are incorporated herein
by reference.
F Financial statement
schedule
|
The
Condensed Financial Information of Aetna Inc. (Parent Company Only) is included
in this Item 15. Refer to Index to Financial Statement Schedules
below.
Exhibits
to this Form 10-K are as follows:
|
3
|
Articles
of Incorporation and By-Laws
|
3.1
|
Amended
and Restated Articles of Incorporation of Aetna Inc., incorporated herein
by reference to Exhibit 99.1 to Aetna Inc.’s Form 8-K filed on May 2,
2007.
|
|
|
3.2
|
Amended
and Restated By-Laws of Aetna Inc., incorporated herein by reference to
Exhibit 99.2 to Aetna Inc.’s Form 8-K filed on May 2,
2007.
|
|
|
4
|
Instruments
defining the rights of security holders, including
indentures
|
4.1
|
Form
of Aetna Inc. Common Share certificate, incorporated herein by reference
to Exhibit 4.1 to Aetna Inc.’s Amendment No. 2 to Registration Statement
on Form 10 filed on December 1,
2000.
|
|
|
4.2
|
Senior
Indenture between Aetna Inc. and U. S. Bank National Association,
successor in interest to State Street Bank and Trust Company, incorporated
herein by reference to Exhibit 4.1 to Aetna Inc.’s Form 10-Q filed on May
10, 2001.
|
|
|
4.3
|
Form
of Subordinated Indenture between Aetna Inc. and U. S. Bank National
Association, successor in interest to State Street Bank and Trust Company,
incorporated herein by reference to Exhibit 4.2 to Aetna Inc.’s
Registration Statement on Form S-3 filed on January 19,
2001.
|
|
|
10
|
Material
contracts
|
10.1
|
Form
of Distribution Agreement between Aetna’s former parent company and Aetna
Inc., incorporated herein by reference to Annex C to Aetna’s former parent
company’s definitive proxy statement on Schedule 14A filed on October 18,
2000.
|
|
|
10.2
|
Term
Sheet for Agreement between Aetna’s former parent company and Aetna Inc.
in respect of the CityPlace property, situated at 185 Asylum Avenue,
Hartford, Connecticut 06103, incorporated herein by reference to Exhibit
10.10 to Aetna Inc.’s Registration Statement on Form 10 filed on September
1, 2000.
|
|
|
10.3
|
$1,000,000,000
Amended and Restated Five-Year Credit Agreement dated as of January 20,
2006, incorporated herein by reference to Exhibit 99.1 to Aetna Inc.’s
Form 8-K filed on January 23, 2006.
|
|
|
10.4
|
First
Amendment to the Amended and Restated Five-Year Credit Agreement,
incorporated herein by reference to Exhibit 99.1 to Aetna Inc.’s Form 8-K
filed on December 19, 2006.
|
|
|
10.5
|
Extension
of the Maturity Date of the Amended and Restated Five-Year Credit
Agreement, incorporated herein by reference to Exhibits 99.1 through 99.22
to Aetna Inc.’s Form 8-K filed on January 24, 2007.
|
|
|
10.6
|
Amended
and Restated Aetna Inc. 2000 Stock Incentive Plan, incorporated herein by
reference to Exhibit 10.1 to Aetna Inc.’s Form 10-Q filed on April 27,
2006. **
|
|
|
10.7
|
Form
of Aetna Inc. 2000 Stock Incentive Plan - Stock Appreciation Right Terms
Of Award, incorporated herein by reference to Exhibit 10.1 to Aetna Inc.’s
Form 10-Q filed on October 26, 2006. **
|
|
|
10.8
|
Form
of Aetna Inc. 2000 Stock Incentive Plan - Restricted Stock Unit Terms Of
Award, incorporated herein by reference to Exhibit 10.2 to Aetna Inc.’s
Form 10-Q filed on October 26, 2006. **
|
|
|
10.9
|
Form
of Aetna Inc. 2000 Stock Incentive Plan - Aetna Performance Unit Award
Agreement, incorporated herein by reference to Exhibit 10.3 to Aetna
Inc.’s Form 10-Q filed on October 26, 2006. **
|
|
|
10.10
|
Form
of Aetna Inc. 2000 Stock Incentive Plan - Aetna Performance Stock Unit
Terms of Award. **
|
|
|
10.11
|
Amended
and Restated Aetna Inc. 2002 Stock Incentive Plan, incorporated herein by
reference to Exhibit 10.1 to Aetna Inc.’s Form 10-Q filed on October 30,
2003. **
|
|
|
10.12
|
Form
of Aetna Inc. 2001 Annual Incentive Plan, incorporated herein by reference
to Annex H to Aetna’s former parent company’s definitive proxy statement
on Schedule 14A filed on October 18, 2000. **
|
|
|
10.13
|
Aetna
Inc. Non-Employee Director Compensation Plan as Amended through March 30,
2007, incorporated herein by reference to Exhibit 10.1 to Aetna Inc.’s
Form 10-Q filed on April 26, 2007. **
|
|
|
10.14
|
Form
of Aetna Inc. Non-Employee Director Compensation Plan - Restricted Stock
Unit Agreement, incorporated herein by reference to Exhibit 10.4 to Aetna
Inc.’s Form 10-Q filed on October 26, 2006. **
|
|
|
10.15
|
1999
Director Charitable Award Program, as Amended and Restated on January 25,
2008. **
|
|
|
10.16
|
Amended
and Restated Employment Agreement dated as of December 5, 2003 by and
between Aetna Inc. and Ronald A. Williams, incorporated herein by
reference to Exhibit 10.24 to Aetna Inc.’s Form 10-K filed on February 27,
2004. **
|
10.17
|
Amendment
to Employment Agreement dated as of January 27, 2006 between Aetna Inc.
and Ronald A. Williams, incorporated herein by reference to Exhibit 10.14
to Aetna Inc.’s Form 10-K filed on March
1, 2006. **
|
|
|
10.18
|
Incentive
Stock Unit Agreement between Aetna Inc. and Ronald A. Williams dated as of
February 14, 2006, pursuant to the Aetna Inc. 2000 Stock Incentive Plan,
incorporated herein by reference to Exhibit 10.15 to Aetna Inc.’s Form
10-K filed on March 1, 2006. **
|
|
|
10.19
|
Employment
Agreement dated as of September 28, 2001 between Aetna Inc. and Alan M.
Bennett, incorporated herein by reference to Exhibit 10.12 to Aetna Inc.’s
Form 10-K filed on February 28, 2003.**
|
|
|
10.20
|
Letter
agreement dated September 22, 2004 between Aetna Inc. and Alan M. Bennett,
incorporated herein by reference to Exhibit 99.1 of Aetna Inc.’s Form 8-K
filed on September 24, 2004. **
|
|
|
10.21
|
Letter
agreement dated February 22, 2007 between Aetna Inc. and Alan M. Bennett,
incorporated herein by reference to Exhibit 10.25 to Aetna Inc.’s Form
10-K filed on February 27, 2007. **
|
|
|
10.22
|
Employment
Agreement dated as of July 24, 2007, between Aetna Inc. and Mark T.
Bertolini, incorporated herein by reference to Exhibit 10.1 to Aetna
Inc.’s Form 10-Q filed on July 26, 2007. **
|
|
|
10.23
|
Letter
agreement dated April 23, 2004 between Aetna Inc. and Craig R. Callen,
incorporated herein by reference to Exhibit 10.14 to Aetna Inc.’s Form
10-K filed on March 1, 2005. **
|
|
|
10.24
|
Letter
agreement dated August 6, 2007 between Aetna Inc. and Craig R. Callen,
incorporated herein by reference to Exhibit 10.1 to Aetna Inc.’s Form 10-Q
filed on October 25, 2007. **
|
|
|
10.25
|
Memorandum
dated January 6, 1997 from Mary Ann Champlin to Timothy A. Holt,
incorporated herein by reference to Exhibit 10.14 to Aetna Inc.’s Form
10-K filed on February 27, 2004. **
|
|
|
10.26
|
Memorandum
dated July 20, 2000 from Elease E. Wright to Timothy A. Holt, incorporated
herein by reference to Exhibit 10.15 to Aetna Inc.’s Form 10-K filed on
February 27, 2004. **
|
|
|
10.27
|
Letter
agreement dated January 25, 2007 between Aetna Inc. and Joseph M.
Zubretsky, incorporated herein by reference to Exhibit 10.29 to Aetna
Inc.’s Form 10-K filed on February 27, 2007. **
|
|
|
10.28
|
Employment
Agreement dated as of September 6, 2000 by and between Aetna’s former
parent company and John W. Rowe, M.D., incorporated herein by reference to
Exhibit 10.23 to Aetna Inc.’s Amendment No. 1 to Registration Statement on
Form 10 filed on October 18, 2000. **
|
|
|
10.29
|
Memorandum
dated December 6, 2002, from Elease E. Wright to John W. Rowe, M.D.,
incorporated herein by reference to Exhibit 10.11 to Aetna Inc.’s Form
10-K filed on February 28, 2003. **
|
|
|
10.30
|
Amendment
to Employment Agreement dated as of June 27, 2003 between Aetna Inc. and
John W. Rowe, M.D., incorporated herein by referenced to Exhibit 10.1 to
Aetna Inc.’s Form 10-Q filed on July 31, 2003.
**
|
10.31
|
Amendment
2 to Employment Agreement dated as of January 3, 2006 between Aetna Inc.
and John W. Rowe, M.D., incorporated herein by reference to Exhibit 10.12
to Aetna Inc.’s Form 10-K filed on March 1, 2006. **
|
|
|
10.32
|
Consulting
Agreement made as of October 1, 2006 between Aetna Inc. and John W. Rowe,
M.D., incorporated herein by reference to Exhibit 10.5 to Aetna Inc.’s
Form 10-Q filed on October 26, 2006. **
|
|
|
10.33
|
Description
of certain arrangements not embodied in formal documents, as described
under the headings “2007 Nonmanagement Director Compensation” and
“Additional Director Compensation Information” are incorporated herein by
reference to the Proxy Statement. **
|
|
|
*
|
Copies
of exhibits will be furnished without charge upon written request to the
Office of the Corporate Secretary, Aetna Inc., 151 Farmington Avenue,
Hartford, Connecticut 06156.
|
**
|
Management
contract or compensatory plan or
arrangement.
|
11
|
Statement
re: computation of per share earnings
|
11.1
|
Computation
of per share earnings is incorporated herein by reference to Note 4 of
Notes to Consolidated Financial Statements, on page 54 of the Annual
Report.
|
|
|
12
|
Statement
re: computation of ratios
|
12.1
|
Computation
of ratio of earnings to fixed charges.
|
|
|
13
|
Annual
report to security holders
|
13.1
|
Management’s
Discussion and Analysis of Financial Condition and Results of Operations,
Selected Financial Data, Consolidated Financial Statements, Notes to
Consolidated Financial Statements, Management’s Report on
Internal Control Over Financial Reporting, Management’s Responsibility for
Financial Statements, Audit Committee Oversight, Report of Independent
Registered Public Accounting Firm and Quarterly Data (unaudited) are
incorporated herein by reference to the Annual Report and filed herewith
in electronic format.
|
|
|
14
|
Code
of Ethics
|
14.1
|
Aetna
Inc. Code of Conduct, as amended on December 1, 2006, incorporated herein
by reference to Exhibit 14.1 to Aetna Inc.’s Form 8-K filed on December 6,
2006.
|
|
|
18
|
Letter
re change in accounting principles
|
18.1
|
Letter
from the Independent Registered Public Accounting Firm Regarding Change in
Accounting Principle.
|
|
|
21
|
Subsidiaries
of the registrant
|
21.1
|
Subsidiaries
of Aetna Inc.
|
|
|
23
|
Consents
of experts and counsel
|
23.1
|
Consent
of Independent Registered Public Accounting Firm.
|
|
|
24
|
Power
of Attorney
|
24.1
|
Power
of Attorney.
|
|
|
31
|
Rule
13a – 14(a)/15d – 14(e) Certifications
|
31.1
|
Certification.
|
|
|
31.2
|
Certification.
|
|
|
32
|
Section
1350 Certifications
|
32.1
|
Certification.
|
|
|
32.2
|
Certification.
|
Index
to Financial Statement Schedule
|
Page
|
|
|
Report
of Independent Registered Public Accounting Firm
|
20
|
|
|
Schedule
I: Financial Information of Aetna Inc. (Parent Company
Only):
|
|
|
|
Statements
of Income
|
21
|
Balance
Sheets
|
22
|
Statements
of Shareholders’ Equity
|
23
|
Statements
of Cash Flows
|
24
|
Notes
to Financial Statements
|
25
|
|
|
Report
of Independent Registered Public Accounting Firm
The Board
of Directors and Shareholders
Aetna
Inc.:
Under
date of February 28, 2008, we reported on the consolidated balance sheets of
Aetna Inc. and subsidiaries (the “Company”) as of December 31, 2007 and 2006,
and the related consolidated statements of income, shareholders’ equity and cash
flows for each of the years in the three-year period ended December 31, 2007, as
contained in the Annual Report on Form 10-K for the year ended December 31,
2007. In connection with our audits of the aforementioned consolidated financial
statements, we also audited the related financial statement schedule listed in
the accompanying index. The financial statement schedule is the responsibility
of the Company’s management. Our responsibility is to express an opinion on the
financial statement schedule based on our audits.
In our
opinion, such financial statement schedule, when considered in relation to the
basic consolidated financial statements taken as a whole, presents fairly, in
all material respects, the information set forth therein.
As
discussed in Notes 2 and 12 to the consolidated financial statements, effective
December 31, 2006, the Company adopted the initial recognition provision of
Statement of Financial Accounting Standards No. 158, “Employers’ Accounting for
Defined Benefit Pension and Other Post-retirement Plans” and effective January
1, 2007, they adopted the change in measurement date provision in the standard.
Also, as discussed in Notes 2 and 11 to the consolidated financial statements,
effective January 1, 2007, the Company adopted FASB Interpretation No. 48,
“Accounting for Uncertainty in Income Taxes.” Also, as discussed in
Note 2 of the consolidated financial statements the Company changed its method
of classifying investments in 2007.
/s/ KPMG
LLP
Hartford,
Connecticut
Schedule
I –Financial Information of Aetna Inc.
Aetna
Inc. (Parent Company Only)
Statements
of Income
|
|
For
the Years Ended December 31,
|
|
(Millions)
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
Service
fees-affiliates *
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
51.7 |
|
Net
investment income
|
|
|
26.0 |
|
|
|
29.2 |
|
|
|
26.2 |
|
Net
realized capital (losses) gains
|
|
|
(.9 |
) |
|
|
5.5 |
|
|
|
- |
|
Total
revenue
|
|
|
25.1 |
|
|
|
34.7 |
|
|
|
77.9 |
|
Operating
expenses
|
|
|
112.7 |
|
|
|
133.5 |
|
|
|
184.9 |
|
Interest
expense
|
|
|
180.3 |
|
|
|
148.1 |
|
|
|
122.8 |
|
Total
expenses
|
|
|
293.0 |
|
|
|
281.6 |
|
|
|
307.7 |
|
Loss
before income tax benefit and equity in earnings of affiliates,
net
|
|
|
(267.9 |
) |
|
|
(246.9 |
) |
|
|
(229.8 |
) |
Income
tax benefit
|
|
|
97.1 |
|
|
|
78.3 |
|
|
|
78.8 |
|
Equity
in earnings of affiliates, net **
|
|
|
2,001.8 |
|
|
|
1,854.2 |
|
|
|
1,724.3 |
|
Income
from continuing operations
|
|
|
1,831.0 |
|
|
|
1,685.6 |
|
|
|
1,573.3 |
|
Income
from discontinued operations
|
|
|
- |
|
|
|
16.1 |
|
|
|
- |
|
Net
income
|
|
$ |
1,831.0 |
|
|
$ |
1,701.7 |
|
|
$ |
1,573.3 |
|
*
|
During
2005, Aetna Inc. (the “Parent Company”) had a service agreement with an
affiliate under which the Parent Company provided certain administrative
services. This agreement was terminated effective January 1,
2006.
|
**
|
Includes
amortization of other acquired intangible assets after tax of $63.4
million for 2007, $55.6 million for 2006 and $37.3 million for
2005.
|
Refer to
accompanying Notes to Financial Statements.
Aetna
Inc. (Parent Company Only)
Balance
Sheets
|
|
At
December 31,
|
|
(Millions)
|
|
2007
|
|
|
2006
|
|
Assets
|
|
|
|
|
|
|
Current
assets:
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$ |
12.3 |
|
|
$ |
12.4 |
|
Investments
|
|
|
91.3 |
|
|
|
75.2 |
|
Other
receivables
|
|
|
114.3 |
|
|
|
134.0 |
|
Income
taxes receivable
|
|
|
16.2 |
|
|
|
22.0 |
|
Deferred
income taxes
|
|
|
65.2 |
|
|
|
60.0 |
|
Other
current assets
|
|
|
38.6 |
|
|
|
5.7 |
|
Total
current assets
|
|
|
337.9 |
|
|
|
309.3 |
|
Investment
in affiliates *
|
|
|
12,689.3 |
|
|
|
11,539.7 |
|
Long-term
investments
|
|
|
67.4 |
|
|
|
65.4 |
|
Deferred
income taxes
|
|
|
- |
|
|
|
121.4 |
|
Other
long-term assets
|
|
|
1,184.7 |
|
|
|
494.0 |
|
Total
assets
|
|
$ |
14,279.3 |
|
|
$ |
12,529.8 |
|
|
|
|
|
|
|
|
|
|
Liabilities
and shareholders' equity
|
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
|
Short-term
debt
|
|
$ |
99.7 |
|
|
$ |
- |
|
Accrued
expenses and other current liabilities
|
|
|
258.8 |
|
|
|
267.5 |
|
Total
current liabilities
|
|
|
358.5 |
|
|
|
267.5 |
|
Long-term
debt
|
|
|
3,138.5 |
|
|
|
2,442.3 |
|
Employee
benefit liabilities
|
|
|
601.0 |
|
|
|
651.4 |
|
Deferred
income taxes
|
|
|
112.9 |
|
|
|
- |
|
Income
taxes payable
|
|
|
1.1 |
|
|
|
- |
|
Other
long-term liabilities
|
|
|
28.9 |
|
|
|
23.5 |
|
Total
liabilities
|
|
|
4,240.9 |
|
|
|
3,384.7 |
|
Shareholders'
equity:
|
|
|
|
|
|
|
|
|
Common
stock and additional paid-in capital ($.01 par value, 2.8 billion shares
authorized;
|
|
|
|
|
|
|
|
|
496.3
million and 516.0 million shares issued and outstanding in 2007 and 2006,
respectively)
|
|
|
188.8 |
|
|
|
366.2 |
|
Retained
earnings
|
|
|
10,138.0 |
|
|
|
9,404.6 |
|
Accumulated
other comprehensive loss
|
|
|
(288.4 |
) |
|
|
(625.7 |
) |
Total
shareholders' equity
|
|
|
10,038.4 |
|
|
|
9,145.1 |
|
Total
liabilities and shareholders' equity
|
|
$ |
14,279.3 |
|
|
$ |
12,529.8 |
|
*
|
Includes
goodwill and other acquired intangible assets of $5.8 billion as of
December 31, 2007 and $5.3 billion as of December 31,
2006.
|
Refer to
accompanying Notes to Financial Statements.
Aetna
Inc. (Parent Company Only)
Statements
of Shareholders’ Equity
|
|
|
|
|
Common
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number
of
|
|
|
Stock
and
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
Common
|
|
|
Additional
|
|
|
|
|
|
Other
|
|
|
Total
|
|
|
|
|
|
|
Shares
|
|
|
Paid-in
|
|
|
Retained
|
|
|
Comprehensive
|
|
|
Shareholders'
|
|
|
Comprehensive
|
|
(Millions)
|
|
Outstanding
|
|
|
Capital
|
|
|
Earnings
|
|
|
(Loss)
Income
|
|
|
Equity
|
|
|
Income
|
|
Balance
at December 31, 2004
|
|
|
586.0 |
|
|
$ |
3,541.5 |
|
|
$ |
6,161.8 |
|
|
$ |
(541.5 |
) |
|
$ |
9,161.8 |
|
|
|
|
Comprehensive
income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
- |
|
|
|
- |
|
|
|
1,573.3 |
|
|
|
- |
|
|
|
1,573.3 |
|
|
$ |
1,573.3 |
|
Other
comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
unrealized losses on securities *
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(141.6 |
) |
|
|
(141.6 |
) |
|
|
|
|
Net
foreign currency gains
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
.7 |
|
|
|
.7 |
|
|
|
|
|
Net
derivative losses *
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(.3 |
) |
|
|
(.3 |
) |
|
|
|
|
Pension
liability adjustment
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
733.0 |
|
|
|
733.0 |
|
|
|
|
|
Other
comprehensive income
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
591.8 |
|
|
|
591.8 |
|
|
|
591.8 |
|
Total
comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
2,165.1 |
|
Common
shares issued for benefit plans,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
including
tax benefit
|
|
|
22.3 |
|
|
|
542.3 |
|
|
|
- |
|
|
|
- |
|
|
|
542.3 |
|
|
|
|
|
Repurchases
of common shares
|
|
|
(41.8 |
) |
|
|
(1,669.1 |
) |
|
|
- |
|
|
|
- |
|
|
|
(1,669.1 |
) |
|
|
|
|
Dividends
declared ($.02 per share)
|
|
|
- |
|
|
|
- |
|
|
|
(11.4 |
) |
|
|
- |
|
|
|
(11.4 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at December 31, 2005
|
|
|
566.5 |
|
|
|
2,414.7 |
|
|
|
7,723.7 |
|
|
|
50.3 |
|
|
|
10,188.7 |
|
|
|
|
|
Comprehensive
income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
- |
|
|
|
- |
|
|
|
1,701.7 |
|
|
|
- |
|
|
|
1,701.7 |
|
|
$ |
1,701.7 |
|
Other
comprehensive loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
unrealized losses on securities *
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(37.6 |
) |
|
|
(37.6 |
) |
|
|
|
|
Net
foreign currency losses
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(.4 |
) |
|
|
(.4 |
) |
|
|
|
|
Net
derivative gains *
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
8.7 |
|
|
|
8.7 |
|
|
|
|
|
Pension
liability adjustment
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
5.7 |
|
|
|
5.7 |
|
|
|
|
|
Other
comprehensive loss
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(23.6 |
) |
|
|
(23.6 |
) |
|
|
(23.6 |
) |
Total
comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
1,678.1 |
|
Adjustment
to initially recognize the funded
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
status
of pension and OPEB Plans (Note 2)
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(652.4 |
) |
|
|
(652.4 |
) |
|
|
|
|
Common
shares issued for benefit plans,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
including
tax benefit
|
|
|
9.8 |
|
|
|
281.5 |
|
|
|
- |
|
|
|
- |
|
|
|
281.5 |
|
|
|
|
|
Repurchases
of common shares
|
|
|
(60.3 |
) |
|
|
(2,330.0 |
) |
|
|
- |
|
|
|
- |
|
|
|
(2,330.0 |
) |
|
|
|
|
Dividends
declared ($.04 per share)
|
|
|
- |
|
|
|
- |
|
|
|
(20.8 |
) |
|
|
- |
|
|
|
(20.8 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at December 31, 2006
|
|
|
516.0 |
|
|
|
366.2 |
|
|
|
9,404.6 |
|
|
|
(625.7 |
) |
|
|
9,145.1 |
|
|
|
|
|
Cumulative
effect of new accounting
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
standards
(Note 2)
|
|
|
- |
|
|
|
- |
|
|
|
(1.0 |
) |
|
|
113.9 |
|
|
|
112.9 |
|
|
|
|
|
Beginning
balance at January 1, 2007,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
as
adjusted
|
|
|
516.0 |
|
|
|
366.2 |
|
|
|
9,406.3 |
|
|
|
(511.8 |
) |
|
|
9,258.0 |
|
|
|
|
|
Comprehensive
income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
- |
|
|
|
- |
|
|
|
1,831.0 |
|
|
|
- |
|
|
|
1,831.0 |
|
|
$ |
1,831.0 |
|
Other
comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
unrealized losses on securities *
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(13.2 |
) |
|
|
(13.2 |
) |
|
|
|
|
Net
foreign currency gains
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
3.6 |
|
|
|
3.6 |
|
|
|
|
|
Net
derivative gains *
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(15.8 |
) |
|
|
(15.8 |
) |
|
|
|
|
Pension
and OPEB plans *
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
248.8 |
|
|
|
248.8 |
|
|
|
|
|
Other
comprehensive income
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
223.4 |
|
|
|
223.4 |
|
|
|
223.4 |
|
Total
comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
2,054.4 |
|
Common
shares issued for benefit plans,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
including
tax benefits
|
|
|
13.5 |
|
|
|
415.0 |
|
|
|
- |
|
|
|
- |
|
|
|
415.0 |
|
|
|
|
|
Repurchases
of common shares
|
|
|
(33.2 |
) |
|
|
(592.4 |
) |
|
|
(1,076.6 |
) |
|
|
- |
|
|
|
(1,669.0 |
) |
|
|
|
|
Dividends
declared ($.04 per share)
|
|
|
- |
|
|
|
- |
|
|
|
(20.0 |
) |
|
|
- |
|
|
|
(20.0 |
) |
|
|
|
|
Balance
at December 31, 2007
|
|
|
496.3 |
|
|
$ |
188.8 |
|
|
$ |
10,138.0 |
|
|
$ |
(288.4 |
) |
|
$ |
10,038.4 |
|
|
|
|
|
*
|
Net
of reclassification adjustments.
|
Refer to
accompanying Notes to Financial Statements.
Aetna
Inc. (Parent Company Only)
Statements
of Cash Flows
|
|
For
the Years Ended December 31,
|
|
(Millions)
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
$ |
1,831.0 |
|
|
$ |
1,701.7 |
|
|
$ |
1,573.3 |
|
Adjustments
to reconcile net income to net cash used for operating
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
earnings of affiliates *
|
|
|
(2,001.8 |
) |
|
|
(1,854.2 |
) |
|
|
(1,724.3 |
) |
Stock-based
compensation expense
|
|
|
89.4 |
|
|
|
73.7 |
|
|
|
94.1 |
|
Physician
class action settlement insurance-related charge
|
|
|
- |
|
|
|
72.4 |
|
|
|
- |
|
Net
realized capital losses (gains)
|
|
|
.9 |
|
|
|
(5.5 |
) |
|
|
- |
|
Discontinued
operations
|
|
|
- |
|
|
|
(16.1 |
) |
|
|
- |
|
Net
change in other assets and other liabilities
|
|
|
(119.3 |
) |
|
|
(294.9 |
) |
|
|
(77.9 |
) |
Net
cash used for operating activities of continuing
operations
|
|
|
(199.8 |
) |
|
|
(322.9 |
) |
|
|
(134.8 |
) |
Discontinued
operations, net
|
|
|
- |
|
|
|
49.7 |
|
|
|
68.8 |
|
Net
cash used for operating activities
|
|
|
(199.8 |
) |
|
|
(273.2 |
) |
|
|
(66.0 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds
from sales and maturities of investments
|
|
|
- |
|
|
|
46.1 |
|
|
|
550.4 |
|
Cost
of investments
|
|
|
(14.5 |
) |
|
|
(85.3 |
) |
|
|
(92.3 |
) |
Dividends
received from affiliates, net
|
|
|
842.4 |
|
|
|
1,577.8 |
|
|
|
1,085.2 |
|
Cash
used for acquisitions, net of cash acquired
|
|
|
- |
|
|
|
(2.2 |
) |
|
|
(395.4 |
) |
Net
cash provided by investing activities
|
|
|
827.9 |
|
|
|
1,536.4 |
|
|
|
1,147.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds
from issuance of long-term debt, net of issuance costs
|
|
|
663.9 |
|
|
|
1,978.9 |
|
|
|
- |
|
Net
issuance of short-term debt
|
|
|
99.5 |
|
|
|
- |
|
|
|
- |
|
Repayment
of long-term debt
|
|
|
- |
|
|
|
(1,150.0 |
) |
|
|
- |
|
Common
shares issued under benefit plans
|
|
|
170.8 |
|
|
|
115.8 |
|
|
|
271.3 |
|
Stock-based
compensation tax benefits
|
|
|
153.2 |
|
|
|
89.6 |
|
|
|
173.1 |
|
Common
shares repurchased
|
|
|
(1,695.6 |
) |
|
|
(2,322.5 |
) |
|
|
(1,650.0 |
) |
Dividends
paid to shareholders
|
|
|
(20.0 |
) |
|
|
(20.8 |
) |
|
|
(11.4 |
) |
Net
cash used for financing activities
|
|
|
(628.2 |
) |
|
|
(1,309.0 |
) |
|
|
(1,217.0 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
decrease in cash and cash equivalents
|
|
|
(.1 |
) |
|
|
(45.8 |
) |
|
|
(135.1 |
) |
Cash
and cash equivalents, beginning of period
|
|
|
12.4 |
|
|
|
58.2 |
|
|
|
193.3 |
|
Cash
and cash equivalents, end of period
|
|
$ |
12.3 |
|
|
$ |
12.4 |
|
|
$ |
58.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental
cash flow information:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
paid
|
|
$ |
177.6 |
|
|
$ |
159.2 |
|
|
$ |
121.0 |
|
Income
taxes paid
|
|
|
783.2 |
|
|
|
731.7 |
|
|
|
246.6 |
|
*
|
Includes
amortization of other acquired intangible assets after tax of $63.4
million, $55.6 million and $37.3 million for the years ended December 31,
2007, 2006 and 2005, respectively.
|
Refer to
accompanying Notes to Financial Statements.
Aetna
Inc. (Parent Company Only)
Notes
to Financial Statements
The
financial statements reflect financial information for Aetna Inc. (a
Pennsylvania corporation) only (the “Parent Company”). The financial
information presented herein includes the balance sheet of Aetna Inc. as of
December 31, 2007 and 2006 and the related statements of income, shareholders’
equity and cash flows for the years ended December 31, 2007, 2006 and
2005. The accompanying financial statements should be read in
conjunction with the consolidated financial statements and notes thereto in the
Annual Report.
All share
and per share amounts in the accompanying financial statements have been
adjusted to reflect a 2005 and a 2006 two-for-one stock split for all periods
presented. Refer to Note 1 of Notes to Consolidated Financial
Statements, on page 45 of the Annual Report, for additional information on these
stock splits.
2.
|
Summary
of Significant Accounting Policies
|
Reclassifications
Certain
reclassifications have been made to the 2006 financial information to conform
with the 2007 presentation. These reclassifications include a
reclassification of $65 million of certain debt securities to long-term
investments that were previously reported in current investments at December 31,
2006. The reclassifications resulted from a change in the accounting
method by which debt securities are classified on the Parent Company’s balance
sheets, which previously did not consider contractual maturities and classified
all available for sale debt securities as current assets. At December
31, 2007, we changed our accounting method by which debt securities are
classified as current or long-term investments based on their contractual
maturities, unless we intend to sell an investment within the next twelve
months, in which case it is classified as current. We believe this
method is a preferable accounting method as it better reflects when cash will be
realized and is more consistent with how we manage the investment portfolio
given the duration of the liabilities that the investments
support. At December 31, 2007, $66 million of debt securities were
reclassified to long-term. Also, in connection with this
reclassification, current deferred tax assets of $.4 million and $.2 million at
December 31, 2007 and 2006, respectively, have been reclassified to
long-term. There have been no changes in our investment management
policies or practices associated with this change in accounting
method.
Refer to
Note 2 of Notes to Consolidated Financial Statements, beginning on page 45 of
the Annual Report, for the summary of significant accounting
policies.
3.
|
Acquisitions
and Dispositions
|
Refer to
Note 3 of Notes to Consolidated Financial Statements, on page 54 of the Annual
Report, for a description of acquisitions and dispositions.
4.
|
Other
Comprehensive Income (Loss)
|
Refer to
Note 10 of Notes to Consolidated Financial Statements, beginning on page 60 of
the Annual Report, for a description of accumulated other comprehensive income
(loss).
Refer to
Note 13 of Notes to Consolidated Financial Statements, on page 69 of the Annual
Report, for a description of debt.
SIGNATURES
Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
Date: February
29,
2008 Aetna
Inc.
By: /s/ Ronald M.
Olejniczak
Ronald M.
Olejniczak
Vice President and Controller
Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.
Signer
|
|
Title
|
|
Date
|
|
|
|
|
|
/s/
Ronald A. Williams
|
|
Chairman
and Chief
|
|
February
29, 2008
|
Ronald
A. Williams
|
|
Executive
Officer
|
|
|
|
|
(Principal
Executive Officer)
|
|
|
|
|
|
|
|
|
|
|
|
|
/s/
Joseph M. Zubretsky
|
|
Executive
Vice President and
|
|
February
29, 2008
|
Joseph
M. Zubretsky
|
|
Chief
Financial Officer
|
|
|
|
|
(Principal
Financial Officer)
|
|
|
|
|
|
|
|
|
|
|
|
|
/s/
Ronald M. Olejniczak
|
|
Vice
President and Controller
|
|
February
29, 2008
|
Ronald
M. Olejniczak
|
|
(Principal
Accounting Officer)
|
|
|
|
|
|
|
|
|
|
|
|
|
Frank
M. Clark *
|
|
Director
|
|
|
Betsy
Z. Cohen *
|
|
Director
|
|
|
Molly
J. Coye, M.D. *
|
|
Director
|
|
|
Roger
N. Farah *
|
|
Director
|
|
|
Barbara
Hackman Franklin *
|
|
Director
|
|
|
Jeffrey
E. Garten *
|
|
Director
|
|
|
Earl
G. Graves *
|
|
Director
|
|
|
Gerald
Greenwald *
|
|
Director
|
|
|
Ellen
M. Hancock *
|
|
Director
|
|
|
Edward
J. Ludwig *
|
|
Director
|
|
|
Joseph
P. Newhouse *
|
|
Director
|
|
|
|
|
|
|
|
*
By: /s/ Ronald M.
Olejniczak
|
|
|
|
|
Ronald
M. Olejniczak
Attorney-in-fact
February
29, 2008
|
|
|
|
|
INDEX
TO EXHIBITS
Exhibit
|
|
Filing
|
Number
|
Description of
Exhibit
|
Method
|
|
|
|
10
|
Material
Contracts
|
|
|
|
|
10.10
|
Form
of Aetna Inc. 2000 Stock Incentive Plan - Aetna Performance Stock Unit
Terms of Award.
|
Electronic
|
|
|
|
10.15
|
1999
Director Charitable Award Program, as Amended and Restated on January 25,
2008.
|
Electronic
|
|
|
|
12
|
Statement
re: computation of ratios
|
|
|
|
|
12.1
|
Computation
of ratio of earnings to fixed charges.
|
Electronic
|
|
|
|
13
|
Annual
report to security holders
|
|
|
|
|
13.1
|
Management’s
Discussion and Analysis of Financial Condition and Results of Operations,
Selected Financial Data, Consolidated Financial Statements, Notes to
Consolidated Financial Statements, Management’s Report on Internal Control
Over Financial Reporting, Management’s Responsibility for Financial
Statements, Audit Committee Oversight, Report of Independent Registered
Public Accounting Firm and Quarterly Data (unaudited) sections of the
Annual Report.
|
Electronic
|
|
|
|
18
|
Letter
re change in accounting principles
|
|
|
|
|
18.1
|
Letter
from the Independent Registered Public Accounting Firm Regarding Change in
Accounting Principle.
|
Electronic
|
|
|
|
21
|
Subsidiaries
of the registrant
|
|
|
|
|
21.1
|
Subsidiaries
of Aetna Inc.
|
Electronic
|
|
|
|
23
|
Consents
of experts and counsel
|
|
|
|
|
23.1
|
Consent
of Independent Registered Public Accounting Firm.
|
Electronic
|
|
|
|
24
|
Power
of Attorney
|
|
|
|
|
24.1
|
Power
of Attorney.
|
Electronic
|
|
|
|
31
|
Rule
13a – 14(a)/15d – 14(e) Certifications
|
|
|
|
|
31.1
|
Certification.
|
Electronic
|
|
|
|
31.2
|
Certification.
|
Electronic
|
|
|
|
32
|
Section
1350 Certifications
|
|
|
|
|
32.1
|
Certification.
|
Electronic
|
|
|
|
32.2
|
Certification.
|
Electronic
|