Micheli Soong

HMGT 3311
September 24, 2014
Aetna, Inc.
1. Introduction:
As one of the biggest and most successful healthcare insurance agencies in both the United
States and throughout the globe, Aetna values integrity, excellence, inspiration, and caring in
everything that they do. Aetna, Inc. was founded in Hartford, Connecticut in 1853 by Eliphalet
Adams Bulkeley as a life insurance company. As the years went on, the company proved through
their innovation and willingness to bring excellence to the healthcare industry. The company as a
whole strives to bring the highest quality and value of insurance to their customers both in the
United States and worldwide.
The innovation of the company has helped bring awareness to the public of heart disease and
stroke as well as supporting new diabetes and mammogram screening guidelines. Aetna was also
the first health insurance company to provide for external review of coverage decisions by
neutral independent physician reviewers making it easier for policy holders to make decisions on
which coverage best suits their needs. In 2008, Aetna was chosen by Fortune Magazine as the
most admired company in the Health Care Insurance and Managed Care category and again in
2009 and 2010. In 2012, Aetna evolved into a health company rather than an insurance carrier.
The innovation Aetna has served its policy holders has set a standard across all health insurance
companies and will continue to set an example for the many years to come.
2. Issues Affecting Aetna:
In 2012, a merger with Coventry Health Care for $5.6 billion made Aetna the third largest
health insurer in the United States since the healthcare reform was passed in 2010, many
healthcare insurers opposed the reform but Aetna acquiring Coventry is the biggest merger in the
healthcare industry since the law was passed. Since acquiring Coventry, Aetna has had an
increase in Medicare and Medicaid customers as well as 5 million new customers. One of the
benefits of the Aetna/Coventry merger is the expected 11 million people on Medicaid who are

expected to contract with Aetna, a private health insurance company, who will cover them. The
merger is a huge boost to Aetnas Medicare and Medicaid business since it will give the
company access to the poorer end of the industry. Under President Obamas healthcare reform
law, health insurance companies will pay close to $8 billion in new fees and must spend at least
80% of the premiums that they collect on medical care thus capping their profits. Although the
merger of Aetna and Coventry seems out of sorts, this type of thing is quite common for large
health insurance companies. Many assume that the mergers are to acquire more customers and
thus increasing profits, but as stated in the health care reform law, their profits will be capped.
Consolidation is another issue present: more and more hospital mergers are appearing and larger
hospital chains are driving up prices. Although this isnt a problem, it could potentially
compromise the integrity of Aetna by making the company seem like a profit-hungry company
that just wants the business of millions of Medicare and Medicaid customers. I personally like
the idea of merging smaller healthcare insurance companies with much larger ones since the
Aetna/Coventry merger will be able to save Aetna close to $400 million a year. If it saves the
company money and improves the health of millions, I will definitely apply this decision making
strategy to other situations.
Another issue Aetna has had was a yearlong federal court case against three Houston area
emergency centers resulting in an $8.4 million judgment in August 2014. More than $9.2 million
was billed over the course of two years by the three clinics and another ruling is expected later
for exemplary damages of fraud and conspiracy. The ER clinics in question were Trinity
Healthcare Network, ER DOC 24/7, and Premier Emergency Room and Imaging. The judgment
found that the Cleveland Imagine and Surgical Hospital was receiving 15% of each bill from the
three ER clinics in order for them to use the hospitals state license. Therefore, this made it look
like the ER clinics were full serviced treatment hospitals rather than unlicensed clinics. In the
hearing the clinics stated that they didnt need to be a hospital in order to charge higher rates as
well as facility fees. To solve the issue, closer attention to the billing process could have helped
stop this in the tracks. The accuracy, fidelity, and legality of the three clinics billing could show
warning signs to Aetnas claims department. From this issue I have learned the importance of
how closely providers should be monitored to not blindly be reimbursing providers and have the
company taken advantage of thus compromising the reputation of being one of the best
healthcare insurers.

In 2012, Aetna agreed to pay $78 million ($120 million pretax) to settle reimbursement
litigations. At the time, Aetna was ranked number 4 as one of the nations most communityminded companies. In the case, the plaintiffs stated that Aetna improperly used Ingenix
databases to systematically underpay claims to members by providers out of network. However,
in March 2014, Aetna cancelled the settlement since many claimants had opted out to trigger a
provision thus cancelling the deal. There were a number of legal and factual developments since
the case appeared in court that led Aetna to cancel the settlement. The settlement would have
paid reimbursement claims dating back to 2001 for members and 2003 for providers however the
agreement did not contain an admission of Aetna committing any wrongdoing. In order to solve
the problem, or rather on how to prevent the problem, proper reimbursement methods should
have been used rather than using technology that was convenient. From this issue I have learned
that even though there are easier methods, they may not be the right ones but proper methods of
reimbursement should always be used.
3. Ratios
a. Total Profit Margin:
$1,913.6 million_ = 4.046%
$47,294.6 million
The use of a total profit margin is to measure the companys ability to control expenses.
Companies find the total profit margin by dividing net income by total revenues. In this
case, Aetna has a total profit margin of .04046 or 4.046% for 2013. Recently, Aetna has
released their second-quarter financial results and the total profit margin for this set of
data would be $548.8 million / $14,509.4 million = .03782 or 3.782%. With this data, it
can be concluded that Aetna has significantly higher net revenue than their net income.
b. Operating Margin:
$610.0 million__ = 4.211%
$14,485.6 million
The operating margin measures the ability to control operating expenses of the company.
For the second quarter report, I have used the most recent data to find Aetnas operating
margin of .04211 or 4.211% by taking net operating income divided by operating
revenues. By having a very small percentage of an operating margin, Aetna has very little
control over how they use their operating expenses throughout the company but this is

quite normal for a medical company to have much higher operating revenue than
operating income.
c. Return on Assets:
$1,913.6 million_ = 3.837%
$49,871.8 million
For companies to find a return on assets, they divide their net income by their total assets.
The use of a return on assets is to measure the ability of a businesss assets to generate
profits. For Aetna, their return on assets is measured at .03837 or 3.837%. By having a
very small percentage on their return on assets, it shows that the company has very
miniscule return; however this does not mean that the company is in trouble.
d. Return on Equity:
$1,913.6 million_ = 13.593%
$14,078.2 million
Return on equity measures the ability of a businesss equity financing to generate profits.
The return on equity is calculated by taking a companys net income divided by total
equity. For Aetna, return on equity equates to .13593 or 13.593%. Aetna has a very
healthy return on equity at a little more than 13%
e. Current Ratio: $9,718.9 million / $12,602.9 million = 0.77116
A company calculates their current ratio by diving their total current assets by their total
current liabilities. The current assets measure a companys rough liquidity. Aetna
therefore has a current ratio of .77116 or 77.116%. We can conclude from this data that
there is an extremely high liquidity rate meaning they can turn a lot of the companys
assets to cash.
f. Debt Ratio:
$35,793.6 million

= 0.71771

$49,871.8 million
The debt ratio measures the companys proportion of debt in a businesss total financing.
It is calculated by dividing total liabilities over total assets. Aetna has a debt ratio of
.71771 or 71.771%. This can be concluded that close to 72% of Aetnas financing comes
through loans; meaning that most of the companys assets are tied up through non-direct
investments.

g. Total Assets Turnover Ratio:

$47,294.6 million = 94.832%
$49,871.8 million
Total assets turnover ratio measures the dollars of revenue per dollar of total assets. To
calculate total assets turnover ratio, companies divide total revenues by total assets. Aetna
has a total assets turnover ratio of .94832 or 94.832%. With an extremely high total assets
turnover rate, it means that most of Aetnas assets are very liquid, mostly in the form of
cash.

4. Recommendation
For over 160 years, Aetna has set the industry standard on innovation and excellence to its
customers. Overall, Aetna is an exemplary healthcare insurance company. They have shown
stellar dedication and respect to their customers. They have shown from the beginning that they
are willing to bring in the use of technology to improve efficiency and in 2014, announced that
they would be granting $1.2 million to support the use of digital health technology among
minority populations. Their involvement in the community and the value they place on making
healthcare insurance easier to access have proven among their competitors they are committed to
excellence and will be for the years to come. Aetnas success started early through the leadership
and the dedication to providing policy holders. Aetna was one of the few companies to survive
through the Great Depression with little loss. In the 1960s, Aetna introduced a car simulator in
high schools to teach students how to drive. In 1990, Aetna was listed as Fortune Magazines
fifth most-admired financial services company. In 2008, Aetna added a never events policy to
improve patient safety. In the policy it stated in their hospital contracts so they would not be
reimbursing physicians for serious and preventable medical errors. Aetnas history has deep
roots in United States history and the name is now synonymous with excellence and innovation
in the healthcare insurance industry. I would strongly recommend Aetna to those seeking a
stellar and innovative healthcare insurance company that truly values their customers.

Resources
"About Us | Aetna." About Us | Aetna. N.p., n.d. Web. 23 Sept. 2014.
"Aetna History." About Us. N.p., n.d. Web. 23 Sept. 2014.
Humer, Caroline. "Aetna Rejects $120 Million Out-of-network Settlement." Reuters. Thomson
Reuters, 14 Mar. 2014. Web. 23 Sept. 2014.
"Investor Information." About Us. N.p., n.d. Web. 23 Sept. 2014.
Shlachter, Barry. "Aetna Recoups Millions from Houston-area Emergency Clinics | Business |
Star-Telegram.com." Star-Telegram. N.p., 22 Aug. 2014. Web. 23 Sept. 2014.
Young, Jeffrey. "Aetna-Coventry Merger Reflects A Changing Industry After Health Care
Reform." The Huffington Post. TheHuffingtonPost.com, 20 Aug. 2012. Web. 23 Sept.
2014.