aetna health insurance group

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External Analysis of Aetna Inc.

Introduction Aetna Inc. or simply Aetna is an American company that masters in the field of health care and benefits to the people. Aetna offers diverse range of product portfolio to its customer base including health insurance products, and services related to health care. These services includes the following ³medical, pharmacy, dental, behavioral health, group life and disability plans, and medical management capabilities and health care management services for Medicaid plans´ (Aetna, 2011). They offer services to the wide range of customers ranging from individuals, students, workers, corporate clients, governmental departments, groups, labor workers and expatriates. It mainly caters three basic segments including health care, insurance and pension plans (one source, 2011). Aetna Inc. is currently ranked at number sixty three in the Fortune 1000 companies list (one source, 2011). The company¶s stocks are listed on the New York stock exchange for trading.

SWOT Analysis SWOT Matrix The SWOT analysis of Aetna Inc. is as follows: Strengths Market position y y y Networking markets Brand portfolio y Costing structure Weaknesses Overdependence on domestic

y

y y y

Opportunities Business expansion Global health care market Product lines

y y y

Threats Government policies Competition Weak financial markets

Strengths Aetna offers diverse range of product portfolio to its customer base including health insurance products, and services related to health care. These services includes the following ³medical, pharmacy, dental, behavioral health, group life and disability plans, and medical management capabilities and health care management services for Medicaid plans´ (Aetna, 2011). Aetna Inc. is currently ranked at number sixty three in the Fortune 1000 companies list (one source, 2011). The company¶s stocks are listed on the New York stock exchange for trading. Among the top three market leaders, Aetna currently holds number three position in the market with market capital of 16.54 billion US dollars with UnitedHealth Group Inc. at number one and WellPoint Inc at number two respectively (NYSE:AET, 2011).

Aetna has very strong networking in the domestic markets. According to the fact sheet given by Aetna Inc. it currently has allies with over one million professionals in health care industry. It has reach to over five million doctors, and specialists and covers more than 5000 hospitals nationwide (Aetna, 2011).

Weaknesses Despite of the fact that Aetna Inc. is among the top three health and care benefits insurance companies in United States. It still lags behind on few grounds. Among them is its

over dependence on the domestic markets. It has all of its business network within United States. According to the report by Aetna Inc. it serves people from every state in United States of America (Aetna, 2011). Which means it lacks geographic diversification. If the economic conditions of United States suffer fluctuations, Aetna will also be in the list of the suffering companies. Another profound weakness suffered by Aetna is the increased level of costs associated with its business units and processes. The company suffered from net losses of around three million in the year 2010 and its operating costs were nearly twenty eight million dollars which had huge impact on its profitability and the revenues generated by the company (USSEC, 2011). The company has tried to manage these operating expenses if compared to the 340 million from last year with the expanses dealt in the year 2010 which were 227 million in numbers (Aetna Financial Information, 2011). There is around 8% reduction in the total expenses through the business operations of the company which gives a positive sign for improvements. Opportunities There is a room for opportunities available for Aetna Inc. As specified in the weaknesses earlier that it has very little geographic presence in the global markets. It conducts almost all of its business operations in United States. One of the opportunities available to the company is the geographic expansion. There are number of opportunities available in the emerging markets of Asia like China and India etc. There are millions of customers that are potential for growth for the large number of companies. Another opportunity currently available for the company is the the health care reforms communicated by the government of United States of America. Where some companies tried to

oppose the health care reforms mandated by the governments, i-e. The UnitedHealth Group company estimates noted that if it fails to comply with the pricing for the medical costs, then its profitability will greatly suffer. They will face the declining profits which can materially affect their business and financial portfolios (UnitedHealth Group USSEC, 2010), Aetna is among those who are positively endorsing these reforms in the country. Affordable Care Act (ACA) is among those health care legislations which aims to shape the health care rules and support the federal laws by reducing the costs and prices associated with the health related products and services. Some provisions of ACA includes ³insurance market reforms, such as increased access for dependents and the prohibition of lifetime limits on coverage´ such provision leaves positive impact on the health care industry. Aetna Inc. is positively endorsing this health care reform in the country and the communities which has very profound impact on the company¶s market image and Good Will. Likewise, Aetna can engage into expansion of its product lines through innovation and customer driven needs in order to excel in the markets both internationally and domestically.

Threats The insurance markets in United States are highly competitive in nature with a large number of market players offering wide range of products to the nation. Aetna Inc. faces stiff competition with these market players. The top three competitors of Aetna Inc. are CIGNA Corporation, UnitedHealth Group Incorporated, and WellPoint, Inc. (Hoovers, 2011). Among the top three market leaders, Aetna currently holds number three position in the market with market capital of 16.54 billion US dollars with UnitedHealth Group Inc. at number one and WellPoint Inc at number two respectively (NYSE:AET, 2011). But still the fire in the markets is rising with

the increased pressure from the government to comply with the latest rules and regulations. Some of these rules are beneficial for these insurance companies while the others are not. These changing rules and regulations have profound impact on the business operations and profitability of these companies.

The economic conditions of the United States have had huge impact on the financial markets of United States. These weakening markets severely damaged large number of businesses in USA (Reuters, 2009). The companies operating in United States are not free from the damages. If the conditions of these markets continued to fell down then the companies like Aetna will suffer great setbacks in future.

PESTEL Analysis Political The US Supreme Court has drawn restrictions on the corporate spending on the political activities. Like the other companies of its league, Aetna is involved in the political contributions via its political action committee called Aetna PAC. The company strives to ³ensure that its voice is represented on the public policy issues that affect the company, industry, their employees and the communities they serve´ (Aetna Political Action Committee, 2011). According to the annual report communicated by Aetna PAC, the company contributed over 120,000 US dollars, in year 2009, by contributing directly to the candidates of state and the parties in the states or districts where the corporate contributions are permitted by law (Aetna PAC, 2009). According to the report by Open Secrets Organization, the company spent over two million US dollars in the lobbying activities in the year 2009 (Open Secrets Org, 2009). For the

year 2010, Aetna has spent over one million US dollars on the political activities out of which most of the contributions were made to the Republicans party (Open Secrets Org, 2011).

Economic The economic conditions of a country play an important role on determining the success and failure of a company. Since, most of the functions of Aetna Inc. are directed in the domestic markets of United States, so its likelihood of getting hit by the economic changes and governmental ruling is high. The downfall in the economy of United States has adversely affected large number of organizations operating in United States and increased the opportunity costs associated with their business segments and operations. Moreoever, these declining market conditions has increased the unemployment rate in the company. According to the CEO of Aetna Inc. the government is been trying to raise the level of employment in the country but this has no significant or direct impact on the health care industry. The economic conditions of the country still seem to be troublesome for large number of companies (Sturdevant, 2011). Social Aetna Inc.is effectively engaged in the social and community related activities in order to raise the living standards of people in the communities it operates in. Aetna Inc. has created its foundation in order to achieve its community involvement based objectives. The Aetna Foundation was established in 1972 with the objectives related to the health, wellness, and well being of the people in the communities. The company through its foundation is in partnership with various nonprofit organizations as well as different universities, organizations and community groups to help make improvements via volunteerism and grants to them (Aetna,

2011). The company has won number of awards for being an equal opportunity employer in the country. It employs everybody irrespective of his or her ethnicity. It is a market leader for diversity in work place. It has won number of awards in this regard (Gallo, 2011): Technological It has won number of awards and recognitions for using the latest technology and upgraded systems throughout its offices and sites. According to the report by Gallo (2011) it won the best interactive site award in 2007 by ehealth care leadership. According to him this ³ award recognizes the ongoing interactive relationship through personal web pages and the use of technology to optimize these experiences´. Also the company¶s Aetna Navigator and Aetna InteliHealth has won awards for their outclass performance in their relative areas. Environmental Like the other entire responsible corporations in the markets, Aetna Inc. is also engaged in the activities that foster the environmental safety. It has started number of activities in order to minimize its impact on the environment and atmosphere. Among its initiatives includes reduced energy use, recycling of plastic and paper products at its facilities. For its efforts, Aetna has gained recognition and awards from various organizations and is a leader in energy and environment safety measures in the markets (Aetna, 2011; USSEC, 2011).

Legal Aetna has to comply with the local, regional, state and federal level rules, regulations and laws. Aetna Inc. is subject to various legal proceedings currently in pipeline. Some of the legal proceedings against the company includes: class action law suits (2007), American Medical Association alleged Aetina for physician payment deficiences (Medical News Today, 2009) and

various other legal proceedings. As of 2010, the company paid around seven million US dollars fine to New York Insurance Department as a settlement for failing to comply and communicate the changes in the rules and regulations with its employees and members in 2007 (Sturdevant, 2010). If these matters remain unresolved or the verdict is made against Aetna Inc. then it could have material impact on its financial stability and the market position in the domestic markets of United States and international markets abroad.

Porter¶s Five Forces Analysis

Porter¶s Five Forces Analysis helps the managers to understand the market position and the effectiveness of business strategies of a firm with reference to five micro and macro level environments (Porter, 2008). These five forces include Competition, New Entrants, and Buyers Power, Suppliers Power and Substitute Products and/or services respectively. The Five Forces Analysis for Aetna Inc. is as follows:

Rivalry among established competitions The level of competition among the existing competitors in the industry is very stiff. The top three competitors of Aetna Inc. are CIGNA Corporation, UnitedHealth Group Incorporated, and WellPoint, Inc. respectively (Hoovers, 2011). In the health insurance industry, the customer demands are associated with the increasing costs of medical options available to them. The market success and profitability of the firms operating in the industry is dependent on their operations and their ability to obtain favorable contracts with the medical and health care personnel (Hoovers, 2011).

Bargaining power of suppliers The bargaining power of suppliers is derived by their power to demand the prices of their own choice. The supplier¶s power in the insurance industry is not a big threat to the companies operating in it. But the threat suppliers taking away human capital does exist in the industry. This industry is entirely based on the human capital. If a talented person is working in the small company or in a company that maintains its niche in the market, then there likely to be the case of snatching that human capital by the large companies from those small companies.

The bargaining power of buyers The individual buyers do not have much power to influence the insurance industry at large. The large corporate clients and other related businesses pay large sums of money as health insurance premium to these companies. These market players in the insurance industry long to get high margin corporate clients.

The threat of substitute products or services The threat of substitutes is very high in the insurance industry as there are plenty of substitutes available in the market. Many of the firms offer the services that are similar to that of large companies. There exists high level of competition on all the grounds whether it is auto insurance or health insurance. There are companies operating in the markets that offers unique products and services to their customers and have competitive advantage over their counterparts which depends on the size of their business segments.

The threat of the entry of new competitors

The industry imposes certain barriers to the entry of the new companies in the markets. This means that the level of threat of new entrants is relatively low in the industry. There are varying reasons to the low rate of entry. Among them is the entry barriers imposed by the industry. The new entrants will have to comply with the governmental regulations in order to make their entry in the markets. Then the existing players are protected by the number of barriers which makes it difficult for the new entrants to give hard time to them. Among them are: entry restrictions, tariff rates, high capital requirement, distribution channels etc. These barriers limit them to compete against the existing market players.

Recommendations This study provided brief overview on the external environment analysis of Metropolitan Life Insurance Company Incorporated. The findings of the study suggested that MetLife Inc. should focus on the following factors in order to excel its business and social image in the world: 1. Aetna Inc. has most of its operations in United States only, it is, therefore, suggested that it should expand its business operations geographically to maximize its market presence and profits. 2. Expand the existing product lines in the markets in order to attract large number of potential customers 3. Improve the business operations strategically in order to reduce the costs associated with the functions and business units.

References Aetna (2011) Aetna Facts, retrieved on July 12, 2011 from http://www.aetna.com/about-aetnainsurance/aetna-corporate-profile/facts.html (2011) Community Involvement, retrieved on July 12, 2011 from http://www.aetnafoundation.org/foundation/community-involvement/index.html (2011) Commitment to Healthy Environment, retrieved on July 12, 2011 from http://www.aetna.com/about-aetna-insurance/aetna-corporate-profile/greeninitiatives.html Aetna Financial Information (2011) Total Expenses, Form 10-k, retrieved on July 12, 2011 from http://services.corporateir.net/SEC/Document.Service?id=P3VybD1odHRwOi8vaXIuaW50Lndlc3RsYXdidXNp bmVzcy5jb20vZG9jdW1lbnQvdjEvMDAwMTEyMjMwNC0xMS0wMDAwMzIvZG9j L0FldG5hSW5jLnBkZiZ0eXBlPTImZm49QWV0bmFJbmMucGRm Aetna PAC (2009) Political Contributions and Related Activity Report, retrieved on July 12, 2011 from http://www.aetna.com/about/aoti/aetna_pac/2009PACannualreport.pdf Aetna Political Action Committee (2011) Aetna PAC, retrieved on July 12, 2011 from http://www.aetna.com/about-aetna-insurance/initiatives/political-action-committee.html Gallo, J. (2011) Aetna¶s Technology Innovation Receives Honors, retrieved on July 12, 2011 from http://hubpages.com/hub/Aetnas-Technology-Innovation-Receives-Honors

Hoovers (2011) Competitive Landscape, retrieved on July 11, 2011 from http://www.hoovers.com/company/Aetna_Inc/rffysi-1-1njea3.html Medical News Today (2009) American Medical Association, Others File Lawsuits Against Aetna, Cigna Alleging Physician Payment Deficiencies, retrieved on July 12, 2011 from http://www.medicalnewstoday.com/releases/138601.php

NYSE:AET (2011) Aetna Inc., retrieved on July 12, 2011 from http://www.google.com/finance?q=NYSE:AET One source (2011) Aetna Inc., retrieved on July 11, 2011 from http://www.onesource.com/free/Aetna-Inc/Company/Profile/828

(2011) Fortune 1000 Companies list, retrieved on July 11, 2011 from http://www.onesource.com/free/Company/FortuneList/Fortune/0 Open Secrets Org (2009) Aetna Inc.: spending by cycle and spending by party, retrieved on July 12, 2011 from http://www.opensecrets.org/lobby/clientsum.php?id=D000000296&year=2009 (2011) Aetna Inc., retrieved on July 12, 2011 from http://www.opensecrets.org/pacs/lookup2.php?strID=C00181826&cycle=2010 Porter, M. E., (2008) The Five Competitive Forces that Shape Strategy, Harvard Business Review, p.86-104, retrieved on July 11, 2011 from http://hbr.org/2008/01/the-five-competitiveforces-that-shape-strategy/ar/1 Reuters (2009) Three Top Economists Agree 2009 Worst Financial Crisis Since Great Depression; Risks Increase if Right Steps are Not Taken, retrieved on July 12, 2011 from http://www.reuters.com/article/2009/02/27/idUS193520+27-Feb-2009+BW20090227 Sturdevant, M. (2011) Aetna CEO: Drop In Jobless Rate Hasn't Boosted Health-Plan Enrollment, retrieved on July 12, 2011 from http://articles.courant.com/2011-03-08/business/hcaetna-bertolini-unemployment-20110308_1_unemployment-rate-annual-health-care-conferencegroup-growth (2010) Aetna Pays $750,000 Fine To New York Insurance Department, retrieved on July 12, 2011 from http://articles.courant.com/2010-02-04/business/hc-aetna0205.artfeb05_1_healthinsurance-aetna-health-affordable-health

USSEC (2011) Aetna Inc., Form 10-k, retrieved on July 12, 2011 from http://services.corporateir.net/SEC/Document.Service?id=P3VybD1odHRwOi8vaXIuaW50Lndlc3RsYXdidXNpbmVzc y5jb20vZG9jdW1lbnQvdjEvMDAwMTEyMjMwNC0xMS0wMDAwMzIvZG9jL0FldG5hSW5j LnBkZiZ0eXBlPTImZm49QWV0bmFJbmMucGRm

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