Aetna Shareholders Vote Down Measures To Change
Board Leadership, Further Disclose Political Spending
A few Aetna Inc. shareholders took the health insurer to task Friday morning during an annual meeting in Tampa, Fla., over the way it structures its board leadership, how it discloses political spending and the manner in which it ran the annual meeting.
The majority of shareholders, however, sided with Aetna’s board in supporting its current board structure and disclosure policies related to political spending. One of the three shareholder proposals did pass — a resolution to require only “simple majority” on proposal votes and to eliminate “super majority” requirements.
The first proposal was a resolution to make the chair of Aetna’s board an independent director who is not a current or former employee and who has no professional, familial or financial connection to the company, the CEO or the directorship. The proposal was introduced by New York City Comptroller John C. Liu, trustee for the city’s employee retirement systems, which holds shares in Aetna. Liu’s office said in a written statement that it’s a conflict of interest to have a CEO who is also a board chair.
“There is an irresolvable conflict of interest when the overseen is in charge of the overseer,” Lee Bonta, speaking on Liu’s behalf, said at the meeting which was available via webcast. “The consequences can include higher executive compensation, lower shareholder returns, more aggressive risk-taking and ultimately less sustainable companies.”
A June 2012 study of 180 North American companies by GMI Ratings found that the median total compensation paid to a combined chair and CEO is $16.1 million, which is 73 percent greater than the $9.3 million paid to two people separately holding the positions of CEO and chair, Liu’s office said in a written statement to Aetna. GMI’s methodology for executive compensation wasn’t available Friday afternoon, though it is likely different than methodology used by The Hartford Courant to calculate compensation.
By the Courant’s calculation, Aetna’s Chairman, CEO and President, Mark T. Bertolini, had a pay package last year that more than tripled his compensation in 2011. Bertolini was compensated a total of $36.36 million last year, not including $11.1 million in stock awards that vest later and are based on the company’s performance. In 2011, Bertolini was compensated $9.7 million, not including $7.3 million in stock awards.
Most of Bertolini’s pay last year was $34.23 million in value from stocks vested and options exercised in 2012. He also received a $977,159 salary, $892,800 in non-equity incentives and $256,971 in “other compensation.” This does not include an increase of $33,584 in his pension value.
The board opposed the proposal, saying in its proxy statement filed with the the U.S. Securities and Exchange Commission “that the board should not be constrained by a requirement that the position of chairman be limited to a director who has not previously served as an executive officer. The company’s existing governance structure allows the board flexibility to make changes in the company’s leadership structure if and when the board believes that such actions are in the best interests of the company and its shareholders.”
The proposal was rejected.
A second proposal by John Chevedden of Redondo Beach, Calif., asked to eliminate requirements in the company’s charter and bylaws that called for more than a simple majority on votes. Chevedden argued that “super majority” requirements — or approval by two-thirds of shareholders — entrench a company in a behavior that could negatively affect performance. The board disagreed, saying that the proposal was unnecessary and would not enhance shareholder value.
The proposal passed.
The third proposal, submitted by Boston-based Unitarian Universalist Association of Congregations, was a resolution requiring Aetna to amend its policy to disclose political contributions to include items it currently doesn’t include.
“In our view, Aetna’s policy does not provide for strong board oversight of corporate political expenditures,” the association said in a written statement. “It states vaguely that ‘[a]ll corporate political contributions shall promote the interests of the company and will be made without regard for the private political preferences of company directors or officers.’”
The church association mentioned that Aetna gave $4 million to the U.S. Chamber of Commerce for “voter education initiatives” – an attack on certain political candidates, the association said – and $3 million to the American Action Network, which sponsored ads regarding political candidates in 2011.
The board said in the SEC filing that Aetna “is an active participant in the political process at all levels of government and seeks to promote political interests that are aligned with the business interests of the company, its shareholders and its members. Given the importance of this issue to the company, the company recently expanded the information available on its website about its policies and procedures regarding political contributions and the related oversight of those activities.”
The proposal was rejected.
Aetna has been criticized in the past by Washington D.C.-based Citizens for Responsibility and Ethics in Washington, CREW. The nonprofit organization’s executive director, Melanie Sloan, said Friday it is inappropriate for companies to be giving money through 501c(4) political groups.
“One of the important things is to see if there’s a connection between the donations these companies are making and the assistance they’re getting from Congress,” Sloan said. “There are many other organizations pushing for this, and there are 500,000 comments, I believe, before the SEC,” Sloan said. “So, I think there’s a nationwide effort at forcing companies to disclose their political spending.”
Other Questions
Shareholder David Caccamise attended an Aetna annual meeting for the first time and described the security measures as unwelcoming.
Bertolini responded, “If you’d been at this meeting two years ago, you’d have seen a very violent meeting where people bust into the room and they actually tried to knock me off the stage in protest over Aetna’s role in health care reform. So, we’ve had to increase our security for the last three years as a result of that incident. We do get threats often, and, so, we measure those. And, hopefully, we’ll return to a level of civility in this society, we can hold annual meetings where people don’t have to be threatened by virtue of just getting together.”
Bertolini was referring to the 2011 annual meeting in Philadelphia, where protesters with bullhorns burst through the doors of the Le Meridien hotel meeting room, according to the Wall Street Journal. Two protesters were temporarily handcuffed outside the meeting, but police said there were no arrests, the Journal reported.
An Aetna retiree asked when the company’s annual meeting might come back to Hartford, to be closer to retirees living in New England.
Bertolini replied, “As you know, Mr. Lang, we’ve had the practice of moving our annual meetings around to places where a lot of our retirees live around the country. We continue to look at bringing it back to Hartford. I can tell you that before I leave, we’ll have one in Hartford.”
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More funds go to Medicare Advantage
After a bipartisan push by 160 members of Congress, the U.S. government said Medicare Advantage plans for seniors won't be cut 7 percent to 8 percent in 2014.
The Centers for Medicare and Medicaid Services, part of the U.S. Department of Health and Human Services, announced a growth rate for Medicare Advantage of 3.3 percent for 2014, instead of the rate released last February of a decrease by 2.2 percent.
Carl McDonald, Citi managed care analyst, told clients in a report in February the typical for-profit managed care plan targets profit margins of only 5 percent, and non-profits even less, therefore the original anticipated cut to Medicare Advantage would "turn almost every plan in the industry unprofitable," Forbes magazine reported.
Karen Ignagni, chief executive officer of America's Health Insurance Plans, the national trade association representing the U.S. health insurance industry, applauded the reversal by CMS. "By being responsive to the more than 160 members of Congress from both parties who raised concerns about the impact of the proposed payment rate on seniors, CMS has taken an important step to help stabilize Medicare Advantage at a time when the program is facing significant challenges," Ignagni said in a statement.
America's Health Insurance Plans' Coalition for Medicare Choices represents more than 1.3 million Medicare Advantage beneficiaries who since 1999 participated in dozens of town hall meetings and rallies involving members of Congress and staff, wrote hundreds of letters to the editors of newspapers and made more than 1 million contacts with their members of Congress, AHIP said.
In February the Coalition for Medicare Choices initiated a TV ad campaign that featured seniors with Medicare Advantage plans sharing their concerns about what cuts to Medicare Advantage would mean to them. In response to the ad, more than 40,000 Medicare Advantage beneficiaries contacted Congress urging their representatives to contact CMS to oppose the cut before it was to be finalized April 1, AHIP said.
Alyene Senger, research assistant for health policy studies at the Heritage Foundation in Washington, said the Medicare Modernization Act of 2003 offered Medicare beneficiaries Medicare Advantage plans, provided by private health insurance companies, instead of receiving their benefits via the original Medicare plan Parts A and B.
However, in 2003 the physician fee cuts were perceived as too high and ever since then, Congress has overridden the legislation -- with the so-called doc fix. For the last 10 years the physician fee reduction was overridden by Congress, compounding each year, with a 25 percent reduction expected for next year, Senger said.
CMS incorporated the assumption that Congress would later this year override the physicians' fee reduction because it was a more reasonable expectation than the reduction required under sustainable growth rate formula, Senger said.
"The CMS decision to not cut Medicare Advantage the expected 2.2 percent allows the plans and benefits to stay pretty much the way they are for now," Senger told United Press International. "However, one of the parts of the Affordable Care Act was to bring Medicare Advantage costs down to the cost of traditional Medicare by 2017."
The GOP-controlled Congress allowed private HMOs to compete for Medicare patients under the rationale that the efficiency of private business and the competition among many private health insurance plans would reduce the expenses for the healthcare of seniors better than traditional Medicare run by the government.
However, these savings never materialized so Congress boosted the reimbursement to Medicare Advantage, which now gets paid 114 percent what traditional Medicare gets paid to care for a patient. This extra 14 percent -- a taxpayer subsidy -- cost the government from $795 per beneficiary in 2004 to $1,138 in 2009, a study by George Washington University found.
The share price of private health insurance companies Humana, UnitedHealth Group, Aetna, Cigna and WellPoint -- the private health insurance companies that provide most of the Medicare Advantage plans -- rose from 4 percent to 8 percent Tuesday, CNN/Money reported.
Justin Simon, an analyst for Washington research firm Heights Analytics, said the government's decision to cancel the Medical Advantage cut was done to curry favor with U.S. Senate Republicans to clear the way for the confirmation of CMS acting Director Marilyn Tavenner, CNN/Money reported.
CMS has had six acting administrators since 2006, but none was confirmed by the Senate, and with the Affordable Care Act going into effect later this year it's critical a CMS chief be confirmed as soon as possible, Simon said. "Medicare Advantage is a beloved program of the Republican Party," Simon told UPI. "Medicare Advantage is polarized and partisan and for better or for worse the GOP showed the ability to defend the program from some fairly significant cuts."
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About That 'Scalpel' . . .
President Obama often claims he wants to cut the budget smartly, using a "scalpel"—not a meat axe, machete, cleaver or chainsaw, to list a few of his favorite metaphors. He'll need a more inspired term to describe what he's now doing to Medicare Advantage, perhaps napalm or WMD.
The Affordable Care Act drained $306 billion from this growing version of Medicare that 29% of seniors use to escape the traditional entitlement and obtain modern private insurance, but the Administration is imposing the cuts in ways that are even more harmful than the law requires. The post-election timing is no accident.
In 2012 only 4% of the Medicare Advantage cuts were scheduled under the law, but the folks who run Medicare at the Health and Human Services Department improvised a $3.8 billion nationwide "demonstration project" that paid bonus subsidies to Medicare Advantage insurers to improve quality. The project couldn't demonstrate anything because the payments went to 90% of insurers regardless of quality, but they did cancel out most of the 2012 cuts. That did the trick for voters in Scottsdale or Boca Raton who might have noticed higher costs or lost the coverage they have and prefer.
Federal auditors suggested the project was illegal, but in any case it is now winding down and HHS is making up for lost time. Even as ObamaCare-mandated cuts of roughly 3.4% hit in 2014, out of nowhere HHS gamed the complex formula to conjure a new 2.2% cut in the fixed payments that insurers receive for each senior they cover under Advantage.
Folding in ObamaCare's $8 billion tax on insurers next year that is the equivalent of a smaller subsidy, the Medicare Advantage cuts will total anywhere from 6.9% to 7.8%. Thus Advantage will become the only entitlement for which real spending will fall slightly year over year and continue to decline, even as health costs rise and more people join the program. Mr. Obama would never tolerate this in any other area of government, no matter what tool was used.
The cuts translate into lower benefits, higher premiums or both, and the liberal goal is to induce seniors and insurers to flee the program, much as Bill Clinton starved the Advantage forerunner known as Medicare+Choice in the 1990s. Yet for the past several years enrollment has climbed at an 8% to 10% clip annually, versus 3% for normal fee-for-service Medicare.
The Administration can't abide that Medicare Advantage is stealing customers from government control, while also exposing the failure of traditional Medicare's cost control. Medicare Advantage shows that more dynamic and efficient private alternatives can generate better health-care value than a room of wise men deciding how the government should pay for tens of thousands of services.
A shelf of academic and industry research shows that the care coordination and disease management in private plans result in higher quality than fee for service, including lower hospital readmission rates and better outcomes for seniors with chronic conditions. No less than the liberal Princeton health economist Uwe Reinhardt recently conceded that "robust empirical evidence" is convincing him that competition among plans creates "powerful incentives to improve the quality of the care they procure for patients." This is like the Sierra Club conceding that the coal industry has redeeming qualities.
The tragedy is that Medicare Advantage architecture is far from perfect and HHS could save money if it wanted to, in particular by targeting the private fee-for-service plans that mimic all of traditional Medicare's dysfunctions except with an element of private profit. But that approach conflicts with the Administration's political goal of strangling Medicare Advantage in the crib.
The new HHS payment cuts will be finalized in a week or so, and even some Democrats are protesting that they are too much too fast—including Senate Finance Chairman Max Baucus, who designed the original cuts. Unfortunately for them and their constituents, Mr. Obama would rather destroy a model for true Medicare reform than let seniors choose.
A version of this article appeared March 21, 2013, on page A14 in the U.S. edition of The Wall Street Journal, with the headline: About That 'Scalpel' . . .
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Aetna Profit Falls On Costs And Legal Settlement
Aetna Inc. fourth-quarter earnings fell sharply, the health insurer said on Thursday, as costs rose in parts of its employer-based insurance business and it took charges for settling litigation over out-of-network payments.
The company said Chief Financial Officer Joseph Zubretsky will lead a new business internally. His CFO slot will be filled by Shawn Guertin, who has been with Aetna since 2011 and was previously CFO of Coventry Health Care Inc, which Aetna is buying.
The Hartford company announced plans in August for the $5.6 billion acquisition of Coventry, part of a strategy to expand in government-sponsored healthcare programs like Medicare.
Zubretsky, Aetna's CFO for six years, will now have broader responsibility, managing new businesses such as coordinated care. "He's been very well respected as a CFO so now he's heading up operations of their largest business unit," said Sarah James, an analyst at Wedbush Securities.
Aetna said fourth-quarter net income slid to $190.1 million, or 56 cents per share, from $372.6 million, or $1.02 per share, a year earlier. Profit took a hit from a $78 million after-tax charge for the $120 million settlement reached in December for the class-action lawsuit. Patients and doctors had accused Aetna of systematically underpaying claims.
Excluding special items, the company reported earnings of 94 cents per share. Analysts on average were expecting 95 cents on that basis, according to Thomson Reuters I/B/E/S.
Aetna said operating earnings fell in its commercial business as healthcare costs rose. Increased costs related to a severe flu season were offset by a decline in the Northeast of medical services after Superstorm Sandy, which shut down businesses, schools and public transportation for weeks or more.
Leerink Swann analyst Jason Gurda said in a research note the decline in healthcare earnings came as the company collected less money than expected in insurance premiums. He noted that costs appeared to have risen due to an industry trend toward more aggressive pricing that was mentioned by competitors UnitedHealth Group Inc and WellPoint Inc , which already reported fourth-quarter results.
Aetna, facing a year in which healthcare reform could accelerate as state and federal governments start insurance exchanges for people to buy policies, affirmed that it expects profit to return to growth in 2013.
The 2010 Patient Protection and Affordable Care Act has put the insurers on the front lines of reform as the law requires policies to include more preventative services for free, added taxes and mandated access to health care for all Americans.
Zubretsky said in an interview that the company was preparing for the Oct. 1 launch of health insurance exchanges by building its technology and meeting with providers such as hospitals to negotiate rates. This spring and summer they will file rate proposals and negotiate with regulators on what they can charge for these products aimed at individuals and small businesses, he said.
Wall Street is looking closely for signs of what rates insurers will negotiate with providers for a clue as to how profitable the exchanges will be but the companies have said little. Zubretsky said Aetna will be pricing "conservatively."
Aetna expects 2013 profit excluding items of at least $5.40 a share compared with $5.13 on that basis in 2012. Analysts are expecting 2013 earnings of $5.53 per share and 2013 revenue of $38.7 billion on average, according to Thomson Reuters I/B/E/S.
Total revenue increased to $9.9 billion in the fourth quarter from $8.6 billion a year earlier.
Excluding capital gains and a $941 million revenue gain related to its annuity business, revenue increased 5 percent to $8.96 billion from $8.54 billion a year earlier, driven by higher health care premiums in its employer-based and Medicare and Medicaid government insurance.
It ended the year with 18.2 million members, an increase of 64,000 during the fourth quarter. It expects to increase membership in 2013 to 18.4 million members as it adds more Medicare and Medicaid patients.
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CEO who threatens job freeze to talk with Obama
 Mark Bertolini, the CEO of health care giant Aetna, is scheduled to be among a group of business leaders to meet with President Barack Obama Wednesday to talk about how Republicans and the White House can strike a deal to avoid the fiscal cliff, the combination of spending cuts and tax hikes that will be automatically triggered.
Bertolini, the CEO of the Hartford, Conn.-based health insurer, told Bloomberg recently that he may freeze hiring or cut jobs at the company if Obama and the White House don’t reach a deal on the fiscal cliff. Bertolini added that he expects similar moves by other corporations if no deal is reached. Bertolini is among a group of 80 CEOs in a “Fix the Debt” coalition that is pushing the two sides to reach a deal. Aetna spokesman Cynthia Michener said Bertolini is among the CEOs that will be present at the meeting.
Bertolini is among at least 10 other corporate executives that will participate in the meeting, according to a Fox Business report. According to the report, the CEOs of Xerox, Wal-Mart, Ford, PepsiCo, IBM, Chevron, American Express and Proctor & Gamble will participate. General Electric CEO Jeffrey Immelt and Honeywell CEO Dave Cote will lead the group, the report said.
Obama plans to meet with labor leaders on Tuesday and civic leaders on Friday. He also has set up a meeting with Democratic and Republican leaders in Congress on Friday to begin negotiations. Read about how CEOs vow to work with Obama team.
Follow Political Watch on Twitter @mktwpolitics and Ron Orol @rorol.
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Aetna CEO: America’s ‘Fiscal Cliff’ Is Like “The Plague,”
A “Financial Superstorm”; Layoffs Possible
The so-called “fiscal cliff” facing America’s tax structure at the end of this year is like The Plague or a “financial superstorm,” Aetna’s CEO Mark T. Bertolini said Wednesday morning on CNBC’s Squawk Box.
He also threatened layoffs next year.
The “fiscal cliff” refers to a series of tax breaks set to expire Dec. 31 and new taxes starting in January related to federal health care reform. Additionally, federal spending cuts are scheduled to take effect Jan. 1, which would slash government spending. At the heart of the issue is the federal government’s budget and growing debt as elected officials fail to agree on a solution.
“It’s a bit like, you know, the 15th century castle gates closing during The Plague, if you think about it,” Bertolini said on CNBC’s Squawk Box. “We’re going to hope it goes by, and when it goes by, we’ll then re-open the coffers and the food stores. We don’t have the option of waiting any longer.”
“It is a superstorm, a financial superstorm that we need to get our head around and act in the same way as we acted with this last hurricane,” Bertolini said referring to bipartisan cooperation.
Aetna is planning for America to go over the fiscal cliff, Bertolini told Squawk Box. The Hartford-based health insurer is in “contingency” mode because he doesn't know what the macroecomonic picture will be. “What more contingency means is, I pull back on capital investment, which we’ve done – everything’s gated – and we layoff people,” Bertolini said. “So, jobs go out the window. And, so, the American people get hurt in this process.”
If the Gross Domestic Product declines in the first quarter, and unemployment increases, Bertolini said there could be a spike in utilization of medical services as people try to go to the doctor before they lose their employer-based health care.
So, does that definitely mean layoffs next year if tax cuts are rolled back and new taxes related to health-care reform are introduced?
“We have a head count holding flat, assuming we don’t go over the fiscal cliff,” Bertolini said on Squawk Box. “If we go over the fiscal cliff, I have to react, and, so, I know where I need to pull back. In the end analysis, the top line has to grow,” he said of revenue. “If the top line doesn’t grow, you’ve got to do something about expenses. … Our goal is to hold head count flat.”
Bertolini is one of almost 90 corporate CEOs who are members of a Fiscal Leadership Council to the Campaign to Fix the Debt. The group is says it is a nonpartisan movement to “put America on a better fiscal and economic path.”
At the beginning of the CNBC segment, Bertolini was asked whether anything has changed at Aetna related to the company preparing for federal health care reform, the Affordable Care Act.
“Today is the same as it was yesterday,” Bertolini said. “We just keep moving forward and implementing this Act. I think the bigger issue we’ll face is what happens with the fiscal cliff. That will have more to do with the subsidies and the taxes associated with this bill and our ability to move forward with full implementation. I think that’s where the bottom line is going to hit as we go through the fiscal-cliff discussions.”
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Aetna Profits Beat Expectations On Higher
Premiums, Lower Medical Costs
Aetna beat analysts’ expectations with third-quarter earnings that benefited from higher premiums and lower medical costs. “Our emerging businesses strategy continues to see positive results from collaboration with providers, including lower costs, higher care quality and added membership for our core businesses,” said Aetna CEO Mark T. Bertolini.
Net income was $499.2 million for the three-month period ending Sept. 30, or $1.47 per share, compare with $490.4, or $1.30 per share, during the same period a year ago. The net income includes a 7-cent-per-share loss to get rid of long-term debt and 4 cents per share on transaction costs related to acquiring Coventry Health Care Inc.
Aetna announced in August its plans to acquire Coventry Health Care of Bethesda, Md., for $5.6 billion to position the company for growth in Medicare and Medicaid. Aetna will take on Coventry’s debt for a total transaction cost of $7.3 billion.
Operating earnings were $523.2 million, or $1.55 per share, compared with $528.4 million, or $1.40 per share, during the same period in 2011. Analysts polled by Thomson Reuters were expecting $1.34 per share. Revenue was up 6 percent to $8.9 billion from $8.4 billion, driven partly by membership which grew by 149,000 to 18.2 million.
Health insurers are required by the Affordable Care Act, sometimes called Obamacare, to spend a minimum amount of premium revenue on medical expenses for customers: 85 cents of each premium dollar in large-group plans and 80 cents for small-group and individual plans. The percentage of medical expenses divided by premium revenue is called the medical-cost ratio. Aetna had a third-quarter medical-loss ratio of 79.6 percent on all of its commercial accounts, up from 77.8 percent last year.
Aetna’s workforce in Connecticut declined from about 6,700 as of June 30 to about 6,650 as of Sept. 30. The company had more employees overall, increasing from 34,800 as of June 30 to 35,050 as of Sept. 30.
Goldman Sachs & Co. analysts Matthew Borsch and Sam Wass said, “As expected, favorable healthcare cost trends boosted results for Aetna, which is consistent with (UnitedHealthcare’s third quarter earnings) last week and also relatively weak volume figures from many of the (health care) product and provider companies reporting 3Q so far.”
The Hartford-based health insurer’s shares were up 36 cents to $44.31 in afternoon trading.
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Aetna Hosts Women's Leadership Seminar
To Continue Career Growth Opportunities
Less than 90 years ago, women weren't allowed to walk through the front door to the Aetna headquarters on Farmington Avenue. That changed in 1926 when Marion Bills, who held a Ph.D., became the insurer's first professional officer as Assistant Secretary and Director of Personnel Research — just six years after women got the right to vote in the U.S.
"Men dominated at that time until Miss Marion Bills became an officer. She, of course, used the front entrance and soon changed the role so that we all could use (the front entrance)," former Aetna worker Theodora A. Cloutier wrote in a letter that is now in Aetna's archives.
Aetna is now a very different company, one in which three-fourths — 76 percent — of its employees are women. On Thursday, the Hartford health insurer held its first ever Women's Leadership Alliance. Speakers and panel discussions centered around career development and advancement of women. Many women hold management and executive roles at Aetna, and about 300 of them attended the event.
One of the featured presentations was a panel discussion with Aetna board member Barbara Hackman Franklin, who was handpicked by then-President Richard Nixon to improve the representation of women in his administration. Hackman-Franklin's tenure on the White House staff followed a White House press conference in 1969 when the Washington D.C. bureau chief for the North American Newspaper Alliance, Vera Glaser, noted that only 3 of 200 presidential appointments were women. Glaser then famously asked Nixon, "can we expect some more equitable recognition of women's abilities, or are we going to remain (the) lost sex?"
The memory of Nixon's administration is dominated by Watergate and his foreign affairs policies, but among his domestic policies was an effort to bring women into top roles of federal government for the first time ever, said Lee Stout, a librarian emeritus at Penn State. Stout wrote a book "A Matter of Simple Justice: The Untold Story of Barbara Hackman Franklin and A Few Good Women," published this year.
"Not everybody thought advancing women was such a great idea," Hackman Franklin said. Hackman-Franklin, a 1964 graduate of Harvard Business School, said the biggest challenge of her Nixon-administration job in 1970s was that she had to become a headhunter of women executives, though it was a time when women weren't in those positions.
"I went to head-hunting firms and said, 'Can you help us, we're looking for women,' and the answer was, 'Well, I'm sorry, but we don't have any women in our files because our clients don't ask for women'," Hackman Franklin said. So, she went looking for female leaders and found, among many others, former Hartford mayor Ann Uccello, who joined the U.S. Department of Transportation as a senior staff member in April 1971.
At the event Thursday, Elease Wright, senior vice president of human resources at Aetna, told attendees that Aetna "has a long history" of being progressive. For example, Wright recognized Alyce Rawlins, the first African-American professional hired at Aetna in 1956, who became a vocal advocate for greater diversity at the company and also for retiree benefits. And, in 2010, the company's then-president Mark T. Bertolini was recognized by a gay rights organization as a straight person who champions workplace equality for lesbian, transgender, bisexual and gay workers.
However, one group of Aetna workers felt disenfranchised recently after Bertolini, who is now CEO, announced in late August a plan to cut back on paid time off for the company's long-time workers. The company has said that cutting paid time-off from 33 to 28 days for workers was to align benefits with other companies in the industry.
Aetna has made various efforts, even outside its organization through the Aetna Foundation, to give a leg up to the under-privileged. One of the beneficiaries of Aetna donations is Dress For Success, a 15-year-old nonprofit that started by giving a free business suit to low-income women so they could dress professionally for a job interview. Since 2008, Aetna and the Aetna Foundation have given more than $175,000 to Dress For Success, including $150,000 for the Professional Women's Group Health and Wellness Initiative.
Dress for Success CEO Joi Gordon said the New York-based nonprofit has broadened its mission to help women with self confidence, financial planning, health and a wide variety of life skills. That change was driven, in part, by the weak economy and what it did to working women, Gordon said. Dress for Success started to see former professionals after the economic collapse several years ago.
"The woman in 1999 was definitely the welfare work mom," Gordon said. "The woman in 2009 was us. She would tell these stories about how she worked at corporation ABC, she coordinated suit drives for Dress For Success. And today, she's 24 months, 36 months unemployed. And so she's lost her way."
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$5.6 Billion Deal Positions Aetna
For Changing Health-Care Market
Aetna's plans announced Monday to acquire Coventry Health Care Inc. for $5.6 billion could catapult the insurance giant to the front of an industry race to capitalize on Obamacare and the health needs of aging Baby Boomers. The deal, subject to approval by Coventry stockholders and industry regulators, is expected to be completed in mid-2013.
Aetna said it will pay about $5.6 billion to acquire Coventry, of Bethesda, Md., and will take on the company's debt, driving up the total value of the transaction to $7.3 billion.
The move is the latest development in a trend that has the nation's largest health insurers buying up smaller health plans to get a greater part of the ballooning Medicare and Medicaid markets.
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Medicare enrollment will swell in the next two decades as more and more Baby Boomers reach the eligibility age of 65. Medicaid, too, is set for massive growth. In 2014, federal health care reform under the Affordable Care Act — often called Obamacare — will expand the market for insurance companies to administer government-funded Medicaid plans for the poor and disabled.
Additionally, federal reform is squeezing insurers' profits, which has driven managed care companies like Aetna to expand by buying out competitors, said David H. Windley, an analyst at Jefferies & Co. in Nashville. "A lot of this is driven by regulatory compliance under the Affordable Care Act," Windley said. "There are limits on profitability through underwriting; the growth comes through acquisitions."
In Coventry, Aetna would get a company that has a reputation for being well-run with a strong management team. The deal would increase its business in government programs and enable Aetna to better compete with WellPoint and UnitedHealth in the decade ahead, analysts said.
In a statement announcing Aetna's plans, Chairman and CEO Mark T. Bertolini said: "Integrating Coventry into Aetna will complement our strategy to expand our core insurance business, increase our presence in the fast-growing government sector and expand our relationships with providers in local geographies. "Coventry has distinct capabilities and a local market focus that will accelerate our efforts to bring simpler, more affordable products to consumer insurance exchanges in 2014 and beyond," Bertolini said.
Trimming $400 Million
Health insurers' profits are squeezed as never before. Starting last year, under federal regulations, Aetna, Cigna and all health insurers must spend a minimum amount of revenue on medical expenses for customers — 85 cents of every premium dollar for people in large-group plans and 80 cents of each premium dollar in small-group and individual-market health plans.
In the past, a health insurer's shareholders benefited when the insurer spent the least amount of every premium dollar on medical expenses. With federal constraints on profit, insurers are looking for better profits by serving more members through acquisitions and then reducing administrative costs, including jobs.
With the purchase of Coventry, Aetna expects to eliminate $400 million annually from expenses by 2015. "These cost efficiencies will support our efforts to drive costs out of the system and offer products at a lower price point in the marketplace," said Aetna's chief financial officer, Joseph M. Zubretsky.
Windley, the Jefferies & Co. analyst, said the acquisitions allow for the cutting of corporate overhead even as new members are added. "A good chunk of that comes from employment," Windley said. "Not much on the Aetna side; most on the Coventry side."
How exactly the cost-cutting might affect jobs in Connecticut and elsewhere remains unclear.
"While we are constantly focused on managing our staff levels to align with membership, we do not anticipate any immediate impact as a result of this pending acquisition," said Aetna spokeswoman Cynthia Michener. "Until the acquisition closes, Aetna and Coventry will continue to operate as two separate companies. After that, we will begin a staged integration process that will involve employees of both companies. We expect to address any overlap in similar functions over time."
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Aetna, Thousands Of California Doctors Sue
Each Other Over Rates, Doctor Options
Aetna is being sued by thousands of doctors who say the health insurer won't allow patients to get medical treatment from out-of-network doctors even though those patients have health plans that allow them to pick any clinician.
The lawsuit filed Tuesday in Los Angeles County Superior Court says Aetna has threatened patients with denial of coverage for going to out-of-network clinicians. The lawsuit also accuses Aetna of threatening to end contracts with doctors if they refer patients to clinicians outside Aetna's network.
"Aetna is putting profits ahead of patient's health and safety; that's immoral and too often it is also illegal," said Rocky Delgadillo, CEO of the nonprofit Los Angeles County Medical Association and also the former Los Angeles city attorney. "The insurance company interferes not only with doctor-patient relationships, but also harms the ability of California health care providers to get sick people the care they need in a professional and timely manner."
The lawsuit was filed by the Los Angeles County Medical Association, representing 6,500 members; California Medical Association, representing 35,000 members; and other groups of clinicians.
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The Hartford-based health insurer says the lawsuit is retaliation for a different lawsuit Aetna filed in February that accuses a number of California medical facilities of scheming to steer patients to clinics that charge more than nine times the in-network rates for medical procedures.
Aetna's lawsuit against some California providers, including Bay Area Surgical Management (BASM) and seven related facilities, says clinics allegedly referred Aetna members to BASM though the referring doctors didn't disclose to their patients that they had part ownership in BASM and were paid for sending patients there.
Patients were enticed to go to the BASM clinics because it was made less expensive, Aetna says in its lawsuit. BASM waived co-pays and deductibles that are ordinarily higher at out-of-network facilities, Aetna says in its lawsuit. The insurer was left paying many times more for the procedure than it would have at an in-network clinic.
Aetna spokeswoman Cynthia Michener said in-network doctors' average price for a kidney-stone-fragmentation procedure is $7,612 compared with $73,526 if done by Bay Area Surgical Management. A circumcision that costs Aetna $3,619 for in-network doctors was priced at $13,662 at Bay Area Surgical Management, the company said. A colonoscopy that ordinarily costs $2,555 at an in-network physician is $5,760 at Bay Area Surgical, according to Aetna.
"Doctors who entice patients to have procedures performed at out-of-network facilities that they own without the patient's knowledge are putting profits over their patients," Michener said. "The wildly-inflated bills of these facilities drive up the out-of-pocket costs for unwitting patients and needlessly add to premium costs for everyone."
The doctors say it is Aetna that has falsely advertised, breached its contracts, conducted unfair business practices and has interfered with health care providers. "Aetna has given us no choice," said Delgadillo. "Aetna's assault on patient rights and its abandonment of its promises — its contractual responsibility to patients, doctors and employers — has to be stopped."
The doctors are asking for an end to Aetna's practices, compensation for patients and doctors, and punitive damages.
"We find it troubling that the California Medical Association and other county medical associations would support this type of egregious behavior from physicians," Michener said. "Aetna has contacted regulators, such as the California Medical Board and the California Department of Insurance, as well as legislators over the past three years in an effort to voice our concerns about these types of business practices from physicians."
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Why I No Longer Support the Health Insurance Mandate
Soon the U.S. Supreme Court will rule on the constitutionality of the Affordable Care Act. I am not a lawyer, or an expert on the Constitution. But as the chairman and CEO of a major health plan, I had a ringside seat to the entire health-care reform process. After much reflection, I have concluded that the federal individual mandate, which requires all Americans to purchase health insurance starting in 2014, will not be upheld.
I don't say this lightly, as I have long been a vocal advocate of getting and keeping every American covered. As a society, we have a moral obligation to ensure everyone has access to affordable health care. We must find a way to cover those who are no longer healthy but need care. A workable solution used by many states is a high-risk insurance pool funded by broad-based taxes. But Congress and the president chose to require health-insurance companies to guarantee issue – that is, to insure anyone at anytime.
This approach encourages people to only purchase insurance when care is needed. Insurance does not work if you only pay two months of premiums and receive hundreds of thousands of dollars of health care. This is the equivalent of getting a free ride. Under such a system, consumers would end up paying more to offset the added costs of free riders. Insurance would soon become unaffordable.
Once the government mandates guaranteed issue, then a second mandate is required for individuals to purchase and maintain insurance. My early support for an individual mandate had always been grounded in this companion solution, supported by broadly funded subsidies for lower-income Americans. Yet, as I studied the arguments for and against the individual mandate, it became clear to me that the legislation raises serious constitutional concerns.
For starters, the legislative process that produced the Act was driven by partisan politics, and traditional oversight mechanisms that would have facilitated bipartisan and reasoned policy development were discarded in favor of rapid enactment. Several structural flaws emerged as a result. For example, the mandate should have been framed as a traditional tax – a move that could have bolstered the Act's constitutionality.
Most seriously, Congress insisted on describing personal inactivity – in this case, the failure to purchase insurance – as interstate commerce within its regulatory reach. Americans were alarmed, rightly, that this could empower future legislatures to mandate that citizens engage in activities none of us would think reasonable today.
Should the Act or part of it be overturned by the high court, I believe many of the consumer-friendly aspects already implemented will be adopted by the industry or quickly find their way into new legislation.
The federal government should encourage rather than micromanage market reform in all 50 states. Since health care is local, private-sector innovation in conjunction with state-level reform of the individual and small-group markets is a better approach.
But no matter how the Supreme Court rules, we still need bipartisan solutions that work for all Americans. One benefit of the past two years has been the vigorous public policy discussion that we should have had prior to passing the legislation—and a recognition that the core problems are health-care cost and value. Simply put, we must create more value for consumers by improving the quality and long-term affordability of health care.
The private sector is hard at work creating new ways to deliver health care. Health plans are collaborating with hospital systems to develop innovative accountable care organizations that provide physicians with incentives to cooperate and enhance patient outcomes. Hospitals are encouraging physicians to improve the accuracy and quality of patient data, enhancing clinical decision-making to improve the quality of care.
Health plans and employers are cooperating on decision-support tools to help employees better understand their conditions and choices. These tools are making quality and costs more transparent, encouraging employees to make better decisions. Finally, employers are implementing condition-management programs to help employees manage chronic illnesses such as diabetes and hypertension. They are also investing in on-site clinics, value-based health plans to increase medication adherence and incentive-based wellness programs.
As the law continues to evolve, we must not let politics impede our collective efforts to reinvent American health care.
Mr. Williams is a former chairman and CEO of Aetna.
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Health Insurers Will Keep Some Reforms In Place, But Not All
UnitedHealth Group, Aetna and other health insurers Tuesday enjoyed praise after saying they would continue some provisions of federal health care reform even if the U.S. Supreme Court strikes down the law this month.
But the companies stopped short of embracing hallmark benefits of reform, including a ban on denying health coverage to people with so-called pre-existing health conditions, like cancer or heart disease. The insurers also did not say whether they would still agree to forgo annual spending limits on patients, which takes effect in 2014.
It started with an announcement Monday by UnitedHealth Group — parent company of UnitedHealthcare — and was followed by similar pledges by Humana and Aetna.
Minnetonka, Minn.,-based UnitedHealthcare said it recognizes the value of coverage for children regardless of pre-existing conditions. The insurer, however, said, "one company acting alone cannot take that step, so UnitedHealthcare is committed to working with all other participants in the health care system to sustain that coverage."
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UnitedHealthcare said it would voluntarily continue coverage of preventive services — including screenings for high-blood pressure and diabetes, and allowing parents to keep children on policies until age 26. It also said it would not limit the amount of money it spends on a patient during his or her lifetime.
"The protections we are voluntarily extending are good for people's health, promote broader access to quality care and contribute to helping control rising health care costs," said Stephen J. Hemsley, president and CEO of UnitedHealth Group. "These provisions make sense for the people we serve and it is important to ensure they know these provisions will continue. These provisions are compatible with our mission and continue our operating practices."
Gov. Dannel P. Malloy and Lt. Gov. Nancy Wyman applauded UnitedHealthcare. "This decision is not only good news for those covered by UnitedHealthcare, but shows that a major insurance carrier sees the benefit of these reforms both to patients and to the industry," Malloy said. "Clearly, this is a major endorsement of key provisions of the ACA (Affordable Care Act) and I hope that other insurers quickly come to the same conclusion."
Aetna spokesman Matthew Wiggin said, "We intend to keep provisions such as coverage for dependents to age 26, 100 percent coverage for certain preventive care, and access to appeals through independent third parties in our benefit plans, regardless of how the Supreme Court rules."
Wiggin added that Aetna won't necessarily keep all aspects of the law in its health plans voluntarily, and that the Hartford-based insurer will provide more details after the Supreme Court decision expected some time this month.
The expansive law, passed by Congress in March 2010, includes an individual mandate that would require every American to have health insurance — forcing many to buy it — by 2014, or face paying a penalty. A legal challenge brought by 26 states to the U.S. Supreme Court says the mandate is an overreach of federal authority, and the entire law should be tossed as a result.
Bloomfield-based Cigna Corp. spokesman Jon Sandberg said, "Cigna believes in respecting the court's process. We remain focused on our global customer programs, and are prepared to proceed as appropriate on behalf of our customers when the court deliberations reach their conclusion."
Humana, based in Louisville, Ky., said it is "committed to keeping in place important patient protections contained in the law, including health care reform's restrictions on lifetime limits, rescission standards, appeals and external review processes, coverage for dependents on family plans to age 26, and preventive services with no cost sharing."
What's not clear is the fate of other aspects of reform, including a ban on annual spending limits, a ban on denying coverage because of pre-existing conditions, and a requirement that health insurers spend a minimum amount of revenue on patients' medical bills. Some states have laws that offer consumer benefits.
Since 2010, federal reform has prohibited insurers from denying coverage to a child up to age 19 because of a pre-existing condition. In 2014, insurers would be prohibited from refusing to sell coverage or to renew policies because of an individual's pre-existing conditions.
Health insurers are also required by reform to spend a minimum amount of premium revenue on medical expenses for their patients — 80 cents per premium dollar in individual and small-group plans; and 85 cents per dollar in large-group plans. For the first time this year, rebates totaling $14.6 million are due in August to 212,106 Connecticut residents as a direct result of the so-called "medical-loss ratio" requirements.
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Magellan President Karen Rohan To Take Aetna VP Position
The president of Magellan Health Services Inc., who worked with Aetna CEO Mark Bertolini at Cigna Corp. a decade ago, has been recruited to oversee the same Aetna business segments that Bertolini first headed up when he started in 2003.
Magellan Health Services Inc. President Karen S. Rohan of Canton is leaving her post later this month to become executive vice president and head of specialty products at Aetna. Bertolini was hired by Aetna from Cigna in February 2003 to fill a very similar role — senior vice president of specialty products reporting to then-President Ronald A. Williams.
The move fed speculation Thursday in the Insurance Capital about who will eventually fill the role of president at Aetna, which Bertolini has retained since he became CEO in November 2010.
Rohan will be responsible for the dental and vision, group insurance and consumer financial solutions businesses. She will oversee the company's distribution strategy as well. She will report directly to Bertolini.
"Karen's deep knowledge of the health care industry and strong leadership will be critical as we continue to position our company for success in an evolving marketplace," Bertolini said. "Our goal is to ensure that we are delivering products and services that help our customers get the most value for their health care dollar. Karen will help us deliver on this commitment and drive new strategies that will make quality health care more affordable and accessible to the people we serve."
Rohan left Cigna to work for Magellan in 2009. Before Magellan, Rohan was president of group disability and dental and vision care at Cigna Corp., where she began working in 1991.
"Since joining us almost three years ago, Karen has been a great business partner and successfully managed the day-to-day operations of our business," said Magellan chairman and CEO René Lerer. "We appreciate her contributions and wish her well as she takes on new responsibilities with a major national health plan."
Rohan's compensation was $2.6 million last year at Magellan, including $558,183 in salary and $716,903 in cash incentives.
Avon-based Magellan said Lerer will "lead a review of the company's current organizational structure to ensure that it is best positioned to capitalize on new growth opportunities."
Lerer will oversee day-to-day management of the health care management organization, which specializes in managing behavioral health, radiology, specialty pharmaceuticals and public-sector pharmacy benefits programs.
Magellan's customers include health plans, employers and government agencies. It serves 33.8 million members in behavioral health, 16.1 million in radiology benefits and 6.2 million in medical pharmacy management.
Rohan, a certified public accountant, holds a bachelor of science in accounting from Boston College and a master of business administration degree from Boston University.
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Aetna Mistakenly Tells 8,000 Customers
Their Doctors Were Dropped from Coverage
Thousands of Aetna customers across the state, including many in the Sacramento region, were mistakenly sent letters this week telling them that their health care provider is no longer covered in the network and that they need to find new doctors.
More than 8,000 Aetna customers were sent the form letters from the Hartford, Conn.-based health insurance company and have been receiving them in the mail over the past few days. Since then, patients have been calling their doctors and the insurance company to find out if they are still covered.
"Patients were concerned about not being able to see their UC Davis physician. Patients with appointments in the near future were especially worried," said Karen Finney, UC Davis health system spokesperson. "We told them they should continue to see their physicians as planned."
The one-page letter, dated March 21, stated that the patients' health care professionals were not in the network effective March 1. It also said patient benefits might be reduced or denied if they continued to receive services after the termination date.
"The letters were sent in error," said Anjie Coplin, director of communication for Aetna. "We have rectified the problem and are in the process of mailing out retraction letters." She said the company is also sending notification letters to the providers who were mistakenly removed from the network. She said Aetna members should call customer service numbers listed on their Aetna identification cards if they have questions or need more information.
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Aetna, Connecticut Doctors Team Up To Lower Costs,
Improve Health Of Medicare Advantage Patients
Aetna and Connecticut's largest group of doctors said Tuesday they are collaborating to improve medical care and lower health costs for Aetna's Medicare Advantage members. The program involves more than 500 doctors affiliated with the Connecticut State Medical Society Independent Practice Association who see Aetna's Medicare Advantage patients in Hartford, New Haven, Fairfield and Litchfield counties.
The clinical goals of the program are: increase the percentage of Medicare Advantage patients who have an office visit each year; encourage office visits every six months for patients with chronic heart failure or diabetes; encourage blood-glucose tests each calendar year for patients with diabetes; and confirm a schedule for follow-up visits within 30 days of any inpatient stay at a hospital or clinic.
Cost savings would come in such areas as eliminating duplicated medical services and ensuring that patients follow medical advice, particularly after hospital stays.
"We have demonstrated through similar provider collaboration programs that we can help improve the coordination and quality of care for our members while also reducing health care costs, and we look forward to using this approach with the talented and dedicated physicians of the CSMS-IPA," said Dr. Randall Krakauer, Aetna's national Medicare medical director. "Aetna believes patient-centered collaboratives like this can serve as one steppingstone to the creation of accountable care organizations, which further align financial incentives with high quality, more efficient care."
Aetna's case managers, who are nurses, will monitor the progress and care of Aetna Medicare Advantage members. Aetna will use the ActiveHealth CareEngine System, which continuously monitors information about patients, compares the data to medical evidence and identifies opportunities to improve care for patients. Aetna will communicate with medical providers to improve patient care.
Aetna has had positive results in similar programs in Connecticut, Florida and Ohio. Aetna said its Medicare Advantage patients who took part in a similar collaborative program required 43 percent less critical care in hospitals in 2010 than people enrolled in standard Medicare.
Medicare is health insurance provided by the U.S. government to people 65 and older. Medicare Advantage is the federally subsidized program administered by private health insurers that is designed to bolster regular doctor-and-hospital coverage for Medicare recipients.
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