Aetna CEO: Public, Private Exchanges
Are Future Of Health Care
Aetna Chairman and CEO Mark T. Bertolini said Thursday that the steep rate of medical inflation is changing the heath insurance marketplace from a business-to-business model to a retail market shared by private as well as public exchanges.
Bertolini, speaking at the annual economic conference sponsored by the Tunxis Community College Foundation, said the ever-escalating cost of medical services and health insurance has led employers to shift more of the price of health insurance onto workers. Soon, he said, the average worker will be paying more than 50 percent of employer-based health plans.
He referred to a graphic showing a 90 percent increase in health insurance premiums from 2000 to 2011, mirroring the rate of inflation in underlying medical costs – everything from doctors and hospitals to biotech and pharmaceuticals. During that same period, he said, wages increased only 33 percent. That's a shift from business-to-business to a retail marketplace, Bertolini said.
"I know a lot of employers are looking at, 'Should I put my employee in the private or public exchange" Bertolini said. "Should I give them the money to go buy their own health care and let them make their choices?"
Bertolini's comments echo findings last year by J.D. Power and Associates that 47 percent of 6,579 surveyed employers across the U.S. said they "definitely will" or "probably will" switch their health insurance offerings to a "defined contribution" model within a private exchange. A defined contribution is when the employer gives workers money to buy whichever health insurance they want.
The future of health care is public and private exchanges, Bertolini said. Rather than people buying one of a few options offered through their employer, the employer will give the workers money to buy on a private exchange.
Private exchanges are already a part of the health care market. Some companies, such as Walgreen Co., Sears Holding Corp. and Darden Restaurants Inc., are already in private exchanges, which offer a wider buffet of health plans than the usual two to four options of ordinary employer-based coverage.
"We are the largest public exchange participant in the country," Bertolini said.
Aetna is the low-cost option in many of those markets, though Aetna does not offer health plans on the public exchange in Connecticut.
These exchanges are new marketplaces. Private exchanges will be different from the public health exchanges that are a part of the Affordable Care Act, which offer federal subsidies to offset part of the cost of premiums for anyone making up to 400 percent of the federal poverty level.
"Public exchanges and private exchanges, which are emerging quicker than public exchanges, are going to be the place in the future where people will go to buy their health care much like they buy their airline -tickets, their hotels for travel," Bertolini said.
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Aetna's Earnings Rise, But Are
Short Of Analysts' Expectations
Aetna announced stronger third-quarter earnings this year than last year, though the company missed analysts' expectations as its Medicare business became more expensive.
Net income for the three months ending Sept. 30 was $518.6 million, or $1.38 per share, compared with $499.2 million, or $1.47 per share, during the same period last year. Operating income was $561.8 million, or $1.50 per share, compared with $523.2 million, or $1.55 per share. Analysts polled by Thomson Reuters were expecting, on average, $1.53 per share.
Total revenue was up 46 percent to $13 billion from $8.9 billion. The dramatic increase is due to the health insurer's acquisition of Coventry Health Care Inc., a company specializing in the private management of U.S. taxpayer-funded Medicare and Medicaid health plans. That $7.3 billion deal was announced in August 2012 and was completed in May.
"Our capital generation is strong, allowing us to execute upon our strategic vision and return cash to shareholders," Aetna's Chief Financial Officer Shawn M. Guertin said in a prepared statement. "This quarter we paid a dividend of $74 million and repurchased $333 million of shares. Year to date, Aetna has returned nearly $1.2 billion of capital to our shareholders through these two programs."
The company repurchased 5.2 million shares for $333 million during the quarter.
One closely watched metric in health insurance is the percentage of premium revenue spent on customers' medical claims. It's calculated in different ways for regulating purposes than for earnings, but the so-called medical loss ratio shows the insurer's profit margin of a block of business, such as Medicare customers.
Aetna has seen a decline in the medical costs associated with its commercial health plans and its Medicaid business during the first nine months of the year compared with 2012. Costs related to Medicare customers, however, have increased during the first nine months of this year compared with last year.
In Aetna's Medicare block of business, the medical loss ratio – costs divided by revenue – was 88.2 percent for the first nine months, up from 83.3 percent. In commercial plans, the ratio was down to 79.5 percent from 80.4 percent; and in Medicaid health plans the ratio declined to 86 percent from 89.6 percent.
Aetna's customer base in all of its medical coverage plans is up to 22.2 million people as of Sept. 30, from 18.2 million during the same time last year, driven by the acquisition of Coventry. At the end of the quarter, the company had 18.8 million commercial members, 961,000 Medicare Advantage members, 363,000 Medicare Supplement members and 2.1 million Medicaid customers.
Aetna also improved membership in its dental plans, which was up to 14.2 million customers from 13.6 million a year ago. The Pharmacy Benefit Management customers, including people who have Medicare Part D stand-alone drug coverage, increased to 14.1 million from 8.8 million, driven by the Coventry acquisition.
The company's stock was down 78 cents to $61 in pre-market trading Tuesday.
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Aetna Announces Major Expansion
Of Medicare Advantage Network
Aetna is expanding its network of doctors to treat Medicare Advantage customers into new territory, growing its geographic reach and physician base in 22 states, including Connecticut.
The expansion applies to more than 450,000 people in the U.S. who have Aetna's employer-sponsored Medicare Advantage group health plans, which some businesses offer to their retirees. Aetna also has about 480,000 customers in its individually sold Medicare Advantage plans, for which there will be a network change announced in the near future, the company said.
Aetna and other health insurers have made major investments in recent years to bolster their services for Baby Boomers, who are increasingly reaching the Medicare eligibility age of 65.
The announcement Monday comes less than two weeks after one of Aetna's major competitors, UnitedHealthcare, sent notices to Connecticut doctors saying they have been cut from the company's Medicare Advantage network for next year. A UnitedHealthcare spokesman on Friday said the network cuts will "ultimately provide better outcomes for people in Connecticut while we and others manage through the severe government funding cuts in Medicare Advantage."
Aetna said it is growing its network of doctors by 59 percent next year and expanding its territory from 442 counties to 703. The expanded territory includes 87 additional counties in Texas – about one third of the state's total. Aetna is broadening its Medicare Advantage reach by 49 counties in Indiana; 43 counties in Georgia; and 22 counties in Illinois.
The Hartford health insurer also is adding doctors to its networks in Arizona, Connecticut, Kentucky, Maine, Maryland, Michigan, Missouri, New Mexico, New York, North Carolina, Ohio, Oklahoma, Pennsylvania, Rhode Island, Tennessee, Virginia, Washington and Wisconsin.
"We're very excited about this network expansion, which is one of our biggest ever," Nancy Cocozza, president of Medicare Business for Aetna, said in a prepared statement. "Strengthening our network in group Medicare is important as it enables nationwide coverage for large, national employers, and it lets retirees continue receiving care from doctors they used and trusted while they were employed."
The open enrollment period for Medicare plans starts Tuesday and ends Dec. 7. In addition to Medicare Advantage, Aetna has about 341,000 customers of its Medicare Supplement plans. Separately, the insurer also sells stand-alone prescription drug plans to Medicare-aged customers.
Medicare is federal government-funded health insurance primarily for people 65 and older. Medicare Advantage is a version of Medicare Parts A and B, hospital and medical coverage, administered by private insurers. The insurers are paid by the federal government to provide coverage. Often, private insurers compete for market share by offering additional benefits, such as discounts on dental coverage, eyewear or hearing-aid services, in addition to exercise programs or gym memberships.
UnitedHealthcare Cuts Back
Last week, the Fairfield County Medical Association said doctors were calling the organization to say they received letters notifying they had been cut from UnitedHealthcare's network. The association says UnitedHealthcare is cutting 810 primary care physicians and 1,440 specialists. The insurer declined to say how many doctors have been cut, but UnitedHealthcare has said it will have an adequate network that includes more than 1,500 primary care physicians and more than 4,000 specialists.
UnitedHealthcare's decision drew criticism from the Connecticut State Medical Society, American Medical Association, U.S. Sen. Richard Blumenthal, D-CT, and U.S. Rep. Joe Courtney, D-2nd District. State Attorney General George Jepsen inquired on Friday about the matter, though Jepsen's spokeswoman said Medicare Advantage is a federally regulated matter.
Many of the questions about UnitedHealthcare's decision to cut its network can only be answered by the federal Centers for Medicare & Medicaid Services, which manages Medicare Advantage. However, a federal government shutdown has left most of the federal Medicare employees furloughed.
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Excerpt from Aetna publication Health Reform Connection
In case you haven't heard, big changes are coming in October 2013. Big changes for a lot of people.
The Affordable Care Act is expected to help increase access to health care. Health insurance exchanges will be an important part of that.
Most people get health insurance through their employers. But people without this option will now be able to shop for health insurance on exchanges, as an alternative to buying coverage directly from individual health insurers. Exchanges are new and easy to use. And they'll be open for business in October 2013, allowing consumers to shop for health plans that will begin on January 1st.
Experts predict that by 2016, more than 25 million people will use exchanges to buy health insurance.
So what are exchanges? How do they work? How will things change? And why is this important? Let's talk about it!
Think of an exchange as an online marketplace. It's a website where shoppers can research all their options and then buy health insurance. There are different types of exchanges; first let's talk about a public exchange.
The Affordable Care Act requires every state to offer an exchange to its residents. States have a few options:
- A state can choose to create and run its own exchange.
- If a state decides not to run its own exchange, residents of that state can shop on an exchange that will be run by the federal government.
- Or a state can partner with the federal government. In a partnership model, the state and federal government share responsibility for operating that state's exchange.
No matter what each state decides to do, an Exchange will be available to residents in every state.
Public exchanges will exist for both individuals, who are buying insurance for themselves, and for small group employers, who can buy insurance to offer to their employees. The small group exchange is called SHOP – short for Small Business Health Options Program.
Why are exchanges expected to be so popular? There are a few reasons:
- The Affordable Care Act no longer allows insurers to deny coverage or charge people more based on their health status or pre-existing conditions. So, many people who were unable to buy coverage in the past will now start shopping for a health plan.
- Starting in 2014, individuals are required to buy health insurance or face penalties. This is called the "individual mandate." Although the penalty for not buying coverage is initially low, it will grow over time. As the penalty goes up, so will participation on exchanges.
- The Affordable Care Act will provide tax credits and subsidies for individuals who qualify, to help make insurance more affordable, when they shop on a public exchange.
Many individuals who shop on exchanges will be new to health insurance. To help make shopping easier, health plans on a public exchange will be labeled platinum, gold, silver or bronze. The metallic level helps shoppers understand the level of coverage a plan offers – how much they will need to pay and what the plan pays.
Platinum plans will have the lowest out of pocket cost for members but the monthly premiums will generally be higher. Bronze plans, on the other hand, will have the highest out of pocket costs for members, but will typically feature lower monthly premiums. All plans on an exchange have to offer some core benefits – called "essential health benefits" – like preventive and wellness services, prescription drugs, and coverage for hospital stays.
Public exchanges are designed to help shoppers choose a plan that fits their needs and their budget.
So that's the public exchange – offered by the government – either state or federal, or both.
There are also private exchanges. Private exchanges are not part of the Affordable Care Act. They are created by private sector companies – for example, by a health insurance company or a brokerage or consulting firm. A few private exchanges exist today, but they are becoming increasingly popular.
Like public exchanges, private exchanges can sell to both individuals and employer groups. Unlike public exchanges, private exchanges are already open for business.
For employers who are trying to keep the cost of offering health benefits manageable, private exchanges offer an interesting solution. Employers can give their employees a set amount of money and then direct them to a private exchange. There, they can shop for a health plan and other benefits, like dental, based on what the employer has selected as options.
Public and private exchanges are likely to appeal to different audiences. Individuals who do not have access to affordable health insurance today are more likely to shop on a public exchange because of the subsidies, which are not available through private exchanges. Employers are more likely to send their employees to a private exchange. And both individuals and small employers will still be able to shop for coverage as they do today, directly from health insurers.
So to highlight a few key messages about exchanges:
- Exchanges give people additional access and more opportunity to buy insurance.
- A public exchange may be run by the state or federal government, or by the state and federal government working together.
- Every state will have a public exchange available to its residents.
- Subsidies and tax credits will help make insurance affordable for many individuals who shop on the public exchanges.
- Small group employers can buy and offer insurance through an exchange, as well.
- Private exchanges are not run by the government but by a private sector company, like a health plan or a consulting firm.
- These exist today, but they will become more popular as employers look for new ways to offer affordable benefits to their employees.
One thing is certain: Exchanges are going to change the way millions of Americans view their health insurance – whether it's how they shop for a plan, what plan they decide to buy or how they use their benefits.
Here at Aetna, we're ready to do our part to help make health care easy to shop for, easy to understand and easy to use.
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Obamacare: The Rise Of Private Health Insurance Exchanges
As Obamacare changes the rules of the health insurance game by instituting publicly operated exchanges for selecting plans, private health insurance exchanges also stand to benefit.
The Affordable Care Act seeks to make the price of individual health insurance more competitive with the group plans traditionally offered by employers. That's prompting some employers to reconsider whether they need to be in the business of providing health benefits to employees, when instead they could offer a flat subsidy to workers who will purchase plans on their own.
This restructuring of the health insurance market is showing up first among companies that employ large numbers of part-time workers, such as Sears Holding Corp and Darden Restaurants. Drug store chain Walgreens recently announced it will move its 160,000 current employees to a private health insurance exchange operated by Aon Hewitt. IBM recently joined the historic shift by moving retirees from company-provided insurance to the Extend Health exchange, following a similar move by GE last year.
Extend Health CEO Bryce A. Williams said his company, which had been concentrating on offering enhanced Medicare insurance to retirees, will be entering the market for consumers under age 65 because of the changes brought about by the law. Acquired last year by Towers Watson, Extend Health was founded in 2004 by Williams, a veteran of eHealth, a company that targeted the consumer health insurance market. But one of the big problems with selling health insurance to younger people is that only 65% to 70% of those who selected a plan would actually be able to enroll, once the insurers got a look at their medical history.
"That's changing this fall," Williams said, meaning that Extend Health can now offer guaranteed insurance to younger people, just as it can to those eligible for Medicare. "It makes us think our original idea was sound; it was just years early," he said.
Although in principle the exchanges operated by the states and the federal government represent competition, that's not so different from the Medicare market, where consumers could also go directly to Medicare.gov to choose a plan. Extend Health provides the same service, "but we do it for America's biggest corporations, and they don't want a government site." Instead, those companies hire Extend Health to provide "concierge service," matching retirees to the plans that are best for them. Now, Extend Health will offer the same level of service to help employees select individual health insurance.
Although the online shopping experience is important, only about 0.5% of retirees actually purchase a plan online, making personal advisers and call center service an important part of the total product, Williams said. The percentage of younger consumers closing the deal online will probably be larger, particularly with those in their 20s and 30s used to doing everything online, but "it still won't be 100%," he said.
In addition to working with corporate clients' employees, Williams said Extend Health is piloting a program in which it would partner with a major retailer to place health insurance kiosks in its stores. While he doesn't expect consumers to be willing to complete an application, including providing social security numbers, from a store kiosk, it could be a way for consumers to learn about their options and then set a follow-up appointment during which an Extend Health representative would have an opportunity to close the deal. The retailer, which he declined to name, "is excited to take the concept of health and beauty and extend it by providing an excellent shopping experience" for health insurance, he said.
The rise of the private exchanges "is a really, really interesting and kind of unexpected side effect or collateral effect of the whole movement to public exchanges," said Jordan Battani, managing director of the Global Institute for Emerging Healthcare Practices, a healthcare IT research group at the global consulting firm CSC. In addition to eliminating uncertainty about whether consumers will qualify for health insurance, the ACA has promoted a standardization of insurance products into tiers of service -- bronze, silver, gold and platinum -- which has the effect of simplifying the market and making it easier to compare health plans. "That's one of the other difficulties private exchanges had in the past -- that the products are so variable."
The regulatory structure also dictates that consumers get the same price for any given plan, regardless of whether the purchase is through a public exchange or a private one, Williams said. The marketing fee built into the price goes to Extend Health as a commission when it makes the sale, whereas the insurer simply keeps the money when a consumer signs up without going through an intermediary, he said.
GetInsured.com, a private exchange operator that is setting itself up as a cloud service provider to state exchanges that wish to operate independently of the federal government, also says it expects to announce deals with employers who want to direct their employees to shop for their own insurance.
Meanwhile, the state and federal exchanges are likely getting off to a glitchy and uneven start, but that's not surprising given the scale of what's being implemented, Williams said. "This is healthcare's equivalent of a mission to Mars. There may be a glitch or two, but I'm convinced the spacecraft is going to get to Mars, intact."
The closest parallel is with the introduction of the Medicare Part D prescription drug benefit a decade ago, Williams said. "There were enormous glitches in the first 10 to 18 months," resulting in lots of angry people complaining that they hadn't gotten their benefits cards as promised, he said. Now, that's given way to "18 million very happy individual Part D plan owners," he said.
Similarly, in the first months of the public exchanges, there will be many instances of plans priced wrong and subsidies calculated improperly, but the impact of those glitches will fade over time. "The pricing bumps we're seeing now are fairly modest compared to what could have happened," he said. "California has been testing for months now, and it's going incredibly well."
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Judge Dismisses Hospital 'Observation Care' Lawsuit
A lawsuit filed by 14 seniors, including seven from Connecticut, seeking Medicare nursing home coverage was dismissed Monday by a federal judge in Hartford.
The seniors were among more than a million Medicare beneficiaries who enter the hospital for observation every year. Because they did not spend at least three consecutive hospital days as admitted patients, Medicare will not pay for their nursing home care.
In their lawsuit, they argued that there is little difference between observation and admitted patients, except when it comes to paying tens of thousands of dollars in nursing home bills. They asked the judge to eliminate the 'observation care' designation or at least set up an expedited appeals process so that their observation status would be reviewed. They also wanted the judge to order Medicare officials to require hospitals to tell patients if they are receiving 'observation care' and have not been admitted.
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In his 50-page ruling, U.S. District Court Judge Michael P. Shea relied mostly on a 2008 federal court decision that upheld the right of the Secretary of the Department Health and Human Services, which includes the Medicare program, to permit hospitals and doctors to determine when patients should be admitted or kept for observation. He also referred to the federal law that restricts Medicare coverage for followup nursing home care to admitted patients only.
"The decision removes much of the accountability for observation status from the Secretary of Health and Human Services," said Alice Bers, an attorney at the Center for Medicare Advocacy, which represented the seniors. Because hospitals paid by Medicare have to follow Medicare rules, she said federal officials should be held responsible for this problem.
"We are reviewing the lengthy decision carefully and considering possible next steps," Bers said.
Medicare officials declined to comment on the decision.
In one of the few points of agreement with the seniors, the judge rejected a key argument from lawyers defending the U. S. Department of Health and Human Services, claiming that the seniors should have gone through the appeals process before filing a lawsuit.
He wrote that Medicare patients "may be forced to forego needed medical care in the future, causing further health deterioration, while an administrative appeal is pending. For these plaintiffs, winning an administrative appeal would not remediate the harm done to them by an initial denial of benefits."
He also agreed that observation patients have a greater financial liability than admitted patients because they are not eligible for nursing home coverage. He referred to one of the Connecticut seniors in the lawsuit who had to pay a $30,000 bill from her nursing home.
Monday's decision does not affect a separate lawsuit filed last year by the American Hospital Association, which also seeks to eliminate observation status. Hospitals complain about the practice because they forfeit their Medicare payment for admitted patients who the agency later determine should have received less expensive 'observation care.'
"I am disappointed in this decision," said U.S. Rep. Joe Courtney, D-2nd District. He has introduced legislation he said "would ensure that after a three-day hospital stay – regardless of inpatient or observation status – seniors are covered for skilled nursing care when a doctor prescribes it, improving outcomes and giving families peace of mind."
"For Congress, the meaning of this decision is crystal clear – we need to enact H.R. 1179 to protect the rights of Medicare beneficiaries and their families," he said.
This story was reported under a partnership with the Connecticut Health I-Team (www.c-hit.org)
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Aetna Profit Beats Expectations As Costs Stay Low
U.S. health insurer Aetna on Tuesday reported higher-than-expected second-quarter earnings as medical costs in its employer-based and commercial business remained low and it closed on its acquisition of Coventry Health Care. Aetna said net income rose to $536 million, or $1.49 per share, from $457.6 million, or $1.32 per share a year earlier.
Aetna's report of low spending by consumers on medical services follows similar earnings beats by larger rivals UnitedHealth Group Inc and WellPoint Inc. People began seeing doctors and hospitals less frequently several years ago because of the weak economy and the trend has continued.
Aetna announced plans to buy Coventry for $5.6 billion last year in a bet on growth of U.S. government-backed Medicare and Medicaid programs. As part of the Affordable Care Act, states have the option to expand Medicaid to more people and be reimbursed by the federal government.
President Obama's health-care reform law also will create subsidized insurance based on income, which Aetna will also sell. That insurance will be available on Oct. 1 on state-based health insurance exchanges across the country.
The law set other rules for insurers, such as the percentage of medical premium revenue they can spend on healthcare costs. Aetna said it had a total medical benefit ratio of 82.5 percent versus 82.4 percent a year earlier.
Excluding gains and charges from lower reserves, a reinsurance settlement, acquisition costs and capital losses, the company reported earnings of $1.52 per share. Analysts on average were expecting $1.41 on that basis, according to Thomson Reuters I/B/E/S.
Coventry helped both profit and revenue. It added 3.7 million members, bringing Aetna's total to 22 million at the end of June. Aetna said 3.25 million members had insurance based on high medical deductibles, sometimes called consumer directed plans. Last quarter it had 3 million in these plans.
Revenue rose to $11.5 billion from $8.8 billion a year earlier. For the full year, the company said it expected operating earnings of $5.80 to $5.90 per share. Analysts were forecasting a 2013 profit of $5.82.
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Spotlight on Pension Plan De-risking and Disclosures
NRLN leaders, officers of four retiree associations and an NRLN Chapter president will be in Washington, D.C. July 9 - 11 for important meetings with the Department of Labor and members of Congress.
Meetings are scheduled with Phyllis Borzi, Assistant Secretary of Labor for the Employee Benefits Security Administration, and Representative Phil Roe (R-TN-1), Chairman of the U.S. House Sub-Committee on Health, Employment, Labor and Pensions. Efforts are continuing to schedule other meetings on Capitol Hill.
The purpose of these meetings will be to advocate Department of Labor regulations plus additions to the Pension Protection Act (PPA) and the Employee Retirement Income Security Act (ERISA). The objective is to provide retirees greater protections in pension plan de-risking and more complete disclosures in the Annual Funding Notice (AFN).
The NRLN's newly researched and written white papers on pension plan de-risking and AFN disclosures will be spotlighted in the these meetings.
Michael Calabrese has worked with a committee of NRLN members who have expertise with pension plans to prepare the white paper entitled Pension Plan 'De-Risking': Strengthening Fiduciary Duties to Protect Retirees.
The Executive Summary opens with this sentence, "The steady decline in traditional defined-benefit pension plan sponsorship by corporate America took another alarming turn for the worse last year when three of the nation's big blue chip companies [GM, Ford and Verizon] moved to "de-risk" their pension promises by transferring billions of dollars in assets either directly to retirees (as lump sum buyouts) or to third party insurance companies (as fixed annuity contracts)."
The de-risking that the NRLN's white paper addresses are pension plan sponsor strategies that transfer plan assets and liabilities to a third party (typically an insurance company), or directly onto plan participants through a voluntary lump sum buy-out.
Most alarming to the NRLN was Verizon's unilateral move last December that transferred the pension obligations for a select group of 41,000 retirees to Prudential without complying with the laws governing voluntary (standard) plan terminations under ERISA. In Verizon's case, 41,000 management retirees were carved out of 96,000 plan participants and stripped of both Pension Benefit Guaranty Corporation (PBGC) guarantees and other ERISA protections without being given an option to remain in the plan (which continues to pay monthly benefits to other retirees).
The NRLN's white paper urges the Department of Labor to amend and extend its policy relating to the fiduciary standards under ERISA for selecting an annuity provider. If the Department of Labor or other federal agencies do not act, the NRLN will lobby Congress for legislation that at a minimum requires plan sponsors to maintain back-up insurance to an annuity, either from the PBGC or a highly-rated reinsurance carrier.
I researched and wrote the white paper on the need for more and clearer disclosure in the Annual Funding Notice (AFN). As part of my research, NRLN retiree associations were asked to provide the AFN sent to their members in April 2013. I received and examined in depth the 18 AFNs that I received.
The analysis supports the NRLN's strong belief that the lack of meaningful disclosure in AFNs puts all pension plan participants, particularly retirees, at great financial risk. Without clear information about the state of their plan on an ongoing basis or what it would be upon termination retirees do not have the ability to make informed decisions about their financial status. Current disclosure requirements are inadequate and lead to a continued lack of awareness.
Congress addressed pension plan disclosures when it passed the Pension Protection Act (PPA) in 2006 but the results show that the PPA did not go far enough. The PPA, among other things, established that companies had to provide each plan participant with an AFN that disclosed detailed actuarial data for the most recent and previous two plan years. Funding Target Attainment (FTA) percentages are calculated and included so that plan participants may see the funding status of their plan data and the number and type of plan participants.
The NRLN's white paper is about the lack of full disclosure that deviates from fulfilling the meaning and intent of the term "full and open disclosure" needed for participants to plan and adjust income expectancies and lifestyles. The very people most affected by changes in pension plan risk, the plan participants, deserve nothing less than full and open disclosure. Six specific recommendations for more complete pension plan disclosures are set forth in the NRLN's white paper.
Representing the NRLN at our meetings will be Marta Bascom, NRLN Executive Director, Michael Calabrese, NRLN Legislative Adviser, Ed Beltram, NRLN Vice President – Communications and myself. The Association of US West Retirees will be represented by Judy Stenberg, President of the Oregon and Washington Pension Equity Council, plus Northwestern Bell Association leaders Mary Ann Neuman, past Chair, and Cindy Hadsell.
Representing the Lucent Retirees Organization (LRO) will be Joe Dombrowski, President, Frank Minter, Vice President, and Al Duscher, Northeast Region Director. The National Chrysler Retirement Organization (NCRO) will be represented by Jay Kuhnie, President, plus Directors Chris Dyrda and Deb Morrissett. Representing the NRLN Utah Chapter will be Neil West, President.
Attendees will also have meetings on Capitol Hill with their Representatives and Senators and/or staff members to advocate the NRLN's top legislative initiatives.
Following our July meetings in Washington, D.C., you will be provided a report on the presentation of our proposals.
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Does This Move Defeat the Purpose of Obamacare?
The Patient Protection and Affordable Care Act, set to go into full effect on Jan 1., is certain to have broad-reaching impacts on the way that insurance companies sell their products to consumers. Some insurers, like Aetna (NYSE: AET), have been jockeying for position in the Medicaid arena, purchasing Coventry Health Care for $5.7 billion to take advantage of the coming Medicaid expansion. Other insurers have chosen to enter new markets and utilize the transparent state-run health exchanges being formed under the PPACA, also known as Obamacare, to expand their presence.
Over the weekend, Aetna made it very clear to consumers and the government that increasing levels of competition may not be the end result of state-run health exchanges.
On Saturday, Aetna informed California Insurance Commissioner Dave Jones that, in addition to not participating in California's health exchange, it planned to pull out of the state altogether with regard to offering individual health plans. Keep in mind that Aetna still intends to offer health plans to businesses and Medicare beneficiaries, which is where the bulk of its profits are in California, but it is nonetheless going to send 49,000 current members out into the cold (or should I say the palm trees?) to find another health plan.
A case of deja vu
If this sounds eerily familiar, it should be, because we saw very similar anti-competitive announcements from three of the nation's biggest insurers in California last month: Aetna, CIGNA (NYSE: CI), and UnitedHealth Group (NYSE: UNH), which all decided not to participate in Covered California, the state's health exchange.
The logic behind their absence in participating in a public health exchange does make some sense. Combined, these three health-benefits providers comprise just 7% of all outstanding individual health plans in California. With the big four – Kaiser Permanente, Blue Shield of California, Anthem Blue Cross (a WellPoint (NYSE: WLP) subsidiary), and Health Net (NYSE: HNT) – taking the majority of California's individual health insurance business, the costs of fighting for new members may not have been justified.
Does this defeat the purpose of Obamacare?
The biggest concern remains whether these new exchanges will increase competition among insurers through better pricing transparency, or whether health insurance for individuals will cluster in the hands of just a few companies in each state. Based on what we're witnessing from California, it looks as if four insurers will control the bulk of the market. Even if Obamacare's state-run health exchanges have resulted in lower-than-expected premiums for individuals on the surface, putting majority control in the hands of just a handful of insurers won't obligate them to pass along these cost savings to consumers and could lead to less price competitiveness, defeating the whole purpose of Obamacare.
For Aetna's bottom line, its choice not to participate in Covered California isn't a big blow by any means since it derives most of its premiums in the state from enterprise and Medicare members. But, Aetna is sending what could be a bigger message that not even the most populous state in the country is enough allure to enter a crowded state-run health exchange. If the impetus to enter new markets is discouraged by state-run exchanges, then the chances of seeing meaningful reductions in premium pricing could be lost.
It certainly makes me wonder if CIGNA or UnitedHealth are next to exit California on an individual plan basis, and whether we'll see similar insurers dropping out of prominent markets in other states. One thing is for sure, though – there are still more questions than answers as we approach the full implementation date in January.
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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."
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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