AETNA Forcing 600,000+ To Drop Coverage...Greed At Its Finest

Insurance giant AETNA bows to greed.

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Aetna Forcing 600,000-Plus To Lose Coverage In Effort To Raise Profits


Health insurance giant Aetna is planning to force up to 650,000 clients to drop their coverage next year as it seeks to raise additional revenue to meet profit expectations.

In a third-quarter earnings conference call in late October, officials at Aetna announced that in an effort to improve on a less-than-anticipated profit margin in 2009, they would be raising prices on their consumers in 2010. The insurance giant predicted that the company would subsequently lose between 300,000 and 350,000 members next year from its national account as well as another 300,000 from smaller group accounts.

"The pricing we put in place for 2009 turned out to not really be what we needed to achieve the results and margins that we had historically been delivering," said chairman and CEO Ron Williams. "We view 2010 as a repositioning year, a year that does not fully reflect the earnings potential of our business. Our pricing actions should have a noticeable effect beginning in the first quarter of 2010, with additional financial impact realized during the remaining three quarters of the year."

Aetna's decision to downsize the number of clients in favor of higher premiums is, as one industry analyst told American Medical News, a "pretty candid" admission. It also reflects the major concerns offered by health care reform proponents and supporters of a public option for insurance coverage, who insist that the private health insurance industry is too consumed with the bottom line. A government-run plan would operate solely off its members' premiums.

Aetna actually made a profit in 2009 but not at levels that it anticipated.

"They were surprised by an acceleration in medical costs in 2009 which pressured their earnings," Josh Raskin, an industry analyst for Barclays Capital, told the Huffington Post. "In an effort to get back to a more profitable level, they are raising their prices to match cost trends. When you raise rates, you run the risk of losing your membership. Health insurance is a very competitive marketplace."

As Williams told investors on the call: "The pricing that we put in place for 2009 turned out to not really be what we needed to achieve the results and margins that we had historically been delivering."

Aetna is one of the largest insurers in the private market, covering roughly 17.7 million people according to its 2008 annual report. It is also a major player in the current health care debate and inside Washington D.C. The insurance company has spent more than $2 million on lobbying just in 2009, according to the Center for Responsive Politics.

American Medical News, which first reported the story, noted that this is not the first time the insurance giant has cut the rolls in an effort to boost profit margins. "As chronicled in a 2004 article in Health Affairs by health economist James C. Robinson, MD, PhD, Aetna completely overhauled its business between 2000 and 2003, going from 21 million members in 1999 down to 13 million in 2003, but boosting its profit margin from about 4% to higher than 7%."

A spokesperson at Aetna did not return calls and emails for comment.






Aetna prepares for loss of 600,000 members as it raises 2010 prices


Back when it was the largest private health plan in the country, Aetna downsized its membership by millions but boosted profits during an overhaul of its business several years ago.

Now it looks to be making a similar -- but smaller -- move with a planned price increase for many of its customers in 2010.

The company figures it will lose between 600,000 and 650,000 members next year because of the price hikes.

In a conference call with investment analysts to discuss the company's third-quarter earnings, Chair and CEO Ron Williams told analysts, "The pricing we put in place for 2009 turned out to not really be what we needed to achieve the results and margins that we had historically been delivering."

Aetna President Mark Bertolini laid out how the company planned to raise prices to improve the company's profit margin. He said the firm had "implemented a combination of underwriting enhancements, pricing actions and plan design changes, intended to ensure that each customer is priced to an appropriate margin."

He predicted that Aetna would lose between 300,000 and 350,000 members from national accounts -- large businesses in multiple states -- because of businesses looking for "near-term cost savings." They would lose another 300,000 in smaller group accounts, which are medium- to small-size businesses.

Laying out specific expected membership losses is "pretty candid," said David Gibbs, a retired health insurance industry consultant from San Luis Obispo, Calif. He worked for and consulted with health insurers, including Aetna, for 25 years, and most recently was with New Jersey-based Health Economics Consulting Group.

He said Aetna's decision comes from a system that encourages insurers to drive away sicker members -- a strategy not unique to one insurer. "They're running a business, and their obligation is a very singular one: to increase shareholder profits."


Aetna is not alone

It's not unusual for executives to promise that profitability will take priority over membership growth. Some of Aetna's competitors are taking similar steps in 2010 and have done so in the past.

Angela Braly, WellPoint's president and CEO, told investors and analysts in 2008 that the company "would not sacrifice profitability for membership." She was referring to some insurers "buying membership" by reducing prices to boost overall growth.

Those kind of statements aren't rare, but it's less common for executives to be as specific as Bertolini was about how many members they expect to lose by raising premiums.

Because of the recession, health plans are treading a fine line between trying to keep membership numbers healthy and ensuring that the members they keep continue to generate a profit.

Most insurers have seen substantial membership losses due to recession-driven layoffs, and much of the decline has been in the more profitable commercial sector, while Medicaid and Medicare membership has grown.

Goldman Sachs investment analyst Matthew Borsch noted that Aetna has its work cut out.

"The repricing task is much tougher against headwinds of rising medical costs and declining health coverage, although the headwinds should ease next year," he wrote in a note to investors. "We expect Aetna to make steady progress on this front, but the progress may emerge more slowly than the more optimistic view would suggest."

Gibbs said simply raising prices probably would not get Aetna what it wants. That actually tends to result in sick people who are more "desperate" for coverage to keep it, and healthier groups to drop it. Instead, Aetna might change benefit designs, scaling back prescription drug coverage, for example, which sicker populations tend to value but healthier ones don't notice as much.

"There's a rule of thumb out there that 20% to 25% of the people account for 75% to 80% of health care costs," he said. "Avoiding that segment is probably the quickest route to making a lot of money."

Aetna's investors are eager to see a boost in the company's profits after 2009 brought unexpectedly high medical costs. In the third quarter of 2009, its medical-loss ratio -- the amount of each dollar spent on medical care -- was 85.6%, up from 80.9% over the same period in 2008.

Repeat move

This isn't the first time Aetna has taken this path to improved profitability.

As chronicled in a 2004 article in Health Affairs by health economist James C. Robinson, MD, PhD, Aetna completely overhauled its business between 2000 and 2003, going from 21 million members in 1999 down to 13 million in 2003, but boosting its profit margin from about 4% to higher than 7%.

Since then, the company has grown both its membership and its profitability. As of Sept. 30, Aetna had 19 million members. It remains the third-largest insurer behind UnitedHealth Group, with 32.9 million members, and WellPoint, which has 33.9 million members.

Aetna's profit margin has fallen, however, with a 6.9% margin for the most recent quarter, 7% in the second quarter and 8.8% in the first quarter.

Those are down from 10.3% for 2008 and 11.1% for 2007.

Williams said the company was aiming for a profit margin in the "high single digits" for 2010.

Analysts participating in Aetna's quarterly conference call asked Aetna executives about similarities between the strategy for 2010 and the company's moves earlier in the decade.

Bertolini said the reaction from customers was "different than happened seven, eight years ago. ... As we go into the marketplace with that pricing, we are watching each case closely. We get weekly reports, and the results so far are tracking with our expectations," he said.

Aetna spokesman Alfred Laberge declined comment beyond what executives said in the conference call, citing the company's decision not to give investors specific earnings guidance for 2010 until February.




Aetna cutting 625 jobs immediately, plans to make similar cuts by the end of 1st quarter 2010


Health insurer Aetna said Wednesday it will cut 625 jobs immediately, or nearly 2 percent of its staff, and will make a similar number of cuts by the end of the 2010 first quarter due to the lagging economy and the potential impact of health care reform.

Hartford, Conn.-based Aetna trimmed 977 jobs last December and currently has about 35,500 people. Several other large insurers, including Indianapolis-based WellPoint Inc. and Philadelphia-based Cigna Corp., also have announced cuts.

Health insurers have faced growing financial pressure in the past few quarters as corporate job cuts have trimmed the number of people covered by employer-sponsored health insurance. Many insurers project enrollment losses will continue into 2010 as the unemployment rate is projected to keep rising.

"This is something that's just industry wide right now," said Edward Jones analyst Steve Shubitz, who follows several insurers.

Aetna, the third largest publicly traded managed care company, saw medical enrollment grow 8 percent in the third quarter to more than 19 million people. But it expects to lose 225,000 people in the fourth quarter and another 650,000 in the first quarter of 2010, spokesman Fred Laberge said.

Aside from employer job reductions, Aetna also expects to lose some customers due to an increase in prices, Laberge said.

Aetna Chairman and CEO Ronald A. Williams said in a statement the insurer has to prepare for "the impact that health care reform and regulatory changes may have on our business."

Congress is debating plans to reform the health care system to cover more uninsured people. The insurer doesn't know what to expect from the debate, but it does know insurance market reform and tax increases are likely in the near term, Laberge said.

"We expect that would put additional pressure on our profit margins and our ability to invest for growth," the spokesman said.

Aetna expects to make similar job cuts in the first quarter, but Laberge said the exact amount and timing haven't been determined.

Aetna will book a $40 million restructuring charge related to the current layoffs. It will disclose the financial impact of future layoffs when those decisions are made.

Most of the cuts announced Wednesday will be made in Connecticut, where the company is headquartered. The company said it isn't exiting any of its markets as a result of the job cuts, but does expect to consolidate field offices in some locations in order to lower real estate costs.

The insurer made its announcement after markets closed Wednesday. The stock then fell 5 cents to $29.16 in after-hours trading.



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Sources: AETNA, Huffington Post, American Medical News, MSNBC, Newser, UPI, Google Maps