Aetna is an American managed health care company, providing a range of traditional and consumer directed health care insurance products and related services, including medical, pharmaceutical, dental, behavioral health, group life, long-term care and disability plans, and medical management capabilities. Aetna provides employers and employees with choices between paying on a fixed monthly basis (premium) or paying at the time of care (copayment). In the past, Aetna provided only the traditional HMO products with low cost sharing that protected enrollees from the financial consequences of their utilization decisions, whereas newer designs require the enrollee to bear more risk (but with a lower premium than otherwise would be necessary to cover costs). Aetna’s benefit buy-down has been modest (3.5 percentage points in 2006) but has laid the basis for more substantial design changes if and when purchasers become willing to face the resulting repercussion from beneficiaries.
Aetna is one of the largest managed care companies that provide all kinds of products and services, for individuals and families, employers and organizations, healthcare professionals, et cetera. Another recent change in the way Aetna operates is the open enrollment option. Most employers let you sign up with a new health plan, cancel your current one or make changes to your plan once a year. This time is called “open enrollment.” It is usually in the fall. However, you may be allowed to change or cancel your coverage at other times of the year. Since 2009, Aetna has allowed a considerable amount of risk to be shifted from itself onto purchasers, by facilitating a transfer from insured products to self-insured health benefits. Although the administrative-services-only (ASO) fees that Aetna receives for managing these self-insured accounts are much lower than the revenues obtained on insured accounts; they hold almost no risk for medical cost inflation. A finely grained matrix for measuring and pricing experience-rated insured accounts provides the firm another mechanism for shifting predictable, demographic risk back to those purchasers who do not want full self-insurance.
U.S. Healthcare was a one-product HMO firm, and Aetna U.S. Healthcare made the fundamental mistake of falling in love with that one product. In the new regime of the recent years, Aetna is not in love with any product and is focused on offering “solutions,” not any particular product, to its customers. The HMO is viewed as suffering from interminable bad publicity, litigation, provider resistance to capitation, consumer resistance to gatekeeping and journalistic appetites for something to blame for the ills of U.S. health care. The Medicare HMO product is viewed with special incredulity, and Aetna is devoting most of its Medicare-related energies to the demonstration projects on PPO options and the discussions of “consumer-driven” possibilities. Aetna sees the backlash against managed care fading with the economic recession and reigniting of cost inflation but never again will allow itself to be portrayed as an entity that stands between the consumer and the services the consumer wishes to use.
Aetna has addressed its claims costs and provider relationships through a good-cop-bad-cop combination of flexibility and discipline. It has abandoned the all-products clause, and allowed primary care physicians to elect fee-for-service over capitation payment. It has reduced the extent of capitation for hospital services and narrowed the range of capitated services for medical groups. It has taken a tough line on provider rates in some markets, however, especially with consolidated hospital chains. It has reduced the annualized rate of growth in medical expenses from 17 percent during the last three quarters of 2009 (compared with the industry average of 11 percent), to 8 percent in 2010. Aetna’s commercial HMO medical cost ratio declined from 90.8 percent in the second quarter of 2009 to 81.6 percent by the end of 2010 and then to an industry wide low of 78.0 percent in the fourth quarter of 2011.
The turnaround at Aetna illustrates the increasing industry wide emphasis on underwriting, pricing discipline, exit from unprofitable markets and customer segments, sharing of risk with employers through self-insurance, and sharing of risk with employees through coinsurance. While the future is always uncertain and new disasters could attack, it appears that Aetna has stanched the financial flow away and is self-assured for new growth.
Reference List:
W.A. Zelman, “The Rationale behind the Clinton Health Reform Plan,” Health Affairs (Spring I 1994): 9–29.
J.C. Robinson and L.P. Casalino, “Reevaluation of Capitation Contracting in New York and California,” Health Affairs, 17 May 2001, content.healthaffairs.org/cgi/content/abstract/hlthaff.w1.11 (16 December 2003).
For an overview of Aetna and the entire sector, with historical data, see J.R. Raskin, G. Nersessian, and K. Bullymont, 2003 Managed Care Guidebook (New York: Lehman Brothers’ Global Equity Research, 22 January 2003).
