Aetna Offers a Playbook for Evolution in the Golden Age of Government Programs

Ralph Giacobbe of Credit Suisse got another terrific “get” hosting Aetna’s management team for an insightful discussion last week.  I found the takeaways offer a playbook for how to adapt and evolve in the new Golden Age of government-sponsored health programs:

Watch Your Wallet:  Aetna assumed an accelerating cost trend in 2014 of 6-7%.  The company noted that underlying cost trends remain generally muted and that overall drug spend is within expected ranges. The company’s informatics and medical economics function tracks a wide range of data indicators for early warning of cost acceleration, and had nothing unusual to report.

Put the Pedal Down on the Government Platform: Aetna acquired Coventry for the purpose of having a seasoned platform for government business, so integrating the company remains a top priority for Aetna in 2014. You may recall Aetna called Fran Soistman, a legendary founder of Coventry and a battle-hardened veteran of Medicare Advantage and Part D, out of retirement to run its government business unit.  He’s been making huge progress in leveraging the company he built within Aetna. For instance, Aetna ranked #1 in price in 6 of 7 ObamaCare exchange regions in Florida, largely because of Coventry’s footprint there. Aetna continues to expect $200M in synergies and $0.50 of accumulated accretion in 2014, and $400M in synergies and $0.90 of total accretion in 2015 from the Coventry acquisition.

Invest in Medicare Advantage Stars: Aetna invested heavily in Star ratings improvement the last two years, and now averages 4+ Stars.  As a result, the bonus payment and favorable rebates it gets allowed the company to maintain competitive premiums and benefit designs for 2015 in the face of a 3-3.5% revenue headwind. The company remains positive on its competitive position, and expects to grow membership next year.

ObamaCare Exchanges in 2014-2015: This year Aetna is participating in 17 states and has 570,000 paid public exchange members, with management expecting to have 450,000 exchange lives by year end due to churn. The company booked some reinsurance in 1Q and now believes it may get the data to begin to factor in risk adjustment. Risk corridor remains more difficult to estimate and will evolve as experience matures. Aetna’s exposure in the exchange market is limited to 5% of projected 2014 revenues and its guidance incorporates a modest drag on earnings. The company doesn’t expect to expand its footprint in the ObamaCare exchanges in 2015 until it has a clearer picture on costs and the competitive landscape.  Management suggested it would seek average high-single digit pricing increases for 2015 on the exchange — and there’s some comfort there as an early indicator that trends so far in the exchanges are not as crazy as the rate hikes of 15%-20% seen from other plans.

Aetna’s perspectives, when considered against the backdrop of United’s outlook for the next couple years, paints a picture of a rapidly-expanding government book of business that is gaining on its longtime commercial market dominance.  It’s a portrait of evolution in the Golden Age of publicly-sponsored health care.

Resources

Listen as John Gorman, Executive Chairman at Gorman Health Group and Josh Raskin, Managing Director at Barclays, discuss the recently released Stars data, and the seismic impact of the 8.5 billion quality demonstration. Access the podcast here >>

In this recorded webinar, John Gorman explores what “member centricity” means in today’s government health care industry, at a time when consumerism is defining our relationships with members more than ever, and with CMS elevating quality improvement to game-changing levels. Download the webinar >>