The Big Boys: Aetna’s dubious rationale for raising rates

This is the second of an occasional series of posts called “The Big Boys,” which will examine how the media are reporting on the healthcare system’s biggest players, and how those players’ business practices affect consumers–before and after they become patients. At the end of each post we suggest a story idea for further reporting.

Not long ago, a press release from a Westchester ear, nose, and throat specialty practice showed up. The news it wanted to share was that ENT and Allergy Associates (ENTA)–the largest group of board certified ear, nose, and throat surgeons and allergists in New York, New Jersey, and Connecticut and the only one to give patients access to sub-specialists in laryngology and sleep care–had reached an agreement with Aetna, the country’s third largest health insurer, over the prices Aetna would pay for the docs’ services. This was hardly momentous news, but it offered one more link in a chain of dots about an insurance company that, if connected, added up to a much larger story about healthcare costs and insurance premiums.

In recent years, insurers have become pretty close-mouthed about their business practices, erecting barriers for snoopy reporters. So any shred of info should be treated as gold for reporters on the lookout. The press release revealed that one of the things that had led to the agreement was that the docs had demonstrated an “an investment in technology infrastructure and quality initiatives including the fact that Aetna members will have enhanced access to ENTA’s superior diagnostic equipment,” such as endoscopy units with digital chip processors. The quality initiatives and the bit about infrastructure sounded okay, but more fancy technology? Hmmm.

An Aetna vice president said the “agreement is good news for our members,” since they would have access to “quality” in-network services. But, taking the long view, was the deal really good for Aetna policyholders? Was Aetna encouraging the use of this technology by giving the doctors high reimbursements for using it? Was this encouraging the use of more whizbang, expensive technology that many experts say is partly responsible for the US spending nearly 18 percent of GDP on healthcare? How much more would Aetna have to tack on to premiums to cover the cost of using this stuff?

A few days before the press release arrived, Bloomberg.com provided another link in the chain. It covered the comments of Aetna’s CEO, Mark Bertolini, at a conference for industry analysts in New York, at which he said that health insurance premiums could double for some small businesses and individual policyholders–you know, the ones with little or no bargaining clout.

Bertolini said that in some insurance markets, premiums, in fact, would go up 100 percent. He blamed the Affordable Care Act. He grumbled about the new taxes that insurers will have to pay due to Obamacare, and the fact they can no longer weed out sick people for coverage–the ones likely to generate high claims and shrink the bottom line.

In a piece published in early January examining rate increases, New York Times reporter Reed Abelson noted that Aetna and other carriers had asked for increases in the 20 percent range in California for individual and small group policies. The insurers said they had no choice but to raise their premiums if their underlying medical costs are up.

All of this leads to a big question: Why? Why are medical insurance premiums going up if people are going to the doctor less often and using fewer services? Overall healthcare cost increases have slowed for the second consecutive year, according to a government report, largely because people have put off medical care during the recession.

So what is the justification for higher insurance rates after a two-year slowdown in medical inflation? “I can’t imagine anything going on in the small group market that would change the average premium that much,” Gary Claxton, a vice president at the Kaiser Family Foundation, told Bloomberg.

Meanwhile, Aetna appears to be doing very well, thank you.

About the same time Abelson’s story hit the street reporting that insurers were moaning and groaning about increased medical costs, an analyst blog for Zacks Equity Research, a firm that makes stock recommendations, offered a different take. It told investors that Aetna was projecting the same increase in medical costs for the coming year for its commercial business as it had last year, 6.5 percent. (In insurance-speak, that’s called medical cost trend.) Even though it reported that Aetna does believe it will be challenged by higher medical costs and “weak commercial membership growth,” Zacks told blog readers that the carrier may do better and “surprise investors.” Among several reasons, its $7 billion investment in Coventry Health Care, which allows it to expand its Medicare Advantage and Medicaid business, would help the insurer weather the challenges.

In reporting its third quarter earnings results in October, Aetna’s chief financial officer reported that the company was “committed to deploy more than $7 billion of capital” for the proposed acquisition of Coventry Health Care and had delivered “solid financial performance” in 2012, including a six percent increase in revenues and strong cash flow generation. That hardly sounded like a company in bad shape.

Our suggestion: When insurers offer the superficial rationale that higher medical costs require higher premiums, and blame Obamacare, resist the temptation to be a stenographer. Get on the Internet and start looking at the company’s public statements, reports of investor calls, and meetings with stock analysts. Comb company news releases. Get an expert to help you understand rate filings if your state requires them. Connect the dots. This little post about Aetna shows what you can find.

The Big Boys: Aetna’s dubious rationale
for raising rates

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