While this forecast doesn't consider the likely effects of healthcare reform, Zubretsky said, Aetna has diversified in ways that position it well for the future. For example, it has entered the Medicare managed care field-which Zubretsky views as a growth area even though Medicare Advantage is being targeted for major cuts. Aetna is also bullish about its Medicaid plans, which are already growing because of the recession and would expand further as a result of the reform legislation.
Even with the public option deep-sixed in Congressional negotiations, there are a few other issues that concern insurers, such as a proposed floor on the percentage of premiums they have to spend on patient care, a federal tax on insurance companies, and the 40 percent excise tax on high-end "Cadillac plans." But Zubretsky said that, because of how the regulations are written, "we'll be able to influence the outcome to make sure that the way this is implemented is very manageable, and hopefully shareholder- and investor-friendly."
One possible reason for Aetna's optimism might be the way that the pre-existing condition exclusion is phased in under the current reform measures. In the individual and small-business markets-the main areas of concern for insurers-the House bill would not start requiring health plans to take all applicants, limit experience rating, and bar exclusion of sick people until 2014; in the Senate bill, these provisions would not fully take effect for insured groups and the proposed insurance exchanges until 2013. But, starting this year, the Senate bill would shorten the period for which plans can look back for pre-existing conditions from six months to 30 days and shorten the period for which plans can exclude coverage of certain benefits from 12 months to three months.
Reform aside, Aetna told the analysts it has a very solid balance sheet. One indication of that, Zubretsky noted, is that it has a "statutory surplus" of $6.3 billion, $5.2 billion more than is legally required. That fits nicely with its third-quarter profits of $301 million-a 65 percent increase over the prior-year period-and the revelation that it is spending only 79 cents of the premium dollar on health care. Investors should kvell; workers and employers, not so much.
What all of this suggests is that Aetna and other leading carriers will continue to do quite nicely, whatever happens with reform. As a slide from Zubretsky's presentation shows, Aetna's main challenges right now include continuing attrition in insured group membership, lower Medicare reimbursement, and medical cost pressures. In the "opportunities" column are medical quality and cost management, higher excess capital (read: $20 billion in investments) and-you guessed it-"pricing actions." Get ready for higher insurance premiums, boys and girls!