Can Aetna Buck the Health-Insurance Headwinds?
The health-insurance business is brutal these days, as I've noted on several occasions. (See the end of this post for links to my recent items on the underlying business of the largest U.S. health plans.) Weirdly, though, one insurer seems to be bucking several of the dismal underlying trends that are slowly but surely pulling the sector into the abyss. That company is Aetna.
True, Aetna's third-quarter profits fell 44 percent, and the company was also hit by $232 million in investment losses primarily linked to debt instruments in Lehman Brothers and Washington Mutual. Its shares are down more than 55 percent since the beginning of the year, roughly the same as other major insurers, and its exposure to the financial crisis threatens to hold down profits well into next year. There's little doubt that the company faces the same tough times as the rest of the industry.
What's interesting is that Aetna, virtually alone among the major health-insurance providers, is actually expanding its lucrative fully-insured health-plan business instead of sliding headfirst into a world where it does little but manage self-funded plans for major employers. As of September 30, Aetna's fully-insured commercial business boasted 5.5 million members -- a 3.9 percent increase over a year earlier, at a time when fellow giants WellPoint and UnitedHealth Group are looking at declines of the same magnitude.
Also virtually alone among major insurers, Aetna announced several big new customers during the quarter, as CEO Ronald Williams announced during the company's conference call last week:
In addition to the previously announced Bank of America and Home Depot large customer wins, during the third quarter we were awarded the business of Progressive Insurance and expanded our existing relationships with Citigroup. We are also having a very good January 1 selling season in the lower end of the national accounts, customer market segment, and the upper end of the middle-market customer segment, underscoring that our value proposition continues to resonate in the marketplace.Now, these trends could well be short-lived. Aetna's medical costs continue to rise as quickly as anyone else's -- although they're generally lower than those of its rivals to begin with -- and its premium hikes may well wreak the same havoc on its commercial business that other health plans have faced. At the same time, however, Aetna has continued to introduce new innovations aimed at helping its members get a better sense of their health and the costs associated with medical care, including partnerships with Microsoft's online health-record service HealthVault and the Health 2.0 startup Healthline.
Aetna's new ventures, of course, are still small-scale and insofar as its business is concerned, are still marginal at best. And the company may well be hyping them all out of proportion to their actual importance. Still, such changes -- together with the fact that Aetna has managed to avoid some of its industry's worst excesses, such as the retroactive cancellation of policies when members start to incur big medical costs -- at least raise the possibility that at least one of the nation's largest health-insurance outfits can see beyond its traditional role as a claims-paying "transaction processor" (and medical-underwriting gatekeeper) to a world where health plans actually put the health of their members front and center in their businesses.
I'm not holding my breath. But Aetna's continued ability to court new customers and to experiment with new initiatives, however marginal, are about all that passes for hopeful signs in this industry these days.
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