Shoe Drops For Aetna As Government Decides, No Tricare For You

Last Updated May 6, 2010 9:06 PM EDT

Last year, the Defense Department awarded several regional contracts for the administration of the Tricare health-insurance program, which covers military members, dependents and retirees. Losing bidders protested two of the awards, both of which were overturned, which just goes to show how much more attractive such government business has become in the wake of the Affordable Care Act.

In one instance, Aetna (AET) won the initial contract, but lost it again after Health Net (HNT), the incumbent, protested. Aetna's award was overturned on fairly serious grounds. The Government Accountability Office found that the company hired a former government contract worker who provided inside information that helped Aetna write the winning bid. The GAO also found the government's cost estimates unrealistic, since it assumed Aetna could hire all of Health Net's workers at reduced salaries.

Last Wednesday the government announced that Aetna was disqualified from the contract competition and that HealthNet would be awarded the contract. Aetna has the right to appeal the decision and most likely will as it just lost $2.8 billion in revenue for the year and the potential for $17 billion over the five year life of the contract.

In the second case Humana (HUM), the incumbent, protested an award to UnitedHealthGroup (UNH). That will result in a new competition; in the meantime, Humana will continue overseeing the contract. The government hopes to have a new contract awarded by March 2011. As a result, Humana gained over eighteen months of work by protesting its loss. Unlike the Aetna case, both original competitors may participate in the new competition.

Tricare isn't supposed to change under the Affordable Care Act, so expect these sorts of scrums to become more common. The law's main provisions kick in in 2014, and uncertainties associated with big changes to the health-insurance system will make the relative predictability of working with the government more attractive.

This case also illustrates some of the darker side of contracting. Recently retired or other government workers can find lucrative work helping companies to prepare bids or manage contracts. Existing rules are supposed to limit their participation in cases where they might have inside information, but in this case the rules got overlooked, and Aetna lost a lot of money.

The moral of the story: Follow the rules when bidding on federal contracts, or you'll pay the price.

  • Matthew Potter

    Matthew Potter is a resident of Huntsville, Ala., where he works supporting U.S. Army aviation programs. After serving in the U.S. Navy, he began work as a defense contractor in Washington D.C. specializing in program management and budget development and execution. In the last 15 years Matthew has worked for several companies, large and small, involved in all aspects of government contracting and procurement. He holds two degrees in history as well as studying at the Defense Acquisition University. He has written for Seeking Alpha and at his own website,