The generally favorable first-quarter results posted by WellPoint and UnitedHealth earlier this month (see prior post) had us thinking the managed care industry had turned the corner. All right, we still think that’s true in general. But Aetna’s first quarter results sure didn’t help the cause.
The big problem was higher-than-expected medical costs in the company’s commercial line. Whenever costs at a health plan come in higher-than-expected, Wall Street freaks out. Not surprisingly, shares in Aetna are down 9% this morning.
We’ll do our usual detailed take on Aetna’s results in the next issue of Managed Healthcare Market Report. Right now, I’d just like to note some of the reasons Aetna gave for the unexpected spike in medical costs.
1. People who are afraid of losing their jobs (and health insurance) are rushing to get treatments and medical services.
2. People who have already lost their jobs, but have a severance package with benefits, are rushing to get treatments and medical services before the severance package ends.
3. People informed their company will be reducing benefits (e.g., Aetna is seeing benefit buydowns in the 150 to 200 basis point range) are rushing to get treatments and medical services.
4. People who sign up for Cobra after losing their jobs typically have higher medical costs than non-Cobra members.
When asked if the company should have seen all this coming, Aetna chief executive Ron Williams responded on a conference call with Wall Street analysts that 2009 is unlike any other year the company has experienced. “Some things we obviously didn’t anticipate,” he said.
Aetna had originally expected 2009 medical costs to rise 7.5% to 8.5%. The company is now saying there’s “upward pressure” on that range. Meanwhile, the company is maintaining its profit forecasts for the year, with officials noting that it has already adjusted pricing to reflect cost pressures.
Wall Street will be watching…and worrying.
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