The return of Allen Wise to the chief executive slot at Coventry Health Care earlier this year (see prior post) already appears to be paying off.
Mostly, the company seems to be making progress toward getting pricing in line with costs, stabilizing margins, exiting certain businesses (like Medicare PFFS and Medicaid ASO), and zeroing in on others (like Medicaid risk, individual and Medicare CCP). Commercial medical cost ratio in the second quarter fell 100 basis points to 81.7% — and that’s important given that the company got whacked in 2008 by soaring MCRs.
The bad news is that the focus on margin improvement is expected to drive commercial risk membership down about 9% in 2009, said Wise on a conference call with Wall Street analysts to announce second-quarter 2009 financials. (Group risk is expected to fall 12%, with about half the decline coming from price increases on renewals and half from other types of attrition, such as layoffs, small business failures, etc.).
Wise said that in the past, customers were usually willing to absorb 500 basis points of price increase, assuming they were happy with a particular plan’s benefits and service. “They’ll change for 100 basis points in today’s economy,” he said, adding, “We paid a bigger price than would be ideal in membership.”
All of which makes you wonder what kind of member attrition Aetna will have now that it also appears to be firmly committed to margin improvement (see prior post). When it comes to balancing growth and profit margins, MCOs are really boxed in.
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