Corporate Research Group’s Weblog

We all knew that the advent of health insurance exchanges through reform — along with the need for health plans to cut costs to maintain profit margins – would result in slashed individual and small group commissions to insurance brokers.  Case in point: Aetna.  An analysis by Carl McDonald of Citi suggests that Aetna has cut 2011 individual premiums by about 50% — a number the company wasn’t able to verify by presstime.  The new individual commissions will apply nationwide (as opposed varying state by state as in the past) and will be based on volume as shown in the chart below from the Aetna individual commission schedule sheet:

Source: Aetna

As for small group, here’s a link to an interactive commission schedule from Aetna, allowing comparison of broker commissions by state for 2011 versus 2010.  In some states, Aetna shifted to a commission structure based on number of employees (i.e., a per employee per month structure) from one based on a percentage of premiums.  In other states, Aetna maintained the percentage of premium structure, but simply reduced the percentages.  The company explains in an email:

The impact on brokers will vary from state to state. In states where we are moving to a PEPM model, the impact will depend on the amount of membership that a broker has with Aetna. In states where compensation will remain a percent of premium, we made a number of adjustments to remain competitive. In some states we have simply reduced the percent of premium brokers receive in order to offset medical inflation – for example in California the compensation rate decreased from 7% to 6.7% (4.3% decrease). In other states,  we have kept the percent of premium the same for new business but lowered the compensation level for renewal business, again to offset medical inflation – NJ new business remained the same and renewal compensation was lowered from 4.5% to 4% (11% decrease).

(Editor’s Note: Post modified to add details of Aetna individual broker commissions).

Yet more rumors are flying about the possible break-up of trade group America’s Health Insurance Plans, possible ouster of AHIP chief executive Karen Ignagni, and/or possible formation of a splinter group by five top health plans to supplement AHIP’s lobbying activity.

David Whelan of Forbes writes: “There’s been a great deal of discontent on the part of the large plans, who had the most to lose from health reform. They believe AHIP waited too long to get political during the build-up to the legislation.”  Click here for additional coverage by the Kaiser Family Foundation.

From the New York Times profile of Ron Williams, who stepped down as chief executive of Aetna in November:

Mr. Williams rarely speaks of his childhood, or any topic of a personal nature. He grew up in a poor neighborhood in Chicago and is one of the few African-Americans to run a large corporation.

Growing up, he says he watched his friends and neighbors struggle to get medical care. When his mother was told she had breast cancer in 1972, Mr. Williams said he witnessed how hard it was for someone, even with insurance, to try to find appropriate treatment. He is unsure whether she got the best care she could have.

As a result, Mr. Williams says he is not blind to the need to overhaul the nation’s health care system to make it better. “There is no question in my mind that the health care system has to work,” he said.

During the healthcare reform debate last year, President Obama cited a New Yorker article by Atul Gawande, M.D., which suggested that a pervasive “culture of money” drove up Medicare costs in McAllen, TX, compared to nearby El Paso, TX.  I wonder if the President plans on reading this follow-up study in the December 2010 Health Affairs, which compares non-Medicare members in the same two towns.

Although spending per Medicare member per year was 86 percent higher in McAllen than in El Paso, total spending per member per year in McAllen was 7 percent lower than in El Paso for the population insured by Blue Cross and Blue Shield of Texas….Our study is consistent with Gawande’s finding of a “culture of money”—increasing the use of profitable Medicare services when there is diagnostic and procedural discretion and clinical latitude—but that such a culture may also be constrained by private insurance plans with their more stringent reviews of the use of medical services.  (emphasis added)

The Health Affairs article cites several care and cost management efforts used by BCBS-TX:

Members with high-severity and high-expense conditions are contacted by a Blue Care adviser, who encourages members to participate in management programs. Chronic conditions and complex cases are managed through a variety of condition-specific management programs based on evidence-based interventions.

Blue Cross and Blue Shield of Texas has also developed several mechanisms to encourage cost-effective care by providers. All elective inpatient admissions must be preauthorized, and counseling before admission and after discharge is used to establish postoperative goals and identify discharge planning needs. Furthermore, triggers such as a catastrophic event or claims higher than $50,000 per month activate a case management process that entails reviews of potential alternative treatment plans and follow-up after discharge from acute care.

The study notes that there are fewer such controls in Medicare:

Medicare still enjoys some advantages over private insurance in its ability to set prices for payment to providers. Private insurance companies by contrast must negotiate prices. Yet for managing the use of medical services, private insurers have the advantage of a “threat point” at which they can ultimately refuse to contract for services to specific physicians or hospitals—something that Medicare cannot do.

The study wasn’t able to compare clinical outcomes, which is a key limitation.  The authors also warn against assuming the results can be generalized across the nation.  Still, it’s good news for a health insurance industry struggling to prove its relevance in a changing marketplace.

Third-quarter 2010 enrollment data from leading health plans reinforced familiar trends, according to the latest issue of Health Plan Market Trends. Fully funded enrollment is down. Self-insured is up. Medicaid and HSA-compatible high-deductible health plans are enjoying gains. Third-quarter 2010 enrollment data from leading health plans reinforced familiar trends. Fully funded enrollment is down. Self-insured is up. Medicaid and HSA-compatible high-deductible health plans are enjoying gains.

WellPoint Inc. (Indianapolis) announced yesterday the departure of two key executives: chief strategy and external affairs officer Bradley Fluegel and chief actuary Cynthia Miller.  Both spoke for the company during the California rate hike fiasco that helped push healthcare reform over the finish line.  Miller testified before Congress in defense of the proposed hikes, while Fluegel tried to justify the hikes in comments to the media.  Other key WellPoint executives to leave this year included Leslie Margolin, president of the company’s Blue Cross of California unit; and Dijuana Lewis, president and chief executive of the company’s comprehensive health solutions business unit.  WellPoint also announced that it was reaffirming 2010 profit projections.  Shares in the company were down nearly 2% in midday trading today.

In other management changes, WellPoint general counsel John Cannon will assume responsibility for government affairs and communications; chief financial officer Wayne DeVeydt will assumed responsibility for the actuarial group; and consumer business unit president Brian Sassi will assume responsibility for marketing, strategy and international.

William Marino, 67, is retiring as chairman and chief executive of Horizon Blue Cross Blue Shield of New Jersey (Newark) March 1, 2011 after an amazing 17-year run.  A list of accomplishments appears below.  About the only thing he failed at was his attempt to convert the company to for-profit status through an initial public offering of common stock.  Chief operating officer Robert Marino (no relation to Bill) will take over as president and CEO.  Horizon board member Emmanuel Kampouris — former chairman and CEO of American Standard — will become chairman.

Horizon BCBS-NJ during Marino’s tenure as CEO:

• Total membership rose to 3.6 million, from 1.7 million members
• Revenues rose to more than $8 billion, from $1.3 billion
• NJ insured market share increased to 46.7%
• Launched Medicaid plan, now NJ’s largest with 470,000 members
• Dental membership rose to more than 1.1 million, from 350,000 in 1994
• A- rating from S&P, with strong capital reserves

Hard to argue with results like that.

UnitedHealth Group (Minnetonka, MN) released a lot of data during its 2010 investor conference yesterday, but the most interesting is the company’s projection that earnings per share will grow 13% to 16% annually over the next five years — despite a projected decline of 8% in 2011.  In other words, earnings would have to rise 20%+ annually between 2012 and 2015 for United to hit the mid-range of its projection.  [See correction below].  From 2005 through 2010, United is tracking at about 11% average annual EPS growth.  And that’s before healthcare reform, minimum medical cost ratio requirements and Medicare reimbursement cuts.  Scott Fidel of Deutsche Bank is projecting EPS growth for United of about 8% to 12% annually beyond 2011.  You make the call.

Correction/Clarification (Dec. 1, 2010, 2:09 EST): I just heard back from UnitedHealth’s investor relations department, which clarified that the 13% to 16% annual EPS growth projection over five years uses 2011 as a base year.  United expects to get there with a 6% to 9% annual increase in revenues, 20 to 40 basis points of annual improvement in administrative cost ratio, and a 5% addition to EPS from capital deployment.  The projection is still higher than what analysts like Fidel expect, but there’s no need for United to boost EPS by 20% annually from 2012 to 2015 to hit the average (given the 2011 decline) as I had incorrectly suggested above.