AETNA: Steep Premium Rise May Set Industry Pace
Aetna is planning steep premium increases that will likely be higher than last year's 10% average rise, "raising the specter" that other insurers could do the same, the Hartford Courant reports. The managed care giant said in April it was planning 11% to 13% rate increases for customers renewing for the remainder of the year, and then announced July 18 that, beginning with this year's fourth quarter, it would increase premiums to "reflect higher than expected costs of hospitalization, outpatient surgery and emergency room visits." Aetna hopes the premium rise will help turn around its low-profit health care operations, which will stand alone when Aetna sells its financial services business to ING Group later this year. But analysts are divided on how the move will impact the insurer's business. Though some analysts speculate that other insurers will keep pace with Aetna's premium jump, others describe the pricing strategy as "risky," warning that the insurer might price itself out of reach for many employers. Todd Richter, senior research analyst at Banc of America Securities, said, "Everybody in the industry is continuing to raise premiums higher, but unless you do it with surgical precision, your good customers go somewhere else and you're left with the bad customers." He added that Aetna "has been raising premiums aggressively for two years, and where has it gotten them?" On the other hand, Kenneth Abramowitz, health care analyst with Sanford C. Bernstein & Co., predicts that Aetna will raise rates 12%-14% next year because "everyone else who wants to be in the business is raising them 10%-15% percent. They'll have no trouble charging those premiums." Abramowitz argued that employers "tacitly agreed to higher rates by failing to support Aetna and other insurers strongly enough in their attempts to manage care and costs," and noted that "by complaining like children about medical management, [workers] have also been saying, 'give me more inflation, give me higher co-pays.' ... Everybody gets what they deserve."
Aetna spokeperson Joyce Oberdorf said that the company's premium strategy is "to price to maintain or enhance our (profit) margins." Richter advises, however, that raising rates "isn't a panacea for any insurer" and that Aetna should focus on redesigning the coverage in its health plans. One Connecticut insurance broker predicts that Aetna stands to lose nearly 25% of its market share in the tri-state region because of "price shock" and is advising clients currently covered by Aetna to "get out."
A Look at the CompetitionWhile Hewitt Associates, a leading benefits and management consulting firm, said its clients are already predicting premium increases averaging 14% nationally for next year, Ray Linstrum, health care and group benefits practice leader at William M. Mercer Inc. reported 8%-10% increases, with "some pockets of higher numbers around the country." A sample of premium increases expected over the year:
- Foundation Health Systems, California parent of Connecticut-based Physicians Health Services, plans to increase 2001 premiums at an average of 7.5%-8% nationwide, the same rate as this year.
- Anthem Blue Cross and Blue Shield of Connecticut plans to increase premiums by 7%-8% for renewals through the first half of next year.
- Oxford Health Plans is looking at 8%-9% increases for 2001, down from 10.2% for the first half of this year.
- CIGNA HealthCare reports 9% increases as of this year's first quarter (Levick, 7/30).