Aetna Posts Wider Losses, Citing High Costs
The New York Times
August 9, 2001
by Milt Freudenheim
"The nation's biggest health insurer, Aetna, said yesterday that its losses deepened in the second quarter as medical costs jumped 17 to 18 percent in its core managed care business."
Aetna wants to ".... sharply reduce Aetna-insured H.M.O. membership while raising the number of self-insured employers that it serves. Self-insured companies take the risk of paying for any illnesses of workers; they hire administrative services companies like Aetna to line up discounts from hospitals and doctors and handle the bills."
<http://www.nytimes.com/2001/08/09/business/09CARE.html>http://www.nytimes.com/2001/08/09/business/09CARE.html
Comment: So Aetna, the nation's largest health insurer, wants to exit the market of health care risk pooling. They are content with the role of paper shuffling, while passing their traditional role of risk assumption on to employers. This is an implicit admission that they have been unable to fulfill the promise of cost containment in health care. But breaking large risk pools up into smaller ones increases the exposure to financial risk, now being passed on to employers. We have already seen that the employers no longer want to accept risks, and they are now, in turn, passing risk on to their employees, in the form of flexible (i.e., reduced) benefits and cost-sharing options (i.e., higher out-of-pocket expenses). Innumerable studies have demonstrated that these measures are reducing access to care because of lack of affordability, and impaired access results in impaired medical outcomes. As Aetna and other insurers flee their responsibilities to pool risk, the health of the nation deteriorates.
The solution to the problem of pooling risk is simple. Place all risk into one pool in the form of equitably-funded universal health insurance, diluting the risk such that financial barriers to care are eliminated. The other problem, containing costs, has defied all attempts of the defining authorities of the marketplace to invoke controls. The solution to cost containment is also simple. Establish a global budget for health care. We have more than enough resources to provide quality care for everyone. The budget process will allow us to allocate those resources more equitably. Those that reject a budget for our health care system are denying the fundamental reality that all of us use budgets all of the time. Revenues, expenditures, and judicious use of debt service, whether explicit or implicit, are characteristic of our management of our businesses, our household budgets, and even our government. Why should our health care system be allowed to escape budgetary control?
Is there a future for Aetna in a publicly administered program of universal health insurance? Aetna now wants to push paper, albeit in a modernized, information technology world. Aetna and other "insurers" can be a vendors of information management services. They can be adequately compensated by negotiating fair rates with the public administrators. This is the role they seem to want, and it is the role that would serve the rest of us well. Let's quit bashing each other and join together in the cause of health care justice for all.
Uwe Reinhardt, Ph.D., James Madison Professor of Political Economy, Princeton University, commenting on today's quote from the New York Times article, "Aetna Posts Wider Losses, Citing High Costs":
"Aetna's problem is not really unique. Never mind profits. They are a tiny leftover after expenses. Medical expenses are rising at other companies at pretty much the same rate.
"The real explanation is that the American people prefer a health system whose costs rise in the high double digits. They fought for it at the job and in the political forum. Now they have it. Mazel tov!"
Alan Sager, Ph.D., Professor of Health Services and Co-Director, Health Reform Program, Boston University School of Public Health, responds to the comments of Uwe Reinhardt, Ph.D.:
Do you know anyone who fought for things that contributed to double-digit increases? Anyone who wants a health system with rapidly rising costs? I don't. I do know people who were worried by HMOs that made money when their patients got less care, and by HMOs that passed this incentive along to doctors and hospitals.
Aren't all payers' costs rising rapidly, HMO and others? If so, this would suggest that managed care's loosening of control is not the cause.
We should consider a few other possible causes of today's spending increases:
1) Hospitals and doctors demanding catch-up after years of slow payment increases, with hospitals able to enforce this demand, in many parts of the nation, through their increased market power--owing to mergers, closings, and the like.
2) Prescription drug spending doubling every five years or so.
3) Aging baby boomers getting more care.
4) Managed care, having squeezed out indemnity, is finally obliged to pay for care for more of the sicker people, many of whom had clung to their indemnity coverage as long as possible.
5) Managed care wrung out some one-time savings-- took a step back on the up-escalator of health costs, but that escalator has continued its rise.
Where's the evidence that actual HMO practices saved money in durably affordable ways? Where's the evidence that they have suddenly vanished? I still know many groups of doctors that face the same tight withholds and expenditure targets today that they did in past years. And I know many doctors and others who insist that any HMO savings were more than offset by new paperwork and friction costs inside HMOs and imposed on caregivers' practices.
Managed care advocates should not be allowed to blame rising costs on abandonment of some aspects of their pet techniques. Not, at least, without a reasonable assessment of all the reasons for the slow-down in cost increases in the mid-90s, and their acceleration today.
Kip Sullivan responds to Uwe Reinhardt:
Uwe,
Your statement that "the American people . . . fought for" this system is, at best, a gross exaggeration as applied to the work place, and so dreadfully wrong as applied to politics that your remark caused my toes to curl in my shoes.
I recognize that many economists, especially those less astute than you, espouse the notion that "the American people" shouldn't be whining about the current health care system because it was "the American people" who, by "choosing" to enroll in managed care organizations (MCOs), got us into this mess. But this view, so typical of economists, ignores that dirty word "power" and that unpleasant phrase "economic duress." Millions of Americans were given no choice by their employer -- they had to enroll in an MCO. Millions more were given a "choice" between an MCO and a FFS plan, but the MCO, benefiting from cherry-picking, rationing, and cost-shifting, could charge lower premiums, and because most of "the American people" are not wealthy, the 5-10% savings on premiums amounted to significant financial pressure to enroll in the MCO. Our political leaders didn't ask us whether we wanted to play consumer in a system rigged in favor of MCOs. We sure as hell didn't "fight for it."
Similarly, Medicaid recipients were never asked if they wanted to be placed at the tender mercies of HMOs. And America's elderly have never been asked whether they want to be forced into HMOs via the Breaux-Frist-Bush "premium support" voucher plan, but by God, they're going to get "premium support" if the right wing and the insurance industry has anything to say about it.
Polling data from the late 1980s to today indicate that when Americans are asked about managed care methods, they indicate disapproval of them. What little survey work has been done among seniors indicates they strongly oppose being pushed into MCOs, especially if the current bribe (called drug coverage) is taken away.
The error of your comments about what "we fought for" is even more obvious as applied to "the political forum." Your remark suggests you think that what Congress does or doesn't do is an accurate reflection of what "the American people fight for." Where to begin? Dear Uwe: In this money-drenched democracy of ours, you run a grave risk of looking very foolish if you make statements based on the assumption that Congressional action or inaction reflects the will of "the American people." Cf any newspaper. Cf anything that pops up on a Net search engine if you type in the words "campaign finance reform." Trust me, you made yourself look foolish.
What little evidence we have about what "the American people" would vote for if we ever had anything resembling a fair debate indicates Americans would vote for a single-payer system. We have some polls indicating that, but we all know polls can offer different results depending on the wording. But at least two "citizen jury" experiments, which are a lot more trustworthy, indicate single-payer would win big in a fair debate. In a debate between an advocate of MSAs, of managed care, and of a single-payer system here in Minnesota in 1996, the single-payer advocate won. I was the single-payer advocate. Michael Scandrett, the director of what was called the Minnesota HMO Council, spoke for HMOs. The debate took place before 14 Minnesotans selected by the Minneapolis Star Tribune and KTCA TV, the local public TV station. It was moderated by the League of Women Voters. After three-and-a-half hours of debate, single-payer won 8 votes, 3 voted for managed competition, MSAs got no votes, and three abstained.
Sen. Paul Wellstone won a similar debate (stacked in favor of managed competition) before a "citizens jury" sponsored by the Jefferson Foundation in 1993.
Americans are most definitely not "fighting for" the current system. Let conservative politicians and Chicago-school economists engage in the pretense that gridlock in Congress and the persistence of the current health care system is the "will of the American people." Let the rest of us who care about universal coverage state the truth: We suffer the current system and Congressional inaction because Big Money, not "the American people," "is fighting" to preserve its status.
Kip Sullivan
Naomi Shaiken, President of Connecticut Call to Action, responds to A. Sager and K. Sullivan on Uwe Reinhardt, with another two cents added on health care reform activism:
My two cents:
Read between the lines! Uwe has been a proponent of national health care for THIS country for years!
He is angry, disgusted, fed up--with all the pontificating from DC and all the pundits - all words and no action.
Go back, my dear friends, and read what he wrote in '90 -to the present and probably even before 1990!
He is NOT on the side of the insurance companies [none of us are!] He's on our side - writes with sarcasm- mainly to agitate and he is most successful at that, given Sager, Sullivan et al responses.
Aetna's demise in the health care insurance field could be a blessing in disguise, since our government runs health care better than any private insurance company! There is and always will be a need for the insurance industry - as the actuaries and as disbursement agents for the government.
We, in Connecticut, the Insurance State, have the most difficult task in selling any idea to reform the system. And, to even deepen that task, we've been rebuffed by our very own Medical Society! How's them apples!
We need to mobilize in the streets, as we did in the '60's to get civil rights and in the '70's to stop an immoral war, since medical care is a human and moral right.
Forget the providers, forget the pundits - look towards the advocates who are out there daily - breaking our hearts. Any takers???
You have my permission to send my two cents out to all.
Naomi E. Shaiken President CT Call To Action - Saving Our Health Care System