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PPACA and Earnings: Aetna, Humana, NFP

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References to the effects of the Patient Protection and Affordable Care Act of 2010 (PPACA) are continuing to pop up in health insurer and insurance distributor earnings announcements and earnings calls.

Mark Bertolini, chairman of Aetna Inc., Hartford (NYSE:AET), said during a call with analysts that he thinks health insurers that have underpriced coverage will have a hard time catching up any time soon.

Humana Inc., Louisville, Ky. (NYSE:HUM), said let the ratio of individual health product benefits to independent health product jump 2.7 percentage points, to 84.1%, in part because of concerns about the PPACA minimum medical loss ratio (MLR) provisions.

Doug Hammond, president of National Financial Partners Corp. (NFP), New York (NYSE:NFP), noted during an NFP call that his company already operates a busy private health insurance exchange, or insurance supermarket, in Massachusetts.

Brokers play a critical role in the Massachusetts health insurance market, in an exchange environment, and that “has opened up several potential opportunities to bring our expertise and technology to other exchanges around the country,” Hammond said.

When working with employer clients, “our role as trusted advisor is as important as ever,” Hammond said.


Aetna is reporting $458 million in net income for the second quarter on $8.8 billion in revenue, compared with $537 million in net income on $8.3 billion in revenue for the second quarter of 2011.

The company ended the quarter providing or administering major medical coverage for 18 million people, down 1.2% from the number it was covering a year earlier.

Enrollment in plans that include health savings accounts (HSAs) or health reimbursement arrangements (HRAs) increased 6.1%, to 2.6 million.

Overall commercial enrollment fell 2.2%, to 16 million.

Medicare Advantage plan enrollment rose to 437,000, from 393,000, and Medicare supplement plan enrollment rose to 183,000, from 12,000.

The total ratio of medical benefits costs to medical benefits revenue rose to 82.4%, from 79.7%.

WellPoint said when it released its second-quarter earnings that it sees medical cost trends edging higher and predicting that the increase for the full year would come in toward the high end of what the company had predicted.

At Aetna, “medical cost trends are developing consistent with our guidance,” Bertolini said during the company’s earnings call.

Bertolini said overall market pricing “remains rational and competitive.”

Commercial customers that are unhappy might have to stay put, because pricing is so close, and that may increase insurers’ commercial customer retention levels, Bertolini said.

Bertolini said later that, in part because of PPACA, prudent insurers now have no room to underprice to gain membership.

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“It’s very hard to get that back,” Bertolini said. “You have to price up to do that. It’s almost impossible now, what with rate review and 10% limits on some of those rate reviews, to get that through some of the insurance commissioners…. There are certain states, like California, where getting a rate increase through is a battle almost every quarter, and with a lot of publicity. So I think people will understand that and are being very careful about their pricing. And it would be prudent not to get aggressive on pricing, particularly going into 2014.

Aetna provided a “pricing umbrella” for the industry in 2010 and 2011, “because we were priced up,” Bertolini said.

Insurers that are still keeping prices unrealistically low and intending to push for big increases later could run into problems, Bertolini said.

“Get too far behind, you’re going to have a hard time catching up in 2014,” Bertolini said.

What competitors are “able to get in price increases under the regulatory framework will determine whether or not pricing firms up,” Bertolini said. 


Humana is reporting $356 million in net income for the latest quarter on $9.7 billion in revenue, compared with $460 million in net income on $9.3 billion in revenue for the second quarter of 2011.

The company ended the quarter providing or administering major medical coverage for 12 million people, up 8.5% from the total recorded a year earlier.

Enrollment in individual commercial plans increased 9.9%, to 444 million. Enrollment in insured commercial medical plans rose 0.9%, to 1.2 million, and enrollment in the self-insured group plans the company administers for employers fell 6.5%, to 1.2 million.

The overall ratio of medical benefits costs to benefits expenses rose to 83.5%, from 82.1%.

The 2.7 percentage point increase at the retail segment, which includes Medicare Advantage business as well as individual commercial business, in part because of the PPACA MLR provision, which requires health insurers to spend 80% of individual commercial revenue on health care and quality improvement efforts or else pay rebates.

Jim Murray, Humana’s chief operating officer, said during his company’s earnings call that the increase in the benefits ratio at the retail segment was due in part to a PPACA provision making wellness benefits and annual physical exams available to Medicare program enrollees.

Humana has been encouraging its Medicare plan enrollees to get wellness visits and exams, and the number of wellness visits per 1,000 members doubled, Murray said.

Similarly, the number of physicals per 1,000 members increased 22%, Murray said.

The exams have led to an unexpectedly high number of procedures and services as a result of the visits and exams, Murray said.

At commercial employer groups, inpatient hospital use is still dropping, but use of outpatient procedures is increasing, and that could lead to a gradual increase in the rate of cost growth, executives said.


NFP is reporting $4.9 million in net income for the latest quarter on $255 million in revenue, compared with $9.5 million in net income on $239 million in revenue for the second quarter of 2011.

NFP noted in the warnings accompanying its earnings that the PPACA MLR rules could hurt its health benefits fee and commission revenue.

But Hammond said employers’ need for advice about PPACA and other market changes presents opportunity as well as challenges, even in the small group health insurance market.