Health Insurers & the Affordable Care Act: Extinction or Reinvention?

Health Insurers & the Affordable Care Act: Extinction or Reinvention?


Now that the Supreme Court has upheld the constitutionality of the Patient Protection and Affordable Care Act (PPACA), health insurers are scrambling to reinvent themselves for a new era.  In an earlier post, I quoted Aetna CEO Mark Bertolini as saying he wants to create a business model that makes sense under the new rules and regulations.  In a recent speech Bertolini  explained, “We need to move the system from underwriting risk to managing populations.  We want to have a different relationship with the providers, physicians and hospitals we do business with.”

Starting with Aetna, this analysis will examine the ways that insurance companies are trying to reinvent themselves for a reformed health care delivery system that often wonders why we need health insurers at all.

Early this year, Aetna decided to evolve “’from an insurance carrier to a health solutions company.” ”The head of brand and consumer marketing at Aetna stated, “’More and more, the end consumer is who we need to focus on.’” Aetna has developed Care Pass Platform, an agnostic tool that all consumers can use to aggregate and organize their fitness, medical, insurance and nutrition data. Aetna is also partnering with Medicity to provide smartphone apps for providers and iTriage to provide apps for consumers.
Aetna has conducted 57 pilot programs to test ways to decrease per-capita cost and increase the quality of the health care they deliver; the company is participating in 10 accountable care organizations (ACO) and has plans for 17 more ACO experiments.  One successful diabetes pilot in Pennsylvania resulted in acute sick days dropping by 31% with the use of case managers. 

Aetna also spent $1.6 billion in 2011 to buy health care companies, including Medicity, Prodigy Health Group, Genworth Financial’s Medicare supplement business, and PayFlex Holdings.
Aetna’s partnership with Northern Virginia’s Inova Health System to create a health plan where both partners will share costs and profits is perhaps the company’s most innovative experiment.  The partnership will provide incentives to encourage physicians to not over utilize tests and procedures and will also measure and reward quality of care.  Companies will get a rebate if the cost of the care of their employees is lower than expected.

A different innovative approach to responding to health care reform is Highmark’s merger with West Penn Allegheny Health System (WPAHS).  When first announced in June 2011, the idea inspired Hoover’s health care industry team to create the following headline:  “Bizarre Pittsburgh proposal:  will Highmark – West Penn merger work?” ()  A year later in June 2012 Moody’s rating service cited dropping patient volumes and continued operating losses at WPAHS in reaching the conclusion that the $475 million infusion of Highmark funds will not be enough to save the struggling health care system; Moody’s still rates $737 million of WPAHS debt as junk bonds.

The Highmark WPAHS merger is complicated by Highmark’s unsuccessful attempt to merge with Independence Blue Cross and failed contract negotiations between Highmark and University of Pittsburg Medical Center (UPMC), the major health system in the Western Pennsylvania market that has its own insurance plan that competes with Highmark.  As if dueling advertising campaigns and lawsuits were not enough excitement, the plot thickened when Highmark fired its CEO Dr. Kenneth Melani, the architect of the merger, after he fought with his Highmark employee girl friend’s husband.  Assault charges were dropped against Melani after he successfully completed an anger management program. 

One wonders if new Highmark CEO William Winkenwereder, Jr., MD will continue to support the merger plans.

The Highmark WPAHS merger is an attempt to create “what health-care thought leader, Clayton Christensen, in The Innovator’s Prescription, describes as an integrated, fixed-fee provider system. As such, Highmark and West Penn Allegheny are undertaking a tremendous change agenda.” ()  Other observers are watching the merger with interest because such vertical mergers have not been extensively studied or investigated.  The Western Pennsylvania region clearly needs to try something new because the status quo is not working: the largest hospitals and health insurers are engaged in a legal battle; WPAHS, the second largest hospital system, is on the brink of failure; and health care costs in Pittsburgh are substantially higher than in similar markets, relative to the quality of care. 

Wellpoint, which covers about one third of the nearly 100 million Americans who receive their insurance from a Blue Cross plan has been investigated by Congress for canceling policies retroactively in order to achieve at least a $128 million profit. Wellpoint has also been criticized for having 39 executives who each make more $1 million a year and for spending $27 million on staff retreats at resorts in 2007 and 2008

Reform advocates point out that such overhead costs contribute to the $400 billion a year in administrative costs that would largely disappear under a single payer system.  Wellpoint’s response to health care reform has been to spend $100 million on technology upgrades and to buy Medicaid provider Amerigroup for $4.46 billion and CareMore for $800 million.  Angela Braly, Wellpoint’s CEO said, “First and foremost there are significant growth opportunities ahead in the Medicaid marketplace resulting from economics, demographics, budgetary issues, as well as healthcare reform. We expect Medicaid spending under managed care programs to increase by nearly $100 billion by the end of 2014.”

At least one critic has wondered about the wisdom of this purchase , based on two future possibilities: 1) if Romney becomes president and the GOP takes control of the Senate, then the Medicaid expansion in the PPACA might be overturned and 2) the Supreme Court ruling left the door open for GOP governors to refuse to participate in the Medicaid expansion.

Braly, of course, is the health insurance executive who stubbornly defended proposed 2010 premium increases in California that President Obama attacked during the debate over the passage of the PPACA. Anthem Blue Cross, a unit of WellPoint, attempted to increase premiums for individual insurance policies in California by an average of 25 percent, with some rates going up as much as 39 percent.

CIGNA has developed a new ad campaign “Go You” that focuses on consumers for the first time. The chief communications officer at CIGNA states, “’It is a shift, it’s an important shift.’”  In the past insurers addressed their advertising campaigns at wholesale business accounts, not individual consumers. To bolster this consumer strategy, CIGNA bought Kronos Optimal Health to obtain their health coaches, health education programs, and lifestyle management systems

CIGNA also spent $3.8 billion in cash to buy HealthSpring and its 340,000 Medicare Advantage participants in 11 states and its 800,000 member Medicare prescription division. The company is also expanding their Medicare Advantage position in Texas and Arkansas.

Humana, like Aetna and CIGNA, is concentrating on the individual health care consumer with television ads showing “a family reunion at a summer home, complete with giggling children, cooing grandparents, bonfires, and swimming at the lake.” 

In addition to the consumer oriented ad campaigns, Humana has a new program that rewards members for losing weight or quitting smoking with points that can be redeemed for hotel reservations, electronics and clothing.

Humana’s Patient Centered Medical Home Partnership with WellStar Health System has seen decreased inpatient and emergency room expenses by 12% and 17%, respectively, and a decrease in emergency room visits by15% 

On the mergers and acquisitions front, Humana has acquired Concentra, for $790 million in cash. Concentra provides occupational medicine, urgent care, physical therapy and wellness services at more than 300 medical centers in 42 states

The insurer has also completed the acquisition of Arcadian Management Services, a Medicare Advantage health maintenance organization

UnitedHealth Group was one of the earliest converts to evolving from a health insurance company to a health care data mining company.  As early as 2007 their subsidiary Ingenix bought The Lewin Group, a respected health policy think tank in Northern Virginia. A Lewin report in 2009 claimed to show that a public option would force 119 million Americans out of their private health plans and into the government sponsored plan. Although the Lewin report was shown to be faulty, the GOP used it to great advantage in excluding the public option from the final PPACA bill.
UnitedHealth Group has also been active in exploring private sector payment and delivery system pilots. Their Patient Centered Medical Home model provides primary care providers a prospective care management fee as well as a performance incentive payment.  Their ACO pilot with Tucson Medical Center includes a spending target based on three years experience by each physician group or hospital and shared savings and bonuses are given to those that meet their goals. United Healthcare is also experimenting with bundled payment programs with oncologists in Georgia, Missouri, Ohio, Tennessee, and Texas.
Whether these branding and advertising campaigns and payment and delivery system pilots will be successful is an open question.  An Edelman global survey about trust found insurers, banks, and financial service companies at the bottom of a ranking of 16 industries.  They found that corporate reputations were determined by high quality products, transparent and honest business practices, and how companies treat their employees.  They also discovered that when a company is distrusted, 57% of people will believe negative information when they hear it once or twice and only 15% of people will believe <a href=”(”>positive information. Of all the players in health care, insurers routinely rank last in terms of consumer trust.
“They are among the most disliked industries in the United States.  The nature of the business is that they really <a href=”(

“>are not that eager to O.K. every expense,” said Professor Regina Herzlinger of Harvard Business School.

Another expert, Fred Karutz of Silverlink Communications, thinks that health care insurance companies have a long way to go because they are new to the retail environment. “As people become consumers, they seek out value. In the group space, health plans could never hear the consumer scream, but <a href=”(

“>in the retail space everybody can hear the consumer scream.”

The PPACA and the health care reform movement offer tremendous retail opportunities for health insurance companies.  There may be as many 30 million Americans seeking insurance through the exchanges.  There will be about 15 million Baby Boomers who will eligible to sign up for their preferred plan, Medicare Advantage.  The Medicaid expansion could cover as many as 17 million citizens, despite the reservations of many governors.
Whether health insurance companies can overcome the mistrust that many consumers feel and whether they can truly add value to a reformed system remains to be seen.  They might want to listen to Dr. Elliott S. Fisher, the ACO guru at Dartmouth:

“Their future is going to depend on their ability to demonstrate value to patients and to employers. No one any longer questions the fact that health care is unaffordable and that <a href=”(”>the current way we are doing business isn’t working.”

Kent Bottles, MD, is past-Vice President and Chief Medical Officer of Iowa Health System (a $2 billionhealth care organization with 23 hospitals). He was responsible for the day-to-day operations of a large education and research organization in Michigan prior to his work with in Iowa with IHS. Kent posts frequently at his blog, Kent Bottles Private Views.

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52 Comments on "Health Insurers & the Affordable Care Act: Extinction or Reinvention?"

Feb 10, 2015

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Aetna’s decision to buy Coventry Health Care is interpreted as meaning that Mark T. Bertolini thinks President Obama will get re-elected and that the ACA will not be repealed.

Jul 31, 2012

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Barry Carol
Jul 28, 2012

Gary O –

I finally had a chance to read the two JAMA articles you linked to. The article on the formation of ACO’s, to me, reinforces the importance of the culture of the organization providing care and the critical need for physician buy-in. Since the health plans are neither beloved nor trusted by much of the public, there will probably be a lot of negative sentiment among patients if the insurers visibly take the lead in establishing ACO’s. I think hospitals would be in a better position to lead this effort given their management infrastructure, access to capital and ability to afford the investment in electronic record systems. If they get paid on a risk adjusted capitation basis instead of fee for service, it shouldn’t be that hard for management to move away from its historical mindset of filling beds. The challenge will be to figure out how to pay providers who are not employees and to reward them for helping to deliver high quality cost-effective care.

To the extent that hospitals experience declines in admissions and inpatient bed days and see reductions in imaging and lab services, they should be able to accommodate more patients within the same physical plant which implies substantial savings in future capital investment that would otherwise be needed for expansion.

As for culture, even successful organizations like Kaiser Permanente in CA, Geisinger in PA, Mayo in MN and Inter-Mountain in UT find it very difficult to fully replicate their care models outside of their home areas.

One approach I would like to see the U.S. copy from Taiwan is to give every patient a smart card that would keep track of his or her utilization of services including their cumulative cost and how much of that cost was paid by the insurance plan and how much was paid out-of-pocket by the member. Monthly statements and annual summaries could be provided that break down costs into logical groupings like hospital inpatient and outpatient care, physician services, prescription drugs and other non-hospital based services.

These annual summaries are routinely provided by credit card companies. There is no reason why health insurers couldn’t do the same thing. For the highest utilizers, if the information were also made available to the PCP in charge of coordinating care, they would be in a better position to identify where savings might be achieved and where NP’s and other case managers need to focus their efforts.

Jul 28, 2012

To your 3 points

1. About preventative care, (my slice of reality is quite different from yours):

Studies regarding preventative care support conflicting conclusions. We can all choose the study which support our cause.

We have a tremendous problem with obeisity in this country. Has preventative care reduce this concern? No. So should I, (a premium payer, and tax payer) pay for endless remedies require by treating endless obeisity related problems. Obiesity is a life style choice, Responsibility is an individuals choice!

As an employer, I share the cost of medical with our employees (50/50). The cost of family health care is now $9.00 per hour and my employees can not afford $4.50 per hour, hence they take the individual coverage and their families seek state assistance.

We need to remember that greater than 50% of our work force is not highly educated. 25% don’t graduate highschool, The people who particapte in these blogs are educated and are going to take make smart decisions regard their personal health with or with out free preventive care.

As an employer, I encourage all of our shop employees to get a bi-annual physical, (at no expense to the employee), In brief the management gets the physicals and the shop people don’t. The shop will only go it we specifically pay the to go to the doctor.

Hence, my slice of reality is quite different from yours. Your slice doesn’t need somebody else to pay for their preventative care and mine benefit from it. So who are you trying to help?

This program does more for the medical industry than any socio economic group.

2.About Pre-ex: (changing jobs with breast cancer)

Insurance laws vary from state to state and maybe your state does not have continuity of care provisions. In most states there is a continuity of care provision amongst commercial carriers. Which says” if you switch insurance companies, and can show no time gap in coverage that the new insurance provider must waive the pre-ex clause”. In some state this provision applies to group changes, and in other state this provision applies to individual participant on commercial plans. This continuity of care provision needs to be adopted nationwide to both commercial and individual policies.

Hence , the woman who decides upon being diagnose with breast cancer, that it is now time to get health insurance should have a pre-ex clause.

We agree that insurance needs to be affordable, we agree about pre-ex. We disagree on how to get there.

3. About this being a backward step for 98% of the country.

I disagree completely. By removing the insurance company from routine care we have basically returned to a hospitalization concept, coupled with a striped definition of major med. The new definition should exclude all routine service with the exception of condition such as multiple sclerosis, cerebral palsy, etc.

I have 15 years experience as an insurance broker working with 150 Small Business who are “Blue Collar Employers”. For the past 15 years I have been a business owner who employees blue collar workers.

I believe that our economy is a trickle up economy, not trickle down and therefore I believe that if we want a healthy economy that we should start looking at what is happening or not happening on the lower level.

Thank for you comments!

Pat S
Jul 28, 2012

Let me add two things.

First, the problems you allude to for small business are all too true. There is a great deal written about the impact of modern mega-businesses on the prosperity and quality of life of their employees, but very little about the impact on the ability of small businesses to function. In addition to driving many businesses broke by direct competition, they also severely impact the ability of small businesses that provide services and supplies to them to continue to succeed by ruthlessly driving down profits by forcing “take it or leave it” contracts on small companies that they cannot live with. I personally know of several businesses that were driven broke by contracts with large corporate customers that were impossible to live with.

Also, the program you describe for providing more routine care for your employees is great. It amounts to a form of self-insurance, and would certainly be allowed under the ACA as a way of dealing with insurance requirements, although the law may require some paperwork to make the program official. As to the willingness of people to get “routine physicals,” the difference in response based on education and economic level is well described, but is again different from what I am talking about. What I am addressing is not routine physicals, but obtaining care for more mild stages of illness, obtaining vaccinations and care for children and pregnancies, and monitoring care of existing illnesses. Many employers, including many small ones, find it worthwhile to push hard on these services — providing flu shots at the workplace, signing up for nursing services to monitor people with diabetes and high blood pressure, pushing people to take time to get sore throats and respiratory illnesses checked, and so on, because they find that it pays them back in savings from avoiding sick time and disability for workers as well as having lower health insurance premiums.

Pat S
Jul 28, 2012

I am not talking about “preventative care” in the sense of obesity, smoking, etc. I am talking about immunizations, timely treatment of infections, treatment of high blood pressure, management of diabetes, and so on.

While you are correct that efforts to deal with obesity have not worked well, and that smoking was dealt with primarily through political, not medical, approaches, you are not correct about the impact of management of known illnesses by inexpensive outpatient means instead of by hospitalization and ICU treatment when they become crises. A two dollar dose of generic antibiotics can cure an early pneumonia and save hundreds of thousands of dollars in care for respiratory failure if the patient chooses to stay away from the doctor to avoid out of pocket expenses. Childhood immunizations and flu shots can save billions of dollars in medical expenses for management of serious problems that could have been avoided completely.

Personal experience as a worker and employer is actually much less meaningful than serious scientific data, since we often make the mistake of judging that certain experiences are typical. In fact, the people who know the most about this are the national health care programs in other countries and the HMO’s in ours. They have data that shows them that increasing personal expenses for basic care actually costs money in the long run. That is why they are always very careful to make sure that there are no barriers to access for routine care, including pre-natal care, well child care, immunizations, routine checks for sore throats, sore ears, and respiratory infections. It saves money in the long run. In our country many private insurers already provide the same sort of coverage. My insurer sends me reminders to get a flu shot, and has a nurse call me to make sure I am managing my medications correctly.

National health programs, HMO’s, and insurers are motivated to do these things because they can save billions of dollars by doing them. Driving people away from more routine care by increasing out of pocket costs is penny wise and pound foolish.

As far as “continuity of care” clauses in insurance, they are common in enlightened states like Maryland and Connecticut and others, but much less common in the very same states that are the opponents of the ACA, where insurance laws are much less progressive. That of course is what advocates of selling health insurance across state lines are aiming at — allowing programs with lower actuarial value to compete in states that now have regulations that protect consumers.