Health Care Reform: The Journey Continues

Exchanges (14:43)


We’re going to transition to exchanges, and I’m going to comment briefly both on the public exchanges and then the private exchanges. So overall Aetna is very supportive of both public and private exchanges. What we have done and we spent a considerable amount of time doing a lot of research, analytics, vetting a lot of our projections with external sources, such as Milliman and Deloitte, the Society of Actuaries, to really try and understand, you know, the new dynamics because the world is changing tremendously for both on and off the exchange.

So again, how you rate business, how you structure it, how you report on it, and overall pricing is materially different than what we have ever experienced before.

So as part of our views on this, again, we stepped back and really looked at a number of different areas. We’ve looked at all of our data, you know, for the individual exchanges. You know we also looked at our small group and large group experience because now the individual business will perform more akin to both of those businesses, and again, we have great data resources at our disposal to really look and analyze that information.

So again, we’ll talk a little bit more about the specific impact areas, but when you look at the rating changes, the elimination of industry, the reduction to a three-to-one slope, the guaranteed issue impacts, as well as the changes in the benefit levels; so specifically our standard individual products had an actuarial value in the 47 or 48 percent range. So to get just to a 60 percent bronze plan had a material increase in cost in the 18 to 21 percent range just by itself for better benefits.

And then you add the guaranteed issue impact, can range anywhere from 21 to 52 percent as published by several sources, including the Society of Actuaries. It’s very consistent with the analysis that we have been completing.

And when we look at certain markets where there already is guaranteed issue, like New York and New Jersey, if you look at the end rate and look at how that compares to some of the other markets where this wasn’t but you made the adjustments, the rates, they hang together. That’s not saying the rates don’t look high in some circumstances or materially different than previously, but from a pure mathematical standpoint there is a consistency to where we are seeing them come out.

So when we looked at the different types of exchanges on the public side, you know, there is the individual exchange and then the SHOP exchange. The question that we regularly get asked is, do you really think the exchanges are going to be ready? And the answer that we give is, yes. You know the government is driving extremely hard, particularly focused on the individual exchanges, to have something up and running for 01/01/2014. And it’s actually probably less than 150 days to the open enrollment period of 10/01/2013. So we’re not that far away from these actually going live.

Now the degree that they will be fully functioning will vary, but honestly across the board the government has over 65 different consulting firms supporting them and getting the exchanges off the ground. And we are seeing that work take place, but we’re also seeing a lot of strain on the system and on the administration and the appropriate government entities who have been charged with getting this going.

The other area is the area of private exchanges. And clearly the administration has evolved in their thinking related to private exchanges. Early on they were not very supportive of private exchanges and that has again evolved over the past year for several reasons.

One, they feel that, you know, encouraging move private exchanges, that sort of the investment from the private sector in figuring out how things can really work and work most efficiently, that has significant value even back to the public exchange. Plus, being more encouraging of private exchanges will take some pressure off of the public exchange, and I think they’re being realistic with some of the pressures that they’re seeing on the delivery side.

Now, moving on to Slide 17 and this gives a view of the types of public exchanges that will be available in 2014. Those with likely state exchanges – there are 17 and they’re in the blue. There are likely six partners - state partnership exchanges. That’s where the state and the federal government share some of the responsibilities in the exchange, and then there are 28 that will be federally facilitated exchanges, or the gray on the map.

Again there’s a few states that sort of go back and forth between a state partnership and a federally, fully federally facilitated, but those are the most recent projections that we have based upon discussions of each of the states.

Here’s how we assess the opportunity. You know we’ve talked about the analytics and the information that needs to really be taken into account. So Aetna wants to play broadly in both the public and private exchange markets. We feel that’s really where the future is evolving to, more of a consumer-focused environment. So even in the large group marketplace, you know, we feel private exchanges will be a key consideration over the next three to five years. And, you know, we’re seeing a lot more momentum in those areas as we speak. So I’ll come back and touch a little bit more on that in a minute.

On the public exchange, even though we want to play very broadly, we wanted to also assess realistically where we could deliver sustained values. So where could - where did we want to start and how do we sort of go through that assessment process? And, as we’ve announced publically, Aetna will be playing in up to 15 of the public exchanges in year one. So these, based upon evaluating the opportunity, we felt that there were at least 15 states that we wanted to start with and then could evolve from there.

We also, quite honestly, took into account that Coventry Healthcare would be going down a similar path and although during the due diligence process prior to the close we could not get into any details, itt did factor at a high level into our thinking as to how we would position ourselves, and with the close of the Coventry deal yesterday now we’re already looking in more detail as to their strategy and how they’re actually deploying and will continue to align our efforts there over the next several months in particular.

But in evaluating the opportunity, what we looked at is the potential membership projected in the individual and small group markets. We had a lot of external data as well as our own data. You know in the way this is structured, you know, looking at what the uninsured population is, the uninsured population is very different in Texas versus California versus Iowa. So really trying to get really good information to build your analysis off of.

That led into sort of the rating and again the rating has changed very materially, and we now know that getting a very appropriate cost-competitive rate is very key both on and off the exchange.

Underlying all of that is really our network structure. What is the network? Can we get the appropriate deals to have that sustainable value? How do we leverage a lot of our accountable care solutions in order to deliver, you know, a very sustainable lower-cost opportunity here? We then also looked at the regulatory environment, and that played into, you know, can we successfully play with the regulatory considerations in each of the individual states?

And finally, we looked at the competitive positioning of how we’re looking at this, you know, who the competitors were; and we were seeing that there was a very consistent approach and view to how people were looking at, you know, material changes in rating strategies. But there are also a number of new potential competitors or entrants into these markets, particularly when you look at the Medicaid business and dual eligibles.

So again, stepping back to see where could we initially play very successfully, because you want to invest here. You want to be in it for the long term. You don’t - you want to be, have that sustainability and then build off that in other markets.

Going back to now, the private exchanges, the way we look at it, there’s a lot of information breaking out there from what Aon Hewitt is supplying; Mercer has an exchange working. There are other firms - consulting firms and other entities creating potential exchanges. And what we’ve seen is if you’ve seen one private exchange you have seen one private exchange.

Aetna’s view is these are all sort of laboratories that we need to be involved in and sort of understand and test as appropriately as possible. And the range, as you see on Slide 19, from what we call the Aetna store, where you’re just selling Aetna products and services to an open mall at the other end of the spectrum where you’re part of - you’re just one store at the mall and everybody is selling their products and services next to each other.

So we will be participating in each of these. We are working on different alternatives for our own sort of proprietary type exchanges as well as sort of evolving in each of the other buckets where there is a broader Aetna mall all of the way to sort of an open mall like the Aon Hewitt exchange where there are multiple different carriers competing with products against each other.

We really see this with the environment, the cost pressures on employees, as the evolution of more focus on defined contributions. You know previously there was talk, back when there were cafeteria plans, about moving, but the trend line came down and it wasn’t the same dynamic from a cost pressure on the employer that we are now seeing.

So a lot of this is companies beginning to think about a defined contribution approach to health care. And there will be some early adopters and there will be a lot that are really waiting to see how some of these private exchanges as well as the public exchange really evolve over the next months and year.

If you move on to Slide 21, this gives some example of the premium impacts that we have been working and sharing with the administration and regulators as well as at the state level. This is based upon modeling and analysis using state level data, not Aetna data. And there are different impacts and outcomes for individual business because of the more materially changing environment there versus small group where clearly there are a number of key impacts all of the way up through large group.

In large group the two primary factors that are impacting the premium here will be taxes and fees as well as some of the benefit provisions and considerations. And we’ve articulated those, you know, in the slides there with the women’s health service, the health insurer fee, and the reinsurance contribution for typical large employer, and we just used the standard trend factor of 10 percent. You can model it at 9 or 8 or 12, but this just shows you the impact for a large employer.

Again a lot more material impacts in the individual market; pretty material impacts in the small group market; far less material impacts in the large group market, but still notable.