Some insurers doubt medical spending will bounce back

Despite continued high unemployment and other signs of economic struggle, health insurance executives have predicted consistently that members soon will return to a more normal rate of health care spending.

But talking with analysts and investors during Goldman Sachs' investor conference June 7 and 8, health plan CEOs edged toward conceding that their members may be setting a "new normal" pace of spending.

They also said they have an opportunity to keep utilization down by using medical management tools.

Most major insurers have benefited financially from a weaker health care demand, with most publicly traded plans booking tens of millions of dollars in earnings each quarter that represented funds put aside for care but never spent. Plans have insisted that the lower medical spending trend was temporary.

Meanwhile, analysts, including Matthew Borsch of Goldman Sachs, have said it may be three to four years before medical spending grows at a pre-recession pace. Some health plan executives are beginning to agree -- or at least acknowledge that they can't predict future health spending.

At a Goldman Sachs investors conference June 8, Health Net President and CEO Jeffrey Gellert said no one really knows how the recovery will play out, so insurers are making their best estimates as they set premiums.

"From a practical standpoint, though ... the key for all of us is to put in place the change in processes during this period of utilization decline so it doesn't come back," Gellert said.

He contradicted what many of his counterparts said -- they expect customers to start running up hospital bills, filling prescriptions and returning to the doctor's office by the end of the year. "When I hear people [say] their business is premised upon a utilization resurgence in the next three to six months, I don't think that's a good business. ... You may get a utilization resurgence out of more coverage, you may get a utilization resurgence in 2015. But it will be a resurgence on different economic terms. ... I think we are in a new normal in terms of the American economy."

Aetna's President, CEO and Chair Mark Bertolini, speaking at the same conference, said the economy is succeeding where insurers have not: cutting costs. "As much as we like to say we do really good work, as a company and as an industry, a good majority -- more than half -- of the decrease in utilization is associated with externalities versus what we're doing."

In early 2011, he said, the company saw members return to doctors -- normal for the winter cold and flu season -- but not fill the prescriptions doctors wrote for them. He said that was probably because they couldn't afford the out-of-pocket drug costs. "That's an unusual trend," he said.

WellPoint and Humana's executives at the Goldman Sachs conference stuck to their position that the pace of medical spending is likely to rebound by the end of the year.

WellPoint Chief Financial Officer Wayne DeVeydt reminded investors that even if the lower utilization trend continued, "unlike prior to 2011, when trend was low and if that trend continued throughout the year, you got to keep it all, that is no longer the case. You have minimum [medical-loss ratios], and the rebates that are associated with that."

The Patient Protection and Affordable Care Act mandates that insurers spend 80% or 85% of their premiums on health care.

If they don't hit that minimum, they must pay the excess back to members the following year.

Humana CEO Michael McCallister conceded it is possible that something fundamental has changed that will keep the medical utilization trend from rebounding.

"Maybe we've reached some sort of an inflection point with cost-sharing, or something that's changed things on a permanent basis, but I am not prepared to go there. So we're still assuming that these trends are going to pop back up at some point. This industry has missed that inflection point a number of times in the past. ... If you get that wrong, it takes a couple of years to dig out of that hole."

Insurers aren't planning to reduce premium prices to gain market share or boost utilization. But a few plans have cut prices in local markets. "The industry is taking a wait-and-see approach, and no one has decided, 'I can see to go after a huge market share on the back of assumed lower trends,' " McCallister said.