From Managed Care to Consumer Health Insurance: The Rise and Fall of Aetna

James C. Robinson


Health Affairs. 2004;23(2) 

In This Article

Abstract and Introduction

This paper documents Aetna's fall as the nation's largest managed care plan and its subsequent reemergence as a smaller but more profitable multiproduct insurer. The paper emphasizes the transformation in corporate goals, product design, organizational structure, information technology, product mix, premiums, cash flow, net income, and share prices. Disciplined underwriting and pricing have restored the firm to profitability and set the foundation for new growth. The implications for the health care system as a whole are less unambiguously positive.

Throughout the turbulent 1990s Aetna was the poster child for the aspirations and failures of managed care, channeling patients and physicians into health maintenance organizations (HMOs); holding down premiums so that enrollment would grow; acquiring competitors to penetrate new markets; and then floundering in adverse publicity, economic shortfalls, and investor disenchantment. Aetna's near-death produced a thoroughgoing change in executive leadership, product and network design, pricing policy, organization, and operating model. Emphasis now is placed on profitability over growth; a balance of HMO, preferred provider organization (PPO), and health savings account (HSA) products; increased reliance on underwriting to limit risk; organizational restructuring based on customer size, not geography; refocusing of information systems and incentives; and a culture of pricing discipline and cost vigilance.

Aetna has redefined its mission to be one of helping clients make informed, cost-conscious choices and has abandoned the mission of overriding cost-unconscious choices in the name of managed care. The new Aetna and the industry of which it again is a bellwether now offer customers more choices at higher prices, more information on quality, more responsibility for cost, and a range of insured and self-insured funding mechanisms that further erode the social pooling of risk and the implicit subsidies from perennially healthy to chronically ill citizens.[1]