Despite Threat to Industry Profits, New Cigna Chief Optimistic on Post-U.S. Health Reform Era

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January 6, 2010 Wednesday 04:41 PM EST

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Despite Threat to Industry Profits, New Cigna Chief Optimistic on Post-U.S. Health Reform Era

Fran Lysiak

PHILADELPHIA

With a massive overhaul of the U.S. health care system seemingly imminent, including a proposal to limit health insurers' profits, David M. Cordani officially took over Jan. 4 as chief executive officer and president of Cigna Corp.

Whatever the ultimate outcome, the 43-year-old chief said he's positioning the company for growth by continuing to diversify into new employer markets, expanding specialty services such as disease management and health coaching programs and continuing to grow business outside the United States.

In an interview with BestWire, Cordani said Cigna has been active in Washington, D.C., telling congressional leaders about three aspects essential to reform the troubled system -- expanding access to coverage; improving the quality of care and controlling costs. "The legislation, as it stands today, is heavy on access expansion and a bit light on quality improvement and sustainability of costs."

The legislation would expand access to millions of Americans but doesn't address quality or medical costs, which will place further cost pressures on employers, individuals and the government as a payor, Cordani said.

Cordani, who's been with the Philadelphia-based Cigna (NYSE: CI) since 1991, assumed the top spot from H. Edward Hanway, who retired after serving as chairman and CEO for a decade. Formerly the president of Cigna HealthCare, the main health insurance business based in Connecticut, Cordani was named president and COO of Cigna in June 2008.

Later this month, U.S. senators and their counterparts in the House will be trying to find a middle ground between two far-reaching reform bills.

One the House's is jammed with elements that insurers have fought long and hard against. That includes the formation of a government-run insurer feared as a potential industry killer. The other the Senate's is the result of longer negotiation and more conservative influence. It doesn't have a public option, but would tax on higher-cost health plans (BestWire, Jan. 4, 2010).

Meanwhile, for publicly traded companies such as Cigna, the medical loss ratio a measure of health care expenses as a percentage of premium revenue is watched closely by Wall Street analysts and seen as a key metric of profitability.

Under the Senate bill, insurers are required to spend no less than 85% of premiums on direct medical costs for large group plans and 80% for small groups and individual plans (BestWire, Jan. 4, 2010).

Cordani said most of Cigna's business -- about 80% -- is predominantly large employers who self-fund their employees' health benefits, or administrative-services only, so the MLR is "less acute of an issue."

But for the business exposed to the MLR, "some dynamics" must be managed through as the Senate and the House continue to hash out a final piece of legislation, such as what will be included and considered as actual medical costs, he said.

The industry spends money on things such as disease management programs and clinicians who provide lifestyle management such as obesity management programs, which today are considered administrative costs, Cordani said.

In the large group market, Cigna was among plans that operated at an MLR below 85% in 2008, wrote Carl McDonald, an equity analyst with Oppenheimer & Co., in a recent research note. In the individual and small group market, Cigna was above the minimum MLR, at 87%, in 2008, he wrote.

The industry must ensure that the MLR is broadly defined and must work closely with the Senate and House over the next several weeks to ensure the MLR definition takes into consideration "the overall cost equation," Cordani said.

If President Obama signs reform legislation into law this year, insurers have a couple years to prepare for most of the changes. How is Cigna preparing for future profitability in a post-reform United States?

The company has further expanded its administrative services capabilities, even to smaller employers, or those with 51 to 250 employees, he said, pointing to Cigna's acquisition of Great-West HealthCare 18 months ago.

Cigna also will continue to broaden specialty services, such as lifestyle management programs and health coaching. "At the end of the day, we view that the marketplace needs health improvement as a core part of the equation" for reform to work, said Cordani, an avid supporter of healthy lifestyles.

He's a triathlete who completed his first triathlon in 1992. Since then, Cordani, married with two young children, competed in more than 100 such events, two Ironman competitions and plans to run a half-marathon Jan. 9 for Walt Disney World Marathon Weekend in Orlando, Fla., a Cigna-sponsored event.

Cigna HealthCare companies currently have Best Financial Strength Ratings of A- (Excellent).

[To listen to the entire interview with Cordani, where he discusses the MLR and any impact on agent/broker commissions, go to www.bestdayaudio.com on Jan. 8.]

(By Fran Matso Lysiak, senior associate editor, BestWeek: [email protected])

January 7, 2010

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