From the Wool-sack

• Publication year: 2002
• Pages: 55
• Citation: Vol. 31 No. 5 Pg. 55

31 Colo.Law. 55 Colorado Lawyer 2002.

2002, May, Pg. 55. From The Wool-Sack

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55

Vol. 31, No. 5, Pg. 55

The Colorado Lawyer
May 2002
Vol. 31, No. 5 [Page 55]

Departments
From The Wool-Sack
From The Wool-Sack
by Christopher R Brauchli

The rain falls on the just and on the unjust fella,
The just gets wet because the unjust stole his umbrella

Anonymous

There were two items during the week of April 24 to March 2 2002, that bring joy to the hearts of the dyed-in-the wool capitalist. The first came from Aetna, Inc., the nation's largest health insurer. Aetna has fallen on hard times of late. It reported a loss for the fourth quarter, a loss attributed in part to the fact that medical costs were rising faster than Aetna could raise premiums. That probably came as a pleasant surprise to those who were unaware that increases in health insurance company premiums were in a competition with anyone and that Aetna, at least, was losing the race

Aetna reported a loss of $187.6 million for the fourth quarter of 2001. (This bad news is ameliorated somewhat by the fact that the loss in 2000 for the same quarter was $406.3 million.) Medical costs rose 17 to 18 percent in the fourth quarter, and premium increases rose only 13 percent, a distressing fact to the company and its stockholders. The increase in medical costs was attributed to the fact that Aetna's insureds were seeing their doctors more often and using more prescription drugs. Notwithstanding this bad news, on the day the fourth quarter results were announced, the stock price rose 5.1 percent. That was because the bad news about fourth quarter results was accompanied by a piece of news that was better than the bad news.

Aetna's chairman and chief executive, John W. Rowe, said that Aetna's turnaround was on track. He attributed investor enthusiasm for the stock to the company's announcement that it had been able to get rid of (my words, not his) 1.2 million high-cost members in the January renewal period. That does not mean that Aetna had members "done in." It means that Aetna refused to renew their policies. By no longer insuring those who were unnecessarily frail (from a business point of view), the company was able to keep a higher percentage of the premium dollars it was charging than otherwise would have been the case, a result that pleased shareholders and company executives alike.

The only...