By Philip Mattera
Aetna is one of a handful of companies that dominate the private health insurance business in the United States. Following its 2013 acquisition of Coventry Health Care, Aetna’s medical members totaled about 22 million.
The company had its origins in the 1850s, but the modern Aetna really began in the 1990s when the company transformed itself from an old-line life, property and casualty insurer into a large and controversial managed-healthcare company. It accomplished this through three major acquisitions: controversial health maintenance organization pioneer U.S. Healthcare, the NYLCare Health Plans business of New York Life and the health insurance business of Prudential Insurance. Aetna also sold off its property and casualty business.
It later sought to acquire Humana as well, but in 2016 the Justice Department and numerous states sued to block the deal.
Taking on the "Dinosaurs"
The most aggressive move was the $8 billion purchase of U.S. Healthcare, the largest of the publicly traded HMOs, whose founder Leonard Abramson had shaken up the health insurance business. Quoted in the March 23, 1992 issue of Business Week, Abramson had expressed scorn for traditional insurance companies, calling them “dinosaurs.”
The secret of U.S. Healthcare's success, as a January 3, 1994 Forbes article put it, "stems from its ability to negotiate tough deals with doctors and hospitals and other providers." The company was also a notorious proponent of gag clauses in physician contracts that prevented doctors from giving patients a thorough description of their treatment options, including the more expensive ones.
It was clear from the start that Aetna was going to be adopting the aggressive style of U.S. Healthcare, and soon it was facing similar criticisms. On July 29, 1998 the Wall Street Journal published a front-page story headlined OLD-LINE AETNA ADOPTS MANAGED-CARE TACTICS AND STIRS A BACKLASH. The piece stated: “Numerous patients, employers and doctors have been unnerved by the company's sharp shifts. Aetna once paid claims promptly and with little question; now it is prone to mishandling charges, pays far less for the same services and sometimes keeps doctors waiting for months before settling their bills. Legions of seasoned customer-service people have been replaced by newcomers in remote locations who at times seem overwhelmed, rude or simply clueless. The difficulties of meshing disparate computer systems add to the problems. In the ensuing backlash, hundreds of doctors have dropped out.”
In October 1998 Aetna gave in to criticism from groups such as the American Medical Association and revamped its contracts with 300,000 physicians nationwide. The new agreements contained language that explicitly encouraged doctors to discuss all aspects of treatment with patients and dropped wording in which Aetna claimed shared ownership of medical records.
In 1999 Aetna, with the support of business groups such as the U.S. Chamber of Commerce, responded to the controversy over rising premium costs by introducing a product line called Affordable HealthChoices. The premiums were indeed low, but the coverage was severely limited—so limited that the plans were barred by insurance regulators in some states.
Aetna faced legal problems even before it joined forces with U.S. Healthcare. In 1993 two Aetna subsidiaries agreed to pay $5.2 million to settle allegations that they had made secret payments to a Boston broker who advised local retirement systems in Massachusetts and Rhode Island on their purchase of financial services. The settlement was on top of some $9.5 million in restitution the subsidiaries had paid to the retirement systems.
In 1999 a California jury awarded $116 million in punitive damages to the widow of a man whose death from stomach cancer was alleged to have been caused by the refusal of an Aetna subsidiary to approve treatment approved by its own doctors. The company's chief executive, Richard L. Huber, responded by saying: “You had a skillful ambulance-chasing lawyer, a politically motivated judge and a weeping widow. That's no way to get justice.” Huber later apologized for the remark, but the company appealed the verdict. The case was then settled out of court for an undisclosed amount that was reported to be around $20 million.
Also in 1999, a consumer group in California brought a federal racketeering suit against Aetna, saying that the company systematically misled customers by falsely claiming that the health of its members was its first priority. The suit, filed by the Santa Monica-based Foundation for Taxpayer and Consumer Rights, alleged that Aetna's true goal was to generate profits by using financial incentives to get doctors to provide less care. The plaintiffs, who also included three Aetna members in Pennsylvania, said they would seek class action certification. The case was dismissed.
Later in 1999 another RICO suit was brought against Aetna and its subsidiaries by a group of lawyers headed by Richard Scruggs, the litigator who led the legal assault against the tobacco industry. Calling themselves the REPAIR1 Team, the lawyers brought the suit, which sought class action status, in federal district court in Hattiesburg, Mississippi. The action charged that Aetna limited referrals to specialists, denied reimbursement for legitimate emergency care, usurped sound medical and clinical standards and imposed harsh economic sanctions on doctors who challenged the company on behalf of their patients.
This was just one of a series of class action cases brought by Scruggs and others against Aetna and other major health insurers during this period. Faced with this tide of litigation and falling profits, Huber resigned under pressure in February 2000 and the weakened company began to seem ripe for a takeover. A month later, WellPoint Health Networks and Dutch financial services giant ING proposed to acquire Aetna for about $10 billion. Aetna preserved its independence, but only after selling off its financial services and overseas operations to ING while retaining its U.S. healthcare operations.
The various lawsuits were all put under the purview of a single federal judge in Miami. In 2002 the judge granted class-action status to the claims brought by physicians regarding denied or delayed payments but declined to so the same for members of managed care plans. The following year Aetna broke ranks with its competitors and agreed to spend a total of about $470 million to settle its involvement in the physician cases. This included $100 million for the physicians, $50 million for their lawyers, $20 million to set up a foundation to improve the quality of healthcare and an estimated $300 million for an overhaul of the company’s payment systems. As part of the settlement, Aetna also promised to interfere less in medical decisions and to reduce the administrative burden on doctors. The company also vowed to give clearer information to both patients and healthcare providers on coverage practices. Aetna reached a separate $6 million settlement with dentists.
In 2008 Aetna was one of the health insurers caught up in a scandal over their use of the Ingenix database (owned by UnitedHealth Group), which then-New York State Attorney General Andrew Cuomo alleged systematically shortchanged plan members on reimbursements for out-of-network medical expenses. Aetna settled legal actions that had been brought against it by agreeing to contribute $20 million toward the cost of developing a fairer alternative to the Ingenix system. It paid another $5 million to settle a related case involving students.
The legal disputes over out-of-network reimbursements did not end there. In 2012 Aetna agreed to pay up to $120 million to settle nationwide litigation over the issue.
State and Federal Regulatory Issues
In 2000 Aetna U.S. Healthcare settled accusations by Texas regulators that it provided improper financial incentives to physicians to limit patient care. The settlement, which involved the establishment of an ombudsman’s office to advocate for patients in coverage disputes, was criticized by physician groups and others as a slap on the wrist.
That same year, Aetna U.S. Healthcare agreed to pay $21,400 to settle charges by the North Carolina Department of Insurances that it violated various state rules.
In 2001 Aetna U.S. Healthcare was fined $850,000 by Maryland insurance regulators for failing to process claims in a timely manner and for failing to pay interest on late payments to providers. Also in 2001, the Texas Department of Insurance fined the company $1.15 million for similar violations.
In 2009 the Arizona Department of Insurance issued two fines totaling $256,500 against Aetna for multiple violations of state regulations. The following year, the New York Insurance Department fined Aetna $850,000 for incomplete disclosures in explanation-of-benefits forms sent to members. Also in 2010, Aetna was among seven insurers that were fined a total of $5 million by the California Department of Insurance for failing to properly pay medical claims submitted by doctors and hospitals.
In 2012 Aetna agreed to pay more than $1 million in civil penalties and restitution to settle allegations by the Massachusetts Attorney General’s office that it failed to cover required services and that it deceptively marketed coverage to students.
At the federal level, Aetna‘s Medicare prescription drug plans have come under criticism by the Centers for Medicare and Medicaid Services. In 2010 CMS imposed intermediate sanctions against the company for various deficiencies in its coverage practices. The sanctions barred Aetna from marketing to or enrolling new members. The sanctions were lifted in 2011.
While Congress was deliberating over healthcare reform in 2009, Aetna was one of the large insurers that went along with the idea but successfully argued against the inclusion of a public option among the choices that would be offered.
In 2010 the bare-bones coverage plans that Aetna had pioneered in the late 1990s again became the focus of controversy. At a Senate hearing several Aetna customers described how they were covered for only a small portion of their expenses when they had serious health problems. For example, a woman who had to go to the emergency room when she lost feeling in one of her arms and ran up more than $16,000 in bills received only $500 in coverage from Aetna.
In 2013 Aetna dropped out of the individual market in California and declined to participate in several of the state online exchanges set up in accordance with the Affordable Care Act.
In 2016 Aetna cut back its ACA business again in the wake of the Justice Department lawsuit opposing its plan to acquire Humana.
In March 2000 Aetna admitted that a search of its archives had found that its corporate predecessor had sold insurance policies to slaveholders in the 19th century and had reimbursed them for lost property when slaves died. The company was later sued for reparations, along with other firms linked to slavery, but the cases were not successful.
Other Information Sources
Violation Tracker summary page
Watchdog Groups and Campaigns
Employee Benefit Research Institute
Physicians for a National Health Program
Key Books and Reports
Deadly Spin by Wendell Potter (Bloomsbury Press, 2010).
One Nation Uninsured by Jill Quadagno (Oxford University Press, 2005).
Private Health Insurance: Research on Competition in the Insurance Industry (U.S. Government Accountability Office, July 31, 2009).
Sick: The Untold Story of America's Health Care Crisis by Jonathan Cohn (HarperCollins, 2007).
The Corporate Transformation of Health Care: Can the Public Interest Still Be Served? by John Geyman (Springer, 2004).
Underpayments to Consumers by the Health Insurance Industry (Office of Oversight & Investigations of U.S. Senate Commerce Committee, June 24, 2009).
Last updated September 14, 2016