Aetna wants Highmark to know it's not an interloper

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When Westinghouse Electric Co., the Cranberry-based nuclear engineering giant, announced this autumn that it was jilting Highmark Inc. and handing its health insurance business to Aetna in 2014, Highmark responded with radio and TV ads implying that Aetna is an out-of-state carpetbagger, stealing business and jobs from Pennsylvanians.

While those Highmark ads are more indirectly targeted at local rival UPMC than at Aetna Inc., the Connecticut-based health insurer wants Pittsburgh to know that the carpetbagger suggestion is misplaced.

"That is just so far from the truth, [we] feel obliged to correct it," said Walt Cherniak, a spokesman for Aetna.

Aetna -- following this year's $5.7 billion cash-and-stock acquisition of Coventry Health Care and its Pennsylvania-based subsidiary, HealthAmerica -- now has 1.3 million customers in Pennsylvania, and about 2,200 employees in Western Pennsylvania, with 7,500 employees across the state.

"That's more employees than we have in our home state," Mr. Cherniak said.

And those employees, said Patrick Young, president of Aetna's Pennsylvania, Delaware and West Virginia division, are doubling down on the Pittsburgh market, particularly now that UPMC is threatening to cut off in-network access to Highmark customers.

Highmark's commercial customers -- that is, those with non-Medicare and Medicaid plans -- could be locked out of most UPMC hospitals come Jan. 1, 2015, if UPMC carries through with its vow to end relations with Highmark. UPMC is the biggest health network in the region, with more than 3,400 doctors and 22 hospitals.

Aetna, meanwhile, is working on a new contract that will give its customers access to UPMC hospitals though June 2017, at lower rates than the company is now paying. Its current contract runs through June 2014 and, according to Aetna officials, there's a verbal agreement with UPMC to extend the deal by three more years.

"We're the second-largest insurer in the state of Pennsylvania," Mr. Young said. "The acquisition of HealthAmerica made a lot of sense [in Pennsylvania] because, historically, where HealthAmerica was very strong was in Central and Western Pennsylvania. And Aetna was very strong in Eastern Pennsylvania."

Whether Aetna's brands can build on that strength in Pittsburgh is very much an open question. It is still a distant third in terms of local insurance market share, behind market leader Highmark and No. 2 UPMC Health Plan.

According to Aetna's own estimates, Aetna and HealthAmerica have about 7 to 10 percent of the local commercial market, said Jerome Dioguardi, the company's head of regional sales and marketing, and formerly HealthAmerica's chief operating officer.

That amounts to about 300,000 commercial account members, a number that includes Pittsburgh-based companies with out-of-state employees. UPMC Health Plan has more than 470,000 commercial plan members, while Highmark serves 3.2 million.

Buying Coventry's HealthAmerica -- which has four decades of history in Pennsylvania -- also meant Aetna would have a bigger presence in the state when it comes to government plans. The combined company -- the deal closed this May -- has 180,000 Medicare Advantage customers in the state, and 130,000 Medicaid enrollees.

"We are in all lines of business," Mr. Young said.

The next two or three years could be make or break years for Aetna in the Pittsburgh market, in terms of cutting into Highmark and UPMC Health Plan market share.

With UPMC locking out Highmark customers, and with UPMC Health Plan historically excluding the hospitals of the West Penn Allegheny Health System from its network, Aetna could be a viable option come Jan. 1, 2015, for customers who want full access to both UPMC and the Allegheny Health Network, which owns WPAHS. Aetna's contract with Allegheny Health Network runs through 2017.

"Access is a critical issue," Mr. Young said, and Aetna now has it, along with two other national insurers -- Cigna and United Healthcare. But Aetna has been the most visible here.

"They've been by far the most aggressive [in] terms of active marketing," said Jim McTiernan, benefits analyst with Pittsburgh-based Triad USA, a division of Arthur J. Gallagher & Co. And they're going after both the self-insured national contracts -- big firms with a multistate workforce, which has been Aetna's specialty locally -- as well as smaller, fully insured companies.

"They're still cautious" on pricing the smaller companies, unwilling to get drawn into the price wars between Highmark and UPMC Health Plan, Mr. McTiernan said. "They'll start picking off the smaller stuff, but only when it's the right piece of business. They're not going to just lose money" to scoop up a few dozen policyholders.

But bigger firms are now an easier sell because of Aetna's full access to UPMC, which came through a deal struck two years ago. The access is one of the reasons Westinghouse was comfortable changing insurers, Mr. Young said. It's also the reason that American Eagle Outfitters and Education Management Corp. have done the same, and it's why the city of Pittsburgh is offering both Highmark and Aetna's HealthAmerica options to its employees, after years of offering only Highmark coverage.

Mr. Young said that if Highmark and UPMC were to eventually strike a deal -- or if the state Legislature or governor were to force one -- Aetna's position here could be weakened.

But for now, the company is ready to compete for corporate contracts, as well as in the individual product arena -- Aetna is offering individual health insurance plans via the federal health insurance exchange in every Pennsylvania county, either through its own nameplate or one of its subsidiary companies.

And Aetna will soon be advertising here, but the company is still working out how it will market itself and its plans, juggling all of the names and brands in its organizational chart.

Whether Aetna engages Highmark or UPMC Health Plan directly in its own ads remains to be seen, but the three Aetna officials noted that, while the tenor of the UPMC and Highmark campaign-style ads is unusually political, it's not unusually fierce. In other states and other regions, the provider and insurer markets are far less concentrated, and far more competitive historically.

Pittsburgh, Mr. Dioguardi said, is finally starting to resemble those other markets.

Bill Toland: or 412-263-2625.

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