Ronald Williams on Health Reform and Rising Costs on WSJ.com's 'The Big Interview'

Alan Murray: Welcome to the Big Interview. I’m Alan Murray, and I’m here with Ronald Williams, the CEO of Aetna, the nation’s third largest health insurance company and one of the most visible players in the health care debate that led to the bill that passed in March. Mr. Williams, thanks for being with us.

Ronald Williams: Thank you. It’s a pleasure to be here.

Murray: When the health care bill passed, President Obama said it would lower health care costs, but what people have heard so far from their insurance companies are that premiums are going up. Some people have heard that, more may hear that in September when the bill actually gets implemented. Why are health care premiums going up?

Williams: Well, I think it’s really very simple. When you get more, you pay more. And I think that there are many positive things in the bill; for example, there’s a requirement that many plans increase the level of preventive benefits for screenings and wellness, which is terrific from the consumer point of view, but the headline says that’s free. In reality that’s reflected in the premium. So, I think there are some very important changes that are good for people and give people better access, but the reality is that health care will cost more as a result.

Murray: But was President Obama just wrong when he said the bill would cut health care costs?

Williams: Well I think he - the question is, what time frame is he really referencing? And I think that - I’ve had many conversations with him, and I think he believes, in the long run, that it will reduce health care costs.

Murray: But in the short term, clearly it’s not.

Williams: In the short term, health care costs are going up as a result of some of the increase in benefits that are being provided, which is great for people, but the absolute fact is that it will cost more.

Murray: Now, your company reported earnings this week – 42 percent increase in profits in the second quarter over last year. Is that going to cause people to say, hey wait a minute, what’s going on here? My health care premiums are going up, Aetna’s profits are going up. Is this the greedy insurance companies going after me again?

Williams: Well, I - we fully expect that we will hear that. The facts are that while our profits did go up, they went up from a historic low level. For example, if we achieve the earnings guidance that we’ve given, Aetna would make approximately $500 million less than it made a couple years ago. So, it’s really a matter of context, and I think that what we believe is the increase in profits are fair because we had certain geographical areas where we were losing money, and we didn’t see anyone coming to our aid when we were losing that money. Now we are recovering those deficits, and it’s viewed as being greedy.

Murray: But you certainly, you do have this image problem that you said people will say this. I mean it’s been a tough couple of years for insurance companies, hasn’t it, in terms of public perception?

Williams: I would say it definitely has been. I think there has been an unfortunate level of demagoguery in the whole dialogue. And if you think about the health plan, you can think of it in a lot of ways in the premium we charge as like a thermometer. If you have a temperature of 103, you can pound on the thermometer, you can call it all types of names, but it will not lower your temperature. And, in reality, if we want to lower the cost of health care, we have to talk about hospital costs, physician costs, pharmacy costs, all the things that are really driving the premium. Actually, interesting, one of the points I made when I was last at the White House was almost half of the people in the U.S. are in self insurance. Self insurance is where there is no premium, the employer directly pays the health care costs, and the health plan administers it. Those people, half the country, are going to see their health care costs go up, but there’s no premium involved, and I think…

Murray: In other words no profit, no revenue or profit for you or other insurance companies.

Williams: A very modest amount.

Murray: And their, and you’re saying their costs are going to go up as much as everybody else’s.

Williams: Their costs will go up just as much as anyone else’s. So, I think there’s a huge opportunity for us to really strip away the rhetoric and really get down to collaborating on the things that actually slow down the rate of increase for consumers and help make health care more affordable.

Murray: So, I want to get back in a minute to this question of what it’s actually going to take to deal with cost because I think a lot of people out there listen to the administration’s rhetoric, believed it, thought we had dealt with cost, you’re saying we haven’t, at least in the short term. So, I want to get back to that in a minute, but first, the other announcement you made this week is that the company is doing a long-term deal with CVS Caremark to handle drug benefits for its customers. A lot of analysts were unhappy, and the stock market appears to have been unhappy with that announcement. They seem to think that you could have sold off your pharmacy benefits manager and made a couple billion dollars. What’s wrong with their analysis? Why didn’t you sell it off?

Williams: We looked at all possible options that were consistent with our strategy, and it really starts with our business strategy. Our business strategy is really about integrating data and information to be able to do a better job of managing health care cost. One of the biggest levers in managing medical cost turns out to be the pharmacy expense. People actually go to the pharmacy much more than they go to the doctor in many instances. We looked at different options, and we really believe that we should maintain our pharmacy benefit business but that there was an opportunity to purchase much smarter for our customers by partnering with a best-in-class company. We looked at all possible combinations and concluded that what was best for our shareholders and best for our customers was to partner with CVS Caremark.

Murray: And is that because of the volumes at which they purchase, is that what enables you to save money by purchasing through CVS Caremark?

Williams: Yes, what happens is CVS Caremark purchases for their Caremark pharmacy benefits management arm. They purchase for the CVS retail network, and we became the largest customer of CVS Caremark. They have terrific administrative systems, and on the basis of that volume we can both administer the benefit cheaper, as well as buy smarter in the context of getting a better value for our customers.

Murray: So, let’s go back to the health care debate. You were very involved in it. You spent a lot of time in Washington - I don’t know how much but we certainly saw you down there a lot. Did it pay off? Do you feel like you got your message across?

Williams: Well, I would say that we got a lot of our messages across. I think when the debate started, one of the things you will recall that, there were many people who believed that health plans should be expected to take all comers but that individuals should not be expected to purchase insurance. And I think one of the huge wins in the dialogue was an understanding of the companion solution, that the only way insurance works is if it’s a pool that’s composed of some people who need health care today and some who won’t need it for quite some time.

Murray: You can’t allow the healthy people to opt out because if they do, the costs soar.

Williams: Insurance cannot be composed of only people who need to use it today. It will be absolutely unaffordable. So, that sounds like a very simple notion, but getting that understood and agreed to, by all parties, and I think virtually everyone that I’ve talked to really understands the importance of maintaining a balanced pool.

Murray: So that was your biggest success.

Williams: We think that was a huge success.

Murray: And what was your biggest failure? What was the message you didn’t get across?

Williams: Well, I think the biggest failure was, was really getting a focus on quality and affordability. I think that the legislation lays out an important blueprint to help people get access to health care. In 2014, bringing in those who are uninsured today. But the reality is that unless we tackle the affordability and quality, health care will not be as affordable, and we see this in Massachusetts.

Murray: So what is it going to take? What is it really going to take now to get cost and quality where the need to be?

Williams: Well I think what we have to do is, we have to apply health information technology to health care just as we’ve applied it to every other aspect of our business and our society. The typical UPS or Federal Express can tell you where your package is as it moves from being manufactured someplace to arriving at your front door, but the typical hospital can’t get your x-rays or lab results from one end of the building to the other electronically. And so what we have to do is apply technology. The second thing we have to do is really change the payment system so that we pay for quality and for results, as opposed to activity.

Murray: Technology is clearly a good thing; better quality measures are clearly a good thing, but when you look at what’s really driving health care costs you see things like - how much it costs when people go to the emergency room instead of to their doctor, how much it costs for heroic efforts to try and keep people alive in the final days or months of their life, or how much it costs to deal with chronic illnesses like diabetes and so forth. Does technology help with any of those high-cost items?

Williams: I think it actually does. I think, for example, if you think about chronic conditions, which is where most of the health care dollars are spent, having the information and data to help a patient really understand their role in health care and their physician to be able to have the data so that on every visit, whether they’re seeing the ophthalmologist, the dermatologist, or the endocrinologist about their diabetes, the right questions are being asked because that patient’s record’s available, their entire list of medications is available, and also the physician is able to tap into the most recent research base so they can really present that data to the patient.

Murray: There’s a lot of evidence out there that we, in this country, are over-treating a lot of people. Maybe as much as a third of the health care that we provide is unnecessary, possibly even harmful. You have that on the one hand. On the other hand, whenever you get into a situation where insurance companies start to say you don’t need that or you can’t have that, people scream bloody murder saying, wait a minute you’re rationing care. How do you deal with that problem? How do you deal with the problem of overtreatment at the same time that Americans are so sensitive about being told by an insurance company or the government, God forbid, that they can’t have care that their doctor wants to give them?

Williams: Well I think it’s a very important issue and consumer expectations really do play an important role in this. I think one of the things that we can do is back to aligning how we pay physicians; for example, we pay physicians for activity, you see a patient you get paid. That can in fact result in more visits than would occur if the physician was paid a fair amount to say, this is your patient population, manage this population in the right way, we want high quality care and we want clinical outcomes, and really incent that physician to meet the care standard and give them bonuses and incentives for keeping people healthy as opposed to paying them for every person that they see.

Murray: Can you make that happen now or is that going to require going back to Washington and going through another painful round of health care reform?

Williams: Well I think it can be done in a voluntary way, in a collaborative way, working with physicians, working with hospitals, and others. I think it is unfinished business from the health care reform dialogue. As you know, the whole debate shifted from health reform to health insurance reform. I think one of the things that would be very helpful is to convene a world-class advisory group to help us develop these payment mechanisms and systems on a voluntary basis. As an individual plan, the minute we develop an approach we will find that there are a variety of Attorney Generals who will come up with some, perhaps complaint from someone, and will begin the process of picking it apart. What we want to do is have a much more inclusive process - include consumer groups, include physicians, include regulators - and come up with what appropriate payment mechanisms that have the right safeguards for consumers.

Murray: You talked earlier about some of the demagoguery against insurance companies that you felt was going on during the health care debate. Clearly polls showed that health insurance companies are not the most popular companies around. What can you do as CEO of Aetna? What are you doing as CEO of Aetna to try and address that?

Williams: Well I think one of the things that I’m doing is to really encourage people to stop the demagoguery. I think it is fundamentally bad leadership, I think it sets a bad tone in the country as a whole. And so I just encourage us to focus on the issues and the opportunities to do things better. As a leader of Aetna and as a Chief Executive Officer in the business community, I think really getting the word out of the business practices that we actually incur. For example, many of the things in the law, Aetna had already in fact adopted and embraced. We believe, for example, that if someone lied on their application for individual insurance and that was a conclusion of our physicians, they deserve the right to have an independent review by a physician who had nothing to gain to determine, was this in fact something that they had to know when they completed their application for individual insurance. It’s very consistent with the principles of the law. I think conducting ourselves in a way that recognizes consumers have legitimate interest is one of the things we can do.

Murray: You, throughout this process, you’ve spend a lot of time with people in the administration, with the President. There’ve been criticisms, recently, from members in the Business Roundtable, other CEOs, that the Obama administration, in their view, is anti-business. It’s created a negative environment for business. Do you share that view?

Williams: Well, my experience has been that there is a lot of listening going on; there is a lot of reaching out. I think there isn’t always the understanding of what it takes to really run and operate a business, and I worry that sometimes there isn’t an appreciation of the unintended consequences of the acts. And in health care, when you pass a law, we have 2,800 pages of law that will result in a rule-making regimen that will go on for years and will create uncertainty, not just for health plans but uncertainty for Human Resource Officers and for CEOs of corporations trying to figure out how does this impact their business.

Murray: You’re talking now about regulations. The regulatory process is underway now, you’re no longer in Congress, and you’re dealing with regulatory agencies. Are you spending just as much time down there trying to influence the regulations as you did on the legislation?

Williams: Yes. The answer is yes, and I find that the regulatory process, they have shifted to really understand that they need the collaboration and help and advice. They don’t always agree with everything that we say…

Murray: But you feel like you’re getting a better hearing in the regulatory process than you did in the legislative process.

Williams: Yes, we do. And the reason, I think, is that actually trying to implement something requires confronting the practical realities and real world implications of it. And I think what’s being uncovered is that we do have something to offer, that we try to share the data and facts and information so that they can make the right decision, that we may or may not agree with, but at least it’s a fact-based decision.

Murray: Well, when you talked about the demagoguery coming out of Washington, were you talking about the President himself?

Williams: I think I’m talking about the whole process. I think there is plenty of blame to go around. I think that fundamentally when our employees came to work everyday and turned on the TV and saw some of the comments that were made and if you were a nurse who spent your day calling patients at home asking them how are they doing after their hospital discharge, did they have a care giver, did they need a nurse to come visit, did they need a home help aid - and you went home and turned on the TV and saw this, you were perplexed about the demagoguery versus how you spent your time trying to have a fundamentally positive impact on people’s lives.

Murray: Were you surprised by that?

Williams: I was surprised by it…

Murray: Did you support Obama for the presidency?

Williams: My approach was really, I viewed this issue, health reform, as a nonpartisan issue. I personally did not support either candidate. I didn’t contribute to either candidate. I talked to the Republicans; I talked to the Democrats; I talked to anyone who will listen with an interest in how we really get health care more accessible, more affordable and improve quality.

Murray: Does it now seem clear to you that there’s no such thing as a nonpartisan issue in Washington?

Williams: Well I am, I think, a very good CEO, but politics, I’m still learning about.

Murray: Well, good luck. Thank you very much for being with us on The Big Interview.

Williams: Very good. Thank you.