CIGNA CEO David Cordani On The State Of Healthcare

David Cordani,

president and chief executive officer, gave an interview on CNBC Squawk Box Friday morning to talk about the state of healthcare across the nation. In regards to the low utilization rates reported by many healthcare insurers, Cordani said that it could be a sign that the industry is leveling out. "About 85% of all of our business in the United States is self-funded or we provide services for employers, so when we see favorable medical costs it flows directly through to the employers," said Cordani. "I think what we're seeing, what CIGNA is seeing, is we have more programs than ever that are aligning the incentives both with individuals and physicians to improve health and we're continuing to see more efficiency come through while you're getting more preventative care. So maybe we're starting to get to a new normal or a better, more sustainable outcome here." Many others are frightened by health care reform. A big reason for that is that premiums for individuals in small markets may become significantly more expensive. In April, Cordani meet with President Barack Obama and other healthcare insurers to discuss health exchanges and the fear of premium rates. "That conversation was really around a status check about where the implementation is around the exchanges and a commitment for both parties to continue to work together, because make no doubt about it, it's a significant lift for everybody in the country. State level, federal level, and for insurers," said Cordani. "Secondly, the key is to focus in key markets and help to get the awareness out relative to the new programs and services. And third, to make sure that working with the federal agencies, there's enough flexibility to get the right program and services in place that are going to work, not just for 2014, but on a sustainable basis." Cordani explained that the healthcare law puts in place an essential benefit level, or base benefits, and that has an effect on cost increase. "In many cases, that base benefit level is higher than the benefits that the under-50 life employers are buying today. So there's an acceleration in cost, but there's more coverage that takes place," said Cordani. Cordani also noted that medical costs are going up on a year over year basis because of the underlying cost of hospitals and physicians. He then offered up how CIGNA compares when premiums are going up despite low utilization. "Take the biggest driver relative to those small employers as a higher level of benefit coverage on the essential benefits. For CIGNA, put that in context, we had approximately a six percent medical cost trend, or increase, year over year, which is at the low end of the industry for the first quarter. And for last year in 2012, we had about five percent medical cost trend or increase, which was at the lowest end of the industry range," said Cordani. "The good news for our clients and costumers is that flows directly to them in a positive way. It helps to make it more affordable, more controllable cost outcome, which is really what we're focused on."